Attorney General Racine Asks Congress to Preserve Protections for Consumers Who Use Prepaid Cards

CFPB Rule Would Protect Against Unauthorized Charges & Help Consumers Avoid Hidden Fees

WASHINGTON, D. C. – Attorney General Karl A. Racine is leading a multistate coalition of attorneys general from the District and 17 states in opposing three resolutions before Congress (S.J. Res.19, H.J Res. 62 and H.J. Res. 73), each of which would derail crucial protections for millions of consumers who use prepaid debit cards. The coalition sent a letter to congressional leadership urging them to oppose the resolutions, which block implementation of a rule the Consumer Financial Protection Bureau (CFPB) first considered in May 2012; the rule is scheduled to go into effect on April 1, 2018.

“The millions of consumers who increasingly use prepaid debit cards deserve the same robust protections for those cards that apply to traditional credit and debit cards,” said Attorney General Racine. “This CFPB rule for prepaid cards offers common-sense reform that increases transparency for hidden fees and limits losses for fraud and unauthorized charges, among other protections. Congress should not block this rule.”

Prepaid cards are a rapidly growing market and are often used by consumers who have limited or no access to a traditional bank account. Today, more consumers receive their wages by prepaid cards than by paper checks. Consumers frequently incur hidden or undisclosed fees, even when the cards are used to receive their salary or student loans. Although most consumers use these cards to avoid overdraft fees, some of the payday lenders who provide funds through these cards also subject consumers to overdraft fees.

The CFPB’s Final Rule provides protections that consumers have come to expect with similar financial products. Among its key provisions protecting consumers, the Final Rule will:

  • Protect prepaid card users against fraud and unauthorized charges;
  • Help consumers avoid hidden fees and comparison shop with a simple chart of common fees;
  • Provide convenient, free access to account transactions and account balances;
  • Require employers to inform employees they do not have to receive wages on a prepaid card; and
  • Require prepaid credit cards to comply with existing credit card laws (including an ability to pay analysis, limits on overdraft fees in the first year, and safeguards on how funds are repaid).

Parts of the rule are supported by both industry and consumer groups. The resolutions to stop implementation of the CFPB’s Final Rule have been filed under the Congressional Review Act (CRA) and, if the rule is blocked by a CRA vote, the CFPB is forever barred from enacting a substantially similar rule unless Congress authorizes it. Congress is increasingly relying on the CRA, a previously obscure law, to block Obama era consumer protections, including its rolling back the FCC’s proposed Internet Privacy Rules. Attorney General Racine is calling on Congress to leave the CFPB’s Rule in place so that this growing marketplace can thrive while also protecting consumers.

In addition to the District of Columbia, the states signing on to the letter are: California, Hawaii, Illinois, Iowa, Maryland, Maine, Massachusetts, Minnesota, Mississippi, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington state.

A copy of the letter is available here.