Consumer advocacy groups want prepaid card issuers to provide customers with the type of protections required for debit cards tied to bank accounts.
They are calling on the Consumer Financial Protection Bureau (CFPB) to protect consumers who are relying on general purpose, reloadable prepaid cards for managing their finances during these hard economic times.
The CFPB was created by landmark Wall Street reform legislation. The agency is reviewing numerous regulations on mortgages and other common financial products.
Now that Richard Cordray has been installed as its first director by President Obama, the bureau can move forward on such potential regulations as those sought by consumer advocates.
The CPFB inherited many of the consumer-oriented divisions of existing federal agencies. The agency can write rules to protect consumers from predatory, abusive or deceptive practices by banks and non-banks that offer financial services or products, including prepaid cards that carry fees that may not be clearly stated or understood.
Federal rules already protect bank customers from certain misleading or hidden fees on debit cards linked to checking accounts. Last year, the Federal Reserve drew up new regulations prohibiting overdraft fees on consumers using debit or ATM cards – unless the card user has opted to join a bank’s overdraft protection plan.
“As the cost of bank accounts continue to rise, more and more consumers are turning to prepaid cards as an alternative,” said Michelle Jun, senior attorney for Consumers Union, the advocacy arm of Consumer Reports. “But prepaid cards offer weaker protections than bank accounts and can be loaded with hidden fees that make them costly to use.”
Consumers Union and other advocacy groups say consumers who rely on prepaid cards are only entitled to voluntary protections provided by card issuers when cards are lost or stolen and are used to make unauthorized charges.
Those voluntary protections come with loopholes and can be changed at any time.
“Prepaid card fees often are poorly disclosed and can make the cost of using these cards much higher than anticipated by consumers,” Consumers Union said in a statement.
A letter submitted to the CFPB was signed by Consumers Union, Center for Public Policy Priorities, Center for Responsible Lending, Coalition of Religious Communities, National Consumer Law Center, SC Appleseed Legal Justice Center, and U.S. PIRG.
The groups want the CFPB to enact mandatory protections for users of prepaid cards, including:
• A cap on how much money consumers can lose if their card is lost or stolen or when unauthorized charges are made;
• A guarantee that missing money will be re-credited promptly and no later than 10 business days after the consumer reports it;
• Clear and conspicuous disclosures of all fees before the consumer signs up to use the card;
• The right to receive a statement or other forms of transaction information; and
• A prohibition on overdraft fees for all prepaid cards.