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The concept is simple, at least in the convoluted way of today's multibillion-dollar financial services industry. About one-quarter of 18- to 24-year-olds don't have a bank account. Low-income people of all ages are the most likely to be "unbanked." This keeps them on the margins, unable to build the credit history that is crucial for making big purchases. Similarly, 16.5 million people each year have such low income that they don't bother to file their taxes, losing out on billions of dollars in unclaimed refunds and the Earned Income Tax Credit. The average 18- to 24-year-old who files gets a refund of $900.
Now a tie-in between Intuit, the maker of TurboTax, the leading preparation software, and UniRush, the marketer of the Rush Card, is aiming squarely at this previously untapped market.
At the Rock Your Refund site, you can sign up for a new Rush Card for a discounted $9.95 activation fee. You'll get a prepaid Visa card that looks and works like a regular credit card, but offers neither credit nor a checking account. You can add funds to it at a bank ATM or through direct deposit of your paycheck. Then you can use TurboTax to file online for $5.95 federal and $9.95 state, pay with the Rush Card, and have your refund directly loaded onto the card. Just give the IRS the router number for your accountthe same one you give your employer for your wagesand it's all set.
Simmons's Rush debit card is one of many new financial products that have cropped up in the past decade as so-called "fringe banking"credit for people without much cashgets bigger. As Craig Marshall, the COO of Simmons's Rush Communications, describes it, the company noticed a while back that online orders were coming in for its Phat Farm and Baby Phat hip-hop clothes from people who didn't have credit cards or even debit cards. They decided to offer their customers a prepaid Visa card, which is available branded with the pink Baby Phat kitty. Today the Rush Card has 500,000 users, with an average age of 26 and average income of $26K a year.
Luis, a 19-year-old Hispanic cook and club promoter from Los Angeles, is a typical prepaid Visa user. Although he has a Bank of America debit card, he says he rarely uses it. Instead, he keeps $300 to $600 on his Visa. It is "safe and convenient," he says, with no drawbacks that he can seethe fees don't seem that high. Luis also probably won't be filing any taxes this yearI'm not quite sure how to do it," he says sheepishly.
Marshall makes the Rush Card sound like a veritable community service for the unbanked. He says their customers would otherwise be using high-fee check-cashing places or payday lenders that can charge 500 percent interest. "They may get paid on a Friday, put the cash in their pocket, and it's gone," he says. "This allows them to save." What he won't say is that as the New York Public Interest Research Group found in a 2003 study, prepaid Visa cards are on average just as expensive as check-cashing placeswith something like $322 in annual fees, versus $323 for the check-cashers. Rush Cards are a good bit cheaper than that, but still average $180 a year. A basic, low-fee, no-minimum checking account, which New York banks are required by law to offer but do not market much, costs just $36 a year, if you can avoid overdraft fees.
Marshall bristles at the idea that the Rush Card might be a bad value or that there's any contradiction between marketing, say, a $700 Motorola Baby Phat phone and a prepaid bank card in nearly the same breath. "Products like these are aspirational," he says. "We trust our customers' ability to make choices." But not to keep a pocketful of cash over the weekend?
Targeting low-income and first-time filers for their tax refunds has an especially unsavory history. A class-action case against H&R Block, set for trial in Chicago this year, could have the company paying back millions to people it offered "refund anticipation loans." By some calculations, H&R Block collected up to a 2,000 percent annualized interest rate on some of those refunds.
TurboTax, to its credit, appears to be offering young people like Luis a real service at a more than fair price. Maybe Simmons and company should consider replacing their pricey plastic with a low-cost basic checking account. Now, that's off the hook.