MA MasterCard Incorporated

By Yuka Hayashi 

WASHINGTON -- UniRush LLC and a unit of Mastercard International Inc. agreed to settle accusations that "preventable failures" caused a 2015 debacle in which tens of thousands of customers lost access to their money stored on prepaid cards, setting off a cascade of unpaid bills and other personal-finance crunches.

The Consumer Financial Protection Bureau said Wednesday the two companies are paying about $10 million to customers affected by the temporary lockup of their accounts, triggered by a technical glitch. The companies are also paying a civil penalty of $3 million.

UniRush is the parent company of RushCard, a major prepaid-card business founded by hip-hop producer Russell Simmons . Mastercard Payment Transaction Services, a unit of Mastercard International, is RushCard's payment processor. The glitch occurred as RushCard was switching to using Mastercard from another provider.

The settlement came two days after Green Dot Corp., a leading prepaid-card company, said it reached a deal to buy UniRush for $147 million.

The incident caused severe disruptions for customers, many of whom use prepaid cards for basic financial services including direct deposit of paychecks and government benefits as well as making purchases and paying bills. As customers were shut out of their accounts for days, and in some cases for weeks, some took to social media to air their grievances, complaining that they didn't have money to pay for basic necessities or they were hit with late fees on unpaid bills. Many prepaid-card customers are "unbanked" or "underbanked," meaning they have no or limited access to regular banking services such as checking accounts and credit and debit cards.

"All of this stemmed from a series of failures that should have been anticipated and prevented," CFPB Director Richard Cordray said on a conference call. These failures, he said, "caused serious problems for the financial lives of many customers."

RushCard said it welcomed the settlement with the CFPB but it didn't admit any wrongdoing. "Since the event in 2015, we believe we have fully compensated all of our customers for any inconvenience they may have suffered," a company representative said. The company settled a class-action lawsuit with customers last year that included reimbursement of $20 million. Mr. Simmons described the incident as "the most challenging periods in my professional career" and thanked customers for remaining loyal.

"We are pleased to bring this matter to a close, allowing us to further enhance the best practices, policies and procedures for prepaid cards," a Mastercard spokesman said. He added that the company understands "the critical role prepaid cards play in how people manage their money."

The RushCard settlement is part of the CFPB's scrutiny of the prepaid-card industry, a segment that has grown rapidly in recent years. The bureau last year finalized a new rule to bring oversight of the sector closer to regulations covering banks.

New payment technologies have elevated prepaid cards into popular financial-management tools rivaling bank checking accounts. Nearly 10% of U.S. households used such cards in 2015, according to a study by the Federal Deposit Insurance Corp.

The CFPB alleged that in October 2015, as RushCard was switching to Mastercard as payment processor, UniRush failed to transfer all customer accounts to Mastercard accurately and delayed processing direct deposits for more than 45,000 consumers. It also failed to provide customer service properly to those affected by the lockup.

Mastercard, according to the CFPB, didn't make sure it was sending accurate information about customers' accounts to UniRush.

The RushCard settlement is the latest action in a spree of enforcement activities by the CFPB in recent weeks, a move industry experts attribute to the bureau's desire to get done as much work as possible amid concern that the new Republican administration will move to constrain its authority. Mr. Cordray said in an interview last week at a WSJ Pro Financial Regulation event that the bureau's enforcement work would continue at a "steady and vigorous" pace, and warned some major cases were still in the pipeline.

Since the beginning of January, the CFPB made eight announcements of enforcement actions, including a high-profile lawsuit filed against Navient Corp. , the nation's largest student-loan servicer, for allegedly obstructing repayments from customers. Navient denies the accusations.

Write to Yuka Hayashi at yuka.hayashi@wsj.com

(END) Dow Jones Newswires

February 01, 2017 16:48 ET (21:48 GMT)

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