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The issuer of prepaid RushCard debit cards said Thursday that it would compensate thousands of customers for losses caused by a technical glitch left many cardholders unable to pay bills, get cash or make purchases for weeks.
Consumer advocates say the ordeal highlights the need for greater regulation of prepaid debit cards, which are mainly used by people who don’t have bank accounts and lack many of the protections of credit and debit cards.
The compensation offer from RushCard, which is backed by hip hop mogul Russell Simmons, came nearly three weeks after the problem surfaced.
“RushCard pledged that it will reimburse cardholders who experienced financial losses,” it said in a statement. “RushCard systems are now fully restored.”
The company acknowledged that “a handful” of customers were still experiencing difficulties, which it said were unrelated to the outage.
Brad Hanson, president of RushCard issuer MetaBank, said, “To our knowledge, all the cards have been working since last week. All the cards work except for ongoing issues that are routine... that are not related to the outage.”
Consumer advocates were skeptical, pointing to social media posts Thursday morning from people saying their RushCards still weren’t working properly.
“What does it mean? It’s a typical kind of corporate statement you have to parse and wait and see what consumers say,” said Ed Mierzwinski, consumer advocate at the U.S. PIRG nonprofit. “It sounds like there are still complaints coming in from consumers whose systems aren’t restored.”
Banking analyst Bert Ely said the widespread outage that occurred Oct. 12 during a software upgrade in the transaction processing system raised questions about software testing and backup system protocols.
“Every time you see these glitches like this, particularly if it takes a long time to fix... you wonder, was there a testing problem here?” he said. “Was it too rushed?”
Consumer groups have asked the Consumer Financial Protection Bureau to look into what happened. On Monday, a joint letter from 11 advocacy organizations urged regulators to address the legal gaps that leave prepaid cardholders without the same consumer protections as regular bank customers.
“We’d like to make sure nothing like this ever happens because it’s just a horrible situation for RushCard customers,” said Christina Tetreault, staff attorney at nonprofit Consumers Union.
The CFPB has proposed enhanced consumer protections for prepaid debit cardholders, but the law currently does not clearly spell out the obligations of issuers in the event of a dispute or technical meltdown.
While people who have bank-issued debit cards are protected by laws that require the institutions to give customers access to their funds within a day or two, “It’s unclear if prepaid cards have the same obligation,” said Ira Rheingold, executive director of the National Association of Consumer Advocates, adding that this is something regulators could require in the future.
“There are some real questions as to (whether) consumers of prepaid cards have the same rights to access their own money as the rest of us do. All the Tweets from Uncle Rush aren’t going to solve anybody’s trouble,” said US PIRG’s Mierzwinski, referring to Simmons’ Twitter handle.