Alternative Money Tools From Suze Orman, Wal-Mart
MICHEL MARTIN, HOST:
Switching gears from politics to personal finance, we want to talk about some new players who are trying to offer services that traditionally have been offered by banks, like check cashing privileges and debit cards.
Financial advice guru Suze Orman has announced that she is launching her own prepaid debit card. It is the first product created by Suze Orman, who earned fame as Oprah Winfrey's go-to woman on financial planning and she's written several bestsellers on money management.
And the retail giant, Wal-Mart, is now adding tax preparation to its financial services. Wal-Mart's money center also offers debit cards and handles services, such as cashing payroll checks and paying bills.
So we wanted to ask if these new options might be right for some of us. With us now to talk about all this our regular contributor on matters of personal finance and the economy, Alvin Hall. Welcome back.
ALVIN HALL, BYLINE: I'm glad to be back. I've enjoyed this project today.
MARTIN: Well, good. Well, tell me why.
HALL: I've spent time looking at all the websites of all the players who are entering this debit card market and it's been really a revelation, and also, on a personal level, this is information that I can pass on to people in my family who are also a part of the unbanked or underserved in America.
MARTIN: Well, we should just mention here that a lot of financial writers have raised some real questions about whether it's appropriate for Suze Orman, who has a show, to be offering a product that will compete with some of the products that she talks about on her show. But we don't have time to debate all that, so let's just set that aside and just talk about the product itself.
MARTIN: It's called Approved. She says that the advantage of this is that the fees are low and she also links it to your credit reports, which she says will help you keep track of your business. What do you say about that?
HALL: Well, in reality, it may be linked to your credit report, but it will not influence your credit score at all. What she's set up is a relationship with TransUnion. And TransUnion has its own score, but it's not the FICO score that she talks about.
Also, the money that you spend on a debit card does not influence your credit rating in any way whatsoever. So that's one of those promises that sounds good, but it's really not going to yield any benefits.
The major advantages of these cards are its low fees. I must give her credit. She has listened to her viewers and, psychologically, she's done something very smart. The card is called Approved. What happens when people apply for a credit card or any type of loan from a financial institution - it sort of affirms that they are worthy. I mean, I thought this was very clever on her part.
MARTIN: Well, she does say that she thinks that she does agree that the spending on this debit card does not contribute to the profile of the holder's - doesn't add to the profile of credit worthiness as currently defined by the three major credit bureaus, TransUnion, which she's involved with, Equifax and Experian.
But she says she's hoping to change the paradigm, I think, in part by her presence in the marketplace because she says that she doesn't think that's fair. You think she might?
HALL: No. I think she will not because spending cash is not the same as handling credit responsibly. I hate to use this analogy, but I've always viewed cash in the following way: What's the difference between a person who spends cash and, let's say, a drug dealer? Nothing. Because you're just spending cash, so how's that going to influence your credit rating? It's a nice promise, but I think she will have a hard time convincing the three credit reporting agencies to use that as a measure of credit worthiness.
MARTIN: We're talking with our regular contributor on matters of personal finance and the economy, our money coach, Alvin Hall, about new players in financial services that are competing in some ways with the big banks, which people are obviously dissatisfied with. There's been a lot of stories about the fees, that people are angry about paying fees for, you know...
MARTIN: ...everything. Well, to that end, Wal-Mart's money center - of course, biggest retailer in America - now announced it's offering free and discounted tax preparation at its stores this year in conjunction with Jackson Hewitt and H&R Block, the big players there. They say that, if you get a refund, you can have the money put into a Wal-Mart cash card for free. What's your take on that?
HALL: You know, Wal-Mart knows its client base. The average person who shops at Wal-Mart earns between $30,000 and $60,000 a year. Eighty-five percent of their purchases - I think that's the percentage - is done in cash.
So, by offering this service to people, they know the money will be there and while - and they may need to buy food. They may need to buy clothes for children. They may need to buy something and because the money is on a Wal-Mart card, Wal-Mart will capture more of that cash. It is a smart move.
MARTIN: Well, what's so terrible? I mean, let's just talk about this from the consumer's standpoint. I mean, one of their arguments is that they're already - their check cashing services are already much cheaper than many people can...
HALL: They are.
MARTIN: ...utilize at one of these check cashing places, so people can already go there and cash their tax refund checks. Unlike these check cashing places, which typically charge a percentage, they charge a flat fee, which is a sliding fee. So their figure - their argument is that consumers are ahead of the game. Agree, disagree?
HALL: I agree that consumers are ahead of the game when you compare them to something like the Rush card, where to get the card is between $3.95 and $14.95 - just to get the card - and then your monthly maintenance fee is $9.95 and then there are all these other fees tapped in.
Wal-Mart has listened, very much like Suze, and are trying to make sure that the consumers, their target market, get more of the money in their pockets and I think this is smart.
MARTIN: You know, you're saying that what Wal-Mart is doing in the U.S. isn't new, that this has actually been the case in the UK for years, that there's a supermarket chain there called Asda...
HALL: Which is owned by Wal-Mart.
MARTIN: Oh, which is owned by Wal-Mart. So you think they tested out these ideas overseas and then brought them here?
HALL: I think that the UK market has always been much more progressive about banking, so you find that stores like Tesco, even Sainsbury's, the supermarket, have these banking divisions. And when Wal-Mart bought Asda, one of the things they introduced first was a lot of insurance products. And then the second thing they did, which proved to be a huge hit in the UK, was to reopen the Christmas savings account concept or to layaway, as we call it here, the idea that you put money away and then you can buy things. It was such a huge and successful thing in the UK that I think all of those successes have influenced what they have brought to the American market.
MARTIN: And Wal-Mart, as I think most people know, did reintroduce layaway in this holiday.
HALL: That's right.
MARTIN: See, this whole - very briefly, Alvin, what's the most important question a customer should ask before trying out one of these services? Very briefly.
HALL: They need to understand that there are fees involved. They need to make sure that there are no hidden fees that they are likely to encounter. Make sure that there's enough ATMs in the network so that they do not get hit with ATM fees and then other fees associated with spending their own money.
MARTIN: All right. Alvin Hall, a regular contributor on matters of personal finance and the economy. Our Money Coach joined us once again from our bureau in New York. Thanks, Alvin.
HALL: You're welcome.
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UNIDENTIFIED MAN: If you're interested in America, you've got to be interested in guns and, if you're interested in guns, you've got to be interested in the glock.
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