RushCard Ripoff and The Vampire State

Driving home the other day and being atypically uninterested in whatever show the Sirius old time radio station was playing I turned over to a station which was playing Karen Hunter and caught the second half of her interview with Ryan C. Mack, a financial adviser, stock broker and author among other things. The topic of the moment was the financial problems currently going on with the RushCard, a prepaid debit care that has musical entrepreneur and well known celebrity Russell Simmons as an endorser/owner.  His celebrity doesn't matter. What is important is that the RushCard technical infrastructure was having some problems which temporarily (for ten days no less) prevented users of said card from having access to their money. But as Ryan Mack pointed out, considering the not so hidden costs of the RushCard, temporarily losing access to this debit card could be a blessing in disguise to millions if this made them reconsider using the card. Let's explain. As we've pointed out before there is a lot of money to be made from poor people. There's especially a lot of money to be made from poor black people. Although usury is technically outlawed in most states while consumer banks have been under greater legal and regulatory pressure since 2008 to reduce junk fees or at least make them more obvious to the user, there are many other such businesses who skirt or even outright flout usury laws by calling their prices "fees" or "charges" as opposed to interest. These include such institutions as rent-to-own stores, check cashing stores, payday loan stores, and pre-paid debit cards such as the RushCard. Very few people who have true wealth or for that matter even a decent salary which allows them to routinely put money aside are ever caught dead in such places. Very few people with an average to good understanding of personal finances patronize such firms. 

No. These businesses make money from people who are poor, often ignorant of the law or common business practices, are scared to stand up for themselves, or who for whatever reason can't or won't obtain a normal bank or credit union checking account. Unfortunately Russell Simmons has chosen to align himself with a business that makes money this way. Now as Puzo wrote in The Godfather, each man has to measure his own greed. Russell Simmons has a lot of money and wants more. I also want more money. There's nothing wrong with that in and of itself. But before someone does something as massively stupid as getting a RushCard, he or she should at least understand what they're getting for their money. Hint, Russell Simmons is not doing you any favors. Much like Bernie Madoff did with his ethnic group, Simmons is using his in-group and celebrity status to peddle products which are poisonous to personal prosperity. Spending money on nonsense like this is a major reason that black median wealth lags behind white median wealth. Now it's fair to counter that Simmons, like all of us, should be more concerned about his own wealth than someone else's. That is certainly correct. No one should live for other people that he doesn't even know. But just because I don't think someone should always be altruistic doesn't mean I think someone should be given a pass for ripping people off. There is a difference between me being indifferent about your finances and sticking my hands in your pocket to rob you. Here's some examples of some of the fees associated with the RushCard (this is an older example but gives you a great idea of the business model we're dealing with)

If we compare the fees affiliated with the Rushcard compared to the typical bank offered debit card, we can clearly see the advantage of the cards offered by the banking institutions.

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 

As you see, there is no financial reason for one to choose the Rushcard over a typical banking institution which offers debit cards as a part of their services. With the continuous onslaught of technology, it is becoming increasingly easier to open bank accounts.

Ryan Mack's Open Letter

At every conceivable point of contact between the RushCard and the customer (excuse me that should read sucker) money is removed from the sucker's pocket and transferred into Rush's pocket.  Without fail. And it's not as if Mack was the only person who noticed the shoddy and shady business practices that Russell Simmons was using. Financial columnists have long pointed out the buyer beware nature of the prepaid debit card market. Hopefully as Mack has stated perhaps some people will decide to move on from pre-paid debit cards. Unfortunately some of the people who rightly do so will go to a different rip-off artist, the check cashing store. 

Denise Miller, who works in social services in Philadelphia, has not been able to pay her rent. In an especially embarrassing moment, her card was declined at McDonald’s when she tried to buy breakfast.“I am so angry,” she said. Erica Phillips, a 32-year-old autoworker who lives in the Detroit area, said she first experienced a problem with her RushCard on Oct. 10, when she noticed her money had been moved from her existing account to an expired RushCard account. Her weekly paycheck is loaded on her card by direct deposit, and she said she was unable to access that money all week. “I’ve been borrowing from everyone,” she said. “People at work have given me food.” Ms. Phillips canceled her direct deposit and plans to cash her paycheck this week at a local check-cashing store.

NYT LINK

What can be done? I'm not sure there is a legal or regulatory remedy in the short term. The long term solution is of course to build a society in which poor people have more solid financial understanding and are not disproportionately black. The businesses I've listed are basically vultures and hyenas who are attracted to financially sick people. The best thing we can do in the short term is share the information about how these companies work with our brothers and sisters who might be tempted to use these services. Just say no! Ryan Mack video

Speaking of bloodsuckers, whereas Russell Simmons is a figurative one, the State of Alabama in the person of one Circuit Court Judge named Marvin Wiggins (seen on the right in this picture) is a literal bloodsucker. Yes, it seems that old Judge Wiggins, rather than questioning why the state is running what can amount to extortion rackets over petty crimes committed by poor, often black people, has decided to put his own twist on the whole process by requiring indigents to give blood if they are temporarily unable to pay fees, fines or court costs. Now I suppose if you tend to be unsympathetic to lawbreakers you might reason well I guess they shouldn't have broken the law. Leaving aside the idea that having the court take part of your body against your will for a misdemeanor or civil infraction seems at the very least to be unusual and highly unethical, wouldn't you object to this order if the company taking your blood had been found responsible for giving someone HIV from a botched blood transfusion? I mean sure, maybe they've cleaned up their act now. Maybe. But do you want to be the next oops?  MARION, Ala. — Judge Marvin Wiggins’s courtroom was packed on a September morning. The docket listed hundreds of offenders who owed fines or fees for a wide variety of crimes — hunting after dark, assault, drug possession and passing bad checks among them. “Good morning, ladies and gentlemen,” began Judge Wiggins, a circuit judge here in rural Alabama since 1999. “For your consideration, there’s a blood drive outside,” he continued, according to a recording of the hearing. “If you don’t have any money, go out there and give blood and bring in a receipt indicating you gave blood.” 

For those who had no money or did not want to give blood, the judge concluded: “The sheriff has enough handcuffs.” Carl Crocker, who was among those who owed money to the court, recounted seeing one older man pass out after his blood was taken. Another defendant, Traci Green, said that one young man became so angry about the choice he was given that he was taken out of the courtroom. Mr. Crocker, 41, who made the recordings of Judge Wiggins, also recorded the employees of the mobile blood bank, who seemed fully aware of the sentence-reduction arrangement. Mr. Crocker said he grew even more uncomfortable later, after he recognized the blood bank, LifeSouth Community Blood Centers, which had recently lost a $4 million judgment for an H.I.V.-tainted blood transfusion. “It’s just wrong for them to utilize people who are in the court system and essentially extort blood out of you because you owe traffic tickets, misdemeanors, felonies, whatever you’re there for,” Mr. Crocker said.
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I don't much care for the sense of entitlement that some judges seem to have in their courtrooms. Fortunately I haven't had reason to spend any time in courtrooms. I don't mind a judge who tries to bring some levity to the process or make individualized punishments fit the crime. And though it would irritate me greatly were I the defendant or convict I don't really mind judges who feel the need to provide a lecture to the person who's about to go away to prison. That's all inbounds I think. But coercing someone to give blood is in my opinion way out of line. That should not be allowed. No one should agree to that. Someone needs to tell Judge Wiggins just what he can do with his order to give blood. I would hazard a guess that most of the people who are appearing before Judge Wiggins are not the well off and politically connected. I thought these stories were examples of the current ways in which the wealthy and powerful continue to extort funds and literally blood from those who have less funds. Both are quiet obscenities in their own way.

What do you think of these stories?

Student Loan Repayment Strike

I went to college in the Pleistocene epoch when colleges did not cost as much as they do today. I was fortunate enough to have an almost full academic scholarship, some money saved from summer jobs, access to Pell grants and finally a supportive and demanding father who would and did move heaven and earth to ensure that I graduated on time with no excuses and no debts. The idea of taking out massive loans just to obtain an undergraduate degree was completely foreign to me. The world has changed since the days of yore. It's much more difficult to obtain scholarships and grants. The cost of private and public colleges has skyrocketed. Free money has dried up. If you want to go to college and are not a child of either the 1% or parents who are obsessive savers, loans will likely be a large part of how you pay for your schooling. The obvious problem with loans, as opposed to scholarships, personal savings, grants and money from Mom and Dad, is that you have to pay the loans back. Nobody lends money with any other expectation. That's why they're called loans and not gifts. Although a college degree has increasingly become a requirement for a chance to enter the precarious middle class, it is also more important than ever to get the proper college degree from a respectable university. Just having the B.S. or B.A. behind your name isn't at all a guarantee of finding a good job, particularly if you are of visible/undeniable African descent , but that is a different post. Getting a BS degree from a BS university may only net you a BS job. Many people find this out the hard way when they graduate only to discover that their current skill sets and newly minted alleged education will get them a job that barely allows them to make rent and loan payments each month, if they're lucky. It is a financial pain in the tuchus to pay back student loans. Generally speaking, the loan can't be discharged in bankruptcy. Some former students or actual dropouts have decided that their best plan of action is to refuse to pay back their loans.

WASHINGTON (AP) -- Sarah Dieffenbacher is on a debt strike. She's refusing to make payments on the more than $100,000 in federal and private loans she says she owes for studies at a for-profit college that she now considers so worthless she doesn't include it on her resume. The "debt strike" sentiment is catching on. Calling themselves the "Corinthian 100" — named for the troubled Corinthian Colleges, Inc., which operated Everest College, Heald College and WyoTech before agreeing last summer to sell or close its 100-plus campuses — about 100 current and former students are refusing to pay back their loans, according to the Debt Collective group behind the strike.

They're meeting Tuesday with officials from the Consumer Financial Protection Bureau, an independent government agency that already has asked the courts to grant relief to Corinthian students who collectively have taken out more than $500 million in private student loans. The Education Department is the group's primary target, because they want the department to discharge their loans. A senior department official is scheduled to attend the meeting.

Dieffenbacher said she received an associate's degree in paralegal studies from Everest College in Ontario, California, and later went back for a bachelor's in criminal justice before later dropping out. She said she left school with about $80,000 in federal loans and $30,000 in private loans, but when she went to apply for jobs at law firms she was told her studies didn't count for anything.

Dieffenbacher, who works in collections for a property management company, said she was allowed at first to defer her loan payments, but now should be paying about $1,500 a month that she can't afford. Makenzie Vasquez, of Santa Cruz, California, said she left an eight-month program to become a medical assistant at Everest College in San Jose after six months because she couldn't afford the monthly fees. She said she owes about $31,000 and went into default in November because she hasn't started repayment.

LINK

I've been around for a while now. I have financial obligations that can be tiresome. Sometimes people advised me to take or avoid a certain course of action. Sometimes I listened. Sometimes I didn't. Although not every decision I made worked well I can say that ultimately all of the decisions were mine. Once you're over 18 and certainly once you're over 21, you're an adult. You get to make your own choices. If you decided to attend a sketchy college and overpay for coursework of dubious value that's your fault. If you are wise you will learn from that choice and not do anything that foolish again. I'm not sure you should get a do-over. Although there are a few cases where they are arguably warranted, bailouts almost by definition come with a huge moral hazard problem. The people who get bailed out don't pay the costs of their foolish behavior and thus are more likely to repeat such bad behavior in the future. Additionally other people who are playing by the rules of the game start to feel like suckers. Rationally it may also make sense for them to ignore the rules and default on their debt if the consequences for doing so are no longer punitive. If too many people start to do this the interest rates and fees for loans will increase. Institutions will be less likely to make loans. In extreme situations the market will grind to a halt. But maybe that is the wrong way to look at this. Maybe we should examine this situation not through the lens of loan repayment but rather through consumer protection. If someone sells me something I didn't ask for or is totally worthless then I should have the ability to complain to a consumer protection agency and get some sort of relief. That is the argument the Corinthian 100 are making. If the education was fraudulent should they pay?

I am not 100% unsympathetic to this argument, just 90% unsympathetic. There is no guarantee that a college education will provide any particular individual a path to a well paid career. It's an important factor but ultimately just one among many. Connections, career interest, personal drive, intelligence and the larger economy all play a role. A college or graduate school may boast about its alumni salaries and income but all they are really selling you is an education. What you do with that education is up to you. Still, if someone just doesn't have the money they don't have the money. I would be willing to allow student debt to be discharged in bankruptcy, which is currently not the case. That requires a change in the law. But I would not be willing to allow someone to default just because they entered the real world and learned that they weren't a special snowflake. We do need to rethink how we finance higher education in this country. The structure of loan based financial aid may have done little more than give colleges incentives to raise tuition and salary packages.  There is more than $1 trillion in student debt. We can't keep on in this way. We will see more stories like this.

How do you see this story?

Should the Corinthian 100 be able to walk away from their debt?

Should everyone else be able to walk away from their mortgages or auto loans?

What's your retirement plan?

After a long hectic day of fighting crime while maintaining my secret identity as a mild mannered accounting IT analyst I was minding my own business when out of the blue the batcave emergency phone rang. As most people don't have that number and those that do know not to bother me during the time when the phone rang, against my usual instincts I decided to answer it. It was indeed an emergency. An older maternal relative, one of my few remaining ones, needed help. She had been hesitant to call as on both sides of my family I have over the years quite deliberately cultivated a reputation as someone who can be a little cold when it comes to money. I'll help if I must but there's a 100% chance I'm going to want to know how you got yourself in a spot where you need my help, if I can ever expect this money back, and what is your plan so that I don't have to give/loan you my money again. I like my money more than I like my little cousins, nieces and nephews. And I love them very much indeed. Ok, that's hyperbole. But not by all that much. I'm not going to put all my relative's business in the street as that would be wrong and is not really the point of this post anyway. I did decide to assist her and have no expectation of seeing that money again. I decided to help because she is a) far past retirement age, b) is a woman, and c) had no one else but my brother and I to turn to. Younger and especially male relatives probably would have not gotten assistance. That may be "sexist" or "ageist" but it is what it is. Enough said on that.

What inspired me to write this post was that in helping my relative and finding out some of her story I was inspired to take a honest look at my own wealth (or relative lack thereof) and future retirement plans. I'm doing much better than I was five years ago but am definitely not where I'd thought I be twenty years ago. Like the saying goes, life is what happens while you're making other plans.

Traditionally your retirement package was supposed to be akin to a three legged stool. You were supposed to be able to rely on a) Social Security b) company pension and c) personal savings and investments. To stretch the analogy somewhat that stool could be covered in the security blanket of a paid off house, affordable health care insurance for seniors and maybe an annuity or two. So during your golden years, you should ideally be able to enjoy a lifestyle close to if not better than what you had when you were scuffling and struggling in your youthful days. Things didn't work out that way for my relative. Things probably won't work out that way for a lot of people if the data means anything. There are a lot of reasons that saving is not as "easy" as it would have been for the generations that preceded mine. The two biggest reasons in my opinion are a stagnant real income and acceptance of easy credit to buy almost everything. Real income is stagnant because of globalization, destruction of unions, automation and importation of cheap labor at both the high end and low end of the job market. There are fixes to this of course but they are outside of what I want to write about today. In order to deal with that loss of income people have adapted to using credit cards for everything and worse, carrying balances. When you do this not only do you buy stuff you probably wouldn't buy if you had to pay for it with cash, but you also waste your money on penalties, fees and interest charges. 
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Roughly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings, according to a survey released by Bankrate.com Monday.

Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.

Last week, online lender CashNetUSA said 22% of the 1,000 people it recently surveyed had less than $100 in savings to cover an emergency, while 46% had less than $800. After paying debts and taking care of housing, car and child care-related expenses, the respondents said there just isn't enough money left over for saving more.

Fewer companies provide pensions these days, having largely replaced them with 401K plans. The issue with 401K's is that not only are many people really not all that savvy investors but more importantly the risk and liability of market swings have been switched from companies to employees. Risk is fine and perhaps even a requirement when you're young. But when I retire I would prefer the certainty of knowing I will have a yearly pension payment of $XX,000 until I die rather than be exposed to market risk. Unsurprisingly the big shots at companies, the CEO's and other company officers tend to still have pensions and quite lucrative separation agreements.

We've discussed Social Security before. Although AFAIK the program is still actuarially sound for at least the next few decades, it likely will need some adjustments. It will continue to be attacked both by conservatives who never liked it in the first place and strangely enough liberals or "centrists" looking to make grand bargains. Do I think the program will pay out the same benefits when I get to the front of the line as it does currently? I've never been a lucky man so I would tend to doubt it. We shall see. I just went over to the SSA website to calculate my expected retirement benefit. It was nice, but was hardly enough to keep me even close to my current standard of living.

Finally there is personal savings. Compared to the other two legs of retirement this is the easiest for the individual to control. You get to make decisions on how you spend your money. You also get to make decisions on what career you pursue and/or what second job or other business opportunity you perform. And if you're young, as I no longer am, you have years and years and years to work and transform that income into wealth. Sadly many people ignore personal savings and spend money as if they're millionaires. They carry balances on credit cards. They buy things that they've lost interest in a year later. By the time they reach the point where retirement is no longer a theoretical concern they find that years of living paycheck to paycheck have taken their toll. So my relative's emergency just reminded me that I must do a better job of saving the money I earn at my corporate job, continue to earn and build a financial life outside of my twice a month paycheck, and look for ways to cut unnecessary spending. I don't think two or three decades down the line there will be any cavalry riding over the hill to save me from financial mistakes or unforeseen setbacks. That's a sobering feeling but also strangely enough an exhilarating one. I have to make the moves now to guarantee that I don't wind up broke and homeless. It's all on me.

Questions:

Are you content with your level of wealth/savings?

Do you think you are or will be ready for retirement?

If you were flat on your back financially do you have people who would help?

Do you often help relatives out financially?