CFPB takes first steps to regulate prepaid

The Consumer Financial Protection Bureau initiated a fact finding process to determine how to regulate the general purpose reloadable (GPR) prepaid card market at the federal level. The newly formed agency issued a call to the industry and other constituents to offer input about how the market should be regulated to ensure the funds of prepaid card users are protected and that consumers are given appropriate information about card terms and fees to make informed financial decisions.

On May 23, 2012, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) designed to elicit information from the public, including the business community, about GPR cards. The agency said it is especially interested in learning about the costs, benefits and risks of GPR cards to consumers. It intends to extend to GPR card users the Regulation E fee disclosure protections afforded credit and debit cardholders. Reg E is part of the Credit Card Accountability, Responsibility and Disclosure Act of 2009.

The ANPR asks 10 questions about GPR cards, such as how the cards should be defined in the context of Reg E and issues related to GPR card providers offering savings accounts on their products. The ANPR is available at files.consumerfinance.gov/f/201205_cfpb_GPRcards_ANPR.pdf. The comment period ends July 23, 2012.

The CFPB also held a public field hearing in Durham, N.C., on May 23 which brought together consumer advocates and industry experts in a panel discussion hosted by CFPB representatives. In opening remarks at the hearing, CFPB Director Richard Cordray noted that 9 million U.S. families are considered unbanked, with an additional 21 million families falling into the category of underbanked.

"All of these consumers need and deserve products that are safe and whose costs and risks are clear and upfront," Cordray said. "Yet right now prepaid cards have far fewer consumer protections than bank accounts or debit cards or credit cards. And that is especially troubling because the people who use prepaid cards are, in many instances, the most vulnerable among us. Every dollar they pay in hidden fees is a dollar they cannot spend in supporting their families."

During the panel discussion, members from consumer advocate groups echoed Cordray's sentiments in pushing for more consumer protections. But industry representatives countered that the major providers of prepaid cards are already affording their customers those very protections.

Dan Henry, Chief Executive Officer at NetSpend Holdings Inc., said, "We at Netspend, and most of our leading competitors, already adhere to the same requirements as traditional bank checking accounts under the Fed's Regulation E, including disclosure requirements [and] protection against unauthorized transactions."

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