Russell Simmons said he founded RushCard in 2003 with the goal of reducing the cost of poverty for those who live in it.
Russell Simmons was fed up with the fees. The hip-hop personality was concerned that poor Americans without bank accounts were paying too many of them - fees to cash checks, fees to use an ATM, fees for money orders and more.
Simmons said he founded RushCard in 2003 with the goal of reducing the cost of poverty for those who live in it. RushCard was one of the first plastic prepaid cards - a new financial product like a debit card, but without the checkbook.
"For years I heard from mothers, children in tow, waiting in lines for their paychecks, then in more lines to expensively cash those paychecks, then in even more lines to pay their bills," Simmons later wrote. "Truth be told, these Americans couldn't afford the 'minimum deposit levels' required by large banks to avoid monthly account maintenance fees."
This month, though, some RushCard customers have not been able to access their money for nearly two weeks because of what appears to be a technical malfunction. Paychecks deposited directly onto the cards vanished. The economically vulnerable people Simmons had sought to help were suddenly left in a precarious spot.
It is unclear how many people were affected and whether the problem is completely resolved. Simmons's company said in a statement last week that it still couldn't provide current balances for "a handful" of customers, and that the company was working with them individually to correct the remaining errors.
"This has always been my mission," Simmons said in the statement, "to financially empower those families that have been shut out of the economic mainstream."
The disruption has exposed prepaid cards to more criticism from advocates for consumers who see the products that Simmons helped introduce as sleazy and disreputable.
RushCard marked the beginning of a financial fad. Among the first prepaid cards, many others were also endorsed by celebrities, including Kim Kardashian and Justin Bieber. These cards imposed small, frequent fees on users that became exorbitant over time.
"This fiasco reveals potential gaps in the protection of consumers who use prepaid cards," Lauren Saunders, associate director of the National Consumer Law Center, said in a statement. The federal Consumer Financial Protection Bureau announced Friday that it was monitoring the situation with RushCard.
But as debate continues over how to regulate the new products, the market is maturing. Competition from major financial institutions has reduced fees, and the cards are quickly becoming popular.
Americans now use them more frequently than they write paper checks. Prepaid cards are transforming the way the poor in the United States manage their finances - often for the better.
As of last year, RushCard had more than 500,000 customers, many of them likely financially vulnerable. On social media, customers have complained to Simmons that without access to their money, they are going hungry or facing eviction. About 68 million Americans relied on financial services outside of a conventional bank to cash checks, borrow money and more in 2013, according to federal data, generally because they lacked the funds to maintain a balance at a bank.
Simmons hoped to save those households a little money. These days, though, many families might find they save more with a different prepaid card.
According to Bankrate, a firm that collects data on interest rates and fees, customers on RushCard's Pay as You Go plan pay no less than $1 per transaction to use the card like a credit or debit card at the point of sale. These fees are capped at $10 per month.
RushCard's other plan charges a flat monthly fee of $6 to $8. Other cards, such as Chase's Liquid or Wells Fargo's EasyPay, charge a flat fee per month of about $5, and users avoid the fee they would pay to make their first deposit on a RushCard.
But Bluebird, the card issued by American Express in conjunction with Wal-Mart, has none of these fees. Experts said cards with minimal fees can be profitable for large retailers, which save money on their own banking costs when customers use the cards to make purchases.
The entrance of large national and regional banks with attractive offerings like these has changed the market for prepaid cards.
"They have the most compelling offers, and they have cards that really, quite frankly, are a good value proposition," said Bankrate's chief financial analyst, Greg McBride. "Nobody over the age of 19 was ever going to get the Justin Bieber card."