Russell Simmons wins swipe fee deal for his prepaid card
Thursday, June 24, 2010
Russell Simmons just scored a victory on Capitol Hill.
The hip-hop mogul, founder of Def Jam Recordings and vegan yogi also sells prepaid debit cards and has successfully lobbied for changes in the financial services reform bill and its regulation of credit card fees.
The debate over so-called interchange fees has brought out some big guns: merchants, including titans such as Wal-Mart Stores, that pay the fees on one side and large banks and credit card issuers that receive the fees on the other. Consumer groups cheered the agreement to bring oversight to the fees, saying the savings would be passed on to consumers.
The fees are set to be regulated by the Federal Reserve under an amendment by Sen. Richard J. Durbin (D-Ill.). But the conference committee resolving differences between the Senate and the House, whose version included no regulation of fees, has struck a deal exempting prepaid cards such as Simmons's.
In pushing for the exemption, Simmons made a powerful political case to lawmakers that regulation would hurt low-income people who often buy his RushCard. He penned a blog post with the headline, "Democrats, Don't Do This to the Poor!"
Consumer advocates say that Simmons's argument might be more convincing if the RushCard didn't carry such high fees: monthly users are charged a $3 activation fee, plus $9.95 a month, $2.50 for an ATM withdrawal, $1 for a debit card transaction and 50 cents to check their balance at an ATM.
"Prepaid cards like the RushCard have all the fees associated with the worst bank accounts but don't encourage you to develop a banking relationship that helps you develop assets," said Ed Mierzwinski, director of the consumer program at U.S. PIRG, a federation of state Public Interest Research Groups. "That particular card has practically a fee for looking at it."
The Web site for the RushCard says it's "a better alternative to a bank." There are 2.5 million users, according to UniRush, which issues the card and is a joint venture between Simmons and a debt collection company.
"RushCard fees are transparent and competitive with similar prepaid debit cards," according to a statement from UniRush. The fees also compare favorably with check-cashing facilities, which are a more traditional route for financial services for the poor, the company says.
About 17 million adults do not have access to a bank account and an additional 43 million are "underbanked," meaning they rely on alternative financial services such as payday loans at least once a year, according to a survey last year by the Federal Deposit Insurance Corp.
In a letter to lawmakers, Simmons touted the ability of the RushCard to help this group, which is disproportionately made up of minorities.
"I have worked all of my adult life as an advocate for the poor, the voiceless and the under-served," he wrote. "Debit cards are what keep the under-served -- including minorities, immigrants, the poor, soldiers, veterans and students -- from the claws of payday lenders and check cashers, from humiliating lines waiting to cash their paychecks and then more lines to pay their bills."
Simmons came to Capitol Hill at the beginning of June to lobby on the bill, visiting with Durbin and members of the conference committee, including Reps. Carolyn B. Maloney (D-N.Y.) and Maxine Waters (D-Calif.). Maloney and Rep. Gregory W. Meeks (D-N.Y.) helped craft the compromise on the Durbin amendment.
Simmons is a supporter of Meeks's, giving $1,500 to his 2004 campaign. A spokeswoman for Meeks did not respond to an inquiry about whether Simmons met with his office.
Advocates for the prepaid card exemption were able to piggyback on efforts by state governments to limit oversight of fees for prepaid cards used to distribute state benefits, such as unemployment and food subsidies for families.
While Simmons succeeded in his effort, banks and credit card companies lost the battle on the issue of fees, which have risen even as technology has improved the efficiency of the transactions.
The conference committee is scheduled to wrap up negotiations on the financial regulation bill Thursday. Simmons released a statement on the deal Wednesday, saying his business was not directly affected: "We are grateful that the conferees worked to reduce any unintended consequences of the Durbin Amendment on the poor, unbanked and underserved. . . . This will protect the fees on the most vulnerable, which is what I care about the most."