By Karl A. Racine
Attorney General for the District of Columbia
Op-ed originally appeared in The Hill
Maybe you, like millions of other consumers in the United States, are using prepaid debit cards more frequently now than in the past. What you might not know is that some in Congress are playing politics with crucial rules meant to protect your wallet, and many of us whose job it is to look out for consumers want Congress to stop.
Consumers use these cards for lots of reasons. Some use them to help stick to a budget, others cannot gain access to credit cards, many college students now receive federal aid on prepaid cards, and some employers now pay workers using these cards. Prepaid debit cards have exploded in popularity in recent years, with the annual amount of money loaded onto them growing from $1 billion in 2003 to $65 billion in 2012 — a figure expected to reach $112 billion by 2018. According to the FDIC, 9.8% of all U.S. households used prepaid cards in 2015.
Currently, even though consumers use prepaid debit cards the same way as traditional credit or debit cards, the prepaid cards are not nearly as safe or transparent. Issuers of prepaid debit cards are not required to protect consumers when their cards are lost or stolen, are not uniformly required to correct billing errors, and may charge numerous hidden fees — fees that can cost low-income consumers dearly.
These fees are particularly insidious. With little disclosure from the card issuer beforehand, prepaid debit card users can be charged hidden fees for everything from paying a bill to obtaining a paper statement to accessing funds at an ATM. A 2014 Pew Charitable Trusts report estimated that a typical prepaid card user incurs fees of $10 to $30 each month — a significant amount for many lower-income consumers.
Beyond these difficulties, the predatory payday lending industry has now seized on prepaid debit cards as another tool. Payday lenders already charge extremely high interest rates; now they are also able to charge their borrowers overdraft fees without adequate disclosure.
As attorney general for the District of Columbia, I have prioritized protecting consumers from fraud, scams, and unfair business practices, and have worked with my counterparts across the country to fight these types of abuses. I applauded the Consumer Financial Protection Bureau (CFPB) when it, after years of examination and public comment, announced protections for prepaid debit card users in line with existing protections for checking accounts and credit cards.
The CFPB’s new rules would provide common-sense solutions to protect vulnerable consumers. These include limiting losses when cards are lost or stolen, requiring card issuers to investigate and resolve billing errors, and ensuring consumers can access their account information for free. These proposed rules would make fees associated with prepaid cards more transparent and limit the abusive use of overdraft fees. They are designed to combat abuses that arise when these cards are used by outliers in the prepaid card marketplace, such as payday lenders.
A diverse group including consumer advocates and major players in the prepaid card industry supports the CFPB’s rules. One major exception is NetSpend, a prepaid card provider that is seeking to preserve the roughly $50 million in overdraft and other fees it charges struggling families annually. Another exception is Republicans in Congress. A group of them has filed resolutions to roll back the rules under the Congressional Review Act (CRA), a previously obscure law that is increasingly being used by the current Congress to prevent federal agencies’ rules from going into effect.
If a rule is blocked by a CRA vote, the agency in question is forever barred from enacting a substantially similar rule. Congress recently used the CRA to enact the law President Trump signed on Monday rolling back Internet Privacy Rules proposed by the Federal Communications Commission under the Obama administration.
The growing number of Americans who depend on prepaid debit cards cannot afford the status quo. That is why I, along with 17 other attorneys general, am urging Congress to leave the CFPB’s rule in place and expand much-needed protections to this growing segment of the consumer financial marketplace. I hope you will reach out to your Member of Congress and encourage them to protect you and let these reasonable, common-sense rules stand.