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The prepaid card industry is ramping up its advocacy efforts on Capitol Hill as the Consumer Financial Protection Bureau readies a final rule targeting such products.
April 25 -
The agency posted its semiannual rulemaking agenda
on a blog late Wednesday updating the next steps it will take on several areas of rulemaking. The CFPB expects to issue rules for prepaid reloadable cards, mortgage servicing and mortgage disclosures this summer but set no specific deadlines yet on overdraft and debt collection.May 19 -
Consumers deserve disclosure and the protections enjoyed by payroll card users, but it is critical that regulations do not put providers out of business.
June 21
Instead of accounts associated with surprise fees, unbanked consumers have been using prepaid cards. The product, which lets consumers load funds via direct deposit or with cash, can be used to withdraw funds from ATMs or to make purchases at retail outlets — just like checking accounts. But unlike checking accounts, prepaid cards have predictable, upfront costs without unexpected charges such as overdraft fees. The pricing model needs to stay that way.
As the
However, any discussion about how to provide better financial services to the public has to start with understanding that overdraft fees drive people away from banks — and this has consequences. Specifically, once consumers leave the banking system — either because they don't want to pay the high fees or because their account is delinquent — their options for affordably and safely managing their finances are limited.
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Prepaid card products with transparent pricing and no risk of overdraft fees can help solve this problem. In
Allowing overdraft programs on prepaid accounts would not level the playing field or ensure consumer access to needed financial products. Rather, it would endanger consumers' ability to use prepaid cards as a way to get back on track and build a secure financial future. It is essential for the agency to follow through on its proposal that effectively bans overdraft fees on prepaid cards.
To be sure, some commentators have raised legitimate concerns about the bureau's proposed rule. For example, the rule, as it is written, could be interpreted to punish prepaid providers when a consumer's account inadvertently drops to a negative balance. If this scenario happened, heavy burdens could be placed on providers to maintain only positive balances on all accounts at all times.
The solution to this problem, however, is simple: The CFPB should prohibit imposing fees or other charges as a result of negative balances. Further, the agency should allow providers flexibility to honor transactions, such as preauthorized account withdrawals, that periodically take account balances slightly negative.
The prepaid market has thrived for years as a safe haven for consumers who were not well-served by traditional banking products. For the most part, the bureau's proposed rule mandates policies that most providers already follow voluntarily. Prohibiting overdraft fees would not derail the prepaid market because so few providers currently offer overdraft protection. The bureau should move forward expeditiously to finalize its proposed rule and clarify that automated overdraft products are not allowed on prepaid accounts. Doing so will provide marketplace certainty and better protect consumers.
Thaddeus King is an officer with the consumer banking project at The Pew Charitable Trusts.