Debit and credit card customers have already seen the benefits of recent federal laws that prevent their banks from piling sneaky fees on the cards — such as the onetime routine practice of forcing automatic overdraft protection on debit cards that could cost an unknowing customer $30 in fees for a $3 cup of coffee. Now someone in Washington is promising to bring the same transparency to the burgeoning prepaid card industry. The new Consumer Financial Protection Bureau is already showing its value as a consumer watchdog.
The prepaid card market has exploded in recent years, certainly due in part to the lack of regulation. Estimates are that consumers will go from holding $29 billion worth of prepaid cards in 2009 to $90 billion in 2013. People who rely on prepaid cards, or general purpose reloadable cards, are often among the poorest consumers who don't have a traditional checking account. They too deserve consumer protection from financial businesses that are all too willing to extract money through hidden fees.
Prepaid cards may charge for a host of things that aren't obvious when they're purchased, including fees for loading money on them, withdrawing money from an ATM, and calling customer service. The website NerdWallet analyzed prepaid cards and found a total of 42 types of fees on varying cards; 23 of those fees were for basic services — far more than what is found on a typical checking account.
Now Richard Cordray, the consumer bureau's director, says the agency will look to make rules on disclosure so consumers are clearly informed of all the fees and terms. The bureau also wants to look at protecting consumers from liability when a card is lost or stolen, similar to liability limits on credit cards and bank accounts.
This kind of scrutiny and rule-making is exactly what was hoped for when the bureau was established in 2010 under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Banks will still be able to make money on prepaid cards, they'll just have to do so openly and fairly instead of through sneaky, hidden fees.