Friday, April 17, 2009

Your Black Money: How Predatory Lending Works: Dr Boyce Watkins

 

Why Financial Predators Usually Have Black Prey

By Dr. Boyce Watkins

www.DrBoyceMoney.com

I talked to my good friend Ryan Mack, CEO of Optimum Capital Management, the other day. Ryan wrote an interesting piece about The Rushcard, a new prepaid debit card offered in a partnership between Russell Simmons and Unifund, a company that typically makes its money from bad debt collection. I read the piece curiously, as I have been learning how the Rushcard works, why it exists and who might benefit from the service. On the flip side, there is the larger concern that someone might be taking advantage of those who have the least access to capital, largely African Americans in poor communities.

The Rushcard is a prepaid banking card with no credit check that allows consumers to deposit their paychecks onto the card, as well as make purchases and withdrawals as if the card were a regular Visa. Russell (a self-proclaimed “philanthropist”, a title likely used to pre-empt any accusations of fraud or exploitation) also argues that the card helps marginalized Americans to seek out the American dream.

I didn’t know that the American dream was to hold a piece of plastic. Credit cards have created an infinite number of American nightmares as they tend to breed excessive consumption. But one can certainly argue that this card deals with one serious problem in the Black community: a lack of access to capital and banking services. Many people in urban America can’t get bank accounts. Many more have bad credit, can’t get rental cars or find themselves leaning toward check cashing services to liquidate their paychecks. Russell, “the philanthropist” has apparently taken it upon himself to solve this problem.

I can say, as a Finance Professor, that the Rushcard would likely not make money if it were not filling a critical need. The problem, however, is that those who “help” individuals in need may end up abusing their power. One can argue that a pimp is “helping” a young homeless girl by giving her a place to live. A loan shark can say that he is “helping” a family get the money they need by lending the funds at exorbitant interest rates. A man who sells water for $10 a sip is “helping” a man in the desert get what he needs to survive. So, there is a thin line between “helping” someone vs. exploiting a given need or weakness.

I became quite concerned when I saw the long list of complaints from those using the Rushcard. Those who wrote the comments I saw on a blog about the Rushcard seemed to have serious problems with the customer care behind the card. In his article, Ryan does an interesting comparison between the fees of the Rushcard vs. those of a typical Bank card:

Rushcard vs. Typical Bank Card
Activation Fee: Rushcard = $19.95 Typical Bank Card = Free
Convenience Fee: Rushcard = $1.00 Typical Bank Card = Free
ATM Cash Withdrawal: Rushcard = $1.95 Typical Bank Card = Free (At Branch)
ATM Balance Inquiry: Rushcard = $.50 Typical Bank Card = Free
Bill Payment: Rushcard = $1.00 Typical Bank Card = Free
Inactivity: Rushcard = $2.95 Typical Bank Card = Free
Refund of Rushcard/Bank Card via Check: Rushcard = $5.00 Typical Bank Card = Free

So, if these numbers are any indication, it appears that the Rushcard is not a very good investment. Most reviews that I’ve seen recommend against using the card, since it appears that users are paying a premium for the Baby Phat design on the front. What’s more disturbing about the Rushcard is that Russell does not seem to be nearly as determined to fulfill his role as a “philanthropist” when it comes to helping African Americans overcome the underlying cause of the very problems he claims to be fixing. As Ryan explained it, “It’s like telling someone with a cavity that they should chew with the other side of their mouth.” The Rushcard offers few options to help people repair their credit, and I have personally found most of Russell’s financial literacy initiatives to be quite limited in impact.

While we cannot blame Russell Simmons and others for profiting from the lack of financial literacy and access to capital in the Black community, there are things we can do to encourage Russell to do the right thing. First, the Obama administration can and should implement programs to help those with poor credit obtain bank accounts. Every American should have access to a bank account, and services such as direct deposit should not be a luxury. Secondly, the Banking industry should stop passing over profitable investment opportunities in the Black community. Perhaps if Russell had more competition, his fees might go down. Third, there is no greater cure for money problems than good old fashioned financial literacy. Most victims of financial exploitation are not even aware that the exploitation is taking place. Financial literacy should be taught in every public high school in America, since it might actually be the one class that students actually use.

Russell Simmons is not necessarily a philanthropist, but he is not the devil. He is merely a symbol of a larger problem. The problem requires long-term solutions, and a high cost piece of plastic is certainly not one of them.

Dr. Boyce Watkins is a Finance Professor at Syracuse University. He makes regular appearances in national media, including CNN, BET, ESPN, and CBS. For more information, please visit www.BoyceWatkins.com.

3 comments:

Anonymous said...

Good day !.
might , probably curious to know how one can make real money .
There is no initial capital needed You may start to get income with as small sum of money as 20-100 dollars.

AimTrust is what you haven`t ever dreamt of such a chance to become rich
AimTrust represents an offshore structure with advanced asset management technologies in production and delivery of pipes for oil and gas.

It is based in Panama with offices everywhere: In USA, Canada, Cyprus.
Do you want to become really rich in short time?
That`s your choice That`s what you desire!

I`m happy and lucky, I started to take up real money with the help of this company,
and I invite you to do the same. It`s all about how to choose a proper companion who uses your savings in a right way - that`s it!.
I earn US$2,000 per day, and my first deposit was 1 grand only!
It`s easy to start , just click this link http://betyzima.ibnsites.com/ywyrudi.html
and go! Let`s take our chance together to get rid of nastiness of the life

Anonymous said...

Good day !.
You re, I guess , perhaps curious to know how one can reach 2000 per day of income .
There is no need to invest much at first. You may begin earning with as small sum of money as 20-100 dollars.

AimTrust is what you thought of all the time
AimTrust incorporates an offshore structure with advanced asset management technologies in production and delivery of pipes for oil and gas.

Its head office is in Panama with affiliates everywhere: In USA, Canada, Cyprus.
Do you want to become a happy investor?
That`s your chance That`s what you wish in the long run!

I feel good, I started to get real money with the help of this company,
and I invite you to do the same. If it gets down to select a correct companion utilizes your money in a right way - that`s it!.
I earn US$2,000 per day, and what I started with was a funny sum of 500 bucks!
It`s easy to start , just click this link http://yzimibav.fcpages.com/domakaz.html
and go! Let`s take this option together to get rid of nastiness of the life

Anonymous said...

Hi!
You may probably be very curious to know how one can make real money on investments.
There is no initial capital needed.
You may commense to get income with a sum that usually goes
for daily food, that's 20-100 dollars.
I have been participating in one project for several years,
and I'm ready to let you know my secrets at my blog.

Please visit my pages and send me private message to get the info.

P.S. I make 1000-2000 per day now.

http://theinvestblog.com [url=http://theinvestblog.com]Online Investment Blog[/url]