Russell Simmons is seeing red.
Caught up in the debate over the financial services reform bill now awaiting a Senate vote, the hip-hop-mogul-turned-banking-executive is on the defensive over media reports that he lobbied lawmakers for a sweet deal that would exempt his prepaid debit Visa RushCard from a cap on certain fees.
His frustrations began this spring after Sen. Richard Durbin of Illinois introduced an amendment to the bill that would cap the fees retailers pay banks to process debit-card payments and enabled the Federal Reserve to set fee rates, instead of banks. In Simmons' view, such a cap could force debit-card issuers like his Unirush, LLC to make up for lost revenue by boosting how much they charge customers, thereby hurting low-income consumers.
Simmons railed against the amendment in his blog and on Twitter, and even traveled to Capitol Hill to express his opinion to lawmakers. "I can't believe financial reform has come down to this: big retailers in a money grab on the backs of the poor and underserved," he complained in an open letter to lawmakers.
In the end, the Durbin amendment was modified with an exemption for prepaid debit cards and government issued cards for assistance programs. Reports by Bloomberg Businessweek and The Washington Post (which is owned by the parent company of The Root, The Washington Post Co.) characterized the exemption as a coup for Simmons, noting his efforts to lobby black lawmakers beforehand. Both outlets also cited complaints that the fees charged to RushCard users may put them further into debt.
He called those assertions "a gross misrepresentation of the facts," and demanded retractions from both outlets (a demand as of yet unmet). "From the beginning, I didn't go to protect myself. I was already exempt from this discussion," Simmons told The Root in a recent interview. He said his company was already exempt from the Durbin amendment before he even went to Capitol Hill because it always applied only to banks with over $10 billion in assets (The bank unit issuing the RushCard, Bancorp Bank, has $2 billion in assets). He also said both reports inaccurately described the monthly plan, making the RushCard appear to be more costly than it really is.
But he didn't stop there in his interview with The Root. Calling his consumer advocacy critics "frauds," he even went on to question their ties to Sen. Durbin. Read on for more of what Simmons — and Ram Palaniappan, general manager of UniRush LLC — had to say. (And if you're up for it, check their explanation of the RushCard's fees against what's posted on the RushCard site and judge for yourself as to whether they got a raw deal from the Post and Businessweek.)
The Root: You've asked for retractions from Businessweek and The Washington Post; what did they say about the RushCard that was untrue?
Simmons: They effectively doubled the cost of the card usage. The idea of the card was to save people money. We've done lot to bring our fees down by technology and mobile and other resources that we've found. We give away free [ATM withdrawals] and we are not just a debit card, but a whole financial service company. [They didn't say that] we have budgeting tools, that we rebuild credit, that we give away free prescription drug discount cards, that we are looking for new tools for underserved communities at all times….
TR: What do you say to consumer advocacy critics who say that your company is just like any of the other banks and are just frankly exploiting the poor and minorities?
Simmons: [The consumer advocacy organizations quoted] are not real. Call them. It's one person. Those people who are being quoted in The Washington Post are not organizations. … That shows very poor research.
Palaniappan: We have seen a number of consumer protection groups who have been quoted, even for the Durbin amendment, where we could not really find the organization behind the group.
Simmons: You know, it's true that false organizations represented on the part, or people who are pretending to be organizations, quoted in major newspapers and magazines were actually connected to Sen. Durbin. Should we not say that?
They are connected to businesses that wanted to see this amendment go as it was. At least, if not Durbin, they are certainly connected to the businesses that wanted to see this amendment go about with the loophole that would make businesses rich and would hurt consumers. The truth is no consumer advocate could make those statements if they had an organization or did any research…. I'm calling a fraud out. I'm accusing them of fraud. When you have a front-end but no back-end, and you make statements and really those statements are designed to benefit the businesses and not consumers, and [you] call [yourself a] consumer advocate group, then that's fraud right?
TR: Who exactly are you calling a fraud?
Palaniappan: There have been some of the groups that have been quoted in articles as consumer agencies, consumer support groups, and also we've had people who have been associated with universities who have come out with statements about RushCard that are completely inaccurate. We have some that describe the fees inaccurately. We have a monthly fee plan and we give you two free ATM [withdrawals] with that.
They don't describe the cards correctly either. I mean they don't talk about the prescription discount card. They don't talk about the credit building, they don't talk about the budgeting and these are all features that there are no charges for.
The other thing that's important too is the RushCard was already exempt from the amendment.
Simmons: From the beginning, I didn't go to protect myself. I was already exempt from this discussion.
Simmons: Read the original Durbin amendment, it says $10 billion banks. Our bank is not $10 billion. We were always exempt.
Palaniappan: The changes that Russell brought in actually have helped bring in more competition in the space that we are in. We are trying to get more people to help serve the underserved.
Simmons: I'm not worried about competition. I don't operate on a market share. I operate on if I serve a number of people and do a good job and other people come in and do a good job, then it's okay. I never built a business, a new industry, or joined into a new industry and [then didn't] drag Puffy along in clothing or drag Jay-Z along and make his deal for clothing, and make the business bigger. I was sitting on an advisory board and Wal-Mart said they were getting in this business. I welcomed them. You know, I think there are millions and millions of people who are not being served. They need to be educated about this business and we need to find new ways to serve these people.
I would have probably benefited had I not gone to Washington, from a business standpoint. Because then [other financial services companies] would have been squeezed out of the business in terms of cost, but then I would have had to raise my fees maybe 20 percent [to remain competitive]. If I did that and then everybody raised their fees 80%, what good would that do? It may be make me bigger but it will also hurt the consumers. It would hurt the people I work for and I'm trying to bring their fees down and not up.
TR: Why have all the fees if the RushCard is, at least in part, intended to help low-income families and the underserved build wealth?
Simmons: Why go to work? I find run five charities, why would I not take a fee to pay my charities? I have a charity event almost every week. You mean should I not make [money] to give [money]? And if I didn't have a fee at all, if I did it as a total philanthropic [endeavor], how would I educate consumers? How would I advertise it? How would I create this industry if it were free? Why ask if it should be free? Why not have a margin? Everything I get, I'm going to give. I'm not going to hold onto nothing.
TR: How do the fees charged UniRush compare with the industry as a whole?
Simmons: We have the lowest cost. If not the very lowest, we certainly among the top five percent of the lowest of all cards and we have more services than any card. So I would say we are the single cheapest card in the industry.
Palaniappan: When we talk to our consumers [in an online survey] 56 percent of our RushCard members say they save more the $300 a year [using free money management tools offered by the RushCard], and 30 percent of our members say they save over $600 a year because of RushCard — and this is even before the prescription discount card can be card to card transfers.
Simmons: I guess if you're just Russell and you're fighting Wal-Mart and Walgreens and Home Depot, I guess there are going to be a lot of people that spread a lot of misinformation. But it's so crystal clear that if any journalist at Businessweek or The Washington Post looked on our website they then they wouldn't have made these mistakes. You wonder some time, not being a conspiracy nut, but you wonder how it is possible that a person who writer financial services misreads, all of our consumers know our fees — how could they double and almost triple our fees in their article? It makes you wonder.
Palaniappan: Not only did they misrepresent the fees; they didn't even describe the card correctly. They left out most of the features of the card.
Simmons: It's inexcusable to say that a card that cost $9.95 a month, plus we charge $1 per transaction. When you pay $9.95 you pay nothing for a transaction and then on top of that you get two free [ATM withdrawals ] which is $5. So you're paying $4.95 for the use of a card and you have no fees associated with transactions.
We've never charged more than $10. Even when we charged $1 per transaction, it's capped at $10 [per month]. The average transaction is $70.
Palaniappan: There are two fee plans and the customers choose the one they like. If they pay the $9.95, then they can make unlimited signature transactions for free. If they don't choose the monthly plan, then they do a pay-as-you-go where they pay per transaction. And we only charge for the first ten transactions. When people sign up for the monthly plan, they are paying $9.95 and they get two free ATM [withdrawals]. When you sign for your purchase [at a retailer], the purchase is free.
Simmons: I met with the people on the finance committee. It was not about the Black Caucus. I met with Sen. Durbin.
I don't know why [Bloomberg Businessweek and The Washington Post] would say [I just met with] Congressional Black Caucus. I went to everyone's office who was involved with the finance committee. It happened that some of those people were black. It happened that Maxine Waters or Congressman Meeks and others were black, but it wasn't because they were black [that I went]. But they did realize that they weren't going to let business — and I guess that's probably a focus that the Black Caucus takes more than other groups — that this was not [just] a business-to-business issue, that they had to be concerned for protecting the consumer…. and the Black Caucus is very famous for [championing] that. So it's good that they happen to be very heavily populated on the finance committee.
[Rep.] Barney Franks, [D-MA] was a big supporter of this shift [too]. He was in charge of it, in fact. He's not a member of the Black Caucus, but I guess he asked Congressman Meeks to write the legislation, write the shift in the amendment, because he understood where the struggle was.
What more needs to be done within the public and private sector to help the underserved to get better access to basics like a checking and savings account?
Simmons: Education and opportunities. People are locked out. People are slipping deeper and deeper into poverty. There's not a really good effort being made to lift people out of poverty. The middle class is shrinking. We should give them hope and opportunity.
Monee Fields-White is a Chicago-based writer who covers a wide array of topics, including business and economic news.