Consumers who utilize prepaid cards on a regular basis to receive their paychecks or pay bills will have greater visibility about account fees and fraud protection similar to debit or credit cards, the Consumer Financial Protection Bureau announced on Wednesday.
Consumers were often given misleading information about the myriad fees they would have to pay for purchasing and using their prepaid cards such as checking their balance or even reloading additional money onto the card. Cardholders are now protected from liability for unauthorized charges above $50. The new rule issued by the CFPB becomes effective on October 1, 2017.
Additional Clarity on Fees
The new rule mandates that consumers will receive information about the account fees upfront and is stated in a clear manner so that individuals can compare and find the best deal for them.
"One notable and refreshing feature of the new rules involves the requirement for upfront disclosure of fees in a way that is easily understood by consumers," said Bruce McClary, spokesman for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization. "For those considering a prepaid card, the details of the user agreements will be more readily available to help people make better informed decisions as they compare offers."
Prepaid accounts include the commonly seen prepaid cards which are sold in a variety of businesses such as convenience or grocery stores. They also include digital wallet accounts which are online only accounts.
The issuers of prepaid accounts all have their own fees and features and consumers have been frustrated comparing them, because each company has displayed the information for fees in different forms, the CFPB said.
The most common fees which issuers of prepaid cards charge include a monthly fee if the card is not used and is deducted automatically from the balance, a transaction fee for purchases, an ATM fee for out-of-network withdrawals and a fee for checking the balance or adding more money to the account at a retailer. The other fees include receiving a paper statement, if a purchase is declined, an inactivity fee, a fee for transferring money from one prepaid card to another one and a fee for paying bills online or adding an authorized user.
Greater Fraud Protection
The CFPB has also issued more legal rights for consumers if their card is lost or stolen or if a retailer makes a mistake for an in-store or online purchase and limits the liability to $50, similar to the protection issuers give for debit and credit cards. Existing cards with a Visa, MasterCard, American Express or Discover logo usually have some of these protections, the CFPB said.
This means consumers are safer making purchases whether they are paying at the register, shopping online or using their smartphone.
The current rule states that if a fraudster hacks into your account and steals your funds, the protection consumers receive vary widely, depending on the issuer. The new rule mandates that consumers can monitor their accounts for free and are protected against a stolen or lost card or one that is charged incorrectly.
The new requirements also offer additional safeguards against billing errors and fraudulent charges, said McClary.
"The availability of overdraft protection and safeguards that require card applicants to demonstrate that they can afford a credit card are also changes that benefit consumers," he said. "Those wanting to check their account details will now have the right to get some of the information for free, either by phone or online."
Consumers should still remember that there are still other fees which exist and have not been eliminated or reduced.
"While these changes are a win for consumers, people still need to be aware of the things that remain the same," McClary said. "The cost of ATM withdrawals and other service charges can vary considerably, and can be quite expensive, so consumers should be alert when it comes to fees."
Prepaid debit cards are long due for governmental oversight since they have "operated in their own space for years with minimal consumer protections," said Sean McQuay, a credit and banking expert for NerdWallet, a San Francisco-based personal finance website.
"Checking and savings accounts have FDIC insurance and credit cards and debit cards have the recent Durbin Amendment and CARD Act," he said. "Today's news from the CFPB is a major step forward in guaranteeing the safety of prepaid debit cards for Americans, adding legitimacy to this relatively new payment type."