The Consumer Financial Protection Bureau (CFPB) proposed regulations for the prepaid card industry in December 2014 and accepted public comments through March of 2015. Woodstock commented that these rules are generally strong and will help keep consumers safe in this growing industry, but we believe that the CFPB can strengthen the rules by expanding protections in several areas.
More consumers are using prepaid cards, but the industry is still lightly regulated, meaning consumers can be hit with unexpected fees and other harmful features. In 2012, consumers loaded $65 billion onto prepaid cards with 9.2 billion transactions. Fees can occur in a variety of ways, including balance inquiries, ATM withdrawals, and customer service calls. Essentially, some consumers have to pay to manage their money and access card features. Prepaid card issuers are not obligated to disclose all of these fees in advance, which takes away consumers’ ability to compare products before purchasing. These cards are also not required to have Federal Deposit Insurance Corporation (FDIC) insurance or National Credit Union Association (NCUA) insurance. The CFPB proposed rules to remedy many of these issues, including:
- Creating short- and long-form fee disclosures to allow consumers the opportunity to comparison shop before purchasing a card;
- Extending Regulation E to registered prepaid cards, protecting consumers from fraud and theft;
- Allowing free access to transaction history and account balances either online or by telephone, as well as occasional free paper statements by request; and
- Expanding protections for credit products on, or linked to, prepaid cards.
Woodstock made several suggestions to strengthen the proposed rules to ensure that consumers are protected from the worst industry practices. Woodstock urged the CFPB to: require FDIC insurance for all prepaid cards; ban all overdraft credit and fees; ensure all credit products linked or attached to prepaid cards are covered by Regulations Z and the Credit Card Act; and increase protections to prevent abusive use of payroll, student, released prisoner, and public benefit prepaid cards.
Requiring insurance for all prepaid cards, banning overdraft fees, and making sure cards are covered by consumer protection laws gives consumers more control over their finances when they use prepaid cards. Deposit insurance and consumer protection laws ensure that prepaid cards are safe places to store and transact money. Overdraft products undermine the value proposition of prepaid cards—to load money in advance and only spend that amount—and could trap consumers in debt.
While Woodstock supports the creation of short- and long-form disclosures, we urged the CFPB to expand the information disclosed in the short-form and to make the long-form disclosure available in a retail setting so borrowers can understand their prepaid card before purchasing.
Woodstock recommends that CFPB further lower barriers to money management by requiring prepaid issuers to provide customer service in a language other than English.
These proposed rules demonstrate how the CFPB can level the playing field for consumers. That’s why it’s so important that the CFPB keeps its authority and independence from political pressures. Individuals and organizations should urge Congress to support the CFPB’s independence.
Going forward, the CFPB needs your help to understand emerging consumer protection threats. We encourage consumers to submit complaints about prepaid cards to the CFPB so that they can inform policy that will help consumers. The CFPB will also contact the prepaid card issuer to help get a resolution to your problem.