New Protections For Prepaid Cards On The Books
The Consumer Financial Protection Bureau has announced final rules for prepaid cards aimed at giving people using the cards greater consumer protections. The new rules apply to several different types of prepaid cards, including general purpose reloadable prepaid cards, payroll cards and cards used to deposit government benefits. Online accounts used to store money electronically, such as PayPal and Google Wallet accounts, are also covered. Gift cards that cannot be reloaded are excluded.
Prepaid cards have exploded in popularity during the past several years. Some Americans rely heavily on the largely unregulated prepaid-card market for everyday needs. The number of people using the cards in addition to their checking accounts increased by 50 percent between 2012 and 2014. According to a Pew report, around 23 million Americans were regularly using reloadable cards by 2014.
Those without checking accounts use the cards as their primary means of managing money. According to estimates from Mercator Advisory Group, more than $100 billion is expected to be loaded onto general purpose reloadable prepaid cards this year. In 2010, that number was about $40 billion.
The new rules change the way overdraft services are offered with prepaid cards. After the rules go into effect, any cards that can go negative by more than $10 will generally have to be treated as credit. There will also be a cap on the fees consumers can be charged in the first year. Other rules limit losses for prepaid card users. People who lose their prepaid cards will have losses limited to $50 if they report the loss or theft within two days.
The new regulations also require card issuers to label their fees more clearly. Card issuers must now provide both a short form outlining the card’s most basic fees and a long form that lists every charge a cardholder might have to pay. The long form can be made available online or over the phone for cards bought in retail stores. The new rules also require all card companies to investigate when customers report errors or fraud. Card companies will have to fund accounts temporarily while they investigate fraud.
These actions will give prepaid card users some of the same protections as credit card users Consumer advocates say the rules improve disclosures and limit overdraft charges. The prepaid card industry said when the rules where first proposed in 2014that the labeling requirements could increase production costs and increase the amount of time it takes to send some cards to consumers. Representatives for the industry called the rules too broad and confusing.
The consumer advocates did not get everything that they wanted. Prepaid card companies are not required to insure funds with the Federal Deposit Insurance Corporation. There is also nothing in the rules to prevent the kinds of outages seen over the past year with RushCard and Walmart branded prepaid cards locking consumers out of their accounts. Kristine Andreassen, senior counsel for the office of regulations for the CFPB, said that the bureau was going to have more “tools” in place for taking action when a problem does happen.
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