Last summer, the Consumer Financial Protection Bureau (CFPB) asked consumers to weigh in with their complaints about prepaid card products. Now they are proposing a host of new protections based in part on that feedback.
Reloadable prepaid cards are an increasingly popular alternative to traditional checking accounts. They are also used for government benefits: the feds stopped issuing paper checks in March 2013. That means people who receive Social Security or other benefits are required to use prepaid cards to collect the funds.
Reloadable prepaid cards are used like credit cards to make purchases, only instead of owing the amount spent to the credit issuers later, consumers deposit money onto their card first, then spend it until the card runs out. People can have their paychecks direct deposited onto a reloadable card, pay bills, make purchases, and get cash from ATMs using their prepaid card.
Know Before You Owe initiative requires two disclosure forms
“Know Before You Owe” is just one of the initiatives the CFPB is recommending the industry adapt; it would ensure that consumers are provided with clear, easy-to-understand disclosures about the fees and risks associated with using prepaid products.
Consumers purchasing a prepaid product would be furnished with two disclosure forms; a short one that gives key information about fees: how much it costs to make a purchase, withdraw cash from an ATM, and the amount of the monthly fee. The longer form would repeat all the fee information on the short form and also include all other possible fees associated with the card or product.
The CFPB said that the disclosures are necessary because customers can’t always see what the fees will be on a prepaid card before they get one. Disclosures and fee schedules are often hidden inside the packaging of the card, or difficult to find online. They hope that creating an industry standard for fee disclosures will make it easier for folks to comparison shop and know exactly what they are purchasing.
Electronic Fund Transfer Act protections would be guaranteed
The CFPB also wants to make sure that prepaid cardholders are protected under the Electronic Fund Transfer Act once they’ve registered their prepaid accounts. These include:
- Free access to account information. Most prepaid cards do not currently provide customers with monthly statements, and many charge a fee to issue a paper statement. This proposal would require issuers to provide free, easy online access to a record of transactions, balances, and fees.
- Error resolution rights. Institutions that issue prepaid cards would be required to provide error resolution services to customers who have problems or find mistakes on their prepaid accounts. When folks are incorrectly charged for a purchase, they may not have any recourse.
- Protection from fraud and card loss. Credit cards, debit cards, and checking accounts all have safeguards in place in case of fraudulent activity or card loss, but prepaid cards usually don’t. Losing a prepaid card is like losing cash; the money may be gone forever. This protection would limit consumer liability in case of fraud or card loss.
Richard Cordray, director of the CFPB, said that the agency aims to make it safer for people to use and rely on prepaid products. “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.”