RushCard Ordered to Pay $13 Million for Disruption of Prepaid Card Service

http://www.nytimes.com/2017/02/01/business/rushcard-cfpb.html

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More than a year after a breakdown of RushCard’s prepaid debit card system denied thousands of customers access to their cash, a federal regulator has ordered the company and its payment processor, MasterCard, to pay $13 million in fines and restitution.

The penalty is intended to send a warning to the entire prepaid card industry, the director of the Consumer Financial Protection Bureau said on Wednesday. Many people, especially low-income customers, rely on such cards in place of bank accounts.

“Companies will face the consequences if consumers are denied access to their money,” the director, Richard Cordray, said. “All of this stemmed from a series of failures that should have been anticipated and prevented.”

A botched transition to MasterCard’s processing system in October 2015 caused a cascade of technical problems for RushCard, creating disruptions that stretched on for days. At the time, the company had 650,000 active users, with around 270,000 of them receiving direct deposits on their cards.

Many transactions by RushCard customers were denied, and they were unable to withdraw funds. On social media and elsewhere, people spoke of being unable to pay for rent, food, electricity and other critical expenses.

For people living on the financial edge, one missed payment can set off a domino chain of consequences. As one customer said in a complaint to the consumer bureau, “I am being evicted because of this and still don’t have money to move or feed my family even.”

Another wrote, “It’s been a week since I’ve had my medication — I’m literally praying that I make it through each day.”

The consumer bureau’s ordered remedy specifies the minimum that each affected customer should receive in compensation. People who had direct deposits rejected and returned to the funding source are to be paid $250. Customers who had a transaction denied are owed $25. The penalties are cumulative; customers who experienced multiple kinds of failures will be compensated for each.

In May, UniRush, the parent company of RushCard, agreed to pay $19 million to settle a lawsuit from cardholders. Customers began receiving those payments in November through account credits and paper checks.

The settlement with the consumer bureau comes as UniRush prepares to change hands. Green Dot, one of the country’s largest issuers of prepaid debit cards, said on Monday that it would acquire UniRush for $147 million.

The announcement of the deal specifically noted that UniRush would remain responsible for the cost of any regulatory penalties stemming from the service disruption in 2015. (Green Dot suffered a similar disruption last year, which affected customers of its Walmart MoneyCard.)

UniRush said that it welcomed the settlement with the consumer bureau while maintaining that it did nothing wrong.

“Since the event in 2015, we believe we have fully compensated all of our customers for any inconvenience they may have suffered, through thousands of courtesy credits, a four-month fee-free holiday and millions of dollars in compensation,” Kaitlin Stewart, a UniRush spokeswoman, said in a written statement.

Russell Simmons, the hip-hop mogul who founded RushCard in 2003, said in an email: “This incident was one of the most challenging periods in my professional career. I cannot thank our customers enough for believing in us, remaining loyal and allowing us to continue to serve their needs.”

Seth Eisen, a MasterCard spokesman, said the company was “pleased to bring this matter to a close.”

For the consumer bureau, the RushCard penalty is the latest in a string of enforcement actions that have extracted $12 billion from businesses in the form of canceled debts and consumer refunds.

But the agency’s future is uncertain: It has long been a target for Republican lawmakers, who have accused it of regulatory overreach and want to curtail its powers. This week, President Trump pledged to “do a big number” on the Dodd-Frank Act, the 2010 law that increased Wall Street oversight and created the bureau.

A number of new rules that the bureau has hoped to finalize soon — addressing payday lending, mandatory arbitration and debt collection tactics — are now up in the air. On the enforcement front, though, the bureau has stuck with a business-as-usual approach and continues to regularly punish companies that it contends have broken the law.

Last month, it initiated one of its largest attacks yet with a lawsuit accusing Navient, the country’s largest servicer of student loans, of a host of violations that allegedly cost customers billions of dollars. Navient denied wrongdoing and intends to fight the case.

Asked about the timing of the bureau’s recent spate of enforcement actions, Deborah Morris, the agency’s deputy enforcement director, denied that politics played any role.

“January has historically been a busy month for us,” Ms. Morris said.

On the RushCard case, Ms. Morris added: “It’s ready to go now. That’s why we’re announcing it today.”