RushCard Problems Underscore Need for Strong Consumer Protections for Prepaid
By Christina Tetreault on Friday, October 23rd, 2015
Even if you don’t use a prepaid card, you’ve probably heard about the problems with the RushCard that kept customers from accessing their account funds. In some cases, cardholders couldn’t use their cards for a week or more. You can imagine the impact that had on cardholders, many of whom rely on their RushCards to secure life’s necessities. Throughout the media, RushCard users reported that they couldn’t pay for medicine, were unable to buy food for their kids, or couldn’t pay for the bus and therefore had to walk to work. These problems led to our decision earlier this week to suspend our recommendation of the RushCard.
This whole mess highlights our biggest concern with prepaid cards: they don’t come with the same legal protections that users of debit cards tied to bank accounts get. The Consumer Financial Protection Bureau (CFPB) has issued proposed rules that would ensure essential consumer protections for prepaid card users (read our comments on the proposed rules here), but unfortunately, those rules aren’t final yet. The RushCard debacle underscores how necessary those rules are. Many Americans rely on prepaid cards to conduct their financial lives, and they need legal protections for their accounts now.
While the proposed prepaid rules are not yet final, the CFPB has not been silent on the RushCard issue. Today, CFPB Director Richard Cordray issued a statement that confirms that the Bureau is not only looking into the problem, but also working with other regulators including Office of the Comptroller of the Currency and the Federal Trade Commission to make sure that affected consumers are made whole, and the companies responsible are held accountable:
The CFPB is taking direct action to get to the bottom of this situation that may have harmed thousands of innocent consumers already. Today, I have personally spoken with UniRush CEO Rick Savard to make sure that action is being taken to address harm that has occurred, the harm that may still be occurring, and the cascading financial effects of consumers not having access to their funds for more than a week. We have stressed that RushCard and its relevant business partners must ensure that no other consumers will be denied access to their funds. Further, we indicated that the CFPB is prepared to use all appropriate tools at our disposal to help ensure that consumers obtain the relief that they deserve. We also agreed that the most constructive path forward for UniRush to reduce consumer harm is to take immediate action to resolve these issues. The CFPB has also engaged in discussions with fellow regulators, including the Office of the Comptroller of the Currency and the Federal Trade Commission, to ensure a comprehensive response that addresses the situation quickly and holds accountable all of the parties involved to make consumers whole.
We applaud the CFPB for taking action, and urge rapid adoption – without dilution – of the proposed prepaid rules.
The RushCard situation also highlights the need for reform regarding arbitration clauses in consumer financial services contracts. A fundamental protection for consumers is the right to go to court to hold wrongdoers accountable. But many consumers are denied this right because of clauses in contracts that they may not even notice or understand. In our comments to the CFPB on prepaid cards, we urged the Bureau ban these clauses. While it is unclear what will happen regarding RushCard customers, the RushCard user agreement includes a clause requiring “all claims to be resolved by binding arbitration.” The CFPB recently signaled that it is considering issuing rules that would limit (not ban entirely) the use of arbitration agreements in consumer financial services contracts. We urge the CFPB to act soon.
If you have been affected by the RushCard service disruption, we urge you to file a complaint both with RushCard and with the Consumer Financial Protection Bureau. The company says all systems are up and running, but consumers are still complaining on social media. We therefore suggest that until the RushCard situation is completely resolved, consumers consider another prepaid card. Consumers considering a prepaid card can check our prepaid card ratings here.
Do you have a prepaid card story? Please share it in the comments.