Thousands of account holders of one of the most popular prepaid debt cards, the RushCard, found themselves unable to access their funds for the better part of two weeks. Essentially, they could not purchase groceries, pay rent or purchase gas using their cards because of a so-called “technology transition,” the company said. Hip-hop mogul, Russell Simmons who is the founder of the card simply said he was “praying” for those affected, in a since-deleted tweet.
It’s a sad reality that the poorer you are the more you pay for banking in America- but it can also be dangerous to live outside the mainstream banking system as this type of problem is not limited to RushCard. The Pew Charitable Trusts reported in June that about 23 million Americans use prepaid cards such as RushCard regularly, up about 50% between 2012 and 2014, with many treating them like bank accounts and having their pay checks directly deposited to the card.
It’s not the first time that a prepaid debit card backed by a celebrity and marketed directly at the financially most vulnerable segment disappointed consumers. Last year, Suze Orman and Bancorp Bank shut down their approved card project. Part of the card’s marketing pitch was that this might be a way for Americans with poor credit to rebuild their damaged FICO scores. However, the minimum annual cost to use Orman’s product for a typical “unbanked” consumer came closer to $81 in fees.
For many individuals, using these type cards seem like a rational choice, as a number of banks are beginning to charge fees for smaller accounts. The banking industry has stopped serving those who are “too poor to bank”, pushing them into the arms of non-bank service providers to provide the most basic services: to cash pay checks, pay bills or transfer money. But in reality, consumers are forking over approximately 10% of their income for these services when they use these type cards.
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