On May 23, 2012, the Consumer Financial Protection Bureau (CFPB) held a public hearing on prepaid cards in Durham, North Carolina. The Director of the CFPB. Richard Cordray, began his presentation by noting that according to an FDIC study, the size of the underbanked (i.e. – individuals who do not possess a credit card, debit card or checking account) is now as large as 60 million individuals.
Mr. Cordray stated that the underbanked are significant customers of prepaid products, especially the general purpose reloadable prepaid card. However, Mr. Cordray believed that GPR cards offered little to no protection to the underbanked (the most vulnerable of all consumers) when compared with traditional bank accounts, credit cards and debit cards. Mr. Cordray further stated that as the GPR card market is projected to experience significant growth, he believed that it is the responsibility of the CFPB to create new rules to protect these consumers and announced the CFPB’s release of an Advanced Notice of Proposed Rulemaking. The Rulemaking was focused on the investigation of the following practices with respect to the prepaid card market:
- Availability of FDIC pass through insurance for GPR products
- Consumer protections for lost/stolen GPR products
- Consumer protections for unauthorized or fraudulent charges on GPR products
- Conspicuous fee disclosures on packaging of GPR products
- Overdraft options on GPR products
At the hearing, Mr. Cordray introduced three panels which discussed their concerns on these issues; an Industry Panel, a Consumer Panel and an CFPB Panel. The panelists were primarily concerned with GPR products including:
- affordability (complaining about fees for ancillary service such as live customer service, replacement cards for lost/stolen cards, etc..)
- mandatory arbitration clauses in cardholder terms and conditions
- lack of regulation
- advocated prohibition of overdraft products linked to GPR cards
- lack of features when compared to traditional bank checking accounts
- advocated prohibition of payday loan proceeds being loaded on GPR cards
- advocated application of Regulation E protections to GPR products
Consumers attending the hearing indicated that not all users of GPR products are underbanked and some actually elected to use GPR cards because it was actually less expensive than a traditional low balance checking account and other functionality and features.
It is clear that we will see new and more significant regulations and oversight of GPR products in the near future. Hopefully, the CFPB will listen to all of its constituents and adopt fair and reasonable regulations which provide additional protection for consumers but are not so onerous as to cause issuers to leave the marketplace.
~~ Ray Bilbao, former General Counsel for GiftCards.com