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The CFPB continues to flex its muscle and expand its reach, this time punishing a prepaid card provider and its vendor for a conversion to a new system that did not go as planned. The consent order, which was entered into without any admission of liability, requires UniRush and its vendor/payment processor to pay an estimated $10 million in restitution to affected consumers and a civil monetary penalty of $3 million.
According to the Consent Order, the problems began with a conversion by UniRush to a new payment processor owned by Mastercard. Despite having engaged in pre-conversion testing and multiple mock tests in preparation for the actual conversion, the conversion did not go as planned. Instead, the conversion took longer than expected and led to a number of issues for consumers. Further, despite having hired additional agents to meet an anticipated spike in customer needs, UniRush could not meet the increased customer service demand.
Of concern is the CFPB’s finding that UniRush engaged in unfair and deceptive practices by failing to ensure pre-conversion testing by its vendor. The CFPB found UniRush had engaged in unfair and deceptive practices despite noting that:
Despite these findings, the CFPB found that “UniRush failed to prepare a contingency plan that would enable it to scale its customer service response to meet the increased demand on its customer service system that resulted from the service disruptions it experienced following the conversion.” The CFPB concluded that “UniRush’s acts or practices in preparing for the payment processor conversion caused or were likely to cause substantial injury to consumers that was not reasonably avoidable or outweighed by countervailing benefits to consumers or to competition.” Consent Order, ¶ 35.
The Consent Order focuses, among other things, upon what the CFPB deemed to be an inadequate incident response program. The Order makes clear that the CFPB will not allow covered entities to rely solely on their vendors to ensure system conversions go as planned and the need for businesses to have plans in place to deal with system failures or service disruptions.
The Consent Order provides guidance for others in the financial services sector as to the CFPB’s expectations regarding response programs in place any time there is a system conversion which may impact consumers. The Consent Order suggests that entities, at a minimum, should have:
Caren Enloe is a partner who concentrates her practice in consumer financial services litigation and compliance, bankruptcy, and commercial litigation with an emphasis on creditor’s rights. She has a deep understanding of the complex compliance environment surrounding the financial services industry and regularly advises financial service companies on licensing and compliance issues involving state and federal consumer protection and finance statutes. Caren is the author of a daily blog titled: Consumer Financial Services Litigation and Compliance where she posts timely and informative updates regarding the CFPB, FTC, and a host of topical litigation issues involving consumer protection law....LEARN MORE