Prepaid Debit Card Users Are Getting New Federal Consumer Protections

October 5, 2016, 9:50 AM UTC
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LONDON - DECEMBER 06: In this photo illustration a man holds up some credit and debit cards on December 6, 2007 in Glasgow,Scotland.The British economy is beginning to feel the effects of the credit crisis which began this year. House prices have begun to fall and the retail sector is predicting a difficult Christmas period. (Photo by Jeff J Mitchell/Getty Images)
Photograph by Jeff J. Mitchell—Getty Images

Prepaid cards, found on racks in nearly every U.S. grocery store, will soon come in packaging that clearly states the fees they may charge and will grant users new protections under final rules released on Wednesday by the federal financial watchdog for consumers.

The Consumer Financial Protection Bureau spent two years finishing rules for the growing industry, projected to reach $121 billion in 2018. It developed buyer-friendly fee disclosure rules to help customers avoid fees and charges that the CardHub service has estimated can cost up to $311 a year.

The bureau also addressed other issues raised in 65,000 comment letters.

Most of the rules become effective in October 2017, with issuers required to post detailed customer agreements on the CFPB site in 2018.

The rules largely put reloadable cards on the same level as debit cards or checking accounts, requiring providers to give customers monthly statements or other access to balance information; to resolve disputed charges quickly; and to limit customers’ liability for charges on stolen cards.

They also curb fees and interest that providers charge when consumers spend more than the amounts loaded onto the cards.

“Our new rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone,” said CFPB Director Richard Cordray on a call with reporters on Tuesday.

The CFPB did not directly address outages, where a technological glitch stops a whole network of cards from working, but officials said the rules will help consumers affected by a massive malfunction resolve any problems quickly. In May, an outage blocked thousands of customers from accessing money on their Walmart-brand prepaid debit cards issued by the company GreenDot Corp.

The cards have become alternatives to banking for many, especially those with lower incomes, as places to store funds, receive paychecks or benefits disbursments and pay bills. The accounts are also moving onto phones with services such as Google Wallet.

According to CardHub, which tracks credit cards across the country, 23 million consumers used prepaid cards in 2014, loading a collective total of $76.7 billion onto them.

“The rules bring prepaid cards out of the shadows, with protections that in many ways are stronger than those for traditional bank accounts,” said Lauren Saunders, associate director of the National Consumer Law Center. “Consumers will have protection from fraud, costs will be more transparent, and dangerous overdraft fees will be curtailed, but unfortunately not eliminated.”

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