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Consumer Financial Protection Bureau Prepares Prepaid Card Regulations

In late May the Consumer Financial Protection Bureau announced they will soon formalize regulations for prepaid cards to better protect consumers. The agency is accepting comments related to prepaid cards and plans to release a final proposal for new regulations in 2013.

The prepaid card industry has realized tremendous growth in recent years. According to Mercator Advisory Group prepaid card volume reached $29 billion in 2009 and is expected to reach $90 billion by 2013. Prepaid cards have been around for decades, but more recently major financial institutions have begun offering prepaid card products as these cards have avoided regulations imposed on credit and debit cards.

The upcoming regulations, which are still being decided on, will include provisions to extend consumer protections for credit and debit cards outlined in Regulation E to prepaid card products as well. Currently consumers using prepaid cards are not guaranteed the zero fraud liability they enjoy with credit cards, which protects them from unauthorized use of their cards. Many prepaid issuers offer consumer liability protection when their cards are used for unauthorized transactions, but many issuers do not offer the same protection a consumer would have with a traditional credit card and there is no legal requirement to offer this protection. The upcoming regulatory proposal will attempt to set a consumer liability standard for prepaid cards.

Additionally, the proposed regulations will seek to set a standard for disclosing the fees associated with using prepaid cards. These fees vary greatly across prepaid issuers and can include activation fees, monthly maintenance fees, fees for withdrawing cash, fees for checking the card’s balance, fees for loading the card and several other charges. Another issue is the lack of standardization in the features a prepaid card includes, for example some offer credit features allowing prepaid cardholders to overdraw from their prepaid accounts, which results in overdraft fees. Overall the Consumer Financial Protection Bureau seeks to provide transparency related to the fees, features and protections for prepaid card users.

For more information: Prepaid Card Market to Regularize


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