Coming CFPB Rules May Hurt Those They are Designed to Help

by Ben Jackson 0

An article in the Wall Street Journal previews the forth-coming CFPB rules, which rumors once again suggest may arrive any day now. While the rules were originally designed to improve disclosures on cards, the proposed rules morphed into nearly 1,000 pages of an attempt to anticipate and fix any potential problem that a consumer might run into.

The new rule, which the CFPB has been working on for four years, would require prepaid-card companies to provide more detailed fee disclosures and easier access to account information, limit consumer losses when funds are lost or stolen, and resolve errors in a timely fashion, industry experts say. Many prepaid-card providers offer such features voluntarily, but they aren’t required to do so by law.

The misunderstanding about prepaid cards is that there are many laws and regulations that have governed them because they fall under banking regulations. Nearly all open-loop prepaid cards are issued by banks, which are required to comply with the OCC, FDIC, and/or Federal Reserve rules for their products. In addition the payment networks (Visa, MasterCard, Discover, and American Express) have rules for the products that carry brands, and state laws also apply.

The risk with the forthcoming rules is that if they make prepaid cards an unsustainable product, then providers will move on to other businesses. Then the populations who use prepaid cards, in particular low and moderate income people who have often been pushed out of the traditional banking system, will be forced back into a cash economy. This will mean they cannot make payments online, shutting them out of much of the modern economy, and they will pay expensive check cashing and bill payment fees.

Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group

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