The Consumer Financial Protection Bureau has clamped down on the prepaid card industry – which was previously less federally regulated than other plastic (debit and credit cards).
There are a lot of new rules prepaid card companies will have to follow (starting Oct. 2017), but here are the ones you’ll care about most:
How the CFPB is defining prepaid cards
These new rules apply to some products you may not expect. Obviously, reloadable prepaid cards — your Serve cards from American Express (a CreditCardForum advertising partner), your Rush cards, your Green Dot cards — are all under the “prepaid” umbrella. These products are well known by anyone who wants to avoid bank accounts – and by rewards churners who once used them for manufactured spend (most prepaid card providers have limited that technique, though).
But the CFPB is also applying its new prepaid card rules to payroll cards, student financial aid disbursement cards, tax refund cards, government benefits cards – AND to P2P money services like Venmo and PayPal (because they allow users to store money).
The new rules do NOT apply to gift cards, however.
Prepaid companies have to provisionally refund you for stolen funds
Going forward, prepaid companies have to provisionally refund the disputed amount until the investigation is complete.
Limit to stolen funds you’re responsible for
If your card is lost or stolen — and then used – you’ll be responsible for only $50 in fraudulent transactions, if you report the loss within two days of noticing your card is gone. Similar rules already apply to debit cards.
Standardized disclosures and publicly available card agreements
Credit cards have to follow a certain format when it comes to disclosing fees and fine print. You’ve probably seen the now-familiar Schumer Box (even if you don’t know its name) on credit card application pages and cardholder agreements.
Prepaid card providers will now have to provide similarly standardized fee disclosures wherever consumers can sign up for the card.
Prepaid card providers will also have to submit card agreements to the CFPB, which will display them publicly on its website.
Overdraft capabilities will be heavily regulated
Some prepaid products allow you to spend more than you have loaded on your card – and impose their own customized rules and fees for the privilege. The CFPB is now considering that “extending credit,” and THAT means it’s requiring prepaid providers to play by the rules credit-card issuers have long had to play by. For example, customers will get a grace period (with no fees/costs). Fees will also be capped.
What the prepaid industry thinks
As is the pattern with federal regulations of financial products, providers of said financial products are not exactly thrilled.
Things they are not satisfied with in this case include:
- Costs of disclosure requirements: The Network Branded Prepaid Card Association (NBPCA) is concerned that many players on the diverse prepaid field won’t be able to comply in time. New paperwork and packaging would need to be rolled out at all the stores at which consumers can get prepaid cards, for example.If fewer prepaid cards businesses can afford to play, that could limit options for those who need prepaid cards because they lack access to traditional financial products.
- The new “overdraft” requirements: The Independent Community Bankers of America (ICBA) has taken issue with the new rules for overdrafts, which it says are fine for credit cards but do not fit the prepaid industry. Prepaid card providers may simply stop providing overdraft capabilities as a result.
- It just happened so fast: Both the ICBA and NBPCA have criticized the CFPB for finalizing its new rules without incorporating industry input.