‘Pedatory’ Prepaid Debit Cards
For customers of RushCard, a prepaid debit card company with nearly 3 million members, “Oct. 12 was the day the money stopped,” said The Economist. Thousands of account holders, many of whom use the card because they are too poor to afford a bank account, tried to access their money only to be told their balance was zero, thanks to a “spectacular IT failure.” Already living paycheck to paycheck, many cardholders were forced to go without groceries, gas, and even medication for nearly two weeks before the company, founded by hip-hop magnate Russell Simmons, fixed the glitch.
This technical disaster “has unfolded largely under the media radar, possibly because members of the car d’s customer base live under the media radar,” said Michael Hiltzik in the Los Angeles Times. RushCard is a “financial lifeline” for its mostly lowincome customers, especially since it lets users get paychecks up to two days in advance. But like many financial products catering to the poor, RushCard comes “barnacled with fees,” including a $9.95 fee to acquire the card in the first place, a monthly account fee of up to $7.95, $1 for every transaction, and a $1.95 “maintenance fee” when members don’t spend money for 30 days. Some 17 million Americans are “unbanked,” meaning they don’t have traditional bank accounts, said Jamelle Bouie in Slate.com, and 58 million are “underbanked,” lacking access to banking services like debit cards and savings accounts. These poor and working-class Americans—many of them black, Latino, and Native American—don’t have the steady income stream it takes to maintain the balances required by most banks. As a result, they’re forced to rely on pricey alternatives like “payday lenders, check cashers, and pawn shops that, while predatory, are at least flexible.”
Unfortunately for RushCard customers, “their options for recourse are limited,” said Mandi Woodruff in Yahoo.com. Their cardholder agreement bars class-action lawsuits, and it could take years for regulators to squeeze compensation out of the company. RushCard is now offering a “fee-free” period from Nov. 1 through Feb. 29, but that’s cold comfort to many people who were forced to scrape by because of the company’s errors. The sad truth is that most of America’s unbanked don’t have many other options, said Jeff Spross in TheWeek.com. Big banks have been consolidating for years and “pulling up stakes in poorer neighborhoods,” allowing payday lenders and check cashers to move in and fill the gap. One solution that has been floated is to revive the banking functions of the U.S. Postal Service, something the USPS did for decades until the 1960s. As expensive financial products like RushCard spread, a “public option” might be necessary. Otherwise, millions of Americans will be charged exorbitant fees “for the mere opportunity to continue participating in the economy at all.”
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