The Consumer Financial Protection Bureau, or CFPB, has taken the first step toward adopting consumer protections for the prepaid card market. The CFPB’s Advance Notice of Proposed Rulemaking seeks input on how to ensure that consumers’ funds on prepaid cards are safe and that card terms and fees are transparent.
The Bureau’s rulemaking will focus on “General Purpose Reloadable” prepaid cards which allow consumers to load the cards with money upfront and use them as if they were checking account debit cards.
The prepaid market is still largely unregulated at the federal level. The CFPB plans to evaluate several topics:
- Fees and Terms Disclosure: The CFPB plans to evaluate the best way to balance the need for disclosure with the fact that many cards are purchased at retail locations and space for disclosures is limited. The CFPB believes consumers should also know whether or not their funds are protected by FDIC insurance. The CFPB plans to evaluate how prepaid card issuers should disclose the insurance status of cardholders’ funds.
- Unauthorized Transactions: Federal regulations require that credit and debit card issuers limit consumers’ liability when their cards are used without their authorization. These regulations do not extend to prepaid cards. Many prepaid card issuers voluntarily offer this protection, but it is not standard across the industry. The CFPB will evaluate the costs and benefits of card issuers providing limited liability protection from unauthorized transactions.
- Product Features: Most prepaid cards do not offer any credit features. In general, cardholders may not be able to withdraw or spend more than the funds loaded on their cards. However, some prepaid cards allow their cardholders to overdraw their accounts, and some offer small-dollar loans or a line of credit. Similarly, very few prepaid cards have a savings account. Even though such savings accounts typically have high interest rates, consumers do not seem to take advantage of the opportunity to save. Another feature is that of credit repair, which claims to offer consumers the opportunity to improve or build credit. The CFPB is looking for public input on the costs, benefits, and consumer protection issues related to those product features.
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