Editors Note: Prepaid cards are big business. As consumer use of credit cards has dipped in the past few years, the use of debit and especially prepaid cards has risen. In fact, one in three American households used a prepaid card in 2009, according to the Federal Reserve Bank of Boston. They are definitely mainstream financial products these days and many banks have jumped into the prepaid card market.

How do they work? A consumer signs up, adds money to the account and then uses it just like they would a credit card. And of course, just like credit cards, there are fees. Some cards have more than others and that’s where controversy has arisen over the years.

Hip-hop mogul and entrepreneur Russell Simmons got into the business with the RushCard 10 years ago. He insists his card and other prepaid cards have gotten a bad rap. So we invited him to write a guest column for The Daily Ticker. Read on...

By Russell Simmons

Prepaid cards have come a long way since the ill-fated Kardashian card – an exorbitantly priced prepaid card that was pulled from the market in 2010 less than a month after its launch. Yet, the industry is still suffering from its ripple effect. A serious and flagrant discrepancy exists between the way mainstream media reports on the prepaid industry and the way the industry should be represented.

Unfortunately, this is not the first time I’m fighting this battle. All too often, the prepaid card industry is hit with under-researched, unverified stories that do little more than leverage celebrity names for clicks and website traffic.

So here’s the real story: Over the past few years, there’s been a collective effort across the prepaid industry that has yielded reduced fees, increased transparency, and innovative products that fairly and honestly serve the millions of Americans who are looking for an alternative to a traditional banking relationship, or feel cut off from the economy because they have been turned away by the big banks. RushCard has been at the forefront of this movement for over 10 years.

And let me be clear on this point: I am not a celebrity endorser. I founded RushCard and have invested millions of my own money to help bring prepaid to life, shouldering much of the learning curve for the industry over the past decade. We’ve worked closely in cooperation with regulators, advocates, prepaid companies and policy makers to develop innovative financial products that are suitable for those not welcomed by traditional banks.

Don’t just take my word for it when I say prepaid is a valuable and legitimate tool for those seeking to be part of the economic mainstream; Consumers Union, the nation’s consumer rights watchdog and publisher of the influential Consumer Reports magazine, recently released a study on prepaid cards that states:

“Prepaid cards are no longer just for people who don’t have bank accounts. They’re the fastest-growing payment method in the U.S. and they’re attracting those who want to budget their spending. And our new report has some positive news for consumers: Fees have declined, and many prepaid cards offer more features.”

Despite the major strides achieved by the industry, the media continues to cherry-pick and selectively report on fees, comparing cards in a way that is not only manipulative, but actually confuses consumers looking to make an informed decision. Selecting certain fees to highlight, and not looking at the actual cost to use the product, misleads consumers and is irresponsible reporting.

For example, a recent Marketwatch article “When celebrities reach into your pocketbook” by Quentin Fottrell chose to highlight the “monthly fee” for a select group of prepaid cards. The monthly fee certainly is one factor to consider – but reporters should and must look at all fees associated with an account and understand why and when these fees occur. For example, apart from the monthly fee, what is the cost to access in-network ATMs, call customer service, use text alerts and mobile apps, and pay bills online? For RushCard customers, these services are free and are included in the monthly fee, whereas for other prepaid cards these services or different services may or may not be included in the monthly fee.

Fee Accessibility & Clarity is one of four criteria used to assess prepaid options in the Consumers Union report, underscoring the importance of fee disclosures in financial services -- in addition to the overall cost to use and maintain an account. While Mr. Fottrell chose to focus on only one of RushCard’s fee plans, we offer three different fee plans, one as low as $5.95 per month with direct deposit. Each plan is clearly presented, along with a fee calculator for consumers to compare the costs of the three plans based on their specific monthly usage.

Let’s also not forget the cost of traditional banking. Many, if not most, banking solutions today are fee-based; the free checking account is mostly a relic of the past, penalty fees such as overdraft charges and missed credit card payments are in the double digits. In fact, as Fottrell himself points out, overdraft fees now represent over 60% of all fees collected by banks for consumer checking accounts, costing customers hundreds of dollars each year. Furthermore, a recent Bankrate report showed that checking account fees are on the rise, in some cases, up 25% or more. A number of prepaid cards can help customers keep their costs low rather than lure them in with a bare-bones solution and charge them heaps of ancillary and overdraft fees. And most prepaid cards like RushCard are fully FDIC insured.

Prepaid cards are a safe, viable and responsible option for millions of Americans who need an alternative to traditional banking, check cashing and credit products. Our cards give them the ability to shop the web, pay bills online, and perform other banking functions like remote check capture, expense tracking and goal-setting, all while avoiding going into debt or racking up overdraft fees. Our customers thank us every day for the level of discipline we help them practice.

We call on reporters and editors to do their due diligence and truly investigate a consumer’s cost to use a prepaid account before publishing sensational headlines written only to drive website traffic. When the media reports without all the facts, it’s not only bad for the industry, it’s bad for the consumer.

Simmons is chairman of Rush Communications and co-founder of UniRush Financial Services.