The Consumer Financial Protection Bureau (CFPB) today announced finalized federal consumer protections for users of prepaid accounts, including a “know before you owe” disclosure and limits on consumers’ losses in the event that a card is lost or stolen.
The bureau also requires financial institutions to investigate and resolve errors and to offer similar protections to those of credit cards if consumers are allowed to use credit to pay for transactions they lack the money to cover.
“Many consumers rely on prepaid cards to make purchases and access funds, but until now they were not guaranteed strong consumer protections under federal law,” Richard Cordray, director of the Consumer Financial Protection Bureau, said in a statement. “This rule closes loopholes and protects prepaid consumers when they swipe their card, shop online or scan their smartphone. And it backs up those protections with important new disclosures to let consumers know before they owe.”
Prepaid accounts are one of the fastest growing consumer financial products in the U.S. today. The amount consumers put on “general purpose reloadable” prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012, the CFPB said. Moreover, the agency expects that figure to almost double to $112 billion by 2018.
In addition to general purpose reloadable cards, the new rules also apply to mobile wallets, person-to-person payment products, payroll cards, student financial aid disbursement cards, tax refund cards and certain federal, state and local government benefit cards like those used to distribute unemployment insurance and child support.
The CFPB’s new rules give prepaid account customers special protections under the Electronic Fund Transfer Act similar to those for checking account customers. Financial services companies must give consumers free and easy access to information about their accounts, investigate and resolve errors and offer protections for lost cards and unauthorized transactions.
The bureau is also requiring “know before you owe” disclosures in the mold of similar disclosures for mortgages and student financial aid, and it is extending credit protections from the Truth in Lending Act and Credit Card Accountability Responsibility and Disclosure Act to users of prepaid accounts. In part, those credit protections will require prepaid issuers to determine a customer’s ability to repay before offering credit and will limit fees and interest charged to 25 percent of the credit limit during the first year a credit account is open.
The bureau’s new rules will also require companies to wait 30 days after a consumer registers a prepaid account before offering a credit feature, and it prohibits prepaid companies from seizing a credit repayment the next time a prepaid account is loaded with funds.
The rules will apply to prepaid accounts beginning Oct. 1, 2017, and the requirement for submitting agreements to the bureau will take effect in October 2018. The entire rule can be viewed here.
