Prepaid debit cards have become a popular budgeting tool as well as an alternative to checking accounts for many Americans, but historically they haven’t had laws to guard consumers from fraud or loss, among other things.
That changes with the Consumer Financial Protection Bureau’s rule, which gives prepaid accounts federal protections that already exist for checking accounts and credit cards.
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Quick details about the CFPB prepaid card rule
- When the rule goes into effect: April 1, 2019 (originally was April 1, 2018)
- Types of prepaid accounts affected: Prepaid debit cards, digital wallets, peer-to-peer transfer apps that hold balances (such as Venmo, PayPal and Square Cash), payroll cards, tax refund cards, government benefit cards
- Types of prepaid accounts not affected: Gift cards, disaster-relief and health- and transit-related cards
- What’s changed since the original rule published: The rule was originally announced in 2016. In January 2018, the CFPB pushed back the date when the rule would take effect from April 2018 to April 1, 2019, and limited fraud protections and the right to dispute errors to registered accounts only, meaning ones that have identities confirmed.
Protections for all prepaid debit cards
People with prepaid debit cards, in particular, benefit from the new rule. Many financially disadvantaged Americans have begun using these cards as substitutes for checking accounts, so the new rule aims to treat the cards more like those accounts. The rule includes:
The disclosures also will have to note whether an account is eligible for deposit insurance (or “FDIC insured”), which lets you get your money back if the prepaid company goes bankrupt. You’ll see disclosures on issuers’ websites as well as on the back of prepaid card packaging.
The issuer must let you access your account balance by phone, review at least 12 months of online account transaction history and request at least two years’ worth of written transaction history for free. The issuer also must include a summary total that shows all fees charged to your account.
Note: If a prepaid account is unregistered, then the last two rights and protections above don’t apply. Registering involves providing your personal information, which can include your Social Security number, to the prepaid company or bank, generally through an online form, to identify the account under your name. The process is similar to opening a bank account. When registered, you’ll receive those protections for problems from that point onward.
Protections for prepaid debit cards with credit components
Prepaid debit cards are not credit cards nor do they build a user’s credit history. But some of them let you borrow money through features such as overdraft programs, cash advances or other credit services. The CFPB calls these cards “hybrid prepaid-credit cards” and includes the following rules to regulate them:
What experts say
It’s a win for consumers, says Thaddeus King, an officer for Pew Charitable Trusts’ consumer finance project. The rule “protects against automated credit products, which are triggered by overspending.”
The nonprofit research group in Washington, D.C., has advocated for better consumer protections on prepaid debit cards for many years.
“For consumers who use prepaid cards to avoid overdraft fees,” King says, “the rule — even with the updates — guarantees that these consumers will have a product that they can use.”
Core protections are in place for prepaid card users.
The updates to the rule addressed some issues financial institutions had, such as providing fraud protections to unregistered cards, “without touching the core protections that the original rule provides,” King adds.
The prepaid industry views the rule changes positively as well.
“By making adjustments to the prepaid accounts rule, including providing additional time for compliance, the CFPB has taken a step to protect consumer access to prepaid products,” says Brian Tate, current president of the Network Branded Prepaid Card Association, in a January statement.
Overall, the rules aim to bring more transparency to a prepaid marketplace that’s been criticized for taking advantage of the unbanked and other financially vulnerable consumers.