Prepaid-card regulation under fire
Regulations intended to protect millions of Americans who use prepaid debit cards face peril in Congress this week, with Sen. Rob Portman, R-Ohio, being criticized for fighting the new rules.
The cards have mushroomed among people who don’t have bank accounts and those who are trying to clean up their finances, experts say. Use of such cards has grown from $1 billion in 2003 to a projected $112 billion next year, according to the U.S. Consumer Financial Protection Bureau.
A deadline is looming as early as
Wednesday to enact a little- used procedure to kill the new regulations by the consumer bureau, which are slated to take effect on April 1, 2018.
In a nutshell, the regulations would require card providers to offer the same protections for lost or stolen cards that providers of ATM and credit cards do; require uniform disclosure of the fees charged by the card companies; limit the fees that can be charged for overdrafts; and limit who is eligible for cards that allow for overdrafts.
“This is about protecting the financial interests of the vulnerable,” said Kalitha Williams of Policy Matters Ohio, a progressive policy group.
Many of those who use the cards don’t have traditional bank accounts. But the biggest group consists of people who are trying to avoid racking up overdraft fees and credit- card debt, said Thaddeus King of the Pew Charitable Trusts, which researches consumer banking.
“Most people currently have a bank account,” he said. “They’re trying to get hold of their financial lives.”
Senate Republicans — including Portman — are trying to roll back the regulations with a procedure that was little- used until earlier this year, when they began invoking it to roll back a number of Obama-era measures.
Speaking Friday to labor leaders, Sen. Sherrod Brown, D-Ohio, said Republicans started using the Congressional Review Act to kill measures intended to protect labor, consumers and the environment.
“They’ve done about a dozen of them,” Brown said. “It’s usually a little ( measure that’s being killed), but after a while, they add up.”
Portman was among 31 Republican senators who signed a petition to bring the attempt to kill regulations of prepaid debit cards up for a vote. His office said Portman is opposed to the regulations because he wants to make sure the cards remain available to those who need them.
“These consumer products are an essential source of credit for millions of Americans, and Rob believes we should not do anything that would limit access to credit or harm the very consumers we want to protect,” Portman’s spokesman, Kevin Smith, said in an email.
“He supports additional consumer protections but believes they should be tailored to each industry and not in one 1,689- page, one- sizefitsall regulation that would do more harm than good.”
The move to kill the regulations is being led by Sen. David Perdue, R- Georgia, and critics say it’s because of a single company.
Some major providers of prepaid cards, such as Pasadena, Californiabased Green Dot, have endorsed the new regulations. The company is in the process of purchasing another major provider, Cincinnatibased RushCard.
However, Austin, Texas-based Netspend has opposed the new bureau regulations.
The Consumer Federation of America, a group of advocacy organizations, estimates that Netspend makes more than $80 million a year in overdraft fees from prepaid cards.
The new bureau regulations would cut deeply into that amount, the group said.
Netspend’s parent company has given Perdue $ 17,500 in campaign contributions since 2014, the Atlanta Journal Constitution reported.
Perdue’s office couldn’t be reached for comment.
In an email, a Netspend spokesperson said, “Netspend supports smart regulation of our industry that promotes financial inclusion and empowerment for Americans, including those without access to traditional financial services. We comply with a wide range of financial and consumer protection laws and regulations. We and many others outlined our reservations with the CFPB prepaid rule during the public comment period including thousands of concerned citizens, highlighting the important role prepaid products and electronic accounts play in their lives.”
Brown, the ranking Democrat on the Senate Banking Committee, said he is disturbed that his Republican colleagues might kill regulations that most of the industry appears to accept.
“It’s like one company that’s protesting against this and they’re going to do this?” he said in an interview. “I hope that the Senate majority doesn’t decide that they’re going to go to bat for one company … It’s an industry that needs regulated.”