A new rule for prepaid cards will require financial institutions to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, and give consumers easy access to account information.
“Know Before You Owe” disclosures for prepaid cards also give consumers clear, upfront information about fees and other key details. In addition, prepaid card companies are required in most cases to offer protections similar to those for credit cards if consumers are allowed to use credit on their accounts to pay for transactions that they lack the money to cover.
“Many consumers rely on prepaid cards to make purchases and access funds, but until now they were not guaranteed strong consumer protections under federal law,” Richard Cordray, director of the Consumer Financial Protection Bureau, said Tuesday. “This rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone. And it backs up those protections with important new disclosures to let consumers know before they owe.”
Prepaid cards are among the fastest growing consumer financial products in the United States, usually purchased at retail outlets or online. The amount consumers put on “general purpose reloadable” prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012. The total dollar value loaded onto these prepaid cards is expected to nearly double to $121 billion by 2018.
Prepaid cards can be loaded with funds by a consumer or by a third party, such as an employer. Consumers can use these accounts to make payments, store funds, withdraw cash at ATMs, receive direct deposits, or send money to others.
The new rule covers traditional prepaid cards, including general-purpose reloadable cards. It also applies to mobile wallets, person-to-person payment products, and other electronic prepaid accounts that can store funds.
Other prepaid cards covered by the new rule include: payroll cards; student financial aid disbursement cards; tax refund cards; and certain federal, state, and local government benefit cards such as those used to distribute unemployment insurance and child support.
The new rule will generally apply to prepaid accounts starting Oct. 1, 2017, though the requirement for submitting agreements to the bureau takes effect in October 2018.
