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What Happens Next for the Rush Card

Adam Rust's picture

Posted October 26, 2015

Although RushCard does appear to have resolved the technical issues that prevented direct deposits from clearing, the long-term implications of the event are only now going to become apparent.

Rush is not like other prepaid cards. From its birth, the RushCard has been the result of a well-meaning effort to solve the banking problems of a particular community. It was created by a hip-hop mogul as an answer to the dearth of traditional banks in poor urban areas. Its use of targeted media buys showed that it understood who needed its product, and including credit-building services within its product line revealed that it understood why people wanted a prepaid card in the first place.   All along the way, a RushCard was about more than just a transactional relationship between a consumer and a bank. Russell Simmons, co-founder of DefJam Records and the founder of Phat Farm, started the RushCard. The respect he had earned within the African-American community carried across to the perceived credibility of the RushCard. I am sure many people chose a RushCard because of how they felt for Simmons. Given that, I am sure that there are people who are finding it hard to "break up" with the RushCard. But clearly, some are going to do that. 

The details of what went wrong are fairly settled by now: the proceeds of direct deposits due to consumers were held up in a payments processing limbo, and as a result, hundreds of thousands of RushCard consumers were put in to difficult circumstances. The problems started early on Columbus Day weekend and they only got worse as more paychecks were posted. With so many of their customers living at the absolute margins, a lot of people were suddenly going without basic necessities. The company was very out in front with apologies, but the technical challenges were not easily resolved. Time passed. News reports began to proliferate. More than a few people went on social media to ask RushCard (and its corporate parent UniRush LLC) for help with their groceries or their bills. Some went so far as to appeal directly to Russell Simmons. 

But now it is two week later. Those paychecks are about to come in again. Since new reports of freshly-angered consumers are not announcing themselves, it seems that the checks must have gone through this time. So the period of harm is over.

But that still leaves unanswered the question of how to redress the problems that did occur. Having been put in such straits, what can be done for those households?

Normally, Americans get their remedies in a court of law. But unless something happens to change the power of the mandatory arbitration clause in the RushCard account agreement, the power of a court won't come in to play here. 

I wonder if UniRush will come to regret putting that clause into their account agreement. I know why they tried it. After all, most consumers ignore the fine print in their account agreements.  Companies like arbitration because it is less expensive and it doesn't leave a trail of documentation out there for anyone in the public to investigate. But arbitration works only because people fail to realize that they have consented to it as a means of resolving disputes. It is inherently not friendly to consumers. Show me a consumer who would prefer to have fewer rights, and I will show you one who loves arbitration.

If those aggrieved account holders are reading their mandatory arbitration agreement now, then it is going to be one more thing that irks them about the situation. It will be one more reason to not grant RushCard the patience that the company has been asking for on its Facebook page. Indeed, if it comes to pass that post-mortems are being written about RushCard at some point in the future, then its unfriendly arbitration clause could certainly be on the list of critical missteps.  Because when you take away the option of working something out, you leave your adversaries with sub-optimal options. Rebuffing those account holders from a chance to go to court means that many are just going to throw their hands up in the air and walk away. 

If they do, then it will herald a big re-shuffling within the sphere of prepaid card program managers. In my opinion, we are at a moment where there are more good prepaid cards than there are enough consumers to produce the revenues needed to support them. So perhaps this will be a disruption that supports the next good idea in prepaid cards.

Were thousands of direct depositing consumer to leave RushCard, it would mean something to MetaBank, as well. The RushCard is still one of the largest programs out there. As well, RushCard accounts tend to have longer-than-industry-average tenures. They are profitable accounts and any issuer would want more of them. But if Rush suddenly went from its current size to something substantially smaller, then at least some of that pain would be shared by MetaBank. The company is fairly open in explaining the risk it shares with its partner issuers, as evidenced by this recent comment in its last annual report:

MPS works with a large number of business partners to derive its revenue.  The Company believes four of its partners have reached a size that, should these partners’ business with the Company end or there is a significant decrease in revenues associated with any of these business relationships, the earnings attributable to them would have a material effect on the financial results of the Company.

This is not true with respect to MasterCard. The aforementioned technical glitch occurred when RushCard was switching over to a payments processing subsidiary within MasterCard. Obviously, RushCard needs MasterCard much more than MasterCard needs RushCard.  

More underbanked?

But what if those frustrated consumers decide to turn their backs to banks altogether? What if the trust that they placed in RushCard turns out to have been an exception to a general resentment towards banks? Then they go back to paper checks and check cashers. That's not good for them, it isn't good for their employers and aside from the check cashers, it is not a positive for anyone.