Feds scrutinize prepaid cards
NEW YORK — Prepaid cards allow users to store and spend their money without tying themselves to a traditional bank. Regulators want many of the protections that cover bank accounts expanded to this product.
The fees associated with prepaid cards have drawn scrutiny from the Consumer Financial Protection Bureau. The federal regulator on Thursday proposed expanded protections for these increasingly popular “reloadable” cards now used by some 2 million U.S. households as an alternative to traditional banks, according to the Federal Deposit Insurance Corp.
Prepaid debit cards are typically used by people who don’t want, or can’t qualify for a traditional banking account. Individuals add money to their prepaid cards, and because the cards are usually tied to payment networks like Visa, MasterCard or American Express, those people can use them for day-to-day spending. People can have paychecks directly deposited to the cards.
In 2003, American consumers put less than $1 billion on prepaid cards. By 2012, that amount ballooned to $65 billion. By the end of 2014, the CFPB expects consumers to put nearly $100 billion on prepaid cards.
The CFPB is looking to extend protections for bank accounts to prepaid cards, including shielding customers from unauthorized charges, a fee to receive a monthly billing statement and other charges. The CFPB will allow card users to spend more than they originally put on the card, a feature known as overdraft, as long as those users opt in to the service and the issuer provides appropriate disclosure of the fees.
While many prepaid card issuers provide protection if a card is lost, they are under no legal obligation to do so.