The Consumer Financial Protection Bureau has proposed rules for prepaid debit cards to safeguard consumers using them.
General purpose prepaid cards allow paychecks or cash to be transferred to plastic, making them popular alternatives to traditional debit cards. Where less than a billion dollars was loaded on prepaid cards in 2003, the number has surged to $65 billion in 2012, growing further to close to $100 billion by this year.
Once loaded, prepaid cards can be used to withdraw money from ATMs, pay for goods and services, and send funds to other prepaid cards.
"Consumers are increasingly relying on prepaid products to make purchases and access funds, but they are not guaranteed the same protections or disclosures as traditional bank accounts. Our proposal would close the loopholes in this market and ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment," explained CFPB director Richard Cordray.
He added that many of the people using prepaid cards live paycheck to paycheck, most of them unaware that prepaid cards are largely unregulated and carry very few protections for them.
According to the CFPB's proposal, certain checking account rules will be applied to prepaid cards, such as requirements for recovering lost money in a timely fashion and limitations on consumer liability when fraudulent activity is involved.
Disclosure forms will also be required of card issuers, warning consumers about potential fees they may incur. Short forms will point out card-associated fees, such as monthly charges and those levied on cash withdrawals, while longer forms will highlight account-incurred fees. Additionally, all account agreements will be published by the CFPB on its website.
Consumers Union, a Consumer Reports arm, ranked 23 prepaid cards in the market according to value, convenience, safety, and fee clarity and accessibility. The union reported that nine cards were not recommended at all for use.
The Target-issued American Express prepaid card came in last due to a poor convenience rating and lack of deposit insurance, while the best-rated prepaid card is the Bluebird card issued by Wal-Mart and American Express. Pasadena's Green Dot Corp. issued most of the highly rated cards in the list of recommendations, while Iowa's MetaBank produced five out of the nine "not recommended" prepaid cards.
The CFPB's proposed set of rules for prepaid cards will be open for comment from the public 90 days after being released in the Federal Register. The agency will be attending a field hearing on Nov. 13 in Wilmington, Del. to outline its proposal.
