The Consumer Financial Protection Bureau (CFPB) has proposed new rules that would require prepaid card providers to limit losses of their card users, to investigate errors, disclose potential risks and give consumers a free way to obtain information about their accounts.
CFPB director Richard Cordray commented: “Consumers need and deserve to be able to use sustainable products whose costs and risks are clear upfront, and where their money is protected.”
“The proposed rule covers prepaid cards as well as mobile and electronic prepaid accounts that can store funds,” he added.
The proposal “may have potential application to virtual currency and related products and services,” the CFPB also stated.
The consumer’s responsibility for unauthorized charges would be limited to $50.
Under the proposal, consumers who register their accounts would be able to check their balances and transaction history for free. “Unlike checking account customers, prepaid users typically do not automatically receive periodic statements,” the CFPB stated.
According to the Federal Deposit Insurance Corp., in 2013, over 2 million households without bank accounts used prepaid cards. They are utilized to make payments, store money, withdraw funds and receive direct deposits.
“Many of these prepaid consumers are living paycheck to paycheck and are engaged in a constant battle to make ends meet,” Cordray said.
“Like credit card issuers, prepaid companies would be required to first make sure consumers have the ability to repay the debt before offering credit,” the CFPB said.
In addition, the companies would impose limits on late fees and interest charges.
The proposal could be commented for 90 days.
According to an analysis of 23 cards by Consumer Reports, the cards are not equal. Some charge fees for seldom card usage or for calling the customer service, while some overdraft fees when the charges are higher than the amount of money on the card.
Consumer Reports defined the Bluebird card as the best substitute for bank accounts as it has no fees and a bill-paying feature, while the American Express for Target was identified as the worst due to the lack of FDIC insurance. NetSpend’s Pay As You Go Plan was another low-ranked card, which charges a fee of $1-2 per retail purchase.
Over half of prepaid cards investigated by the CFPB now charge a fee to see monthly statements.
Nessa Feddis, a senior vice president for consumer protection and payments at the American Bankers Association, it is possible that the issuing of prepaid cards will be stopped if the new rules will be too expensive.
However, she added the credit card market will primarily be driven by the users demand.