Russell Simmons was fed up with the fees. The hip-hop personality was concerned that poor Americans without bank accounts were paying too many of them — fees to cash checks, fees to use an ATM, fees for money orders and more.
Simmons said he founded RushCard in 2003 with the goal of reducing the cost of poverty for those who live in it. RushCard was one of the first plastic prepaid cards — a new financial product like a debit card, but without the checkbook.
“For years I heard from mothers, children in tow, waiting in lines for their paychecks, then in more lines to expensively cash those paychecks, then in even more lines to pay their bills,” Simmons would later write. “Truth be told, these Americans couldn’t afford the ‘minimum deposit levels’ required by large banks to avoid monthly account maintenance fees.”
This month, though, some RushCard customers have not been able to access their money for nearly two weeks due to what appears to be a technical malfunction. Paychecks deposited directly onto the cards simply vanished. The economically vulnerable people Simmons had sought to help were suddenly left in a precarious spot.
It is unclear how many people were affected and whether the problem is completely resolved. Simmons’s company said in a statement last week that it still couldn’t provide current balances for “a handful” of customers, and that the company was working with them individually to correct the remaining errors.
“This has always been my mission,” Simmons said in the statement, “to financially empower those families that have been shut out of the economic mainstream.”
The disruption has exposed prepaid cards to more criticism from advocates for consumers who see the products that Simmons helped introduce as sleazy and disreputable.
RushCard marked the beginning of a financial fad. Among the first prepaid cards, many others were also endorsed by celebrities, including Kim Kardashian and Justin Bieber. These cards imposed small, frequent fees on users that became exorbitant over time. RushCard’s fees weren’t cheap, either. The new cards developed a lousy reputation.
“This fiasco reveals potential gaps in the protection of consumers who use prepaid cards,” Lauren Saunders, associate director of the National Consumer Law Center, said in a statement. She and other advocates are urging regulators to lay down rules for prepaid cards. The federal Consumer Financial Protection Bureau announced Friday it was monitoring the situation with RushCard.
But as debate continues over how to regulate the new products, the market is maturing. Competition from major financial institutions has reduced fees, and the cards are quickly becoming popular. Americans now use them more frequently than they write paper checks. Prepaid cards are transforming the way the poor in America manage their finances, and often for the better.
As of last year, RushCard had more than 500,000 customers, many of them likely financially vulnerable. On social media, customers have been complaining to Simmons that without access to their money, they are going hungry or facing eviction.
@[email protected] I’m Def affected sgl mom of 3 with autism in family. Need $ 4 bills and meds. Facing eviction — Cita76 (@mamichula3669) October 22, 2015
About 68 million Americans relied on financial services outside of a conventional bank to cash checks, borrow money and more in 2013, according to federal data, generally because they lacked the funds to maintain a balance at a bank.
Everyday business can be an expensive hassle for those without checking accounts. Some buy money orders, while others rely on cash for many transactions. Some pay their rent and utility bills in cash, too. Doing so often means paying fees to cash checks, and then there is the risk that the money will be stolen.
Source: The Washington Post | Max Ehrenfreund