Getting stuck with a payment card that doesn't work is likely a regular occurrence in many American nightmares. When it finally happens in real life, most of us can't believe it's happening to us.
But that's exactly what happened to holders of RushCard prepaid cards. The leading prepaid card issuer, created by hip-hop kingpin Russell Simmons, agreed to reimburse approximately 132,000 of its customers after technical problems made their cards unusable over a several-day period last October.
The reimbursement of $19 million will help compensate customers who experienced failed transactions, including the costs of falling behind on bills that would have been paid with a RushCard. Another $1.5 million will go to pay attorney fees.
The action is another black eye for the prepaid card industry. In 2014, the Consumer Financial Protection Bureau proposed a series of strong consumer protections on prepaid cards, which allow users to make debit payments without requiring a bank account.
Gift cards are a popular form of prepaid cards. Normally, a prepaid card is exhausted once the funds linked to it are spent, although reloadable cards allow owners to replenish funds.
The RushCard outage occurred when the prepaid card issuer was migrating to a different payment processor. RushCard agreed to settle the class-action suit rather than contest it further.
The settlement amount includes some money already paid to victims, including a fee holiday from November 2015 through February 2016, as well as $25 credits previously issued to affected customers. Any fees paid between October 12 and 31 will be reimbursed by RushCard.
Some customers, such as ones who experienced late fees and overdraft charges, will qualify for extra reimbursements. Those with documented financial setbacks will be eligible for payments up to $500, while those lacking documentation can receive up to $100.
RushCard blames the outage on purely technical hiccups. Its CEO, Rick Savard, announce himself pleased with the settlement, which he termed "fair" in its treatment of inconvenienced customers.
Once the federal court approves the settlement, victims should receive mailed notices, to be followed up in several months by reimbursement checks.
The CFPB has been preparing new regulations since November 2014 that would govern prepaid products. The new rules would extend protections that already apply to checking account customers, including:
- Access to account information: The CFPB proposes that issuers of prepaid cards make up-to-date account information available online for free. This should help overcome the fact that prepaid-card holders generally don't receive monthly account statements the way bank customers do. The account information will include account balances and transaction/fee history.
- Error resolution: Issuers would have to work constructively with payment-card holders that have experienced problems with their account. At the present time, consumers may not have a workable way to fix certain errors arising from prepaid card use, including double-charges and spurious fees. The new rules would force issuers to investigate and correct errors on a timely basis. If the investigation can't be resolved within a certain period, the issuer must issue a temporary credit to the consumer until the dispute is resolved.
- Fraud protection: The CFPB rule would specify consumer protections against fraudulent, erroneous or unauthorized uses of their pre-paid cards. The maximum charge for which the card holder is responsible shouldn't exceed $50. Consumers should receive prompt reimbursement for stolen funds.
The CFPB is also considering new rules governing payment cards that extend credit to holders who spend more than the prepaid amount, which could make payment cards resemble credit cards in certain respects.
Do you need a credit card? It pays to shop around using a credit card website like GET.com.