If your bank debit card or credit card is stolen, federal regulations limit your liability for unauthorized charges.
But if you are one of the tens of millions of Americans who use prepaid debit cards, there’s no such protection in the event of theft or loss. That’s just one example of the disparity between cards. The real shame is that many of the Americans using prepaid debit cards don’t have bank accounts or credit cards.
Many low-wage workers receive their paychecks on electronic debit cards. Some Social Security beneficiaries receive their monthly benefits on a prepaid debit card.
These prepaid cards are a great convenience over carrying large amounts of cash. Loading paychecks or government benefits on a card allows people to get quicker, more secure access to their money. Some folks use prepaid debit cards to avoid getting charged bank overdraft fees.
Unfortunately, some of these prepaid cards haven’t worked as well as they should because some card companies don’t clearly disclose all their fees upfront. Other prepaid debit cards have offered consumers “protection” that turns out to be fees for overdrafts — one of the problems the prepaid cards were expected to prevent.
Complaints about such problems prompted several years of federal review of rules to better protect consumers. Some states, including Montana, have rules protecting workers, including the requirement that Montana workers not be forced to accept payment on a prepaid debit card. Social Security works with just one prepaid card provider, and that one is subject to fee disclosure rules.
But the present rules don’t protect all Americans, and the rules don’t protect prepaid debit card users on par with other electronic card users.
Rules finalized by the Consumer Financial Protection Bureau are scheduled to take effect on Oct. 1. But the wave of anti-regulation fervor in Congress threatens to kill the debit card protection. So far this year, Congress has already used a previously nearly unknown law (the Congressional Review Act) to repeal many environmental regulations. Politicians are targeting the debit card rules partly because they want to eliminate the entire Consumer Financial Protection Bureau, which was created in response to the financial crisis that sparked the Great Recession in 2008.
Consumers Union summarized what the rules would require: fees disclosed upfront; fraud protection; disputes resolved promptly; free and easy access to account information (either with monthly paper statements or a website); and overdraft features such as giving customers at least 21 days to repay their debt before being charged a late fee.
The final rule was released on Oct. 5, 2016. It was immediately endorsed by a major prepaid card company, Green Dot, whose chief executive officer, Steve Streit, said: “We fully support the CFPB's mission to ensure fairness, integrity and consumer protections for all participants in the financial system. For many years, Green Dot has voluntarily provided full checking account style consumer protections for its customers and has never charged overdraft or penalty fees on prepaid and checking products.”
Although Consumers Union reports that most industry leaders support the rules, one big company doesn’t. NetSpend, which is based in Georgia and Texas, has persuaded U.S. senators and representatives from those states to lead an effort to nix the rules.
If repealed under the CRA, these consumer protections couldn’t be implemented for at least several years — after going through a public rulemaking process again.
Attorneys general from 17 states, including Iowa, Maine, Minnesota and Washington, wrote to congressional leaders last month, urging them to oppose the attempts to scuttle the rules. The attorneys general noted concerns about U.S. college students who received $2.72 billion in financial aid on prepaid debit cards last year.
“The final rule provides common-sense protections to some of the most vulnerable consumers — those who do not have access to bank accounts,” the attorneys general wrote.
We call on Congress to protect millions of average Americans and not reject the rules.
— Billings (Mont.) Gazette