The drumbeats are growing louder for the Consumer Financial Protection Bureau to take action on reloadable prepaid cards.
Even as some prepaid card marketers voluntarily adopt clearer fee-disclosure policies, Consumer Reports' advocacy arm Consumers Union on March 29 called for the Washington, D.C.-based bureau to extend the protections surrounding credit and debit cards to the fast-growing prepaid card industry.
The push follows an analysis the Yonkers, N.Y.-based Consumers Union conducted that it says reveals prepaid card providers do not always disclose fees up front. What’s more, the diversity and complexity of the fees can add up quickly, stinging unsuspecting consumers, the group contends.
"We would like the (bureau) to finally extend and clarify the rules surrounding prepaid cards and provide the same protections for loss, fraud and disclosure that exist for other financial-services products," Michelle Jun, Consumers Union senior attorney, tells ISO&Agent Weekly.
Consumers Union would like to see the bureau apply the same type of protections to prepaid cards that Regulation E of the Electronic Funds Transfer Act brought to banks' debit products, Jun says.
Other consumer-advocacy groups simultaneously are calling for the bureau's input on prepaid cards. The Center for Financial Services Innovation earlier this month unveiled a proposed fee-disclosure box that some industry participants are testing. And consumer groups this month also pressured lawmakers to enact legislation to regulate the prepaid card industry.
But it remains unclear when the bureau, which opened its doors in July, will tackle prepaid cards.
Consumers Union found in its analysis of 16 prepaid cards that consumers can find information easily on only a few of the fees issuers charge.
While some issuers no longer charge an activation fee, issuers of nine of the cards reviewed charged consumers an activation fee ranging from $3 to $14.95. Moreover, 13 charged monthly fees ranging from $2.95 to $9.95, 12 charged a fee ranging from $2 to $2.50 for checking card balances at ATMs, and 14 charged a similar fee to withdraw cash from ATMs. Also, five of the card issuers charged an "inactivity" fee for not using the card for period of time that varied.
Cardholders also could lose money if their lost or stolen cards are used to make fraudulent purchases because no federal protections or safeguards exist, Consumers Union says. "Prepaid card users are not guaranteed these protections since the contract terms could be revised or rescinded at any time," the organization contends.
Prepaid cards also lack the same Federal Deposit Insurance Corp. guarantees bank account customers have in case of bank failure, Consumers Union says.
"The bureau is aware of the concerns we have, and we know they are looking at the issue," Jun says. "As far as an exact timeline on when something will happen, we don't know."