RushCard is offering its users a fee-free holiday season after its processor conversion left many cardholders unable to access their accounts.
UniRush LLC last week disclosed a major service interruption with its RushCard GPR product that resulted in many of its customers experiencing difficulty using their cards and accessing funds over several days, resulting in apologies from RushCard co-founder Russell Simmons and a four-month holiday from card fees that will run Nov. 1, 2015, through Feb. 29, 2016. The problem began last week, when UniRush set out to improve customer service by changing processors, according to the company.
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While this kind of incident is very rare, processor conversions are complex operations because accounts, balances, and histories all need to be mapped over to the new processor. Extensive preparation and contingency planning can help mitigate risks, but unfortunately, sometimes the best laid plans still go awry. While it appears that the company has largely resolved its problems, the incident likely will have ripple effects for the industry.
The press reports covering the outage have used the event to portray prepaid cards as a problematic payments tool. The struggles of individual cardholders are a big problem, but they come from a technical glitch. The attributes of prepaid cards that make them valuable for people who cannot get bank accounts have not changed. For many individuals bank accounts are not a valuable tool because there are not enough bank branches and bank-affiliated ATMs near where they live and work, minimum balance requirements are too high, or past experience with banks have left cardholders looking for an alternative. Prepaid cards still provide an alternative to check cashers and other high-cost alternative financial services particularly for those who cannot access banks.
Unfortunately, the glitch may lead some people back to worse alternatives because they think there is something wrong with prepaid cards, a notion that is reinforced by much of the coverage. The New York Times reported the story of one woman who was affected by the outage.
Erica Phillips, a 32-year-old autoworker who lives in the Detroit area, said she first experienced a problem with her RushCard on Oct. 10, when she noticed her money had been moved from her existing account to an expired RushCard account. Her weekly paycheck is loaded on her card by direct deposit, and she said she was unable to access that money all week.
“I’ve been borrowing from everyone,” she said. “People at work have given me food.”
Ms. Phillips canceled her direct deposit and plans to cash her paycheck this week at a local check-cashing store.
This is not the optimal solution for anyone except maybe the check casher
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The other risk is that the Consumer Financial Protection Bureau is in the process of finalizing regulations to cover the prepaid industry. If this incident colors their perceptions, then they may alter the shape of those regulations to try to address incidents of this kind as well. Before making any changes, the CFPB should reopen the comment period and conduct further study with the industry to understand why problems like this are rare and how they really happen rather than trying to shoehorn in additional regulation.
In the final analysis, as RushCard works to make its customers whole, the industry, consumer advocates, regulators, and the public should remember prepaid cards are valuable for their users, and this technical problem is not reflective of the industry as a whole.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
