According to the St. Louis Federal Reserve Bank, almost 43 million Americans are either “unbanked” or “underbanked,” meaning consumers who have little to no access to traditional lending institutions. Of these, over half – 56 percent – are minorities in our communities: African-American, Latino or American Indian.
A Prepaid Debit Nightmare
Many of the most financially vulnerable turn to quick-fix options like the RushCard, which has been in the news lately for all the wrong reasons. Touted by music and fashion mogul Russell Simmons, it’s a prepaid debit card allowing its customers to draw on their paychecks two days early. For this “privilege,” users paid a $20 activation fee, a $10 monthly usage fee and up to $2.50 per transaction.
Just over a month ago, RushCard users were frozen out of their accounts, due to what the company claimed was a computer glitch, leaving cardholders with no recourse to get to their hard-earned funds. They couldn’t pay rent, buy groceries, fill prescriptions or put gas in their cars.
At latest word, Simmons does seem to have stepped up, accepted responsibility for the product which bears his name and set up a multimillion dollar fund to rectify the situation. But even this solution comes too late to help RushCard customers who have now missed payments on the most common of recurring expenses.
Long-Term Behavioral Changes
The prepaid credit card industry thrives today simply because some of our most economically vulnerable don’t have enough financial literacy education. We, as consumers and entire communities, need to change that. There are clear alternatives to relying on prepaid debit cards, such as enrolling as a member of a smaller community bank or credit union. Secure debit card solutions, where users place a set amount of money in a legitimate account, offer consumers reliable access to guaranteed funds. Lastly, consumers should find a way to set up even the smallest of emergency or rainy day funds.
A Solution That “AIMs” to Help
As the CEO of Transformance, Inc., we’ve partnered with the nonprofit organization Resource One Credit Union to set up the Accountable-Inspirational-Motivational (A.I.M.) program, which provides consumers with Individual Development Accounts (IDAs). For every dollar you deposit in your IDA, another dollar will be matched (up to $25/month). If you save at least $25 per month, with your $25 match, you will have $600 in emergency savings after 12 months. A.I.M. is the ideal type of program to establish or give a boost to your current savings account.
You’re eligible for A.I.M. if you live in Dallas, Collin or southern Denton and Rockwall counties and your household resides in a geographic area that earns 80 percent or less of the area median income as defined by section 8.
Let’s Solve Our Problems Together
It is the lack of financial literacy that leads consumers to turn to underbanked solutions. This lack of education typically manifests itself into cycles of poor borrowing and spending habits that can lead to a higher debt load, depletion of savings, lower credit scores and continued dependence on social services. We invite you to come talk with us at Transformance. We have tools and professional counseling designed to cover all areas of consumer credit, including debt management, budget and credit counseling, student loans, bankruptcy, housing and even retirement.
Nobody, least of all me, likes to see our most vulnerable community members scrambling to pay for goods and services most others take for granted. And sad tales like what happened to users of the RushCard prepaid debit product are unfortunately all too common. Let’s work to change that by establishing financially stable individuals and communities for the purpose of transforming our lives for the better.
Ken Goodgames is the CEO of Dallas-based Transformance, Inc., formerly Consumer Credit Counseling of Greater Dallas.