CFPB urged to enact prepaid card protections

Consumer advocacy groups, including Consumers Union and the National Consumer Law Center, penned a letter to the Consumer Financial Protection Bureau requesting the newly formed agency mandate cardholder protections on prepaid cards that are enjoyed by debit card users.

The letter stated that many unbanked and underbanked consumers rely on prepaid cards as bank account substitutes; they use the cards to manage funds and often have their paychecks directly deposited onto the cards. "However, consumers still do not have guaranteed consumer protections against the loss of these important funds due to fraud, theft, or mistake," the letter said.

The main request of the advocacy groups is that the CFPB clarify the definition of "account" as it relates to the consumer protection laws implemented by Regulation E according to the mandate spelled out in the Electronic Fund Transfer Act of 1978. Consumers Union et al want the definition of "account," which originally applied to credit and debit card accounts, to include pooled accounts into which prepaid cardholders deposit funds and from which they withdraw funds.

"This change is essential to fully apply consumer protections in the Electronic Fund Transfer Act (EFTA) to all prepaid cards and other similar devices which function as bank account substitutes," the letter stated.

The consumer groups make the argument that users of general purpose reloadable cards should have the same protections afforded debit cardholders, including:

• Capping losses when cards are lost or stolen or when unauthorized charges are made
• Assuring that missing funds be promptly re-credited to account holders
• Providing clear and conspicuous disclosures of all fees before enrollment
• Giving cardholders the right to choose to receive statements or other forms of transaction information
• Beginning the window of time to dispute an error or unauthorized charge when a cardholder receives a statement or, in the case of accessing information electronically, when that portion of the electronic information showing the error or charge has been accessed

Finally, the groups believe overdraft fees should be completely eliminated from prepaid cards and that credit should not be tied to prepaid deposit accounts; but, at minimum, the protections of Regulation E should apply.

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