Clear, straightforward information on fees and more protections on prepaid credit accounts? That’s the goal of the new federal consumer protections finalized by the Consumer Financial Protection Bureau (CFPB) on Tuesday.
According to a release from the CFPB, the new rule will require significant oversight by financial institutions. That means limiting “consumers’ losses when funds are stolen or cards are lost,” the CFPB said, investigating and resolving errors, and offering consumers “free and easy access to account information.” Notably, the CFPB also finalized new “Know Before You Owe” disclosures for prepaid accounts.
“Many of these important protections stem from the Electronic Fund Transfer Act, and they are intended to be similar to those for checking account consumers,” CFPB director Richard Cordray said in a separate prepared statement. “For instance, error resolution rights will now be similar for both types of accounts.”
Prepaid Account Protections
Among the fastest growing consumer financial products in the U.S., the CFPB said, prepaid accounts are typically bought at retail outlets and online. (These include mobile wallets like PayPal or Google Wallet, peer-to-peer payment products and other electronic prepaid accounts that hold funds.) In 2012, said the CFPB, consumers put nearly $65 billion on these “general purpose reloadable cards,” an amount that’s expected to nearly double to $112 billion by 2018.
Here’s a look at the protections the CFPB brought prepaid account consumers under the Electronic Fund Transfer Act.
Free and easy access to account info: “Financial institutions must make certain account information available for free by telephone, online, and in writing upon request, unless they provide periodic statements,” the CFPB said.
Protections for lost cards and unauthorized transactions: Consumers are now protected against withdrawals, purchases and other unauthorized transactions — that is if their prepaid cards are lost or stolen. With the rule, consumers now have a way to get back their money so long as they notify the financial institution within a reasonable timeframe.
Error resolution rights: “Financial institutions must cooperate with consumers who find unauthorized or fraudulent charges, or other errors, on their accounts,” the CFPB said. If funds need repayment, these institutions will be held responsible, and if they cannot repay within a certain period of time, they’ll be required to “provisionally credit the amount to the consumer while it finishes its investigation,” said the CFPB.
Know Before You Owe Disclosures
“Standard, easy-to-understand, upfront information” — that’s how the CFPB described its new Know Before You Owe prepaid disclosures, which may help consumers have an easier time comparison-shopping and make smarter decisions when it comes to their wallets. Here’s what that entails.
Clear information: Two forms with simply written disclosures will now be required, the CFPB said. One, which is shorter, outlines prepaid account information, including key fees for ATM withdrawals and balance inquiries. A longer disclosure form will have a full list of fees. You can view samples of the disclosure forms on the CFPB’s website.
Publicly available agreements: The CFPB now requires prepaid account issuers to post their agreements to the general public. They will also be accessible on a “Bureau-maintained website,” as the CFPB called it, down the line.
“These important new protections fill gaps in the law for consumers,” Cordray said in closing. “The rapidly growing ranks of prepaid users deserve a safe place to store their money and a practical way to carry out their financial transactions.”
Play It Safe
While the CFPB has introduced these disclosure requirements and other protections for consumers using prepaid cards and credit products tied to prepaid accounts, which let you spend more money than you’ve deposited to the account, there are things you can do as a consumer to make sure you’re being smart with your money. For starters, it’s helpful to read the terms and conditions of any financial tool you’re considering very carefully. If something gives you pause, speak up, and don’t be afraid to ask questions.
Remember, prepaid cards generally don’t help you build credit. But no matter what type of card you’re using, it’s important to keep tabs on your credit to ensure you’re not the victim of fraud or other unscrupulous activities. You can view a free snapshot of your credit report by signing up for an account on Credit.com.