Russell Simmons, the hip hop mogul and entrepreneur, is weighing in on the financial reform debate -- and making a lot of economic sense too. In an open letter to Senator Richard Durbin (D-IL), Simmons called on the politician to change proposed legislation that could negatively impact poor and minority communities. The legislation in question is the so-called Durbin amendment to the financial reform bill now before Congress.

Although the issue is a bit complicated, here's the heart of the matter: Simmons is worried that the Durbin amendment may make it more difficult for tens of millions of "unbanked" and "underbanked" Americans to get affordable access to financial products and services from community banks, credit unions and other such places.In his letter to Durbin, which Simmons also made public on the Huffington Post website, Simmons wrote:

"I am extremely concerned about the potential impact of the amendment, if left unmodified, on the ability of community banks, credit unions or specialist providers to the under-banked to provide card services at affordable rates. That in turn would hurt the poor and the underserved by either raising fees or limiting the availability of this vital service. This would have a grotesquely unfair impact on the most vulnerable and the most heavily hit consumers, including minorities. I would be compelled to fight this publicly and actively."

For the most part, I think Simmons' concerns are well-founded. The number of people without traditional bank accounts is growing steadily, particularly in minority communities. And being unbanked or underbanked leaves these consumers subject to a host of financial pitfalls.

According to the FDIC, 25.6% of all households in the United States are unbanked or underbanked, and those households are disproportionately low-income and/or minority. When people don't have regular checking or savings accounts, they turn to alternative financial providers for everything from non-bank money orders and check-cashing services to payday loans, rent-to-own companies, or pawn shops -- all of which only keeps alive the cycle of economic misfortune among the poor.

What Simmons is most worried about, however, is people's ability to access prepaid debit cards. Some people might see this as self-serving. After all, Simmons does have his own Rush Card, a prepaid Visa card that his company markets.


Frankly, whether or not anyone believes Simmons is addressing this issue for business reasons -- as opposed to a genuine concern for the community -- is irrelevant. The fact is: Simmons is correct to call attention to one potential unintended consequence of this legislation -- especially if that legislation will make it more expensive or harder to get and use prepaid cards.

At a time when we should be encouraging people to minimize over-consumption and excessive reliance on credit cards, Simmons is right in noting that the Durbin amendment could promote additional credit card usage in the U.S. This not only could hurt the poor who can't get access to credit cards, but it could also hurt those individuals who are trying to use debit cards as a way to stay out of credit card debt.

Unlike some personal finance experts, I don't think credit cards are evil. I've been very open in my book, Zero Debt, and elsewhere in sharing my own story of having $100,000 in credit card debt. That was back in 2001, and I paid off my debts in three years without ever missing a single payment.




One thing I learned from that experience is that credit cards aren't inherently bad, nor are they the problem. We are the problem. We simply haven't learned about financial literacy, economic restraint and delayed gratification. As a result, we have way too much debt in this country. Many Americans are saddled with mortgages they can't afford, student loans they can barely handle, outsized car payments and, of course, massive credit card debt.

That's why increasingly, I hear from people all the time -- people from all economic backgrounds, not just the poor -- who are starting to use more prepaid card services as a way to control their spending and minimize debt. So if making some tweaks to the Durbin amendment will help accomplish that, even if indirectly, then I'm all for the changes Simmons proposes.

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Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has been featured in the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times best seller 'Zero Debt: The Ultimate Guide to Financial Freedom.'