Last Monday, thousands of Americans woke up to discover that they no longer had access to their RushCard accounts — prepaid debit cards that allow users to deposit funds via online and in-person loading systems in addition to direct deposit through employers.
The company won't disclose exactly how many people were affected, saying the problem was the result of a "glitch" as it transitioned between payment processing systems, but either way, the problem persisted for at least some users for over a week, creating a personal financial crisis for those who can afford it the least.
It's still ongoing for a handful of customers, many of whom are furious and panicked. RushCard, like other prepaid debit cards, preys on low-income people with limited financial options, and many middle class and wealthier people don't understand why the outage represented such an issue to card users — and called poor people "stupid" for relying on systems like RushCard.
RushCard, founded by Russell Simmons (yes, that Russell Simmons), allows users to sign up for a card, pick between an unlimited or pay-as-you-go plan, and begin using it like a conventional debit card. Rather than carrying cash, the card can be used at most ATMs and credit card terminals that also accept debits, and it can also be used as a direct deposit system for checks — most users don't have bank accounts.
Those features aren't free. In fact, RushCard has a hefty and byzantine fee schedule that exploits users who have few other financial options if they want access to a society heavily based on plastic.
Even with a RushCard, people can't do things like rent cars (credit card required for security purposes), and the card won't generate a credit history in the same way that conventional cards, loans, mortgages, and other financial activities will. That effectively traps users in a system where they need to continue relying on services like RushCard, because they can't build up the credit they need to access the larger financial system.
In the face of such odds, a lot of people ask why anyone would use a system like RushCard or any one of the other slew of prepaid debit cards out there, especially since many aren't even FDIC insured (RushCard is, for the record) and have extremely rigid binding arbitration clauses that make it impossible to sue the issuer (like RushCard does). The answer is simple, but it's one that isn't widely discussed: Many lower and working class Americans remain unbanked or underbanked, often not by choice, and the financial system perpetuates poverty while locking them out of opportunities to access chances at better lives.
That's why RushCard matters, and it's why we need to talk about it.
In 2013, one in 13 households in the U.S. were unbanked — they had no bank accounts whatsoever. An additional 20 percent were what's known as "underbanked," holding bank accounts but also relying on what the FDIC politely refers to as "alternative financial services," otherwise known as prepaid debit cards, check cashing companies, and pawn shops.
The FDIC's study found that many families cited unexpected financial blows as a reason why they'd been knocked out of the conventional financial system. That's over 25 percent of the population, all told, that doesn't have full access to the financial system — and in that same year, surveys found that 76 percent of Americans were living paycheck to paycheck.
Perhaps it shouldn't come as a surprise to learn that, statistically speaking, youth and people of color are the most likely to be without conventional financial instruments.
So how does this tie in with RushCard? Some people can't actually open bank accounts and lines of credit at all because they don't have credit histories or have been effectively blacklisted due to adverse credit events — and sometimes, those events aren't listed on credit reports that people can access and correct, if necessary. Instead, they're available in a giant, nebulous cloud of sometimes inaccurate information, a sort of fourth credit bureau, as it were, that banks use when making decisions even if the data it contains doesn't offer a full picture of someone's financial history.
Other users don't have enough money to open conventional checking, savings, and credit unions accounts, many of which require a minimum deposit and balance. In those that don't — many of which are being touted in the aftermath of the RushCard situation as further evidence that unbanked people are financially illiterate and should just switch to "better" banking systems — it's still difficult to maintain an account. For those living from paycheck to paycheck, it's easy to go into overdraft, paying hefty penalties for doing so and creating a robbing Peter to pay Paul situation, with fees eating into the next paycheck and increasing the risk of another overdraft. At least a prepaid debit will just be denied in the event of insufficient funds. Balancing a checkbook becomes challenging when people have limited room for error.
Many youth are unbanked because they have nothing to bank with, especially in minority communities, where there's a disproportionate representation of working and lower class people. Furthermore, for those who are underemployed or unemployed, alternative financial services may be the only way to access funds — sometimes literally, because few states actually cut unemployment checks and other benefits anymore. Instead, they discharge them to, you guessed it, prepaid debit cards.
Some people also distrust the financial system, and are reluctant to deposit their funds with conventional banks for a variety of reasons. That distrust is sometimes rooted in experience — such as watching people lose money to inexplicable fees and penalties — and sometimes in cultural attitudes. While the FDIC may insure conventional bank accounts, theoretically making it impossible to lose money if a bank goes under, working class people have watched their money melt away in other ways during financial crises even as wealthier people emerge more or less unscathed.
Being poor is actively more expensive than being middle class or wealthy, which is something many people forget when sneering at people like those affected in the RushCard crisis.
And it is a financial crisis, because many people affected have everything sunk into their cards, and not necessarily by choice. Locked out of their accounts, these are people who can't buy food, pay their utilities, access cash to pay rent, cover medical expenses, and pay for transit to work. This is a serious situation for many RushCard customers, and it's one that can be repeated over and over again with other debit card systems — especially those without FDIC protection, in which people can theoretically lose all the funds they have on deposit.
In the case of the RushCard, this shouldn't be possible, but it may take weeks or months that people don't have to untangle erroneous and glitching account records for those currently displaying a balance of zero or another incorrect number.
The promise of a system that allows people to instantly access and control their funds is appealing, especially when it's backed by a charismatic celebrity who describes it as "empowering." Poor people aren't stupid — you can't be stupid and survive on virtually no income — but they are backed into a corner by society. They can't open regular bank accounts, they can't get conventional credit, and they can't pursue more secure financial instruments.
This fiasco is an immediate and personal problem for thousands of Americans, but it's also a larger systemic and cultural problem in the U.S., where poor people get hung out to dry on a regular basis. Few presidential candidates, with the exception of Bernie Sanders — who has some problems of his own — are taking on the issue of class in America, and the fact that the financial system needs more robust regulations to protect poor folks.
Yet, these regulations are extremely hard to push through, because low income people have no lobby, and working class people don't have the energy and time to push their representatives to do better when it comes to protecting their interests.