UniCard, a company co-founded by Russell Simmons of hip-hop fame, is an issuer of prepaid debit cards known as RushCards. RushCards are aimed at helping lower-income households and those just starting out on their own. It can be difficult or impossible for these consumers to acquire credit, and reloadable prepaid cards like RushCard allow them to manage money and rebuild their credit histories over time.
Prepaid cards work more like debit cards than credit cards. They are loaded with a certain amount of cash, either directly by the consumer or via direct deposit from employers. Consumers cannot spend any more than the amount of money deposited in the account. Thanks to their convenience, prepaid cards have grown rapidly in popularity, with approximately 16 million cards in use throughout the U.S..
However, when the debit card issuer experiences problems, access to cash can be cut off to a population that is in the greatest need. Low-income consumers do not usually have anywhere else to turn for ready cash.
That is what happened to RushCard users recently. An update to RushCard's systems caused some users to be denied access to their funds. While funds were not lost, they were inaccessible to consumers for a week or more. In some cases, cards were inadvertently deactivated, while in other cases, individual transactions appeared more than once in statements.
The problems began on October 12. By October 23, Rick Savard, the Chief Executive of UniRush, said that the "vast majority of customers" had their problems resolved while a "handful" of customers were still experiencing problems and were being contacted individually for assistance while their access to their accounts was compromised.
RushCard apologized for the inconvenience and dealt with the problems as quickly as possible — but that may not be enough to placate the Consumer Finance Protection Bureau (CFPB). According to The Wall Street Journal, the CFPB has begun investigating RushCard to make sure that consumer's problems are properly resolved and that the proper accountability is assigned to responsible parties. CFPB is working with other agencies, including the Federal Trade Commission (FTC), in this effort.
CFPB has been targeting prepaid cards in general because of their limited protections compared to traditional credit and debit cards. While they offer inherent protection in that a thief cannot spend more than the amount that is loaded on the card, they may be able to use the existing card funds and your ability to recover the funds are limited.
Consumer liability for stolen credit cards is limited to $50 by the Fair Credit Billing Act. Debit cards have similar protections as long as the loss or theft is reported within two business days. Prepaid cards have no such protection, but under rules proposed by the CFPB, they would enjoy the same $50 liability limit.
The proposed CFPB rules would give other protections to prepaid cards that are much like the protections applied to checking accounts. Under the proposal, card issuers would have to provide "easy and free access" to information about their accounts — primarily the ability to see account balances along with a listing of transactions and fees over a certain time period similar to the monthly statements provided with checking accounts. Error resolution rights would also be guaranteed to give consumers the means to correct double-charges or incorrect entries.
RushCard may or may not end up with penalties from the CFPB, but in any case, relief for prepaid users is likely on the way thanks to the CFPB. In the meantime, use any prepaid cards with care.
If you want more credit, check out MoneyTips' list of credit card offers.
Photo by By Brett Weinstein (Transferred from en.wikipedia) [CC BY-SA 2.5 (http://creativecommons.org/licenses/by-sa/2.5)], via Wikimedia Commons