UniRush LLC and Mastercard failures in botched system conversion amount to breach of consumer protection law, agency charges
RushCard holders affected by the prepaid card’s widespread system glitches in 2015 will share an estimated $10 million payment for their troubles, the federal government’s consumer financial watchdog announced on Wednesday.The U.S. Consumer Financial Protection Bureau ordered UniRush LLC – the company co-founded by hip-hop entrepreneur Russell Simmons – and its payment processor Mastercard International Inc. to pay the redress to customers. The companies will also pay a $3 million fine to the agency for failing to take steps that could have prevented the system problems.
“By botching the changeover to a new payment processing platform, UniRush and Mastercard betrayed the trust of tens of thousands of consumers who rely on the RushCard to conduct and manage their day-to-day finances,” CFPB Director Richard Cordray said in announcing the penalty. The failures amounted to unfair practices under consumer protection law, the agency charged.
The outage sparked an explosion of complaints from RushCard holders, some of whom were unable to buy food or other necessities for days while their funds were tied up.
Of RushCard’s 652,000 active users, about 45,000 suffered delays in direct deposits, the CFPB said in an announcement. Some 3,000 others had deposits sent back to the senders, or had accounts frozen because of incorrect fraud alarms. Transactions were declined for 20,824 consumers during a 3.5-hour period beyond the scheduled five-hour outage for the system switch, among other problems.
Industry put on notice
The detailed order puts prepaid card companies on notice to test their processes thoroughly before switching their transaction systems, a notoriously risky task, one industry expert said.
“Every processor conversion has some issues involved with it,” said Ben Jackson, directory of prepaid advisory service at Mercator Advisory Service. While the RushCard conversion was a severe case, “None of them go smoothly.”
The problems began in October 2015 when RushCard switched to Mastercard’s payment processing company to handle card transactions. Glitches with the transition delayed some deposits from being reflected in cardholders’ accounts, the CFPB said. Other accounts had inaccurately inflated balances or negative account balances, were incorrectly suspended for possible fraud, or were charged monthly fees in error that were then deleted.
How payments will work
For each affected cardholder the redress plan will pay:
- $25 for having a transaction denied during a blackout period Oct. 12, 2015.
- $50 for card-to-card transfers that were not processed immediately after the conversion date.
- $100 for incorrect balance information showing a zero balance during October 2015.
- $100 for automated deposits not processed in the week after the conversion.
- $150 for incurring a negative account balance after a duplicate deposit subtracted from the account.
- $150 for being unable to make transactions or access funds because the account wasn’t transferred to the new processing system.
- $150 for account freeze because of false-alarm fraud alert caused by the system glitch.
- $150 for cards not promptly replaced after being lost or stolen, or replaced with non-working card.
- $150 for cash loads that weren’t credited properly after Oct. 12, 2015.
- $250 for automatic deposits returned to source, loaded onto inactive or expired cards, or not processed successfully during October 2015.
Eligible recipients do not have to come forward to file claims, CFPB Deputy Enforcement Director Deborah Morris said in a call with reporters. Current RushCard holders will receive a credit on their account, while former cardholders will be reached by mail.
Cardholders affected by multiple problems will receive more than one payment, Morris said. Payments will begin sometime after the 60-day period in which the companies must file plans to comply with the order.
UniRush and Mastercard agreed to accept the order Jan. 30 without admitting or denying wrongdoing.
The payments come in addition to amounts that people may have received through a $20.5 million settlement of class-action lawsuits, approved in September 2016, and a reported $2 million to $3 million in reimbursements that RushCard said it would pay to affected customers unilaterally shortly after the outage.
Setting a standard
How long do deposits have to be delayed, or funds frozen, for the inconvenience to amount to a breach of consumer protection law?
Morris of the CFPB said there was not a threshold, and that each case would be looked at individually.
However, the agency’s order outlines a list of specific pre-conversion tests that were skipped or abbreviated, which could have prevented or reduced the problems with RushCard’s system switch. The detailed list in effect gives prepaid companies – as well as other types of payment cards – a regulatory guide for how to handle their conversions, Jackson of Mercator said.
“It’s almost like the best practices have been given a baseline, here in this order,” he said. The CFPB published regulations governing prepaid cards in October 2016, but system reliability was not part of the requirements.
The crackdown on RushCard may result in fewer outages for card users, Jackson said. However, the order could have a downside for consumers as well, he said, if companies decide not to reimburse users for problems at the time of the outage, as RushCard did, and wait for fines to be imposed instead.
“They may just say, why don’t we just wait and do everything all at once,” he said.
Green Dot buys UniRush
The order comes two days after Green Dot, a rival prepaid card company, announced it had agreed to acquire UniRush for $147 million plus annual payments based on financial performance. CFPB officials said the crackdown was unrelated to the announcement.
Green Dot indicated the deal was unaffected by the CFPB order. A company spokesman noted that the deal includes an escrow reserve fund, paid by UniRush, to protect the buyer from expenses resulting from UniRush’s past operations. The deal is expected to close by March 31.
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