New con­sumer pro­tec­tions aim to end pre­paid card gotchas

They in­clude dis­clo­sure re­quire­ments about fees and lim­its on losses con­sumers could face

USA TODAY US Edition - - MONEY - Su­san Tom­por @Tom­por

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

RICK NEASE, DETROIT FREE PRESS

The Con­sumer Fi­nan­cial Pro­tec­tion Bureau will put new rules in place for pre­paid cards be­gin­ning Oc­to­ber 2017.

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