CFPB’s prepaid card protections for consumers threatened by Congress

Experts

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Senators file Congressional Review Act resolution to repeal new rules requiring better fee disclosure and protections against fraud and transaction errors  

WASHINGTON, D.C. – New rules adopted by the Consumer Financial Protection Bureau last fall that provide important protections for consumers who use prepaid cards to manage their money are under attack in Congress.  A resolution introduced by Senator David Perdue (GA) on Wednesday would use the Congressional Review Act to repeal the rules before they can even go into effect.

The effort to wipe out these rules is part of a larger effort by some lawmakers in Congress who have pledged to pass legislation that would weaken the CFPB’s ability to protect consumers, according to Consumers Union, the policy and mobilization division of Consumer Reports.

“For years, millions of consumers who’ve relied on prepaid cards have lacked the legal safeguards needed to avoid high fees and keep their money safe,” said Christina Tetreault, staff attorney for Consumers Union.  “The CFPB’s new rules will help consumers compare cards more easily so they can find the most affordable option and give them the peace of mind that their money will be protected if their card is lost or stolen.  But those safeguards will disappear if Congress passes this misguided resolution and revokes these common sense protections for consumers.”

The most recent Consumer Reports investigation found that prepaid cards have become a more attractive option for consumers but that some cards still come with high and unexpected fees.

The new prepaid card protections were adopted after a CFPB investigation and lengthy rulemaking process over several years to take into account input from consumers as well as from industry.   The Congressional Review Act allows safeguards to be erased in a rushed, inherently politicized process and can be driven by narrow corporate interests seeking to avoid rules that would benefit the public at large.

While many prepaid card issuers have voiced support for the new prepaid card rules, NetSpend, which earns tens of millions of dollars in overdraft fees each year from consumers, has opposed them.  The CFPB’s new rules require overdraft features on prepaid cards to comply with credit card rules, including considering the consumers ability to repay.

The new CFPB rules will go into effect starting October 1, 2017, and provide a number of basic but important protections, including:

Fees disclosed upfront:  Under the news rules, prepaid card issuers will be required to disclose commonly charged fees on the outside of card packaging so consumers can more easily find out how much they’ll pay to use it before they purchase a card.  More detailed fee disclosures and account agreements must be posted by card issuers online to help consumers compare costs between different available cards.

Fraud protection:  Consumers whose prepaid cards are lost or stolen will be protected against fraudulent charges similar to legal safeguards currently available for debit and credit cards.  Consumers who report lost or stolen prepaid cards within two days of discovering it would be liable only for charges up to $50.

Disputes resolved promptly:  The CFPB’s new rule gives prepaid cards registered with the card issuer the same dispute and error resolution rights that apply to debit cards.  Prepaid card issuers will be required to investigate errors that consumers report on their accounts and resolve those errors in a timely manner.  In the event that disputes can’t be resolved promptly, the prepaid card issuer must credit the disputed amount until an investigation is completed.

Free and easy access to account information:  Prepaid card issuers will now be required to provide their customers with either a monthly paper statement listing their balance and a history of transactions and fees or make that information available online for the preceding 18 months at no cost.  Consumers will have the right to request a written transaction history covering the preceding 18 months at no cost.

Overdraft features:  Prepaid card issuers that offer a line of credit to customers who spend more than their card balance must consider the customer’s ability to repay.  Customers who sign up for credit protection must be given regular statements detailing the interest rate, fees, and how much they owe.  Prepaid card issuers must give those customers at least 21 days to repay their debt before they can be charged a late fee and cannot automatically withdraw the owed funds from the customer’s prepaid card the next time it is loaded.  These protections mirror those currently required for credit card accounts.

Contact:  Michael McCauley, mmccauley@consumer.org, 415-902-9537 (cell) or 415-431-6747, ext 7606