Economy

Customers Revolt After 8 Days Without Access To Money In Celebrity Prepaid Card Account

CREDIT: Photo by Chris Pizzello/Invision/AP

RushCard co-founder Russell Simmons

In order to afford the gas she needs to drive to work this week, Betzy O. had to resort to searching for all the loose change in her house and taking it to a Coinstar machine. She netted $13.

That’s because she keeps all of her money in a prepaid debit card account with RushCard. She has now gone eight days without access to the paycheck she should have gotten on Monday and is about to miss another one. She is one of an unknown number of customers — most likely in the thousands — who have been locked out of any account access since last Monday, cutting people off from their own money.

“The fact that I had to scrape all my pennies out, collect every single penny we had, is ridiculous,” she said. “It’s been really tough.”

The company, created by rap mogul Russell Simmons, gives those who don’t want or can’t afford a bank account a way to store their money and entices customers with a promise to give them access to direct deposited paychecks two days faster than through a bank. But the company says that thanks to a transition to a new processing company on October 11, customers experienced a massive outage. “During this process, many of our customers were adversely affected when the technology that was used to transition their accounts did not work as planned,” it said in a statement on Monday.

RushCard said that its system is up and running and it is processing deposits and transactions, but a “small number” of accounts are still inactive. It declined to share how many customers were affected and how many are still locked out, nor when they will all be able to get back in.

It can’t come soon enough for Betzy, who as of Monday was still without access. Her job is 35 minutes away from where she lives and she can’t call out, so she has to find money to cover the gas she needs to get there. She’s also going to school studying fashion and needs to buy materials for her projects. “When I need something, I need it now,” she said. “I’m pretty screwed on project stuff.” She lives with her mother, who covers most bills, but her mother didn’t get paid until Friday, leaving the both of them without any cash for nearly a week. Betzy also has three pets, all of whom have gone hungry since she lost access to her account.

A customer going by the name X the Artist also says he still can’t get the money in his account, some $2,000, including his most recent paycheck. “I live paycheck to paycheck,” he said. “I pay my bills, take care of my child, and invest in my artwork.” Without any money for eight days, however, he’s had to rely on help from his parents. “If I didn’t have parents right now I’d be struggling.”

In the meantime, he’s been stuck on hold trying to reach the company for hours at a time, only to get answers that don’t help. One time, he said, a customer service representative told him to expect access to his money the next morning, but he woke up the next day to the same thing. He says his money is finally back on his card but he still can’t use it. While he’s been a loyal customer for six or seven years, once he can get back into his account he plans to switch to another service.

Even without technology problems leaving customers stranded, prepaid cards can be risky for people without many funds. The RushCard offers two plans that both charge significant fees. The unlimited plan doesn’t charge anything for transactions or in-network ATM withdrawals, but it costs between $3.95 and $9.95 to set up and between $5.95 and $7.95 a month. The pay as you go plan, which is what Betzy uses, also costs the same to set up and while it doesn’t charge a monthly fee, costs $1 for each transaction capped at $10 a month and a $1.95 “maintenance fee” if the card isn’t used for 90 days.

This is pretty typical for a prepaid card product. In a 2012 study from the Federal Reserve Bank of Philadelphia, refillable cards taken out over the web charged an average of $4.22 to open and maintain accounts as well as $1.77 for transactions and other fees, costing customers between $10 and $12 a month just to use them.

As compensation for the mass outage, RushCard has announced a “fee holiday” from November 1 to February 29 for all customers on all fee types.

Even with high fees, however, prepaid cards remain an appealing option for many people, especially the “unbanked” who don’t have a traditional bank account, often low-income people who don’t have the minimum deposit amount or are wary for other reasons. There are 68 million Americans in that group, who collectively spend $89 billion on interest and fees for alternative products, such as prepaid cards or payday lenders. The average unbanked household spends more than $2,400 to access its own money.

A situation like the RushCard outage, however, exposes how different these cards are from bank accounts. They fall under few of the regulations governing other banking products, including limits on fees enacted under Dodd-Frank. More than 12 percent of reloadable cards studied by the Consumer Financial Protection Bureau (CFPB) were not FDIC insured. Some didn’t have error protection or liability protection for loss or theft. Due to a binding arbitration clause in the RushCard contract, none of the customers can sue the company in court or start a class action lawsuit.

Last year the CFPB proposed rules that would regulate prepaid cards by limiting customers’ losses in the event of loss or theft, requiring them to investigate and resolve errors, provide free access to account information, and give upfront disclosures that would be clear about the costs and risks associated with the cards. Another option to help low-income Americans that has been floated by lawmakers such as Sen. Elizabeth Warren (D-MA) would be to use the infrastructure of the U.S. Postal Service to offer low-cost banking products.

Betzy could be served by either of those changes. She signed up for a RushCard after seeing a commercial that advertised the advanced access to a paycheck. Before the recent outage she loved it, so much so that she had recommended it to her mother. But her feelings have changed. “Her card came in the mail on Saturday, and I was like, ‘Throw it away,'” she said.

She’s not sure what she’ll do after she gets access to her RushCard account restored, but she said she’ll likely take her money to different prepaid company.