By Joe Valenti, Center for American Progress
The U.S. Congress has wasted no time rolling back Obama-era regulations affecting health, safety, and the environment, and Americans’ wallets may be next.
Congress is expected to soon attempt a rollback of a new Consumer Financial Protection Bureau, or CFPB, rule on prepaid debit cards used by millions of Americans. Through a once-obscure law known as the Congressional Review Act, the U.S. House of Representatives and Senate can quickly vote to undo rules put in place by federal agencies and even block regulators from considering new ones.
Meanwhile, other proposals by Congress and the White House would cripple or even kill the CFPB, which writes these financial rules in its role as a watchdog for consumers. Since it opened its doors in 2011, this federal agency has returned nearly $12 billion to 29 million Americans harmed by financial practices—roughly $5 to victims for every $1 of its funding.
Here is why the CFPB prepaid card rule matters and what it means amid other attempts by Congress to allow financial institutions to pick consumers’ pockets.
Prepaid card rules are long overdue
Prepaid cards have been on the market for more than a decade, during which time they have not had the best reputation. In 2015, 132,000 people using the RushCard—a bank account substitute pitched by hip-hop mogul Russell Simmons—were locked out of their accounts for days or even weeks due to a technical glitch. Earlier this month, the CFPB issued a $13 million fine in response, in addition to a $19 million class-action settlement that victims’ attorneys reached with the company last year. Then there are the fast-food workers at Hardee’s and Carl’s Jr., among other companies, who were required to receive their pay on prepaid payroll cards and saw fees dip their earnings below minimum wage. And recently, lawyers sued over the terms on cards used to pay jurors in the District of Columbia and elsewhere.
For all of their shortcomings, these cards are here to stay and are particularly valuable for the 16 million U.S. adults who currently do not have bank accounts. In 2015, payments made on prepaid debit cards topped $270 billion, and they have grown dramatically. By and large, the features and fees on these cards have also improved, to the point where many look and act just like bank accounts. With approximately 23 million Americans using these cards and with billions of dollars at stake, the market is simply too big to ignore.
But prepaid cards have fallen through cracks in long-standing banking regulations, with each card in someone’s wallet subject to different rules. Unlike debit cards linked to a bank account, prepaid card dollars are not always protected if a card is lost, stolen, or hacked. Hidden fees mean that customers may choose the wrong card and pay too much. And when government agencies, colleges, and employers distribute funds on these cards instead of paper checks, recipients are not always informed of better or cheaper options, including direct deposits to their own bank accounts. The CFPB’s rule, finalized last October, addresses these concerns. It protects funds on cards from unauthorized use, standardizes how fees and features are presented on packaging, and ensures that government and payroll card recipients can choose alternative ways to get their money.
Letting prepaid be prepaid, without costly credit
Perhaps most importantly, the CFPB’s rule ensures that prepaid cards mean what their name suggests—making sure that people don’t spend more than the amount on the card. Overdraft protection options on bank accounts let customers exceed their account balance but at a price: A 2014 CFPB study found that the average account with access to overdraft racked up more than $250 in fees in one year. While these fees are devastating for cash-strapped individuals, they can be immensely profitable. One bank CEO who was recently sued by the CFPB for aggressively and unlawfully advocating the practice to customers even named his boat Overdraft.
Prepaid cards are popular partly because they generally cannot be overspent. About three-quarters of users would rather have a transaction not go through than be charged a fee, according to a Pew Charitable Trusts survey. This makes prepaid a more responsible option for customers who have had trouble with bank accounts or who have even had a bank account closed on them. The new rule requires that any additional credit features be optional and follow rules similar to the rules on credit cards that ensure reasonable fees. Blocking the new rule would allow at least one company to continue to make millions off cash-strapped customers through overdraft: Georgia-based TSYS, owner of the prepaid card issuer NetSpend, has stated that it stands to lose $80 million per year if the new rule takes effect.
Meanwhile, other market players have embraced the CFPB’s prepaid rule. Green Dot CEO Steve Streit spoke in favor of the rule last year, noting, “It’s gratifying to know that prepaid can now move to a level playing field that can better serve consumers while allowing the entire industry to move past the period of regulatory uncertainty.” Congress will have to decide whether it will uphold this regulatory certainty and stand on the side of these commonsense rules of the road or instead follow special interests by rolling back a rule that took years to develop.
The rest of your wallet is next
The Congressional Review Act could also target any future rules written by the CFPB. Over the coming months, the agency will seek to finalize two rules that it announced last year: One would protect consumers against high-cost, predatory payday and auto title loans that rake in $8 billion in fees each year, trapping vulnerable families in a cycle of debt; the other is the arbitration rule, which would limit companies’ ability to block lawsuits by victims.
Even worse, some in Congress are especially eager to take the government’s hands off Wall Street completely. Sen. Ted Cruz (R-TX), with four co-sponsors, introduced a bill last week to eliminate the CFPB entirely. Meanwhile, House Financial Services Committee Chairman Jeb Hensarling (R-TX) has called it the most “dangerous and destructive” regulatory agency created after the financial crisis and vows to “effectively terminate it.” Even seemingly technical changes to the CFPB, such as altering its structure or independent budget, would greatly compromise its mission. This would effectively give companies a free pass to continue fleecing consumers—and reopen the doors to another crisis.
Rollbacks that let financial companies escape accountability do not match up with what the American people want. Most voters of both parties support the CFPB, and a majority of Trump voters want the agency either left alone or strengthened. A decade after the financial crisis, it is hard to imagine letting predatory actors near the cookie jar again. This is particularly true in light of the Wells Fargo scandal, in which the bank opened as many as 2 million unauthorized accounts, stuck customers with the bill, and barred victims from court. Working hand in hand with the Office of the Comptroller of the Currency and the Los Angeles city attorney, the CFPB secured a $185 million enforcement action against Wells Fargo last September and is continuing to monitor the bank’s practices.
So it isn’t surprising that during the last Congress, financial interests spent $2.3 million per day on campaign contributions and lobbying to attempt to undo Wall Street reform. Starting with the attempt to roll back the CFPB’s prepaid rule, policymakers must decide whether they stand with commonsense rules to keep banks accountable or a return to rollbacks and risky practices that put all Americans’ wallets at risk.