Changes coming to prepaid card market
ASSOCIATED PRESS
Federal regulators announced new rules Wednesday, Oct. 5, 2016, governing the quickly growing prepaid debit card industry, an effort more than two years in the making, which should bring basic account protections to its customers that are often the poor and financially disadvantaged.
Federal regulators recently announced new rules governing the prepaid debit card industry. It’s a big change more than two years in the making that’s expected to bring some basic account protections to its customers, who are often financially disadvantaged.
Here are some things you should know:
WHAT ARE PREPAID CARDS:
Prepaid accounts are among the fastest growing consumer financial products in the United States, according to the Consumer Financial Protection Bureau, which led the change.
Sold widely in grocery stores, convenience stores and online, consumers load money onto these cards and use them as they do a debit card, making everyday purchases or to get cash. Prepaid accounts may also be loaded with funds by a third party, such as an employer.
Prepaid debit cards have become increasingly popular over the last 15 years and have effectively replaced a traditional checking account for millions of Americans.
Roughly $65 billion was loaded onto prepaid cards in 2012, the most recent year for which data are available. That’s more than double the amount loaded in 2009, only three years before. It is expected to continue to grow.
The cards are largely used by lower income Americans, who are statistically more likely to be young, from a racial minority and earning less than $25,000 a year, according to the Pew Charitable Trusts.
WHAT’S NEW:
Under the new rules, prepaid debit card issuers will have to provide their users with basic account information like balances and transaction history free of charge. Protections for lost or stolen cards will also be extended to prepaid debit cards. Fees for the cards will have to be more clearly disclosed on the packaging.
The new rules apply to traditional prepaid cards as well as other electronic accounts that can store funds. The rules cover payroll cards, student financial aid disbursement cards and tax refund cards, as well as cards used to distribute social security benefits and unemployment insurance.
WHY THE CHANGE:
The CFPB said that until now these products largely lacked consumer protection under federal law. That’s become a big problem as the industry has grown.
Early prepaid cards carried extremely high monthly fees, and sometimes they even charged fees to load money onto a card. The RushCard, which was backed by hip-hop mogul Russell Simmons, suffered a massive technical glitch a year ago that stopped more than a hundred thousand customers from accessing their funds, sometimes for weeks.
The industry’s missteps have allowed more traditional banks and financial services companies to come out with their own prepaid cards, including JPMorgan Chase and American Express. But it’s also raised the need for more protection.
WHAT ELSE:
The industry did win one significant concession: prepaid debit card issuers can still provide overdraft services, which would legitimize a small, controversial part of the industry. Only 2 percent of all prepaid debit cards allow for their customers to overdraft, according to the National Consumer Law Center. That percentage will likely expand.
The new rules go into effect October 1st, 2017.
One response to “Changes coming to prepaid card market”
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The move to allow consumers of these prepaid debit cards is something that the issuers should have done a long time ago. Let’s face it, to purchase one of these cards the consumer has to pay a fee. And what does the consumer get out of this trade? Not much. Just the convenience of having a card to pay for items without having to carry around cash. I have received these type of cards as gift and often I see that the card amount is not the same as there are fees tacked on to the service. I don’t understand why consumers would buy these cards to give as gifts as it gives the middle man a portion of the monies. Personally, I would not purchase these type of cards to give as gift. Sure, people like to have a slick looking plastic card attached to their greeting cards but it comes with a big cost. Why not just attach cash? I don’t fall for the gimmicky fancy looking card as ultimately the money in it is what matters to me. And quite frankly, cash is always better. And speaking of cards, I cannot understand how these gift card companies can get away with selling these things that limits gift card receivers as to where they can use it and the buyer gets nothing out of the transaction. I can understand if the the buyer of these cards get to purchase the gift card for less than the card’s value. But it really limits the gift receiver. Not saying that these gift cards are bad as ultimately it is the thought that counts. But as someone who has received his share of these gift cards it is very limiting. Further, there are the expiration date on these gift cards. So in the end the company that issues these cards will get the money for free if the receiver does not use the card before the expiration date. For example, I have received gift cards for stores that I do not go to nor do my family go to. In the end I just end up either not using them or giving them away to friends or coworkers who ultimately will probably not use them either. There should be a law that states that these cards cannot have an expiration card but state that if the store that these cards are issued for go out of business that the consumer will have to accept that. At least consumers can know that they don’t have to use the cards right away lest they forget to use them.