Late last year, hundreds of customers who store their money not with a traditional bank but with a prepaid debit card from the company RushCard suddenly found themselves completely cut off from their funds, thanks to a technical problem. Customers reported that they ran low on food, had to resort to scrounging loose change out of their couch cushions, and even faced eviction, getting their water shut off, or losing their cars.
Now they can expect to get paid back by the company for at least some of the troubles the outage caused.
Last week, RushCard — which was founded by rap mogul Russell Simmons — agreed to pay each of its 300,000 users who couldn’t access their funds at least $100, with or without documentation of the hardship they suffered, as part of a settlement over a class-action lawsuit brought against the company. If a customer can document other losses, he might be able to get up to $500. Those payouts, plus fee reimbursements it doled out earlier, will total $19 million plus another $1.5 million toward attorney fees, according to the company. The settlement is still preliminary and needs court approval, although the plaintiffs in the case have already agreed to it.
“We are pleased to have reached this preliminary settlement, which will resolve the claims of our cardholders,” Rick Savard, the CEO of parent company UniRush, said in a statement. “We believe this settlement fairly compensates our customers who were inconvenienced.”
The lawyer representing cardholders also expressed his satisfaction with the settlement. “We’re very pleased with the result and the speed by which RushCard and the other defendants were able to settle this matter,” said John Yanchunis. After the deal is approved, likely in four to five months, customers should quickly start receiving checks.
The RushCard Fiasco Exposed The Danger Of Unregulated BankingEconomy by CREDIT: Rob Latour/Invision/AP Last October, users of the prepaid debit card accounts offered through…thinkprogress.orgThe settlement is significantly more than the company had originally promised when it announced a few weeks after the outage that it would create a multi-million fund to reimburse customers who could show documented financial losses. At the time, some worried that things like empty refrigerators or low gas tanks could be tough for RushCard customers to document, even though they’re worthy of compensation all the same.
It might not be the end of the story for RushCard, however. It’s still under investigation by the Consumer Financial Protection Bureau, which reported a huge spike in complaints about prepaid debit cards during the RushCard outage. The company attempted and failed to throw out that investigation.
It also may not be the end of the financial cost for users of RushCards. Prepaid debit cards — which tend to appeal to those who can’t or don’t want to open traditional bank accounts, sometimes because they simply can’t afford the minimum deposit amount — come packed with fees. RushCards cost between $3.95 and $9.95 to open and charge for a number of transactions, withdrawals, and even “maintenance” fees if cards go idle, depending on the plan. That’s pretty typical among refillable cards, which charge an average of $4.22 to open and maintain and between $10 and $12 a month to use. That adds up quickly for the people who use them, given that most make less than $25,000 per year.
The CFPB had already been looking at large-scale actions in this industry. It proposed new rules last year that would regulate the cards by requiring upfront, clear disclosures about costs and risks, limit customers’ losses if cards are lost or stolen, require issuers to investigate and resolve errors, and provide free access to account information.