Economy

Federal Watchdog Steps In After RushCard Customers Go 12 Days Without Money

CREDIT: Rob Latour/Invision/AP

RushCard co-founder Russell Simmons

Some customers who use RushCard prepaid debit cards to store all of their money say they still can’t get into their accounts, 12 days after the company switched over to a new payment processor and unleashed a massive glitch that cut off thousands from their own funds.

That includes Letha Berverly, who told ThinkProgress that while she has $800 in her account, she still can’t use it. Her employer can’t give her the money it direct deposited into the account and her bills are piling up. The single mother of four children says she is facing eviction and losing her car while she waits to get access to her account.

Stories like hers have prompted the country’s consumer watchdog, the Consumer Financial Protection Bureau, to get involved. On Wednesday, the agency said it is looking into the “very troubling issue,” adding, “It is outrageous that consumers have not had access to their money for more than a week.” It’s also calling for customers to submit complaints on its website or through its hotline.

Other troubles have mounted for the card company founded and operated by rap mogul Russell Simmons. On Wednesday, Consumer Reports pulled its recommendation of RushCard based on the mass outage, urging its readers to go elsewhere.

The company did not respond to a request for comment on the new developments, but in an emailed statement, CEO Rick Savard said that the “vast majority” of its customers have had their problems resolved and that just a “handful” are still cut off. The company is working to contact them and individually assist them. And Simmons said, “I am personally reaching out to hundreds of customers to help them resolve their issues.”

Those customers probably cannot weather more than a week without any cash. The largest group of people who use prepaid debit cards, nearly 40 percent, make less than $25,000 a year. Eight percent report being unemployed. They are also more likely to be African-American than the general population, a demographic that has much less wealth to fall back on in a pinch than white Americans.

The CFPB had already had its eye on the prepaid debit card market, which has grown to $65 billion. Last year, it proposed instituting rules requiring companies to limit customers’ losses in the event of loss or theft, investigate and resolve errors, provide free access to account information, and give clear, unfront disclosures of costs and risks.

The costs can be high. The RushCard, for example, costs between $3.95 and $9.95 to set up and then either a monthly fee of between $5.95 and $7.95 or a $1 fee for transactions plus $1.95 for not using the card for 90 days. Those kinds fees are relatively common in the market, where the average refillable card charges $4.22 on average to open and $1.77 for transactions and other fees.

But those costs may be worth it for those who can’t afford, are locked out of, or simply don’t want a traditional banking account. More than 40 percent of RushCard holders have them instead of a banking product. Generally speaking, 68 million Americans don’t have a bank account. Among those who turn to prepaid cards, more than 40 percent had closed or lost an account thanks to overdraft fees. And in explaining why they got a prepaid card, about two-thirds said it was at least in part to avoid overdraft fees, while 44 percent said they wouldn’t be approved for a checking account.

This demographic ends up paying $89 billion a year, or $2,400 per household on average, in interest and fees just to access money through alternative banking products like prepaid cards and payday loans.