New regulations require upfront disclosure of prepaid card fees and provide protections against fraud and transaction errors
WASHINGTON, D.C. – Consumers who use prepaid cards to make purchases and manage their money will get important protections under new rules adopted today by the Consumer Financial Protection Bureau. The rules will help consumers avoid costly fees and ensure that they enjoy many of the same strong protections that come with a traditional debit and credit cards, according to Consumers Union, the policy and mobilization division of Consumer Reports.
“Millions of Americans rely on prepaid cards every day to pay their bills and manage their finances,” said Christina Tetreault, staff attorney for Consumers Union. “But not all prepaid cards are created equal and consumers have lacked the legal safeguards they deserve to protect their money. Now consumers will be able to compare cards more easily to find the most affordable option and have the peace of mind that their money will be safe if their card is lost or stolen.”
For more than a decade, Consumers Union has lobbied for consumer protections on prepaid cards. An estimated one in four U.S. households rely on general purpose reloadable prepaid cards, which can be used much like a traditional debit card linked to a bank account. According to the Federal Reserve Board, prepaid cards are the fastest growing noncash form of payment. Prepaid cards are often marketed as bank account substitutes but research shows that a majority of prepaid card users have bank accounts.
The most recent Consumer Reports investigation found that competition in the marketplace has helped make prepaid cards a more attractive option for consumers but that some cards still come with high and unexpected fees. Before today’s action by the CFPB, prepaid card users did not enjoy the same legal protections afforded traditional debit cards that limit the financial liability consumers face in the event of fraud or merchant mistakes, although most card issuers provide these safeguards voluntarily.
The new rules adopted by the CFPB today will go into effect starting October 1, 2017, and provide a number of important protections, including:
Fees disclosed upfront: Under the news rules, prepaid card issuers will be required to disclose commonly charged fees on the outside of card packaging so consumers can more easily find out how much they’ll pay to use it before they purchase a card. More detailed fee disclosures and account agreements must be posted by card issuers online to help consumers compare costs between different available cards.
Fraud protection: Consumers whose prepaid cards are lost or stolen will be protected against fraudulent charges similar to legal safeguards currently available for debit and credit cards. Consumers who report lost or stolen prepaid cards within two days of discovering it would be liable only for charges up to $50.
Disputes resolved promptly: The CFPB’s new rule gives prepaid cards registered with the card issuer the same dispute and error resolution rights that apply to debit cards. Prepaid card issuers will be required to investigate errors that consumers report on their accounts and resolve those errors in a timely manner. In the event that disputes can’t be resolved promptly, the prepaid card issuer must credit the disputed amount until an investigation is completed.
Free and easy access to account information: Prepaid card issuers will now be required to provide their customers with either a monthly paper statement listing their balance and a history of transactions and fees or make that information available online for the preceding 18 months at no cost. Consumers will have the right to request a written transaction history covering the preceding 18 months at no cost.
Line of Credit: Prepaid card issuers that offer a line of credit to customers who spend more than their card balance must consider the customer’s ability to repay. Customers who sign up for credit protection must be given regular statements detailing the interest rate, fees, and how much they owe. Prepaid card issuers must give those customers at least 21 days to repay their debt before they can be charged a late fee and cannot automatically withdraw the owed funds from the customer’s prepaid card the next time it is loaded. These protections mirror those currently required for credit card accounts.
“Prepaid cards have become a mainstream payment option, but until now the law hasn’t kept up with their popularity,” said Pamela Banks, policy counsel for Consumers Union. “We applaud the CFPB for ensuring that consumers who rely on prepaid cards get many of the same strong legal protections that come with traditional debit and credit cards.”