• Consumer Protection Law and Advocacy — Chicago, IL

Debit Cards

Prepaid Debit Card Rules Released

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Prepaid debit card rules have never been as stringent as those that apply to other debit and credit cards.  That’s why the Consumer Financial Protection Bureau’s October 2016 approval of prepaid debit card rules is so noteworthy.

First, what is a prepaid debit card?  It’s a card that usually does not require a credit check and is not tied to an established bank account.  Instead, consumers can add or subtract funds to a reloadable card.  These cards come with downsides.  The fees charged on each transaction can vary from card to card and can be rather hefty.  Also, you can’t use prepaid debit cards to build your credit rating.

Because these cards have traditionally been marketed to consumers with low credit who don’t have checking accounts, new regulations are aimed at increasing cardholder protections.  The Consumer Financial Protection Bureau’s new rules provide, in part:

  • enhanced disclosure requirements
  • agreements to be posted online
  • account information to be available by phone, online or in writing upon request
  • error resolution processes
  • protections against unauthorized withdrawals
  • limitations on consumer liability for fraudulent transactions

According to the Bureau’s press release, the goal is to “Know Before You Owe.”  http://www.consumerfinance.gov/about-us/newsroom/cfpb-finalizes-strong-federal-protections-prepaid-account-consumers/:

The new rule requires financial institutions to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, and give consumers free and easy access to account information. The Bureau also finalized new “Know Before You Owe” disclosures for prepaid accounts to give consumers clear, upfront information about fees and other key details. Finally, prepaid companies must now generally offer protections similar to those for credit cards if consumers are allowed to use credit on their accounts to pay for transactions that they lack the money to cover.

Some employers pay their workers using these cards and prepaid debit cards are one of the fastest growing consumer financial products.  These new rules are the first step towards ensuring prepaid debit cards don’t avoid consumer protection scrutiny.