PhotoThere is a move afoot in Congress to roll back an Obama administration rule that regulates prepaid cards, which work like a debit card but aren't linked to a bank account.

These cards have become more popular in recent years, especially in the wake of the financial crisis. Consumers use the cards to exercise better control over their money and to avoid expensive overdraft charges.

Last October the Consumer Financial Protection Bureau (CFPB) finalized the Prepaid Card Rule, to make the cards more transparent and consumer-friendly. The rule is scheduled to go into effect later this year.

Congressional Review Act

But some Republican lawmakers propose using the Congressional Review Act (CRA), which lets Congress overturn a previous administration's rules, to stop the Rule from going into effect. If successful, the move would not only overturn the Prepaid Card Rule, but prevent regulators from taking any “substantially similar” action in the future.

The Pew Charitable Trust has issued a report on how that might affect consumers. The effect would not be good, the report concludes, since prepaid cards would remain largely unregulated.

Pew says the Rule would do three essential things: it would require prepaid card issuers to disclose their fees in a consistent format. It would also limit the consumer's liability when a card is lost or stolen, or when an account is hacked.

Finally, it would give consumers using a prepaid card most of the same protections afforded consumers who use a credit card.

Most card issuers doing a good job

"Most cards already do a good job of disclosing fees, but uniformity in disclosures will facilitate comparison shopping, promote a healthy market, and enhance competition," the report's authors write.

The report says most prepaid card issuers have not opposed the CFPB rule. It says a few made suggestions for slight modifications and that CFPB has taken those comments into consideration. The authors conclude that the Prepaid Card Rule should be allowed to go into effect.

"But should Congress employ the CRA to repeal the prepaid card rule, there would be nothing to safeguard consumers from products that fail to protect funds, include surprise fees, or use harmful credit practices," the Pew authors write.

In the end, the report says blocking the Prepaid Card Rule would only benefit providers that choose to follow unscrupulous business practices. It says that would not only hurt consumers, but also give bad actors an unfair advantage over providers that provide significant consumer protections.


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