Earlier this month the Consumer Financial Protection Bureau (CFPB) announced plans to regulate prepaid cards. The CFPB is a relatively new regulatory agency created through the Dodd-Frank federal financial reform law and is focused on helping protect consumers in the financial services space.
They are seeking consumer input (as well as input from industry entities) over the next couple of months to help them better understand the costs, benefits and risks of using prepaid cards. Here are some of the comments that have been submitted:
As a field examiner i hear first hand the conversation on loading prepaids…. the fees are always reviewed last if reviewed…they kind of get pushed under the table for lack of better words….. no disclosures in plain view…..
Regulation E appears to be the only Reg that could be used. However, Regulation E is some what outdated and should be totally revisited. I feel the customer needs to take a little of the liability on fraud or stolen pins when the customer admits they gave the pin number out to others or write the pin on the card itself.
As they will be with us for a while, one feature I’d really like to see that they currently lack is the ability to deposit their balance into one’s draft or savings account. I am occasionally paid with these things; consumer rebates, market researchers, and the like… and I object to having to keep up with these cards and their balances.
You can learn more about leaving a comment by visiting the CFPB website.
Prepaid cards look and function similar to a “standard” Visa or Mastercard credit or debit card and some consumers may assume they are covered under the same federal rules and regulations. However, these cards are different from standard credit/debit cards, do not carry the same levels of protection and may also have a variety of fees that are not required to be disclosed to the consumer. For example, fees are often charged for ATM use, overdraft and a monthly maintenance fee — among others.
The use of prepaid cards is one of the faster growing payment options used by U.S. consumers. Over 5 billion transactions were made with prepaid payment solutions in 2010 and it is thought to be a payment option more commonly used by the unbanked and under-banked population (consumers who opt to avoid standard banking services or are unable to participate in the standard banking process).
As with any payment option, it is in the consumer’s best interest to fully understand the costs associated with the preferred payment choice as well as understand how they work and what protections you have with the payment option. Oftentimes this information is in the “fine print” and many consumers will opt to not review the terms and conditions. Don’t be shy to ask the provider for clarification if you are using a prepaid card and want more clarity on fees or protection.
[Credit Cards: Research and compare prepaid credit cards at Credit.com]
It is likely the CFPB will call for more transparency on fees and for the terms and conditions to be made more easily understandable for consumers. It will likely take time to implement any new requirements.
Note, prepaid card information is not reported to the three national credit reporting agencies so they do not help a person establish or build their credit.
Image: rpongsaj, via Flickr