By Christina Tetreault, Consumers Union
Today, the Consumer Financial Protection Bureau (CFPB) issued strong rules to protect consumers who use prepaid cards to make purchases and manage their money. Prepaid cards look and work much like debit cards, but no bank account is required. Over the years, we’ve raised concerns that the lack of consumer safeguards disproportionately affects low-income and younger consumers, two groups that use prepaid cards in higher numbers. Now, for the first time, prepaid accounts will have comprehensive legal protections to help consumers avoid high fees and keep their money safe.
The new rules put prepaid card protections mostly on par with debit cards, and ensure that any linked credit comes with most of the same protections as credit cards. This is a huge win for the millions of Americans who rely on prepaid cards to manage their financial lives, and it’s a victory we’ve been working for since the early 2000s.
Prepaid cards are often marketed to consumers who cannot get or choose not to have a bank account. In 2004, we called on regulators to extend to prepaid card users the same essential consumer protections enjoyed by bank debit card holders. We did our first comprehensive study of prepaid cards in 2009. Our findings: prepaid cards were “Second-Tier Bank Account Substitutes.” That’s because prepaid cards had little or no protection against fraud and loss, and charged high, multiple fees, including fees for basic services such as getting account information.
In later years, we continued to examine prepaid cards. In 2013, Consumer Reports first published prepaid card ratings, grading prepaid cards for safety, transparency and convenience. In the years since that first report in 2009, we’ve found that prepaid offerings improved, but that a troubling lack of transparency and lack of protections for users under law persisted.
Today’s CFPB rules address the problems our research uncovered, and largely reflect the policy recommendations that we have been making to regulators since 2004. The new rules for prepaid accounts include the following consumer protections:
- Error resolution rights and protections against lost or stolen cards that mirror those of bank debit cards;
- Free access to account information;
- Simple fee disclosures must be provided to consumers before acquiring an account; and
- All credit offered in conjunction with prepaid products is subject to many of the same rules as credit cards, including requirements that card issuers evaluate a consumer’s ability to repay, provide mandatory monthly billing statements, and give consumers a reasonable time to repay.
We applaud the CFPB for its terrific work in ensuring that prepaid cards are not second-tier bank account substitutes. The rules go into effect in October 2017. As new payment options emerge, we will continue to work to make every way safe to pay.