Last week, Congress trashed consumers' right to browse the web in private. This week it's considering a measure that would derail protections for consumers who use prepaid debit cards.
A coalition of attorneys general from the District of Columbia and 17 states are opposing three resolutions in the House and Senate that would throw out a new Consumer Financial Protection Bureau rule scheduled to go into effect in April 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 Karl A. Racine, the District of Columbia attorney general. “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.”
Convenient but sometimes costly
Prepaid cards are a rapidly growing market and are often used by consumers who don't have a traditional bank account. Today, more consumers receive their wages by prepaid cards than by paper checks.
But while the cards are convenient, consumers frequently find they incur hidden or undisclosed fees, even when the cards are used to receive their salary or student loans. Although most consumers use the cards to avoid overdraft fees, some of the payday lenders who provide funds through these cards also subject consumers to overdraft fees.
The CFPB rule that has been in the works since 2012 would provide many of the protections consumers have come to expect when they use credit cards or other more traditional financial products. Key provisions include:
- Protecting prepaid card users against fraud and unauthorized charges;
- Helping consumers avoid hidden fees and comparison shop with a simple chart of common fees;
- Providing convenient, free access to account transactions and account balances;
- Requiring employers to inform employees that they do not have to receive wages on a prepaid card; and
- Requiring 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).
Well-heeled interests
Parts of the rule are supported by both industry and consumer groups, but some GOP members of Congress are being influenced by well-heeled influential interests that are trying to have the rule permanently blocked.
Sen. David Perdue (R-Ga.), a prime backer of the effort to block the new consumer protection rule, claims the rule would actually hurt consumers who use prepaid cards.
“As a business guy, I have experienced first-hand the impact overregulation has on growth and innovation," said Perdue, a member of the Senate Banking Committee. "This rule is entirely too broad and would cripple the electronic payment marketplace which Georgians and millions of consumers across the country depend on.”
But the National Consumer Law Center (NCLC) contends that isn't the case at all. It claims the primary beneficiary of the CFPB rules rollback would be a prepaid card company called NetSpend, whose parent company, TSYS, is based in Perdue's state.
$53 million penalty
NetSpend yesterday agreed to pay $53 million to settle Federal Trade Commission charges that it deceived its customers, often delaying or denying activation of consumers’ cards or blocking them from accessing their funds.
The FTC said that many NetSpend customers were left strapped for cash by NetSpend's actions, with many being evicted from their homes, having their vehicles repossessed, or incurring late fees on bills.
“These delays in access to funds are especially harmful to consumers who have made the NetSpend card their primary means of financial management, leaving them without alternative means of accessing funds,” the FTC stated.
The resolutions to stop implementation of the rule have been filed under the Congressional Review Act (CRA), which would mean that not only could the rule not be reinstated but no similar rule could be enacted in the future without approval from Congress.
The CRA is becoming a favorite tool among Congrssional leaders looking to quickly deep-six consumer measures and ensure they are not easily reinstated by future administrations. Congress used the CRA to roll back Obama-era privacy protections enacted by the Federal Communications Commission last week.
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.