In an issue brief published on its Web site, the think tank Center For American Progress argues that prepaid cards need more regulations in order to be a good bank account substitute.
Improving consumer protections can bring prepaid cards closer to their bank-account counterparts, expanding access to safe, affordable, and transparent financial services for all Americans.
The report recommends using the Social Security Direct Express card as the model for over government accounts, applying bank account regulations to general purpose reloadable cards, standardizing disclosure, and monitory advertising for accuracy and truthfulness. The only recommendation it makes for the industry is that prepaid card providers “Should add opportunities to learn more about using prepaid cards wisely.”
The danger in these prescriptions is, of course, that new rules and regulations would be applied to all cards regardless of their type. Poorly formed regulations, as we saw with the first iteration of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act have the potential to severe damage the industry and hurt the people that they are designed to protect. So, it is critical to be very specific about what kinds of cards are regulated, what the rules are, and why any regulations are necessary.