Business

Senators want answers from Green Dot, Wal-Mart after card outage

Green Dot CEO Steven Streit
Steven Streit, chief executive of Pasadena’s Green Dot Corp., participates in a Treasury Department conference in Washington, D.C., on Dec. 1, 2015.
(AFP/Getty Images)

Two U.S. senators are demanding that Pasadena prepaid debit card issuer Green Dot Corp. answer questions about a glitch that last month stopped many of its customers from accessing their accounts, making purchases and withdrawing cash.

Sens. Sherrod Brown (D-Ohio) and Robert Menendez (D-New Jersey), both members of the Senate Banking Committee, on Tuesday sent a letter to Steven Streit, Green Dot’s founder and chief executive, asking for information about what caused the card outage, how many customers were affected and what the company has done in response.

In their letter, the senators said the Green Dot card outage and a similar one that last year affected customers of RushCard, a Cincinnati competitor, highlight the need for more scrutiny of the prepaid card industry.

“These service interruptions are a clear indication that more oversight and consumer protection is needed in the prepaid card market,” the senators wrote, noting that the federal Consumer Financial Protection Bureau is working on new rules for prepaid-card firms.

The senators sent the same letter to Douglas McMillon, chief executive of Wal-Mart Stores Inc., as customers affected by last month’s outage were users of Wal-Mart Money Card – a Green Dot-issued card sold at Wal-Mart stores.

They sent a similar letter to Ajay Banga, chief executive of MasterCard, which processes payments for Green Dot. Last month, Green Dot said problems with its cards started after the company moved many of its customer accounts to MasterCard’s payment processing system from a different firm.

Green Dot, Wal-Mart and MasterCard did not respond to requests for comment.

Complaints about Wal-Mart Money Card accounts started coming in May 16, with customers saying they could not check their account balances, make purchases or withdraw cash.

Later that week, Streit said problems at MasterCard were preventing customers from checking balances but that cards were otherwise working normally.

Not until the following week – a day after a contentious Green Dot shareholder meeting – did the company acknowledge that some customers had been unable to access their accounts.

In a May 24 Facebook post, the company apologized for the problems and promised to add extra money to the accounts of affected customers. Customer complaints continued on Twitter and Facebook, though many users reported getting a $50 credit from Green Dot.

Card outages, especially ones related to the kind of payment processor switch that caused problems for Green Dot customers, are not uncommon in the credit and debit card industry, said Ben Jackson, a prepaid industry analyst at Mercator Advisory Group.

But such outages have more dire consequences for prepaid-card customers, who often don’t have bank accounts, credit cards or other ways to manage their money and make purchases.

“All payment types could face this type of problem. But the disruption is greater for people who have less access,” Jackson said. “It’s a real problem for these cardholders.”

He noted that card outages are bad not only for customers but for Green Dot and other card issuers. The issuers earn revenue whenever customers use their cards to make purchases. If a large number of customers were unable to use their cards, Green Dot could have taken a financial hit.

It’s not yet clear how big that financial hit might be or how many card users were affected. Those are some of the questions Brown and Menendez want Green Dot, Wal-Mart and MasterCard to answer.

They’ve asked the firms for a detailed accounting of the number of customers affected by the outage, how they were affected and for how long.

The senators also asked whether the companies have provided information about the outage to the consumer bureau and how arbitration clauses, which force customer disputes to be handled in arbitration rather than in court, in Green Dot card agreements affect customers hurt by the outage.

The bureau has proposed a ban on arbitration clauses for consumer financial products and is mulling rules that would require prepaid card issuers to offer some of the same consumer protections afforded to checking account and credit card holders.

An updated version of those rules is expected to be released this summer.

The card outage and federal scrutiny of the prepaid-card business come as Green Dot has been warring with an activist investor, one that has urged the company to replace Streit as chief executive.

San Francisco investment fund Harvest Capital Strategies in January said Streit, a former radio DJ who became a pioneer in the prepaid card business, needed to be replaced because of “persistently poor performance, misleading and inconsistent investor communications and inability to deliver on promises to shareholders.”

Green Dot shares once traded for more than $60, but the stock tumbled in 2011 and 2012 and since then shares have generally traded in the $15-to-$25 range. They closed up 71 cents, or 3.3%, to $22.39 on Wednesday.

Harvest this spring also asked Green Dot shareholders to boot Streit and two other longtime board members and replace them with Harvest’s nominees. Last month, just before Green Dot’s annual meeting, the two directors Harvest sought to replace abruptly resigned, clearing the way for the investment firm’s nominees to join the board.

Streit kept his board seat and his job as chief executive, but the company announced this week he stepped down as Green Dot’s chairman. That title went to William Jacobs, a payments-industry veteran who joined Green Dot’s board in April.