Prepaid Cards Should Truly be Prepaid

The prepaid card market is relatively new, and growing quickly — the number of prepaid transactions increased from 1.3 billion in 2009 to 3.3 billion in 2013. AFR has urged the CFPB to establish rules that will ensure consumers are protected in this growing market. And the CFPB has proposed to do just that.

Last month, AFR and 44 members of our coalition submitted a comment letter spelling out a number of ways in which prepaid cards need to be made safer and fairer. Now we have delivered a petition in which more than 8,500 people urge the CFPB to move ahead with rules to keep prepaid cards from being loaded up with tricks or traps.

Prepaid cards are essentially debit cards that are not tied to an individual bank account (although it is becoming more common for banks to offer them). Prepaid cards can be used by employers in lieu of paychecks, or by colleges as a way to get financial aid to students. They are also often used by individuals who have been shut out of bank accounts or hit with too many bank overdraft fees. Prepaid cards can be very useful for some consumers, but they can also come with significant disadvantages—and lack basic consumer protections that apply to debit and credit cards.  Some are linked to payday-like loan features, or to fees that consumers don’t see coming. Sometimes colleges or employers steer students or employees into accepting funds on prepaid cards instead of a personal bank account – a practice that can create problems, such as a shortage or absence of free ATMS, the inability to write checks, and a lack of paper statements.

The CFPB proposal takes a number of important steps to offer greater protections for consumers and to advance a priority of ours – keeping prepaid cards actually prepaid, so that users can only spend dollars loaded onto the cards, and cannot overdraft, triggering high fees as a result.  The proposed rule very substantially limits, but does not totally prohibit, overdraft fees.

The petition asks the Bureau to make sure that prepaid cards have “no overdraft fees or credit features that cause people to spend more money than they have put on the card, and charge them extra for the ‘privilege….’ As you move forward in the rule-writing process, we strongly support the separation of prepaid from credit products, the elimination of overdraft fees, increased protections for those at risk of being steered to higher-cost payroll cards by their employers or schools, and the adoption of basic consumer protections that already apply to ordinary credit cards and bank accounts.”

The public comment period on the Bureau’s proposal ended in late March. A final rule is expected later this year or early next year.

 — Rebecca Thiess

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