Special to HNN from a Provided Press Release
Richard Cordray
Richard Cordray

The Consumer Financial Protection Bureau (CFPB) on Thursday, Nov. 13, 2014 is proposing strong, new federal consumer protections for the prepaid market. The proposal would require prepaid companies to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, provide easy and free access to account information, and adhere to credit card protections if a credit product is offered in connection with a prepaid account. The Bureau is also proposing new “Know Before You Owe” prepaid disclosures that would provide consumers with clear information about the costs and risks of prepaid products upfront.

“Consumers are increasingly relying on prepaid products to make purchases and access funds, but they are not guaranteed the same protections or disclosures as traditional bank accounts,” said CFPB Director Richard Cordray. “Our proposal would close the loopholes in this market and ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment.” 

Prepaid products are consumer accounts typically loaded with funds by a consumer or by a third party, such as an employer. Consumers can use these products to make payments, store funds, get cash at ATMs, receive direct deposits, and send funds to other consumers. Prepaid products are often bought at retail stores or online. Prepaid products are amongst the fastest growing types of consumer financial products in the United States. For example, the amount of money consumers loaded onto “general purpose reloadable” prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012. The total dollar value loaded onto general purpose reloadable cards is expected to continue to grow to nearly $100 billion through 2014.

This proposal would apply a number of specific federal consumer protections to broad swaths of the prepaid market for the first time. The proposal would cover traditional plastic prepaid cards, many of which are general purpose reloadable cards. In addition, the proposal would cover mobile and other electronic prepaid accounts that can store funds. The prepaid products covered by the proposal also include: payroll cards; certain federal, state, and local government benefit cards such as those used to distribute unemployment insurance, child support, and pension payments; student financial aid disbursement cards; tax refund cards; and peer-to-peer payment products.  

Prepaid Protections

Many consumers use prepaid products as an alternative to traditional checking accounts. Currently, however, there are limited federal consumer protections for most prepaid accounts. The proposal would ensure that most prepaid account consumers would have important protections under the Electronic Fund Transfer Act after registering their account. The protections are generally similar to those checking account consumers already receive and include:  

Know Before You Owe: Prepaid Fees

The Bureau’s proposal also includes new “Know Before You Owe” prepaid disclosures that would provide consumers with standard, easy-to-understand information about the prepaid account. Consumers cannot always tell what fees apply to their prepaid cards before purchasing them because such disclosures are inside the packaging or hard to find online. The current lack of an industry-wide standard on prepaid-card fee disclosures can make it difficult for consumers to comparison shop and make well-informed decisions. Under the proposal, prepaid consumers would have access to:  

The proposed disclosures are available at: http://files.consumerfinance.gov/f/201411_cfpb_prepaid-model-sample-disclosure-forms.pdf

Credit Protections

The proposal also includes strong protections in connection with credit products that allow consumers to pay to spend more money than they have deposited into the prepaid account. Under the proposed rule, if consumers choose to use a credit product related to their prepaid account, they would be entitled to the same protections that credit card consumers receive today. These protections largely stem from the Truth in Lending Act and the Credit Card Accountability Responsibility and Disclosure Act of 2009. The protections that would also apply to prepaid credit products include:

The CFPB’s proposal also includes some additional protections to ensure that the prepaid account and the credit product are distinct, such as:

In May 2012, the CFPB issued an Advance Notice of Proposed Rulemaking on prepaid cards. The Bureau carefully reviewed all of the comments received and conducted outreach in the development of this proposal.

The proposed rule and disclosures will be open for public comment for 90 days after its publication in the Federal Register. A copy of the proposed rule, which includes information on how to submit comments, will be available Thursday at: http://www.consumerfinance.gov/regulations/  

 

A CFPB study of the prepaid market can be found at: http://files.consumerfinance.gov/f/201411_cfpb_study-of-prepaid-account-agreements.pdf

 

* * *

The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.