Urge the CFPB to Make Prepaid Card Accounts Safe and Transparent

Prepaid card accounts are a relatively new consumer financial product that is growing in popularity: a debit card that is not attached to a traditional checking account and allows customers to direct deposit their wages, withdraw money at ATMs, and pay bills online. The card, which offers great potential as an affordable money management tool, has become increasingly accessible to consumers and in many instances is less costly than a checking account.

Although prepaid cards offer many benefits, research by The Pew Charitable Trusts shows that they lack the consumer protections provided by other banking products. No federal laws or regulations protect consumers from hidden fees, unauthorized transactions, or loss of funds.

The Consumer Financial Protection Bureau (CFPB) recently proposed a rule that would address most of these gaps in consumer protections, an action that should be applauded. However, it didn’t go far enough. Make your voice heard and ask the CFPB to strengthen its proposed rule on prepaid cards to ensure their safety and transparency.

Send your comment to CFPB Director Richard Cordray now!
Director Cordray,

I am writing to thank you for taking an important step toward making prepaid card accounts safe and transparent. The proposed rule (CFPB-2014-0031) addresses most of the gaps in consumer protections for prepaid cards, but I urge the CFPB to go further. The rule should require additional information in prepaid card disclosures and mandate that the funds loaded onto these cards be insured by the Federal Deposit Insurance Corp.

[Your Comments]

The proposed rule would protect prepaid card users from unfair overdraft fees by requiring card providers to assess a customer’s ability to pay before offering credit on the cards. Research from The Pew Charitable Trusts shows that consumers' primary motivation for using these cards is to gain control over their finances by avoiding credit card debt and overdrafts. This credit feature must remain strong in the final rule so that consumers can avoid hidden fees and unexpected debt.

In addition, the proposed rule would protect consumers from liability for unauthorized transactions if a card is lost or stolen or if a charge is incorrectly applied. Credit and debit cards already have this important protection, and applying it to prepaid card accounts would allow consumers to choose this product without losing these safeguards.

The disclosure requirement in the rule would help consumers select the prepaid card that best meets their needs. Current card disclosure documents are often long, dense, and full of legalese; if shopping at a store, a consumer cannot gain access to information about all the fees and terms without first purchasing the card. Requiring a short form on the outside packaging that lists the most common fees and access to long-form disclosures via the Internet or a phone are important resources that would help consumers make informed choices. However, both the short- and long-form disclosures should include the purchase price and information about when deposited funds become available.

Although the rule as proposed is very strong and makes great progress in protecting consumers, the lack of mandated FDIC insurance concerns me, because it may put some card account users at risk of losing their money. This decision should not be left up to prepaid card account issuers — all funds should have this protection.

In closing, I want to add my support for the proposed rule, but I urge the CFPB to strengthen it to further protect consumers. Thank you for considering my recommendations.

Sincerely,
[Your name]
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