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RushCard debacle highlights dangers of prepaid cards

Kelly Dilworth

A technical glitch has caused thousands of RushCard prepaid cardholders to temporarily lose access to their funds — in some cases, for more than a week — and the fallout for many cardholders has been terrifying.

According to comments left on Twitter and RushCard’s Facebook page, some RushCard holders — many of whom are living paycheck to paycheck and relying solely on their RushCard to store their earnings — have been forced to borrow money from friends and family, delay paying bills and even go without food and medicine until their money is restored.

On Facebook, one woman complained that without her RushCard, she couldn’t buy food or diapers for her infant. Another worried she wouldn’t be able to buy medication for her son. Many RushCard users said their utilities were about to get shut off, while others said they couldn’t buy gas because their RushCards didn’t work.

The comments left on Twitter were just as bleak. “I’m sitting in the dark with my 1 year old son becuz I have no access to my money,” complained one Twitter user. ‘Had to cancel wedding anniversary and all bills are overdue because paychecks not available,” said another. “Can’t even buy food to eat,” complained another.

Some cardholders’ payroll deposits and government benefits were also returned to senders, forcing RushCard holders to contact their paycheck and benefit administrators and ask for the deposits to be made again.

The debacle has brought fresh attention to prepaid cards and underscored just how risky it can be to rely solely on prepaid cards and other online-only financial products. Unlike a retail bank you can visit in person when you need help, prepaid cards and other financial services that don’t have physical branches force users to rely solely on customer service call centers and online assistance. If your call keeps getting dropped or a company doesn’t respond to messages, you may be temporarily out of luck.

In RushCard’s case, many RushCard holders allege that they were repeatedly hung up on when they tried to call for help. Others said they waited an inordinate amount of time to talk with someone and still haven’t gotten their funds restored.

The ordeal that many RushCard holders have been put through while their funds remain MIA is horrifying — especially for cardholders who don’t have access to any other funds.

According to a June 2015 survey from Pew Charitable Trusts, more than a quarter of general purpose reloadable prepaid card users don’t have access to a checking account, which could otherwise help buffer them from the worst effects of a frozen prepaid card account. Meanwhile, roughly half of prepaid card users make less than $25,000 a year, making it even more likely that a temporary delay in accessing their funds will get them into serious financial trouble.

Why rely on prepaid cards?
Many prepaid cardholders say they turned to prepaid cards because they don’t trust traditional banks or don’t want to get burned by unpredictable fees. Others can’t qualify for a traditional bank account or credit card or can’t come up with enough funds each month to qualify for an inexpensive checking account. According to Pew, many unbanked prepaid cardholders also use their prepaid cards to help them budget or stay out of debt and avoid pricy overdraft or check cashing fees.

In addition, the federal government has helped fuel the push toward prepaid cards by doing away with benefit checks and processing most benefits through electronic direct deposits.

The problem with relying solely on prepaid cards, though, is that prepaid cards aren’t nearly as safe as they may seem. Although some prepaid cards, such as the RushCard, are Federal Deposit Insurance Corp.-insured, not all prepaid cards are covered. Prepaid cards also aren’t regulated as heavily as other financial products, such as traditional checking accounts. However, that may change now that the Consumer Financial Protection Bureau is taking a closer look at prepaid cards.

Even worse, many prepaid cards undercut consumers’ rights by including mandatory arbitration clauses in their agreements.

Many RushCard holders have said on Twitter and Facebook that they’re going to sue after being put through such a harrowing ordeal. However, they won’t have access to a traditional jury trial, nor will they be able to file a class-action lawsuit. Instead, they’ll have to rely on private arbitration, which consumer advocates agree is often stacked against consumers who’ve been wronged.

What to do if your RushCard account was affected
The CFPB recommends if you missed a bill because you couldn’t access your funds, ask the company if it will waive any late fees you incurred. You may also want to halt any future direct deposits and ask for a check to be mailed to you or for your money to be deposited in a separate account.

The agency says it’s looking into the RushCard shutdown, but hasn’t provided any hints yet on how it will respond. To file a complaint with the CFPB, visit its online complaint page at consumerfinance.gov/complaint, or call 855-411-2372.

Update: CFPB director Richard Cordray announced Oct. 23 that the CFPB is aggressively investigating the situation at RushCard and pressuring the prepaid card company to clean up its financial mess.

“Today, I have personally spoken with UniRush CEO Rick Savard to make sure that action is being taken to address harm that has occurred, the harm that may still be occurring, and the cascading financial effects of consumers not having access to their funds for more than a week,” said Cordray in a statement. “We have stressed that RushCard and its relevant business partners must ensure that no other consumers will be denied access to their funds. Further, we indicated that the CFPB is prepared to use all appropriate tools at our disposal to help ensure that consumers obtain the relief that they deserve. We also agreed that the most constructive path forward for UniRush to reduce consumer harm is to take immediate action to resolve these issues. The CFPB has also engaged in discussions with fellow regulators, including the Office of the Comptroller of the Currency and the Federal Trade Commission, to ensure a comprehensive response that addresses the situation quickly and holds accountable all of the parties involved to make consumers whole.”

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