Changes com­ing to pre­paid card mar­ket

Daily Local News (West Chester, PA) - - BUSINESS -

Fed­eral reg­u­la­tors re­cently an­nounced new rules gov­ern­ing the pre­paid debit card in­dus­try. It’s a big change more than two years in the mak­ing that’s ex­pected to bring some ba­sic ac­count pro­tec­tions to its cus­tomers, who are of­ten fi­nan­cially dis­ad­van­taged.

Here are some things you should know:

What are pre­paid cards?

Pre­paid ac­counts are among the fastest grow­ing con­sumer fi­nan­cial prod­ucts in the United States, ac­cord­ing to the Con­sumer Fi­nan­cial Pro­tec­tion Bureau, which led the change.

Sold widely in gro­cery stores, con­ve­nience stores and on­line, con­sumers load money onto these cards and use them as they do a debit card, mak­ing ev­ery­day pur­chases or to get cash. Pre­paid ac­counts may also be loaded with funds by a third party, such as an em­ployer.

Pre­paid debit cards have be­come in­creas­ingly pop­u­lar over the last 15 years and have ef­fec­tively re­placed a tra­di­tional check­ing ac­count for mil­lions of Amer­i­cans.

Roughly $65 bil­lion was loaded onto pre­paid cards in 2012, the most re­cent year for which data are avail­able. That’s more than dou­ble the amount loaded in 2009, only three years be­fore. It is ex­pected to con­tinue to grow.

The cards are largely used by lower in­come Amer­i­cans, who are sta­tis­ti­cally more likely to be young, from a racial mi­nor­ity and earn­ing less than $25,000 a year, ac­cord­ing to the Pew Char­i­ta­ble Trusts.

What’s new?

Un­der the new rules, pre­paid debit card is­suers will have to pro­vide their users with ba­sic ac­count in­for­ma­tion like bal­ances and trans­ac­tion his­tory free of charge. Pro­tec­tions for lost or stolen cards will also be ex­tended to pre­paid debit cards. Fees for the cards will have to be more clearly dis­closed on the pack­ag­ing.

The new rules ap­ply to tra­di­tional pre­paid cards as well as other elec­tronic ac­counts

that can store funds. The rules cover pay­roll cards, stu­dent fi­nan­cial aid dis­burse­ment cards and tax re­fund cards, as well as cards used to dis­trib­ute so­cial se­cu­rity ben­e­fits and un­em­ploy­ment in­sur­ance.

Why the change?

The CFPB said that un­til now these prod­ucts largely lacked con­sumer pro­tec­tion un­der fed­eral law. That’s be­come a big prob­lem as the in­dus­try has grown.

Early pre­paid cards car­ried ex­tremely high monthly fees, and some­times they even charged fees to load money onto a card. The RushCard, which was backed by hip-hop mogul Rus­sell Sim­mons, suf­fered a mas­sive tech­ni­cal glitch a year ago that

stopped more than a hun­dred thou­sand cus­tomers from ac­cess­ing their funds, some­times for weeks.

The in­dus­try’s mis­steps have al­lowed more tra­di­tional banks and fi­nan­cial ser­vices com­pa­nies to come out with their own pre­paid cards, in­clud­ing JPMor­gan Chase and Amer­i­can Ex­press. But it’s also raised the need for more pro­tec­tion.

What else?

The in­dus­try did win one sig­nif­i­cant con­ces­sion: pre­paid debit card is­suers can still pro­vide over­draft ser­vices, which would le­git­imize a small, con­tro­ver­sial part of the in­dus­try. Only 2 per­cent of all pre­paid debit cards al­low for their cus­tomers to over­draft, ac­cord­ing to the Na­tional Con­sumer Law Cen­ter. That per­cent­age will likely ex­pand.

The new rules go into ef­fect Oct. 1, 2017.


An Amer­i­can Ex­press Serve pre­paid debit card is dis­played for sale at a store in New York. Fed­eral reg­u­la­tors an­nounced new rules this month gov­ern­ing the quickly grow­ing pre­paid debit card in­dus­try, an ef­fort more than two years in the mak­ing, which should bring ba­sic ac­count pro­tec­tions to its cus­tomers that are of­ten the poor and fi­nan­cially dis­ad­van­taged.

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