Prepaid cards carry billions of dollars in consumer spending money, government benefits and student financial aid, but those same plastic cards have carried few protections regarding theft and fee disclosure. On Thursday, the Consumer Financial Protection Bureau announced plans to change that with a new proposed rule.
The agency is proposing a new rule that would treat reloadable cards more akin to checking accounts when it comes to things like accessing account information, resolving errors, and limiting damage from fraud.
"Consumers need and deserve to be able to use sustainable products whose costs and risks are clear upfront, and where their money is protected," CFPB director Richard Cordray announced in a set of prepared remarks. "The proposed rule covers prepaid cards as well as mobile and electronic prepaid accounts that can store funds."
The prepaid card market has exploded over the past decade. In 2003 consumers loaded less than $1 billion onto what are known as "general-purpose reloadable" cards. That figure grew to nearly $65 billion in 2012, and the total value could reach nearly $100 billion this year, according to the 3-year-old consumer protection agency.
The Federal Deposit Insurance Corporation estimates that two-thirds of people who rely on prepaid cards are from unbanked, or underbanked, households.
Under the CFPB's proposal, consumers who register their accounts would be entitled to check their account balances and transaction history for free. "Unlike checking account customers, prepaid users typically do not automatically receive periodic statements," the CFPB said.
Financial institutions would also face requirements to investigate errors that customers report. And if a registered card were lost or stolen, consumers who notify their financial institutions would be responsible only for up to $50 of unauthorized charges.
In addition to these bank account-esque features, the rule would extend protections to credit products associated with a prepaid account.
"Like credit card issuers, prepaid companies would be required to first make sure consumers have the ability to repay the debt before offering credit," the CFPB said.
Other credit protections would include limits on late fees and interest charges.
The proposal will be open for public comment for 90 days.