New consumer protections aim to end prepaid card gotchas
They include disclosure requirements about fees and limits on losses consumers could face
For many Gen X and Millennial consumers, a prepaid card is a lower-cost alternative to a traditional checking account. So why not require more protections on popular, reloadable plastic similar to protections for checking account holders?
The Consumer Financial Protection Bureau will put new rules in place beginning October 2017, including disclosure requirements about fees and limits on losses consumers can face when a prepaid card is stolen or lost.
“This rule closes loopholes and protects consumers when they swipe their card, shop online or scan their smartphone,” CFPB director Richard Cordray said.
Pick up one of these cards from the grocery store? Soon, there could be a standard form on the back of the package listing how much it will cost you to check your balance at an ATM or how much you would pay per month if you don’t use the card for a year or so, and other potential fees.
The back of the package might also note that after 30 days the consumer could be offered overdraft coverage or credit, with fees attached to those transactions.
Consumers could obtain a longer disclosure list of fees and rules of that particular prepaid card by calling the 800 number on the back of the card or by going to the issuer’s website, also listed on the back of packaging.
Prepaid cards took center stage last year when the RushCard made headlines after its customers were locked out temporarily, unable to access their money to pay for rent, food or other bills. The new rules wouldn’t prevent such glitches, but they could offer more protections.
The growth of what the industry calls “general purpose reloadable cards” has been significant. From 2003 to 2012, the money placed on such cards grew from just $1 billion to $65 billion.
Consumers who use prepaid cards typically want to avoid the high cost of overdraft fees. But they must watch out for how other fees can cut into their savings. Depending on the card, fees can include a charge for putting cash on the card, a monthly fee, a fee to withdraw money at an ATM, fees for bill paying, an up-front charge for buying the card and other fees.
Brad Fauss, president and CEO of the Network Branded Prepaid Card Association, said the rules were still being reviewed.
Under the new rules, prepaid card issuers must give protections similar to those on credit cards if consumers are allowed to use certain linked credit products to pay bills or cover purchases when they don’t have enough money loaded onto the card. For example, prepaid card issuers would be required to give consumers at least 21 days to repay their debt before they can be charged a late fee.
The new rules protect against unauthorized withdrawals, purchases or other transactions. If a prepaid card is lost or stolen, and the consumer reports the loss or theft within two days, the consumer’s liability is capped at $50. This is similar to rules in Regulation E for debit cards.
“This rule closes loopholes and protects prepaid card consumers when they swipe their card, shop online or scan their smartphone.” Consumer Financial Protection Bureau director Richard Cordray
The Consumer Financial Protection Bureau will put new rules in place for prepaid cards beginning October 2017.