In light of the recent explosion in prepaid card use in the United States, new sanctions are being developed to better protect consumers and ensure fair treatment, just as with the recent credit card reform. During a recent hearing in Durham, North Carolina, the director of the Consumer Financial Protection Bureau, Richard Cordray announced new prepaid card regulations are under development.

Since prepaid card use has greatly increased over the past several years, the CFPB intends to impose new sanctions in regards to fees, fraud coverage, insurance matters, and liability issues in accordance with similar regulations in the credit card industry.

Consumer Protection

One of the most important areas of the prepaid card market that needed addressing is that of consumer protection. Until these new regulations are imposed, prepaid cards will continue to have no standard for consumer protection in regards to:

  • Lost or stolen cards – the Consumer Financial Protection Bureau aims to limit consumer liability to only $50 if a lost card is reported within two days and up to $500 if reported in 60 days. Currently there is no protection.
  • Bank failure insurance – bank account, credit card, and debit card liability are covered by the Federal Deposit Insurance Corporation (FDIC). Currently the FDIC does not cover prepaid cards and the CFPB aims to change that as well.
  • Transaction disputes – unlike credit cards, prepaid card users currently have no means by which they can dispute a claim and receive reimbursement. The new regulation would require prepaid card disputes to be processed and the lost funds replaced within ten days of opening the complaint.
  • Fraud protection – credit cards, obviously, are insured against fraud and theft, which does not hold card carriers liable for fraudulent charges made to their accounts. Currently, prepaid cards have no protection from this and the CPFB would like to impose similar zero liability measures.

Market Vulnerability

During the Durham hearing, CFPB director Cordray made it known that a majority of the prepaid card market are people who cannot get a credit card or debit (though the reasons vary).

Generally, this population is the working poor who work paycheck to paycheck and often load every dollar they make onto their prepaid card in order to improve their personal convenience in a highly digital world. Cordray says that they are “the most vulnerable among us,” simply assuring that

every dollar they pay in hidden fees is a dollar they cannot spend on supporting their families. These consumers are least able to take a hit if their prepaid card is lost or stolen, and yet they often have no guaranteed protection against this kind of disaster.

Indeed, the new regulations will help this vast population stay above water, so to speak.

Better Access To Information

Another area of great disparity between credit cards, debit cards, and prepaid cards is that of regulated transparency. The recent Fair Credit Act and Credit CARD Act of the past few years has changed the way consumers understand and interact with their credit cards but so far nothing has been done to alter prepaid card transparency.

The CPFB is trying to stress how important it is for consumers to compare fees, prices, and all of the terms and conditions of each prepaid card, but that is difficult to do without the same regulations that has made credit cards more transparent of late, especially when you consider that prepaid cards are available in convenience stores (and therefore not subject to the same kind of scrutiny as a credit card that requires an approval process).

Because of this, consumers have been left to dealing with customer service whenever they have a question, and each call usually costs a fee, causing many prepaid card users to spend a great deal of money on information.