Rules to protect prepaid card users hamper innovation, issuers say
WASHINGTON – Federal authorities on Wednesday unveiled new regulations aimed at protecting prepaid card users, a booming financial sector expected to be worth up to $ 112 billion by 2018.
The cards – ranging from gift cards and reloadable payment cards to mobile and online banking – are convenient but have also led to thousands of complaints with the Consumer Financial Protection Bureau regarding hidden fees, unknown withdrawals and difficult to access account information.
The bureau aims to get some of these problems under control with the rules it has proposed – rules that industry officials say will stifle innovation and end up costing consumers in the long run.
There are currently no federal regulations on prepaid accounts – and it won’t be for at least a year, that is, when the rules announced Wednesday. But supporters of the decision said consumers need protection.
“They deserve a safe space to store their money,” CFPB director Richard Cordray said on a conference call to announce the measure.
Prepaid accounts are among the fastest growing consumer financial products in the country, typically purchased through retail outlets or online. Those accounts only held $ 1 billion in 2003, a number that had risen to nearly $ 65 billion in 2012 and, according to the bureau, that number is expected to nearly double by 2018.
Accounts have become an alternative to banking for some, especially low-income consumers, officials said.
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Cordray said the office looked at thousands of consumer complaints while preparing for the settlement. In addition to the unforeseen fees, there were complaints that little could be done to recover lost or stolen funds on cards.
He said there are three areas where the new rule will help: account providers will need to limit consumer losses when funds are stolen or lost; they will have to investigate and resolve any errors that occur; and they will need to give consumers free and easy access to their account information.
Office cited a study by the Federal Deposit Insurance Corp. who discovered that prepaid account users are mostly minorities, low-income groups, and people over 65.
“Most of these users are vulnerable,” said Susan Grant, director of consumer protection and privacy at the Consumer Federation of America.
“For people who may not qualify for credit cards or who might even have difficulty getting a bank account, it’s relatively easy to get a prepaid product without a credit check,” Grant said.
She says prepaid cards are desirable because they can sometimes be safer for travel and they make money management easier for people “without bank”.
“Over the years you’ve had an evolution in prepaid cards, replacing checks, salaries and government benefits,” said Grant, who called the proposed regulation “a big step in providing protections to consumers.”
But industry officials don’t see it that way.
Brad Fauss, president and CEO of the Network Branded Prepaid Card Association, said in a prepared statement Wednesday that new rules would do more harm than good by obstructing “innovation and inclusion,” among others.
“The CFPB rule will ultimately limit access to an essential consumer product that helps millions of Americans participate in the digital economy, manage funds affordably, and hold money securely. security, “the statement from Fauss said.
These concerns were echoed by Consumer Bankers Association President and CEO Richard Hunt, who said in a prepared statement that the proposal “ignores years of precedent and leaves consumers one less option for coverage of short-term liquidity “.
CFPB said prepaid cards still pose more risk to consumers than banks, but the new regulations should help limit future problems.
“These protections are now the law of the land,” said Kristine Andreassen, attorney for the office, on the conference call.