Prepaid cards are finally getting some of the protections all their plastic cousins have.
The Consumer Financial Protection Bureau has finalized a rule regulating prepaid cards with fee disclosure requirements and federal protections for lost and stolen prepaid cards.
Under the new rule, which takes effect Oct. 1, 2017, financial institutions must limit a consumer’s losses when a prepaid card is lost or stolen, investigate and resolve errors, and give consumers free and easy access to account information.
And the new “Know Before You Owe” disclosures for prepaid card accounts give consumers clear, upfront information about fees and other key card details.
Prepaid accounts are among the fastest growing consumer financial products in the United States, and are usually purchased at retail outlets or online. And the total dollar value loaded onto these prepaid cards is expected to nearly double to $112 billion by 2018.
Prepaid card accounts may be loaded with funds by a consumer or by a third party, such as an employer. Consumers use prepaid card accounts to make payments, store funds, withdraw cash at ATMs, receive direct deposits, or send money to others — basically just like a debit card, only without the same level of protection until now.
This new rule applies to traditional prepaid cards, including general purpose reloadable cards, mobile wallets, person-to-person payment products, and other electronic prepaid accounts that can store funds.
Additional prepaid accounts covered by the new rule include: payroll cards; student financial aid disbursement cards; tax refund cards; and certain federal, state, and local government benefit cards such as those used to distribute unemployment insurance and child support. Lots of plastic.
The new protections
The new rule gives prepaid account consumers important protections under the Electronic Fund Transfer Act, which are similar to those for checking account consumers.
These protections include:
- Free and easy access to account information. Financial institutions must make certain account information available for free by telephone, online, and in writing upon request, unless they provide periodic statements. Unlike checking account customers, prepaid consumers typically do not receive periodic statements by mail. The new rule ensures that consumers have access to their account balances, their transaction history, and fees they’ve been charged.
- Error resolution rights. Financial institutions must cooperate with consumers who find unauthorized or fraudulent charges or other errors on their accounts and investigate and resolve these incidents in a timely way, and when appropriate, restore missing funds. If the financial institution cannot do so within a certain period of time, it will generally be required to provisionally credit the disputed amount to the consumer while it finishes its investigation.
- Protections for lost cards and unauthorized transactions. The new rule protects consumers against withdrawals, purchases, or other unauthorized transactions if a prepaid card is lost or stolen. The rule limits consumers’ liability for unauthorized charges and creates a timely way for them to get their money back. As long as the consumer promptly notifies their financial institution, the consumer’s responsibility for unauthorized charges will be limited to $50.
“Know Before You Owe” disclosure requirements
The new rule requires two forms, one short and one long, with easy-to-understand disclosures. The short form concisely and clearly highlights key prepaid account information, including the fees the CFPB believes are most important to consumers shopping for a prepaid account. These include a periodic fee, per purchase fee, ATM withdrawal and balance inquiry fees, cash reload fee, customer service fees, and inactivity fee.
Article last modified on March 3, 2017. Published by Debt.com, LLC .