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News
CFPB issues rules for Prepaid debit cards are the fastest growing consumer
reloadable prepaid payment method in the United States, ballooning from $1
debit cards billion in card loads in 2003 to nearly $65 billion in 2012.
And card loads are expected to grow by more than 72
T he Consumer Financial Protection Bureau percent, to $112 billion, by 2018, according to the CFPB.
adopted tough new rules for prepaid debit However, they have existed largely in a regulatory no-
cards that are set to take hold in October 2017. man's land.
The new rules apply specific federal consumer
protections to mobile wallets, person-to-person payment The industry's rapid growth has attracted much attention
products and other electronic accounts that store funds, as and more than a few concerns from consumer groups and
well as to general purpose prepaid debit cards. regulators. Early on, the cards were criticized for high
fees, and more recently for technology glitches. RushCard,
"Many consumers rely on prepaid cards to make purchases for example, sustained massive technical glitches in 2015
and access funds, but until now they were not guaranteed that kept hundreds of thousands of cardholders from
strong consumer protections under federal law," said CFPB accessing their accounts for days.
Director Richard Cordray. "This rule closes loopholes and
protects prepaid consumers when they swipe their card, Key provisions
shop online or scan their smartphone. And it backs up
those protections with important new disclosures to let The CFPB began working on a set of prepaid rules in
consumers know before they owe." 2014. The final rule, published Oct. 5, 2016, and weighing
in at just under 1,700 pages, applies specific consumer
protections to the cards, including provisions of the
federal Truth-in-Lending Act (as implemented by Federal
Reserve Regulation Z) and the Electronic Funds Transfer
Act (Regulation E). Specific provisions require:
• Free and easy access to account information, such
as online or by telephone
• Error resolution rights and provisional credits for
disputed transactions
• Limited cardholder liability for unauthorized
transactions ($50 limit)
• Easy-to-understand disclosure statements
• Easy access to standardized card agreement infor-
mation (via the web or paper) to support compari-
son shopping
The most contentious provisions, however, spell out
specific consumer protections for prepaid card products
that allow cardholders to overdraw their prepaid accounts.
The CFPB had proposed disallowing overdrafts, which the
National Consumer Law Center estimates cost consumers
over $50 million a year. Prepaid companies balked, and
the final rule instead imposes Reg Z protections on
these activities. The final rule includes provisions for
underwriting requirements, detailed periodic statements,
limits on late fees and charges, and a 30-day waiting
period before a new cardholder can be offered overdraft
privileges.
The prepaid card industry is not happy with the final rule.
"Instead of fostering financial innovation and inclusion,
the CFPB's rule will ultimately limit access to an essential
mainstream consumer product that helps millions of
Americans participate in the digital economy, affordably
manage funds and safely hold money," said Brad Fauss,
President and Chief Executive Officer of the Network
Branded Prepaid Card Association.
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