The use of prepaid cards as a convenient method of payment has grown substantially in the U.S. in recent years. From an average of more than $10 billion in sales in 2007 to nearly $100 billion expected in 2014, the boom in prepaid card usage shows no sign of letting up.
Unfortunately, the rules that protect users of these cards simply haven’t kept pace with their tremendous growth.
All of that is soon about to change.
The Consumer Financial Protection Bureau (CFPB) has responsibility for overseeing complaints involving mortgages, credit cards and student loans among other consumer credit issues. For this reason, concerns about prepaid cards falls squarely under their mandate.
Currently, sellers of prepaid cards do not use a common format in disclosure documents that list fees and other charges related to their products. They also are not currently required to provide regular account statements to consumers.
Newly proposed CFPB rules governing the use of prepaid cards lay out clear guidelines for any issuer of these cards — in many ways similar to the rules that govern credit card issuers. These proposed changes include:
- Prepaid card issuers will be required to follow rules established under the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009.
- Prepaid card issuers will be required to provide monthly statements to consumers who use reloadable cards on a regular basis.
- Any credit extended for a prepaid card account must follow CARD Act rules governing consumer credit, and any fees charged cannot exceed 25 percent of the credit limit.
- Any debt incurred on a prepaid card would have a 21-day grace period before a late fee may be charged.
- Payments due cannot be automatically taken from an account when the account is funded without express consent from the account holder. Companies issuing prepaid cards must wait at least 30 days before offering a line of credit to an account holder.
Credit lines extended to a prepaid cardholder must take into account the individual’s income and ability to make the required payments. These newly proposed regulations are designed to protect prepaid card users in a way similar to the protection offered credit card users under the CARD Act.
What consumers can expect
Users of prepaid cards are often unable to obtain traditional banking and financial services, and are therefore at more risk of financial abuse. The new regulations proposed by the CFPB will help to close some of the loopholes that allow predatory practices aimed at this vulnerable group.
In addition to prepaid cards, the CFPB has recently expanded their new rule changes to include mobile banking and other prepaid accounts that store funds electronically. This expansion has the potential to impact a wide swath of society, at a time when mobile pay and electronic wallets are gaining a lot of attention.
Whatever the ultimate impact of the proposed regulations, one thing is certain — long overdue protection for prepaid card users is finally here.
Check out our excellent selection of prepaid cards and get someone a gift they won’t return this holiday season.
Photo credit: Flickr/Erlan
Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.