At worst, the breakdown in payment processing at RushCard reflects good intentions gone awry, but the response to the crisis puts management at the company in a poor light. More significantly, it demonstrates why we need to address mandatory arbitration clauses, and in this instance, why we need to eliminate the ability of financial institutions to put in place pre-dispute mandatory arbitration clauses that prevent consumers from working together in class actions.
The Back Story
Over the last week, direct deposits made to RushCard accounts have been held up in a limbo. Cardholders who had set up a direct deposit could not access their money. That imparted real pain to hundreds of thousands of RushCard customers. Their subsequent problems reflect a hard truth about the balance sheets of many working class Americans, which is simply that many are living paycheck to paycheck. Certainly it is the case that anyone would be upset to not see their paycheck in their account, but for some, that moment starts a waterfall of trouble. Electric bills are late, car payments fall behind, and pantry shelves empty. Somewhere, there are children going to school without breakfast because of this problem. I understand that this sounds very melodramatic, but unfortunately, it is also very true.
Some of the comments from customers:
- "Help me please! I have been at this airport for more than 24 hours. No load to my RushCard through MoneyGram. I need my cash load Russell."
- "If you want to regain my trust, give me my money with an extra [$] 100.
- "As of Friday I will not have a phone because it will be off since I can't pay it because I don't have my funds, my cable bill was due yesterday and was cut off today. I work very hard for my money so I should be able to use it when I need to."
- "Hello Mr. Russell Simmons since my card is tied up with you my kids will like to know can you order them a pizza please and thank you!"
- "Well I'm hungry and gonna have nothing after this."
- Hey Russell Simmons... I have no gas money. My normal deposit comes through on Wednesday evenings, but I am sitting at $0.00. I cannot reach a single customer service representative... just a message that says you have high call volumes and call back later. Help me out here! I need money for gas, food, and travel."
One of the interesting aspects to their commentary is the degree to which they are speaking not to Rush Card, but to Russell Simmons.
An Honest Technical Mistake
But before anyone concludes that Rush Card was derelict in their responsibilities to their customers, consider first how this happened. RushCard is in the process of changing its processing from TSYS to a unit at MasterCard. I am not sure if Rush Card initiated the change. It is possible that it was TSYS who wanted to end the arrangement. TSYS now owns NetSpend, and to some extent, there are issues with running the core operations of a competitor. For MasterCard, the new contract stands as a definite "win," because Rush is still a major name in prepaid. There might be a million RushCard accounts (estimate), and even better, Rush Card accounts tend to be better than most. I've spent some time talking with the people at Rush, and during that time, I have come to understand some things about their business that reflect well on how consumers value their product. A high percentage of their account holders have had their cards for many years. Their percentage of direct deposit accounts is higher than industry norms. As this translates into more transactions per month, those accounts produce plenty of interchange revenue. From a consumer-facing standpoint, those data points add up to a picture of a product that serves as the main transaction account for many people. Likewise, it underscores why MasterCard would be thrilled to have Rush as a new client.
Rush set out to roll over into the new system over the Columbus Day weekend. But at some point in time, there was a hiccup. From what I understand, it began with direct deposit-facilitated accounts that use Rush's early clearing service. This service, which credits accounts upon posting instead of at settling, is well-utilized. But at the same time, it does require attention. There is still some element of human judgment in the approval of each early deposit. That is where the backup began.
But conversely, that pattern of heavy use by consumers led to some of the problems that made the situation go from bad to worse. One of the things customers like about RushCard is the free and unlimited customer service from A Real Live Person. It would be great if this wasn't something that stood out relative to the larger marketplace, but alas, it is special. An account holder can call RushCard and speak to a live person as many times as they want. From what I have been led to believe by their staff, a small fraction of Rush's account holders appear to love this opportunity. They call more than eight times per month!
So, when paychecks weren't hitting as expected, a flood of calls ensued. Perhaps if Rush was more stingy with customer service, then the company might have had more time to devote to the processing crisis. That then spilled over to the next round of deposits, which would have begun two days later. Those payments started to back up, as the issue with the processing still had not been resolved.
Thus far, this is a case of an accidental technical glitch which resulted in some negative dynamic interactions with the nature of Rush's customer base and their willingness to provide best-in-class customer phone service. I cannot fault Rush too much for what happened. At the same time, I do not want to understate the scope of pain this may have created for many people. This was a real problem for the many low-wealth households that use a Rush Card.
But the damage control by Russell Simmons was not so excusable.
On October 12th, RushCard acknowledged the problem and indicated their intention to resolve it promptly.
On October 13th, RushCard posted verbal comments from Russell Simmons, where he said "I'm so deeply sorry. Most of the problems are fixed."
On October 14th, Simmons issued a video post on Rush's FaceBook page. Simmons assured people that Rush was working on the fix and that most people would get their money on their "actual payday." The solution would "take up to a few days for the affected customers." He continued: "We normally give you access to your direct deposit two days earlier than your regular payday. Unfortunately, this week, we won't be able to do this. But you will get your money on your regular payday."
On October 16th, Simmons said that the advance deposit system was again operational. But the use of live calls again provoked problems: Simmons said that the company would need to speak to customers in order to unlock cards.
Through October 19th, Rush continued to ask for the patience of their customers.
This morning, Simmons published another note. According to Simmons, the problem is now largely resolved with the exception of a few accounts.
Through the years, a set of best practices in crisis management has emerged. One is that a single apology is good, but many are not.
Industry Impact? Legal Impact?
Is this an event that will have long-lasting repercussions for the image of the prepaid debit card in general? These kinds of moments can be significant setbacks for the image of any product. Many people who have never used a prepaid GPR card (NPR nation) first heard about the product when University National Bank issued the Kardashian Kard. Fewer than sixty KardashianKards were ever issued - and they are probably the most impactful card accounts that have ever existed. Is this that kind of event? Certainly, some commenters have used it as a chance to paint prepaid cards more largely. Well, now this story is being revealed to the chattering classes through the business section of the New York Times. That doesn't happen too often - maybe once or twice per year.
But what of the target consumer segment (Gator Nation)? If these comments are representative, then prepaid cards should survive to see another day:
"That's what we get for living check to check and foot to mouth. First issue I've had in a few years and it's much better than a BOA account or any fee based 'checking account'!?!"
Rush is going to do its part. Earlier this week, the company announced that consumers would pay no fees to use their cards between November 1st, 2015 and February 29th, 2016.
I appreciate that last decision. Each dollar saved from fees will make a difference to the finances of consumers.
But I also wonder if this becomes a moment where the industry-wide practice of forced arbitration is questioned on a scale that attracts more attention. I would add that I am not suggesting that people should pursue any remedy against RushCard, or that their actions justify such a decision. But if they did, they would run into the brick wall that is an arbitration clause. The current mode is to require each individual customer to file with an arbitrator of the company's choosing. RushCard requires arbitration with the American Arbitration Association. No one tracks the share of decisions that are made in the favor of the client, in part because the process is private. Arbitration records are not made available to the public. The "trial" does not take place before a jury and there is no process of discovery. Is that a fair substitute for our courts? Hardly. Does the benefit go to the consumer? Hardly. Indeed, since the business is paying the arbitrator, it is a pretty safe assumption that the outcomes satisfy the company.
There are also prohibitions in place against class-action lawsuits. In many instances, consumers cannot create a class. That effectively eliminates any prospect of widespread penalty through litigation, as most of the kinds of households that use a GPR card are not likely to have the resources to cash flow attorney's fees. Arbitration is one of those under-the-radar problems that few people outside of the legal community ever contemplate, but it represents a systemic affront to the rights of consumers.