At the beginning of the year, I wrote about the merits of stored-value cards, and the role they can play in a New York bankruptcy. Stored-value cards are increasingly referred to as “prepaid cards” or “prepaid accounts.” They’re back in the news this month because the Consumer Financial Protection Bureau (CFPB) just issued new regulations on them that take effect in October 2017. The popularity of prepaid accounts has grown rapidly since the last decade, from $1 billion in deposits in 2003 to $65 billion in 2012, and it does not appear to be slowing. As a result, the CFPB is hoping to protect consumers from prepaid card abuse. Given that poorer, underbanked Americans are among the most likely to use prepaid cards—or even receive their salaries on them—the protections will undoubtedly help. Here are some of the highlights of the CFPB’s rule.
- Free access to account information. Prepaid card issuers regularly use arbitrary fees as a means to profit on the cards, even for the most routine of uses (or even non-uses), like checking a balance. The rule will allow prepaid account consumers to access their account balances without paying to do so. It’s an important step to normalizing prepaid cards.
- Unauthorized transaction protection. Most of the time, when consumers’ credit cards are stolen or hacked, the consumers will be able to limit the amount they will pay on their accounts, disavowing unauthorized transactions. With prepaid cards, consumers don’t have such protections, so if they lose their cards, they lose everything. The CFPB rule limits consumers’ responsibility for unauthorized transactions to $50.
- “Know before you owe” disclosures. The CFPB rule will require prepaid card issuers to make their card agreements publicly available and provide consumers with disclosures that include information on fees, such as inactivity fees, cash reload fees, or customer service fees.
- Extensive regulations on prepaid card overdraft credit. Many prepaid cards offer consumers credit lines in case they overdraw them. This feature, however, is totally unregulated. The CFPB’s rule strives to bring the regulation of prepaid cards in line with credit cards. Credit lines offered to prepaid card customers will need to meet ability-to-pay requirements. The rule also limits time periods on late fees, and it curbs fee and interest charges.
The full rule is more than 1,500 pages long, but a summary can be found on the CFPB’s Web site here.
In my post discussing stored-value cards, I noted that some of prepaid cards’ drawbacks included excessive fees and lack of regulations. The CFPB’s rule increases the oversight of prepaid accounts, but it doesn’t do much to limit some of the arbitrary fees, like account inactivity fees, aside from making them more transparent. Otherwise, consumers stand to benefit.
Relying on prepaid cards can help poorer consumers stay out of debt, but if that isn’t enough for you, then you should discuss your circumstances with an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.