July 25, 2013
Rails 4 has moved its rails command to the bin directory of the application, but this collides with any existing rails command put there by the --binstubs flag, and the two are not compatible.

The recommended way to use binstubs with Bundler and Rails 4 is to not use the global --binstubs flag, but to call bundle binstubs [gemname] individually on gems you want in your local bin folder. For some background on these changes, check out these commit comment threads: rails bundler.

There was an attempt to make Bundler 1.3.x not override anything in the bin directory if --binstubs was in effect, but that change was reverted for semantic versioning. My understanding is this change will be re-attempted in Bundler 2.x.