CFPB Prepaid Card Proposed Rules Are Positive For Consumers
San Francisco, CA- Nov 13, 2014. Yesterday, the CFPB proposed new rules for prepaid, payroll and government issued benefits cards. This is good news for California families. Prepaid cards are marketed as alternatives to bank accounts. While low cost, no overdraft bank and credit union accounts remain the best way for families to manage their money, the use of prepaid cards is growing. Prepaid card companies target low income consumers and consumers of color, many of whom don’t trust banks or have been pushed out of banking because of overdraft fees and bounced checks. Most prepaid cards don’t allow overdraft but a few do, including NetSpend,which is considered a large player in this market. Providing overdraft on these cards potentially makes them as dangerous for consumers as the high-fee bank accounts they are meant to replace.
“These rules will go a long way to protect people who currently buy prepaid cards at WalMart, Target and other places that can be much more expensive to use and come with far less protections than a standard debit card from a bank or credit union” said Andrea Luquetta, Policy Advocate at CRC. “While we hoped that the CFPB would keep prepaid card companies from offering overdraft or other forms of loans, we think the protections offered will make sure that consumers don’t unwittingly rack up hundreds of dollars they can’t afford to payback. That would be especially harmful for people who use the cards because they are on ChexSystems and can’t use a more affordable bank account.”
The biggest drawbacks to prepaid cards are their fees and lack of protection in case the cards are lost or stolen.Prepaid card companies charge many different types of fees and often do not disclose them in any way that allows shoppers to compare costs. The CFPB found that prepaid cards typically cost between $7 and $11 per month in fees while Pew Charitable Trusts found that the cards it studied could cost families as much as $30 a month depending on how well people understood how to avoid the fees. Many employers and government programs such as unemployment, family leave and child support payment programs also provide benefits via prepaid cards and these can similarly cost consumers unexpected fees. Currently, card companies are not required to replace any funds lost or stolen from the card. This means that someone who gets paid on a card and loses it can likely be without recourse. In comparison, money that is lost or stolen on a debit card is protected under Regulation E, which the CFPB is proposing to expand to apply to prepaid cards.
The CFPB’s proposals includes requirements such as:
•Disclosure of prepaid card fees in a uniform way so that shoppers can compare costs and find the best deal,
•Monthly Statements with the amount of fees paid monthly and annually so that consumers can be alerted to how much fees can add up,
•Prohibit government programs and employers from requiring people to sign up for a card in order to get paid,
•Protection against liability for theft so that funds used without the card owner’s permission can be reimbursed,and
•Requiring that prepaid card companies follow the same rules as credit card companies when they offer any form of credit, including the ability to overdraft, meaning that cards must send a billing statement for the amount due,give the customer at least 21 days to repay, and the cards cannot automatically pay the customer’s debt using deposits loaded onto the cards
For more information about current problems with Prepaid Cards, visit our Prepaid 101 page