By Joe Valenti, Center for American Progress
Under the Congressional Review Act, or CRA, Congress has the power to veto new regulations finalized by government agencies. This year, President Donald Trump and Congress have already used this authority to kill 13 Obama-era rules governing areas including the environment, energy, health, safety, and privacy. Prior to 2017, this once-obscure law had only been used once before—in 2001, when President George W. Bush signed a CRA resolution to undo a Clinton administration worker health and safety rule.
Next on the potential chopping block in the House and Senate: a comprehensive rule by the Consumer Financial Protection Bureau, or CFPB. Finalized last fall, this rule would govern all prepaid debit cards for the first time starting later this year. These cards have long been subject to a patchwork of regulations under which different cards have different protections. This piecemeal approach does not make sense for a major market in which these cards often function as bank account substitutes, as became painfully clear in October 2015, when more than 132,000 people who used RushCard were locked out of their accounts for days or even weeks due to a technical glitch and were unable to pay their rent or other bills as a result. It also does little to help families who use these cards to track their expenses and control their spending.
The CFPB rule could help protect millions of prepaid card users
In every state, thousands—or in some cases, millions—of households at all income levels manage their money on these cards. According to the Federal Deposit Insurance Corporation’s 2015 National Survey of Unbanked and Underbanked Households, 11 percent of households earning less than $50,000 reported using these cards in the past year, but so did 8.5 percent of higher-income households. For financially vulnerable Americans, these cards are even more popular: The survey found that 27 percent of households without bank accounts use these cards, and people dealing with volatile incomes or unemployment also use these cards more frequently.
The CFPB spent years drafting its common-sense rule. This rule would protect funds on all prepaid debit cards in cases of fraud and unauthorized use, replacing the current patchwork of protections. It would give standard disclosures for buyers to understand the fees and features of their cards and would ensure that instead of forcing anyone to receive money on a card—as some employers and government agencies have done—people are aware of other options that may be better for them. And most significantly, the rule addresses risky overdraft practices on cards that tack on fees and trap consumers in debt. It sets requirements for borrowing on prepaid cards that are similar to those for credit cards to make sure this is a meaningful choice, not a debt trap.
Repealing the CFPB rule would create more uncertainty for consumers and industry
This is not a highly controversial rule—in fact, some industry players would prefer to see a rule create better standards for this market. As Green Dot CEO and founder Steve Streit noted last year, “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.” Based on logistical concerns about the rule’s implementation, the CFPB has proposed delaying the rule in order to get it right. In a comment letter to the CFPB this month regarding the delay, American Express stated, “The Bureau’s commitment to a well-tailored and effective regulation, and its extensive collaboration across the prepaid industry, will result in a framework for prepaid accounts that is both beneficial to consumers and practicable for providers.”
That’s why the attempt to kill the rule in Congress is so dangerous. The Congressional Review Act does not just eliminate regulations. It also blocks government agencies from introducing any substantially similar rules in the future. This means that the CFPB would not get another chance to write rules governing prepaid cards even as the market continues to grow. That may be a victory for companies looking to evade regulation and profit from unsavory business practices, but it does nothing for financial companies that would rather do the right thing for their customers. Granted, one firm, NetSpend, has stated that it would lose an estimated $80 million per year if the new rule prohibits its overdraft practices—a firm that also settled with the Federal Trade Commission last month, without admitting wrongdoing, under allegations of misleading advertising that incorrectly claimed customers were guaranteed approval for their cards and had immediate access to their funds. This hardly justifies eliminating a rule in its entirety.
Undoing this rule may be more about firing a warning shot toward killing the CFPB than about the merits of prepaid card regulation itself. S. 370, a bill sponsored by Sen. Ted Cruz (R-TX) and cosponsored by seven other senators, would eliminate the CFPB entirely, while House Financial Services Committee Chairman Jeb Hensarling (R-TX) had called the bureau “destructive and dangerous.” This is in spite of the bureau’s success. In just five and a half years, the CFPB has built a very strong track record for the American people. Its enforcement activity has returned nearly $12 billion to 29 million victims of financial wrongdoing, including $450 million to roughly 1 million victims of fair lending abuses alone. It has returned approximately $5 to victims for every $1 of its funding. For opponents, undoing this rule is an attempt to show who’s in charge—and it is clearly not the American consumer.
There are lots of circumstances where Americans might expect Congress to take action on pressing issues of national concern. But for millions of prepaid card users, the best outcome right now might be if Congress does nothing at all and lets the prepaid rule move forward.