RushCard Lawsuit Puts Extra Focus on Arbitration

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By Chris Bruce and Kery Murakami

Oct. 26 — RushCard, the prepaid card service founded by entertainment mogul Russell Simmons, is facing more complaints about access to account funds, this time in a lawsuit that adds extra focus to a proposed regulatory plan to limit the use of arbitration clauses.

Stephanie Fuentes and others filed a class suit late Oct. 23 in the U.S. District Court for the Southern District Court, alleging negligence, unfair and deceptive practices, and other claims after being unable to access funds in their RushCard accounts.

The company already is facing questions from the Consumer Financial Protection Bureau. CFPB Director Richard Cordray released a statement Oct. 23 saying his agency is taking “direct action to get to the bottom of this situation,” citing the possibility of harm to consumers.

Eleven consumer groups Oct. 26 urged the CFPB and other banking regulators to tighten supervision of prepaid card providers and their processors.

Fuentes' 27-page complaint highlights efforts by the fast-developing alternative payments industry to comply with well-entrenched consumer protection expectations.

RushCard representatives did not immediately respond to a request for comment Oct. 24.

Arbitration Clause Attacked

The case also will put new focus on a CFPB proposal to prohibit arbitration clauses that ban class suits. The proposal is still in the early stages.

RushCard uses such a provision, which could prevent the case from moving forward in court.

In their complaint, the plaintiffs said the arbitration provisions should not apply. “The terms of RushCard's arbitration provision, waiver of class action rights and right to trial by jury are unconscionable and Plaintiffs and Class Members would not have agreed to those terms or deposited any money with RushCard had they known about the fraudulent, unlawful and unfair activity and misrepresentations as described in this Complaint,” the suit said.

Nationwide Class Sought

Simmons founded RushCard, a prepaid Visa card, more than a decade ago to meet the needs of consumers not served by traditional banks. Visa is not a defendant in the case.

RushCard is owned by UniRush LLC, a Simmons-owned company named as a defendant. Others defendants include MetaBank, a federally chartered savings bank headquartered in Sioux Falls, S.D., that issues the cards, and its holding company, Meta Financial Group, Inc., a Delaware limited liability company with its principal place of business in Sioux Falls.

The plaintiffs seek to represent a class of all consumers in the U.S. who held a RushCard and were denied access to their accounts and funds beginning Oct. 12, 2015. The complaint also defined two subclasses of plaintiffs from Georgia and Florida.

In his Oct. 23 statement, Cordray said he spoke personally with UniRush Chief Executive Rick Savard.

“We have stressed that RushCard and its relevant business partners must ensure that no other consumers will be denied access to their funds,” Cordray said.

Consumer Groups

In their Oct. 26 letter, consumer groups including the National Consumer Law Center, Americans for Financial Reform, the Center for Responsible Lending and Consumer Action said “the occurrence raises important questions about the extent to which prepaid cardholders are adequately protected.”

The group also urged the CFPB to approve the proposed arbitration ban.

“To the extent that any laws were violated in this incident, courts should be able to address any violations and order relief for all impacted consumers,” the letter said. “If the rights of hundreds of thousands of consumers were violated, they should not have to file hundreds of thousands of individual claims before private arbitrators in a process that is closed to the public.”

A CFPB spokeswoman declined to comment Oct. 26 on the letter.

To contact the reporters on this story: Chris Bruce in Washington at cbruce@bna.com and Kery Murakami in Washington at kmurakami@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com