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Suze Orman Bows Out of Prepaid Market

[Tuesday, August 12th, 2014]

One of the major players in the celebrity prepaid card game is getting out of the business.

Suze Orman, a financial advisor, author and fixture on Oprah Winfrey’s media empire, introduced the Approved prepaid card in partnership with Bancorp Bank in 2012. The card had a low fee of $3.00 per month and was marketed toward folks with poor to fair credit, who may have had trouble being approved for a regular consumer credit card.

But as of July 1, 2014, the Approved cards no longer work. Cardholders who didn’t spend all the money left on their cards will be mailed checks for the remaining balance.

Bancorp refused to comment on why the card was being discontinued. Orman did not issue a statement and could not be reached by reporters for the New York Times. But speculation centered on the fact that Orman’s fees were significantly lower than other celebrity prepaid cards. The expenses of providing customer service for credit-challenged consumers may have negatively impacted the card’s profitability.

Prepaid cards a popular solution for people with fair credit

Consumers whose credit is fair, limited or nonexistent areoften declined when applying for credit cards. A prepaid card is a popular solution which allows anyone, no matter their credit score, to receive a payment card that can be used online, in stores, and at automated payment stations.

Underbanked consumers, who cannot open a regular bank account, and people frustrated with high banking fees also frequently turn to prepaid reloadable cards. For a monthly fee, which ranges from $1 a month to upwards of $9.99 per month, customers load the card with their own funds. They can then use the cards anywhere that they would normally use a credit card.

No affect on credit score

Unlike credit cards, prepaid cards do not affect a person’s credit rating. The issuers do not report user data to credit reporting companies, rendering the cards useless for people trying to improve their credit rating.

Suze Orman was hoping to change this with her Approved card and was in talks with TransUnion, one of the three major credit bureaus. TransUnion had agreed to look at data from Approved cardholders, though it was not yet set to begin factoring prepaid card customer behavior into credit scores.

Credit scores determine which credit cards and loans people will be approved for, and what mortgage rates they are given. While prepaid cards are useful tools for many, Orman had hoped that they would also help consumers improve their credit scores.

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