Prepaid in CFPB crosshairs, again

Prepaid products have once again found themselves in the Consumer Financial Protection Bureau's crosshairs. In a previous breaking news story published Oct. 7, 2016, The Green Sheet reported on the CFPB's new guidelines for reloadable prepaid debit cards, the latest in ongoing efforts to protect unbanked and underbanked consumers who rely on prepaid products in lieu of traditional banking relationships.

In addition to its new rules, which place caps on consumer liability for lost and stolen cards and require prepaid card issuers to provide "Know Before You Owe" disclosures, the CFPB criticized prepaid service providers in its monthly complaint report, published Oct. 25, 2016.

CFPB Director Richard Cordray voiced concerns about an increasing number of complaints pertaining to prepaid products and vowed to resolve consumers' issues. "For many unbanked and underbanked consumers, prepaid products are a vital source of financial security," he said.

In a given week, the bureau will routinely field thousands of consumer complaints on a variety of financial products ranging from debt collection to credit card companies. These complaints, along with service provider responses, are posted on the CFPB's website following a 15-day waiting period. Approximately 1,008,500 complaints across all products, and 6,000 complaints about prepaid accounts, had been filed as of Oct. 1, 2016, according to the Bureau.

Defending the underbanked

The CFPB's monthly complaint report aggregates complaint data to reveal top-trending issues and statistics. Its new report gave American Express Co., PayPal Holdings Inc., and NetSpend Corp. the dubious honor of having received the highest number of prepaid consumer complaints.

"The most common issues identified by consumers are problems with managing, opening or closing an account (32 percent) and unauthorized transactions or other transaction issues (30 percent)," the authors wrote. Following are specific infractions cited in the CFPB's report:

• Unauthorized transactions: Consumers complained about seeing unrecognized and unauthorized transactions on their prepaid accounts. When some of these consumers contacted their prepaid account providers to inquire about the transactions or dispute charges, their card accounts were cancelled without notice or further communication.

• Difficult registration process: Consumers have had difficulty registering and using prepaid cards. Some were advised that their cards were inaccurately registered and were prompted to provide additional documentation such as the original card packaging and/or sales receipts.

• Inadequate customer service: Consumers who have submitted claims about stolen funds have experienced prolonged investigations and frozen card accounts. Some consumers have also reported lengthy delays in being reimbursed for fraudulent or unauthorized transactions.

• Unattainable refunds: Consumers who received prepaid cards as refunds were unable to activate the cards, access funds or both. Subsequently, these consumer accounts were subjected to dormancy fee which depleted card balances.

• Balance discrepancies: Consumers reported balance discrepancies on their prepaid cards, which they were unable to verify due to their inability to check account balances online or access paper statements.

Repeat offenders

The CFPB's monthly report cited AmEx, PayPal and NetSpend as having received the highest number of prepaid complaints between May and July 2016, with respective averages of 24.3, 14.3 and 9.7 complaints per month. These numbers reflected a 46 percent increase in complaints for AmEx, while PayPal and NetSpend dropped by 7 and 29 percent, respectively, the CFPB stated.

The bureau cited five other service providers in the most-complained-about-company category: Comerica, U.S. Bancorp., Empowerment Ventures LLC and Blackhawk Network Holdings Inc. Comerica had the greatest percentage increase in prepaid complaints (47 percent) compared with the same period in 2015.

The CFPB additionally noted NetSpend Corp., a TSYS company, saw the greatest decrease in prepaid complaints (-29 percent) during the period. Empowerment Ventures LLC received the greatest rate of untimely responses (20 percent), according to the report.

A downloadable copy of this report is available at s3.amazonaws.com/files.consumerfinance.gov/f/documents/102016_cfpb_Monthly_Complaint_Report.pdf .

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