Why is this important?
Prepaid cards are often marketed as alternatives to bank accounts, especially for low income consumers and consumers of color. What the companies don’t mention to these consumers is that the cards can actually be worse options for a couple of important reasons.
First, the FDIC insurance included with checking accounts (you know, the one that protects you if your bank goes out of business?) is not required to be provided for prepaid cards.
Second, prepaid cards lack the protections under Regulation E that debit cards have- namely protection against theft or fraudulent use of your card.
Third, the fees with prepaid cards aren’t always clearly disclosed to consumers- and there can be A LOT of them- fees for loading money on the card, fees for using the card, fees for not using the card, monthly fees, ATM fees, you get the picture. Currently, it’s nearly impossible for consumers to comparison shop these fees.
CRC’s preliminary analysis of the new proposed rules is below. If you’re interested in learning more, you may also want to check out our Prepaid 101 page on our website: Prepaid Cards 101: What You Need to Know.
“These rules will go a long way to protect people who currently buy prepaid cards at WalMart, Target and other places that can be much more expensive to use and come with far less protections than a standard debit card from a bank or credit union” said Andrea Luquetta, Policy Advocate at CRC. “While we hoped that the CFPB would keep prepaid card companies from offering overdraft or other forms of loans, we think the protections offered will make sure that consumers don’t unwittingly rack up hundreds of dollars they can’t afford to pay back. That would be especially harmful for people who use the cards because they are on ChexSystems and can’t use a more affordable bank account.”
The CFPB’s proposals includes requirements such as:
•Disclosure of prepaid card fees in a uniform way so that shoppers can compare costs and find the best deal,
•Monthly Statements with the amount of fees paid monthly and annually so that consumers can be alerted to how much fees can add up,
•Prohibit government programs and employers from requiring people to sign up for a card in order to get paid,
•Protection against liability for theft so that funds used without the card owner’s permission can be reimbursed, and
•Requiring that prepaid card companies follow the same rules as credit card companies when they offer any form of credit, including the ability to overdraft, meaning that cards must send a billing statement for the amount due, give the customer at least 21 days to repay, and the cards cannot automatically pay the customer’s debt using deposits loaded onto the cards.
To stay up to date on financial justice issues in California, especially as they relate to low income communities, and communities of color, you can follow the California Reinvestment Coalition on our Facebook page, via Twitter, Google+, watch our movies on our YouTube Channel, sign up to receive our newsletter and action alerts, and of course, visit our website.