Consumer Financial Protection Bureau
announced last week that it will examine prepaid debit cards to
consider new regulations to protect consumers.
The CFPB said it will focus its efforts on "General Purpose
Reloadable" prepaid cards. These cards allow consumers to fund the
card upfront and then use it as a debit card. These products have
been growing in popularity recently, particularly among younger
consumers and those without traditional bank accounts.
Proposed regulations for prepaid cards
According to the CFPB, the following areas need to be addressed
and potentially regulated:
Fees and terms:
There is no industry-standard for the disclosure of fees for
prepaid cards. The bureau hopes to find a method by which
consumers can be notified of card costs and features which, in
most cases, are currently printed on the inside of card packaging
and cannot be read prior to purchase.
While consumers have limited liability if their credit card or
debit card is used for unauthorized transactions, there is no
similar requirement for
. The CFPB plans to evaluate the possibility of extending limited
liability protections to prepaid cards as well.
Most prepaid cards offer limited features, but some include
add-ons such as a line of credit, credit repair program or
savings account. The bureau plans to investigate these types of
card features further to consider their costs and benefits.
The bureau proposal has now entered a 60-day comment period.
Comments from consumers and other interested parties will be
accepted by the CFPB through July 22, 2012.
Prepaid cards popular with the young and
The proposed rules come at a time when prepaid cards are growing
in popularity as an alternative to more traditional financial
products. According to
a study by Javelin Strategy & Research
, use of prepaid cards rose 2 percent in 2011 from the previous
year. During the same time, credit cards, debit cards, checking
accounts and savings accounts all saw a decline in use.
Prepaid cards appear to be especially popular among Millennials
and the unbanked. As banks move to eliminate free checking
accounts, these demographic groups appear to favor prepaid cards as
a low-cost way to pay bills and store their money. Javelin reports
one in six consumers within these groups uses a prepaid card.
"The people who use prepaid cards are, in many instances, the
most vulnerable among us," said CFPB Director Richard Cordray in a
statement. "Yet right now prepaid cards have far fewer regulatory
protections than bank accounts or
debit or credit cards
Until regulations are enacted, consumers can protect themselves
by carefully researching available cards and their fees before
selecting a product.