The Consumer Financial Protection Bureau is flexing its regulatory might, leveling multimillion dollar fines on Mastercard and prepaid debit card company UniRush LLC for technology snafus that left cardholders without access to their funds for days in late 2015. News of the action came out on Feb. 1, 2017, as some lawmakers prepared to take a legislative scalpel to the CFPB's controversial prepaid card rules.
The UniRush prepaid debit card, known as RushCard and launched in 2003 by hip-hop entrepreneur Russell Simmons, made headlines in October 2015 when tens of thousands of cardholders were turned away from POSs because their cards were declined despite having available funds on deposit with their cards. At the time, MasterCard Payment Transaction Services, a unit of Mastercard, was taking on RushCard's processing workload.
The changeover was supposed to result in a two-hour blackout. "But immediately after UniRush switched to Mastercard, tens of thousands of consumers were jarred by a series of crippling service failures," CFPB Director Richard Cordray said in a statement. For example, more than 1,000 cardholders had their accounts suspended for suspected fraud, Cordray said. Also, direct deposits to about 45,000 accounts were delayed, and thousands of other deposits were either "improperly returned" or double posted.
"Adding insult to injury, UniRush's customer service system utterly failed to meet the needs of its customers," Cordray said. "By botching the changeover to a new payment processing platform, UniRush and Mastercard betrayed the trust of tens of thousands of consumers who rely on the RushCard to conduct and manage their day-to-day finances."
The upshot: UniRush and Mastercard were ordered to pay an estimated $10 million in restitution to affected cardholders and a $3 million civil penalty to the CFPB. The two companies also were ordered to take steps "to prevent any of these things from happening again in the future," Cordray said.
The action against UniRush and Mastercard is the latest chapter in the CFPB's campaign to establish greater regulatory accountability in the prepaid debit card market.
The 2010 Dodd-Frank Act gives the CFPB broad powers to regulate consumer financial services, particularly those offered by nonbank financial services companies, like prepaid and short-term loan companies. A sweeping set of rules crafted by the CFPB specifying regulatory coverage of prepaid cards is set to take effect in October. Those rules, among other things require upfront fee disclosures, specific error resolution procedures, standardized agreements, detailed monthly statements and overdraft protections.
The pending rules are controversial, as the CFPB has been. In 2016, for example, a federal appeals court ruled the leadership structure of the CFPB is unconstitutional. The bureau was created as an independent federal agency with a director who is appointed by the President yet reports to the Secretary of Treasury. The appeals court said the President must have veto authority over the agency's rules.
Republicans in both the House and Senate have introduced resolutions to scuttle the rules. The Congressional Review Act is a 1990s-era law that allows Congress to override federal agency rulemaking with majority votes in both the House and Senate, along with presidential approval.
Peter Cubita, of the law firm Ballard Spahr LLP, said that to date, the CRA has been used only once to nullify federal rulemaking. A controversial ergonomics rule adopted by the Occupational Safety and Health Administration during the final months of the Clinton Administration was torpedoed following the election of George W. Bush and a Republican Congress in 2000.
In December 2016, the Electronic Transactions Association, echoing the sentiments of many CFPB detractors, wrote leading Republicans in the Senate urging repeal of the CFPB's prepaid card rules. "The CFPB's rule on prepaid cards is overly burdensome, expansive and prescriptive, negatively impacting consumers," Scott Talbott, ETA Senior Vice President of Government Affairs, wrote.
In early February, resolutions to repeal the rulemaking were introduced in both houses of Congress. Sen. David Perdue, R-Ga., introduced Senate Joint Resolution 19, which is co-sponsored by six other Senate Republicans. The resolution is pending before the Senate Banking Committee. A similar measure was introduced in the House by Rep. Tom Graves, R-Ga.
As Perdue introduced his resolution, Consumers Union was delivering letters to members of the Senate urging them not to use the CRA to overturn pending rules. "Under the CRA, once a rule is erased, an agency cannot move forward with any 'substantially similar' rule unless Congress enacts new legislation specifically authorizing it," Consumers Union wrote. "Among other impacts, this means a bare majority of the Senate can erase a rule, but then restoration of that rule is subject to the full legislative process, including a filibuster." 
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