For the first time ever, reloadable prepaid cards may be getting new regulations.
The Consumer Financial Protection Bureau announced Wednesday that it is beginning the process of regulating prepaid cards. This process begins today, when the CFPB officially publishes a notice in the Federal Register seeking comments from the public on what those regulations should be.
At a field hearing on Wednesday, CFPB Director Richard Cordray announced the reasons behind the new focus on prepaid cards.
“We are at a critical moment in the growth of the prepaid market,” Cordray said. “At the Consumer Bureau, our job is to do all we can to ensure that financial products and services actually help consumers rather than harm them. We want good practices to be instilled early on so that as the market grows, it does so responsibly. Clear rules in the prepaid market will help prevent the spread of ‘low-road’ competition that hurts both consumers and the honest businesses that seek to serve them well.”
The consumer agency asked 10 questions of the public, most focusing on the fee structure of reloadable prepaid cards. These types of cards were not regulated under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, even though other types of reloadable prepaid cards (i.e. gift cards) were included. The CFPB is looking to now fold all reloadable prepaid cards into the regulations.
Specifically, the agency is examining what it can do to make fee disclosures and card comparisons across the prepaid field easier for consumers. The overdraft features of some prepaid cards are also being examined, as the CFPB takes a deeper look at overdraft fees outside of the prepaid market as well.
[Credit Cards: Research and compare prepaid credit cards at Credit.com]
A question the CFPB is posing about promises that companies make about their prepaid products should hit home within the personal finance community. Many consumers and personal finance experts have been critical of some prepaid products for alluding to the ability of the cardholder to use the prepaid product to improve their credit. In the Federal Register, the CFPB is asking the public whether it should place any regulations on how prepaid cards are marketed.
Cordray said the focus of the agency is to provide an honest marketplace for a rapidly growing financial product.
“Over the course of this rulemaking, we are going to focus on two key issues: safety and transparency,” he said.
Image: geetarchurchy, via Flickr