The Consumer Financial Protection Bureau in early October released new federal rules that would require issuers of prepaid accounts to provide more security and clarity about fees and services.
Federal consumer protections on checking accounts and credit cards under two U.S. laws were to be extended and tailored to users of prepaid debit cards, starting Oct. 1, 2017.
[Update Feb. 7, 2017: Recent congressional action has placed the future of the rules into question. In early February, seven senators introduced a joint resolution calling for the new prepaid card rules to “have no force or effect.” The resolution must be approved by both the Senate and the House and then presented to the president for approval or rejection. NerdWallet will follow the news and report on the impact on you.]
Under the new rules, here’s what would be applicable:
For all prepaid debit cards
Many financially disadvantaged Americans, who can’t open bank accounts due to negative banking history, use prepaid debit cards as a substitute for checking accounts. The CFPB expects the total amount loaded onto prepaid cards to nearly double from about $65 billion in 2012 to $112 billion by 2018.
The new rules aim to treat the cards more like checking accounts. They include:
- More clarity on products before purchase. A prepaid card issuer must provide short- and long-form disclosures for its accounts so that you’ll know all the fees and any available overdraft programs while shopping for a card. Such programs let transactions, such as purchases or ATM withdrawals, go through even if your account balance drops below zero, but their fees can be expensive. The disclosures also will have to note whether an account is eligible for deposit insurance, which lets you get your preloaded money back if the prepaid company goes bankrupt. You’ll see clear disclosures on issuers’ websites as well as on the back of prepaid card packaging.
- Free and simple ways to access account info. Prepaid issuers with cards that don’t have credit features activated won’t be required to offer periodic statements like checking accounts do, but they’ll have to provide alternatives. The company 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 — all for free. The issuer also must include a summary total that shows all fees charged to your account.
- Right to dispute errors or fraudulent charges. If you inform your card issuer of an error or fraudulent charge on your account, the company usually must confirm or deny it within 10 business days, depending on the type of transaction.
- Protections against loss or theft. Previously, prepaid card issuers offered voluntary protections that could be withheld. Under the new rules, though, you will have some guaranteed protection against unauthorized charges on lost or stolen cards. You’ll be responsible for only up to $50 of fraudulent charges provided you report the incident within two days of learning about it. After that period, the loss limit goes up.
For prepaid debit cards with credit components
Prepaid debit cards are not credit cards nor do they build a user’s credit history. However, some of them let you borrow money through features such as overdraft programs, cash advances or other credit services. The CFPB calls these products “hybrid prepaid-credit cards” and will apply the following rules:
- 30-day wait period before overdraft option is available. Prepaid companies can’t reach out to offer you overdraft or other borrowing services until you’ve had a registered account with them for 30 days. (Registering means confirming your identity with the prepaid issuer so your name gets attached to the account.) This will let you learn more about your account before you choose to add a credit service.
- Opt-in required for a credit feature. No card issuer can sign you up for an overdraft or other credit service without your consent. This is in line with overdraft policies for checking accounts.
- Monthly statements. You’ll receive statements, which will include all fees, other charges and information on how to repay debt.
- 21-day window for repaying debt before charging a fee. Companies must give you at least 21 days to pay back any debt before charging a late fee. And that fee must be “reasonable” and “proportional” to the incident, such as a late or missed payment. These rules on repayment are a bit stricter than those for overdraft policies on checking accounts, some of which can charge fees on overdrawn accounts after three business days.
- Limits to credit-related charges. The total fees on credit features can’t go above 25% of the credit limit during the first year that credit account is opened.
These new regulations will provide prepaid account holders with more clarity, security and, hopefully, some peace of mind.