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.
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.
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.”
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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.