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For the better part of two weeks, thousands of unbanked consumers who rely on prepaid RushCards have been unable to access their funds because of a technical glitch. While the company run by Russell Simmons continues to fix the issue, consumer advocates are pointing at the incident as evidence that federal regulators need to do more to protect prepaid cardholders.
A coalition of eleven consumer groups today sent a letter [PDF] today urging the Consumer Financial Protection Bureau, Federal Reserve Board and the Office of the Comptroller of the Currency to increase consumer protections for the country’s unbanked, noting that the RushCard incident has raised issues on prepaid card vulnerabilities and a lack of regulatory oversight in the industry.
While RushCard says that access to funds has been restored for most customers and its working with customers on a case-by-case basis to fix lingering issues, the consumer groups – which include the National Consumer Law Center, our colleagues at Consumers Union, the Consumer Federation of America and Public Citizen – say it’s time for regulators to tighten the reins on the largely unregulated prepaid card industry.
“This incident highlights uncertainties about an obvious question: What, if any, laws are violated if a consumer cannot get access to his or her money? Certainly, any failure to let consumers spend their own money could be an unfair, deceptive or abusive practice,” the groups write.
Under the current regulatory system, prepaid card companies and payment processors are only supervised indirectly via the card issuing bank. That means companies like UniRush – which produces the RushCard – don’t currently fall under the purview of the CFPB, Federal Reserve or other regulatory agency.
“Prepaid cardholders need as much or more robust protection as the holders of bank accounts,” the letter states. “But in our current system, they have less. No federal agency regularly examines prepaid card companies or payment processors for either consumer protection or safety and soundness issues.”
In order to eliminate uncertainty about consumer protections in the prepaid card market, the groups suggest that the CFPB and Federal Reserve clearly state that prepaid cardholders have the same rights as bank accountholders to prompt access to deposited funds and to demand that mistakes be fixed.
“All steps must be taken to ensure that such a problem does not happen again,” the groups write referencing the RushCard issues. “It could be devastating for any family to be unable to access expected funds. But the families who rely on prepaid cards tend to have far fewer resources than other consumers.”
Prior to the coalition letter, the CFPB director Richard Cordray issued a statement regarding the RushCard issue, noting that the agency would take director action “to get to the bottom of this situation.”
Also last week, Consumer Reports announced it would suspend its RushCard recommendation in light of the company’s technical issues.
“The company needs to step up fast, and until we know the problem is fully resolved, we don’t recommend [these cards] to any new customers.” Pamela Banks, senior policy counsel for Consumers Union, said.
Issues with the RushCard first surfaced late on Oct. 11, when the company experienced a disturbance during a “technology transition.”
Among other things, users reported being locked out of their accounts and that their balances suddenly showed $0.
“During this process, many of our customers were adversely affected when the technology that was used to transition their accounts did not work as planned,” RushCard CEO Rick Savard said in a statement at the time. “RushCard is working around the clock to resolve all of these matters.”
Since the incident began, the company has provided several updates on Twitter, including one that announced it would wave all fees for new and current users between Nov. 1 and Feb. 29, 2016 as an incentive to stay with the company.
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