Government Cracking Down on Prepaid Cards - Legal News


ADVERTISING DISCLOSURE: is an independent, advertising-supported web site. receives compensation from most credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. has not reviewed all available credit card offers in the marketplace.

Credit Card Applications » News » Legal » Government Cracking Down on Prepaid Cards

Government Cracking Down on Prepaid Cards

Government Cracking Down on Prepaid Cards
The content is accurate at the time of publication and is subject to change.

Yesterday during a hearing in Durham, North Carolina, the director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray, announced that the CFPB will be putting in place regulations on the prepaid card industry, pending feedback from the public sector. Prepaid card use has exploded over the past few years, and unlike debit and credit cards, prepaid cards are not subject to government regulation regarding things like fees, fraud coverage, insurance, and liability.

Unprotected Transactions

Right now, there are no standards in the following areas for the prepaid card industry:

  • Lost or stolen card liability – currently, if a prepaid card is lost or stolen, the cardholder is unprotected from loss. The CFPB would like consumer liability to be limited to $50 in the event that a loss is reported within two days, or $500 within 60 days.
  • Insurance against bank failure – the Federal Deposit Insurance Corporation (FDIC) insures bank accounts, credit cards, and debit cards against failure by the financial institution. The CFPB would extend FDIC coverage to prepaid cards.
  • Disputed transactions – when a customer wants to dispute a charge, they currently have no recourse or way to get the money back into their prepaid account. The CFPB would require prepaid card issuers to open an investigation and replace lost funds within 10 days.
  • Fraud liability – if a customer`s identity is stolen and funds are drained from their reloadable prepaid card, the CPFB would like to see zero liability measures in place, which they currently are not.

Prepaid card customers may not be aware that they don`t have these protections now, since they are standard with a credit card or debit card. But all plastic is not created equal, and prepaid card customers who think they are enjoying all the same benefits as they would with a debit or credit card are very much mistaken.

Vulnerable Population

CFPB director Cordray pointed out at the Durham hearing that the heaviest users of prepaid cards tend to be people who cannot get a credit or debit card, and who are more likely to be the working poor who struggle to earn every dollar they load onto a prepaid card. He called them, “the most vulnerable among us,” saying that “every dollar they pay in hidden fees is a dollar they cannot spend on supporting their families. These consumers are least able to take a hit if their prepaid card is lost or stolen, and yet they often have no guaranteed protection against this kind of a disaster.”

Easily Accessible Information

Another problematic aspect of the prepaid card market is the lack of transparency around terms and conditions. The CFPB stresses the importance of comparing fees, prices, and terms of different prepaid cards, something which is difficult to do when buying a card off a circular rack in a drugstore.

Michelle Jun, a senior attorney at Consumers Union, says that “Consumers should know what all the fees are before they decide to pick up a card and load it,” and she applauds the CFPB`s effort to regulate the prepaid card industry. She says that, “currently, you`re kind of at the whim of a customer service representative and what their knowledge of the terms of the card are.”

And with the current fee schedule of many prepaid cards, that call to customer service could cost you; some prepaid card issuers charge up to $2.00 per call.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Add to Favorites:

Related News:

Feds Weigh in on Data Breaches
Feds Weigh in on Data Breaches

Posted: January 29, 2014

Millions of people are watching their credit card and bank statements closely due to recent payment system security breaches at Target and Neiman Marcus. The compromises have involved not just account numbers, but names, addresses, and… Continue reading

Feds Unveil Prepaid Card Protection Proposals
Feds Unveil Prepaid Card Protection Proposals

Posted: November 14, 2014

Last summer, the Consumer Financial Protection Bureau (CFPB) asked consumers to weigh in with their complaints about prepaid card products. Continue reading

Customers More Satisfied with Credit Cards than Mortgages
Customers More Satisfied with Credit Cards than Mortgages

Posted: September 17, 2012

A report from the Consumer Financial Protection Bureau about their new consumer-reporting system shows fewer complaints by credit card customers than expected, with more complaints coming in about mortgage companies than credit cards…. Continue reading

Get the latest news, articles and expert advice delivered to your inbox. It's FREE.
Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, and more up to the quarterly maximum, each time you activate.
For Excellent, Good Credit
INTRO OFFER: Discover will match ALL the Miles you've earned at the end of your first year, automatically. For example, if you earn 30,000 Miles, you get 60,000 Miles. That's $600 towards travel!
For Excellent, Good Credit
Earn unlimited 1.5% cash back on every purchase, every day
For Average, Fair, Limited Credit
You've successfully subscribed!

Please specify the following:All these fields are optional

Your Credit History
Themes you are interested in:

By providing this information you help us make our news letters more useful and informative. Thank you!