A Virginia congressman is seeking a law that would provide consumers with prepaid card fee disclosures they can easily understand. But the industry doesn't operate in a one-size-fits-all manner.
Democratic Senator Mark Warner last week proposed legislation that would direct the Consumer Financial Protection Bureau to more fully disclose "hidden fees" on prepaid cards.
The CFPB recently declared that the credit card industry has improved in disclosing previously hidden fees, though it continues to watch that industry's use of annual fees and add-on product offerings.
When regulators attempt to solve fee disclosure problems, they generally seek rules that apply to all cards, says Ben Jackson, a senior analyst at Boston-based Mercator Advisory Service.
"When they go for a one-size-fits-all, sometimes it won't fit anything," Jackson says.
In the Prepaid Card Disclosure Act of 2014, Warner is calling for the CFPB to mandate that financial institutions disclose prepaid card fees through creation of an "easily understood table, clearly and conspicuously displayed to the consumer prior to purchase."
Such a table would provide consumers with descriptions of each fee and the amount that the financial institution or card provider would charge.
The bill also allows disclosure through a QR code or bar code, which consumers could scan with their smartphones to see real-time updates.
In addition, Warner is seeking to require that issuers clearly provide a toll-free telephone number and website address on the card so consumers have access to more information about fees.
Warner's office did not reply to inquiries by deadline, but noted in a press release that Warner is concerned about various fees issuers can tack on to prepaid cards. Those fees range from activation and monthly maintenance to overdrafts or inactivity, or checking account balances and making withdrawals.
"At nearly $700 billion in sales each year, prepaid cards are one of the fastest growing parts of the financial industry," Sen. Warner states in the release. "However, these cards aren't subject to the same kinds of consumer protections as other types of credit cards and gift cards."
It's important that young people and people without a credit history or access to traditional banking have access to prepaid cards, Warner says. "But we can't let the technology outpace smart consumer protections," he adds.
Greater fee transparency will help consumers make informed decisions about prepaid products, Warner says.
"These reloadable cards are popular as gifts, and many parents send their children off to college with them," he adds. "As they become more prevalent in our economy, it just makes sense that consumers should have access to the same information that we require with gift cards and most major credit cards."
In the past, consumer advocacy groups have pushed for more complete prepaid card fee disclosure because consumers generally are not aware of the fees at all.
Even though Warner's bill appears to focus strictly on disclosure and exempts a number of prepaid segments, including closed-loop gift cards and government benefit cards, Jackson says legislators can always attach amendments as a bill makes its way through the lawmaking process.
"If you get a $50 bonus card of some sort, the disclosure on that card is far different than on a Green Dot card or other type of card," Jackson says.
With a wide array of prepaid products, Warner's proposal sets "a minimum standard so that all institutions disclose the same items in the same manner," says Madeline K. Aufseeser, senior analyst with Boston-based Aite Group. "Most institutions are doing a good job of this already so I don't think this is a big deal."
In addition, the prepaid industry would support such regulation, Aufseeser says.
"I also don't think it will change any consumer sentiment currently, because consumers are comfortable with these cards already, as they have become mass market and mainstream," she adds.
Regulators are comparing prepaid card disclosure to what they see on credit cards, checking accounts and other products, Mercator's Jackson says.
The Center for Financial Services Innovation in Chicago has been working to create disclosure standards that the prepaid card industry could adopt, Jackson says.
"The industry needs to get out in front on this, and I give CFSI credit for trying to set something up that will make life easier on the prepaid card providers and the consumers," Jackson adds.
Warner is a member of the Senate Banking Committee. The CFPB has been studying prepaid fee disclosure closely for nearly two years.