Market pullback comes six months after outage sparked federal investigation, class-action lawsuits
|RUSHCARD LIVE EXITS|
RETAIL STORE MARKET
UniRush, the company co-founded by hip-hop entrepreneur Russell Simmons, has stopped shipping its prepaid RushCard Live cards to stores. Cards can still be activated on the company website, from which this screenshot was taken.
UniRush LLC, the prepaid card company hit by a system outage six months ago, is dropping sales of its cards at retail stores, a spokesman said.
The company co-founded by hip-hop entrepreneur Russell Simmons has stopped shipping “RushCard Live” cards to retailers, a spokesman told CreditCards.com. Cards on store racks will continue to be sold until they’re gone.
“As of March 31 we are no longer issuing new cards through retail locations,” an emailed statement from The Tasc Group communications firm said. The cards were sold at Wal-Mart, Dollar General, Family Dollar, Kroger and Rite Aid, according to UniRush’s website.
The company continues distributing its reloadable prepaid debit cards on the internet, its main channel. Unirush did not say why it’s dropping retail distribution.
RushCards sold at stores were unaffected by the system outage, the company confirmed. The outage only hit cards sold online, which are backed by a different bank than the ones sold at retailers.
The approximately week-long outage prompted an investigation by the U.S. Consumer Financial Protection Bureau, which demanded information from the company. The parent company of RushCard, Empowerment Ventures, became the most-complained-about prepaid company in the CFPB’s complaint database.
The outage also sparked lawsuits by users who were unable to pay bills while their funds were frozen.
Business move?A card industry analyst said the winding down of retail sales looks like a business move, not a response to regulators or lawsuits.
“RushCard has traditionally been an online purveyor of cards – that’s where they got started,” said Ben Jackson, director of prepaid at Mercator Advisory Group. “My guess is, Rush is looking to focus on where it is strongest.”
Founded in 2003, RushCard began selling reloadable prepaid Visa cards at retailers in 2013 through an agreement with Green Dot Corp. The retail cards branded are branded as “RushCard Live.” Green Dot and its Green Dot Bank provide operations that back other debit cards, including Walmart MoneyCard.
“RushCard and Green Dot have agreed to end the partnership,” the statement from Unirush’s spokesman said.
A reported 132,000 RushCards were hit by the outage that started Oct. 11 2015, about 30 percent of users. The problems occurred when accounts were switched to a new transaction processing service, the company has said. Many users who load their paychecks onto the card were unable to buy daily necessities.
Outrage exploded on social media as some users were blocked from their funds for a week or more, and RushCard customer service workers were unable to say when cardholders could access their money. Unirush president Richard Savard has pledged to compensate harmed customers.
The privately owned company has not said how the controversy affected sales of new cards, or how many existing cardholders closed their accounts.
Four class-action lawsuits stemming from the outage are on hold pending the outcome of settlement talks, according to papers filed in U.S. District Court in March. The lawsuits target Unirush and Metabank, the banking partner for RushCards distributed online.
Prepaid industry under pressure
Fraud by scammers who compromise cards sold at retail outlets is on the rise, analysts say. That, plus heated industry competition and uncertainty about new federal rules add to the industry’s problems, said Julie Conroy, research director at Aite Group.
“If you’re already facing margin pressure, which I’m sure they are in the wake of the [system outage],” she said, “it could be the final straw.”
The CFPB is preparing a final rule to govern prepaid debit cards, which are increasingly used as a substitute for checking accounts. Fees printed on retail packaging are part of the proposed prepaid card rule the agency published in 2014, and are likely to be an important part of the final rule.
See related: 2011 Q&A with Russell Simmons