RushCard will pay a total of $20.5 million to settle a lawsuit over an incident that resulted in thousands of consumers being shut out of their prepaid card accounts last October.
What happened
According to the prepaid card company, a switch in payment processors caused the high-profile interruption in service lasting from October 12 to October 31 that triggered a Consumer Financial Protection Bureau (CFPB) investigation as well as several class action lawsuits.
Multiple suits were filed and consolidated in New York federal court. Plaintiffs claimed that during the service disruption, they were unable to access their RushCard accounts, and therefore, their funds, resulting in economic harm such as missed bill payments (with accompanying late fees) and the inability to pay for daily living expenses. Causes of action included negligence, breach of contract, breach of fiduciary duty, unjust enrichment, conversion, fraud, and violations of consumer protection statutes.
RushCard countered with multiple defenses, most notably an arbitration provision in the customer agreement that would prevent classwide resolution of the lawsuits.
To avoid protracted litigation—and its costs—the parties reached a deal.
The nationwide settlement class covers all cardholders with an open RushCard account as of October 12. Previously, the defendant provided a "fee holiday" for account holders from November 1, 2015, to February 29, 2016. During this period, cardholders were not assessed any monthly fees, transaction fees, ATM fees, or any other fees provided for in the fee schedule of the cardholder agreement in effect at the time. RushCard also provided certain cardholders with a $25 account credit.
On top of these benefits that have already been provided, the settlement provides for three tiers of relief for class members. In Tier One, class members will be reimbursed for all fees assessed by the defendant during the period of October 12 through 31 to the extent the fees were not previously reimbursed or credited. Monthly fees for October 2015 will be prorated such that class members will be reimbursed for the portion of monthly fees allocable to the service disruption. Class members do not have to file a claim or take any action to receive Tier One benefits. Including the previously issued credits, fee reimbursements are estimated to be in the neighborhood of $12.5 million.
For Tier Two relief, RushCard agreed to pay up to $100 to class members who attempted to use their RushCard or access their account during the service disruption, and who suffered a financial or other loss as a result but do not have, or do not wish to provide, documentation of their loss. The $100 payment is subject to an offset for any prior payments received to compensate for out-of-pocket expenses, other than the fee holiday. RushCard will pay up to $5 million for Tier Two claims.
In Tier Three, class members who provide "reasonable documentation of substantiated losses" will be eligible for a payment of the lesser of the substantiated losses or $500 (also subject to an offset for prior payments). A total of $1.5 million will be provided by RushCard for Tier Three payments; any unclaimed amounts in either Tier Two or Tier Three funds will revert back to the defendant.
RushCard also promised to pay for the costs of claims administration, class notice, service awards of $500 for each of the 15 class representatives, as well as attorneys' fees and expenses not to exceed $1.5 million.
"The valuable benefits made available pursuant to the settlement squarely address the issues raised in the litigation and provide very significant relief to the proposed Settlement Class Members," the plaintiffs argued in their memorandum in support of the unopposed motion for preliminary approval of the settlement.
Noting that more than 400,000 individuals maintained RushCard accounts during the service disruption, the plaintiffs argued that the deal was "fair, adequate, and reasonable," asking the court to grant preliminary approval.
To read the plaintiffs' memorandum in support of the unopposed motion for preliminary approval of the settlement in Fuentes v. UniRush, click here.
Why it matters
On May 17, U.S. District Court Judge J. Paul Oetken granted preliminary approval to the $20.5 million deal, likely closing the chapter on the RushCard service disruption. However, the incident drew attention to the prepaid card industry generally and may have provided additional support for the Consumer Financial Protection Bureau (CFPB) in its efforts to enact new regulation of prepaid accounts. The Bureau released proposed regulations for the prepaid card market in November 2014, but they have yet to be finalized.
