Published: March 2015

The CFPB crack-down on prepaid cards is a win for consumers

The prepaid card market is exploding and can be found in popular national retailers like Walmart and Target. These cards are often marketed as a more affordable alternative to bank accounts and debit cards, especially for low income consumers. What consumers may not know is companies known for their predatory financial services have been quick to jump into the industry, largely due to the lack of regulations and standardization requirements. The Consumer Financial Protection Bureau (CFPB) is trying to stop them.

Unlike money in bank accounts that is spent through debit cards, prepaid cards lack FDIC insurance and Regulation E protections that guard consumers against theft and fraud. Since prepaid cards are not subject to the same regulations as debit cards, their fees are not clearly disclosed for consumers to compare. Cards that may first appear less expensive may end up costing more once fees are tallied. Consumers are charged a multitude of fees, depending on which prepaid card they choose, including fees for loading money on the card, for using the card, for not using the card, monthly fees, ATM fees, customer service fees and more.

The CFPB’s proposal to regulate the prepaid industry included new requirements like disclosing prepaid card fees in a uniform way so that consumers can compare card costs and find the best deal. It also prohibits government programs and employers from requiring people to receive payment on prepaid cards and provides fraud and liability protection so that card owners can be reimbursed if their card is stolen. However, more can be done. Prepaid card issuers should provide deposit insurance and better fee disclosures. They should also be prohibited from offering consumers overdraft protection or other forms of loans that consumers may not be able to pay back.

Lead Organization

Americans for Financial Reform (AFR)

Other Organizations

Arizona Consumers Council | Arkansans Against Abusive Payday Lending | Arkansas Community Organizations | California Reinvestment Coalition | Center for Economic Integrity | Center for Economic Integrity - New Mexico Office | Center for Responsible Lending | Chicago Consumers Coalition | Chinese American Service League | Consumer Action | Consumer Assistance Council Inc. (Cape Cod, Mass) | Consumer Federation of America | Consumers Council of Missouri | Consumers Union | Corporation for Enterprise Development | Florida Alliance for Consumer Protection | Georgia Watch | Greater Southwest Development Corporation | Heartland Alliance for | Human Needs & Human Rights | Illinois Asset Building Group | Illinois Public Interest Research Group | Kentucky | Equal Justice Center | Kingdom Community Inc. | Law Foundation of Silicon Valley | Mark E. Budnitz, Professor of Law, Emeritus, Georgia State University College of Law | Maryland Consumer Rights Coalition | Massachusetts Consumers Council | MassPIRG | National Association of Consumer Advocates | National Consumer Law Center (on behalf of its low income clients) | National Council of La Raza | New Economy Project | New Jersey Citizen Action | Northwest Side Housing Center | Project IRENE | Public Citizen | Public Justice Center | Reinvestment Partners | SC Appleseed Legal Justice Center | The Leadership Conference on Civil and Human Rights US PIRG | Virginia Citizens Consumer Council | Virginia Poverty Law Center | Washington Statewide Poverty Action Network | Woodstock Institute

More Information

For more information, please visit AFR's website.

To view the coalition letter, please click here.

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