CFPB reaches for mobile payments in its prepaid product protections

November 13, 2014

WASHINGTON (11/14/14)--Consumer protections for prepaid card use released Thursday by the Consumer Financial Protection Bureau contained a surprise: The bureau blew past protections just for prepaid cards proposed in May 2012 and said it intends to extend the potential new rules to cover a wide range of prepaid accounts.

The proposed protections for prepaid cards already would cover a large and growing market; they include not only the seemingly ubiquitous use-anywhere prepaid cards, but also such things as campus cards used for financial aid disbursements, some government-benefits cards, tax-refund cards, and prepaid cards that some companies use to pay employees.

Click to view larger imageSource: CFPB

CFPB Director Richard Cordray, in announcing the CFPB plan, noted that the number of all prepaid card transactions is growing rapidly, jumping to 3.3 billion in 2013 from 1.3 billion in 2009--an increase of more than 150% in just four years.

"Prepaid products, however, are more than just cards," Cordray declared. "As the prepaid card market has grown, so has the use of mobile or electronic prepaid accounts. Products like PayPal or Google Wallet can be loaded with and store funds from the consumer or from third parties, and they also can be used for a wide range of transactions, without reliance on a card."

Cordray also highlighted a recent Federal Deposit Insurance Corp. survey (News Now Oct. 30) that found underserved consumers--those without many--or any--ties with traditional financial services providers--turn to prepaid cards in greater numbers and with greater frequency than other consumers.

"Many of these prepaid consumers are living paycheck to paycheck, and are engaged in a constant battle to make ends meet," Cordray said in remarks prepared for a field hearing Thursday. "They are some of the most economically vulnerable among us, and most of them have no idea that the prepaid cards they choose to purchase are largely unregulated."

The Credit Union National Association supports the goals of safe and transparent disclosures and appropriate consumer protections on prepaid cards and products, which offer many benefits for consumers, including a higher proportion of the underserved. CUNA will be urging the agency, however, to minimize additional requirements and compliance costs for credit unions that offer prepaid accounts, so prepaid accounts remain accessible and to promote payments innovation.

The bureau's new rules, if adopted, will:

  • Require that consumers are provided with free monthly statements to review account balances, transactions and fees;
  • Require companies to investigate errors promptly and, if they can't resolve the problem within a certain period of time, put the contested amounts back in customers' accounts until the matter is resolved;
  • Require companies to provide easy-to-understand disclosures for their prepaid products;
  • Facilitate comparison shopping by requiring prepaid account issuers post account agreements on their websites;
  •  Protect consumers against "unauthorized, erroneous, or fraudulent" withdrawals or purchases--including when a registered card is lost or stolen;
  • Require prepaid services companies to determine a customer's ability to repay a debt before offering credit;
  • Limit fee and interest charges, and,
  • Regarding pass-through share or deposit insurance, the proposed rule would require financial institutions to disclose a statement if a prepaid account is not set up to be eligible for pass-through insurance. 

As the CFPB chart above illustrates, the bureau expects that few credit unions will be directly affected by the proposed rule--likely because many credit unions that offer prepaid products are relying on another institution to issue the prepaid accounts branded with the credit union's name.

CUNA will be looking into potential effects and costs on credit unions that are indirectly affected, and include this in a comment letter to the agency.

Use the resource link to access the CFPB outline of its proposal.

FDIC report: 'Unbanked' households drop, 'underbanked' like mobile access

CFPB on Prepaid Products (webpage)