I will be the first of three consumer panelists speaking at today's CFPB field hearing in Durham. It is hard to imagine a bigger day for prepaid debit card policy than today. The fact that the CFPB announced
rulemaking on Regulation E at midnight only adds to the significance of this moment.
You may have seen my quote in today's New York Times:
Consumer advocates including Adam Rust of Reinvestment Partners cheered the bureau’s plan.
“This is why we have a C.F.P.B.,” said Mr. Rust, who will join Visa and NetSpend executives among panelists at Wednesday’s hearing. “We don’t have basic protections in place for these cards.”
The next statement is a written copy of the testimony that I will offer in two hours.
Let me be clear from the start – we are advocating for the same standards across all methods of payments – be it through a standard checking account, a prepaid debit card, or even in the case of mobile payments. The broad message for you to take away today is that the consumer needs a prepaid debit card that is SECURE, AFFORDABLE, FUNCTIONAL and EMPOWERING.
SECURE means a card that protects consumers. This means that prepaid debit cards should not come with either overdraft or with a high-cost line of credit. We know that the simple statement “you cannot overdraw your account” is part of why people want to try prepaid. Let’s not have cards that surprise them. If credit is appropriate for a consumer, then there are plenty of products available already. SECURE means that these cards should be fully protected by the laws that have already been applied to other payment accounts: they should have FDIC insurance and they should be covered by Regulation E. I applaud the CFPB for starting the rule-making process on Reg. E for these cards.
SECURE means that disclosures are made mandatory and uniform and that the proper distribution of those disclosures is enforced by the CFPB. I believe the CFPB disclosure should include cost estimates – much like those created by the EPA for dishwashers and water heaters. What I fear is a situation where disclosures lead to a comparison of the cards in one store – even if the choices are both bad. Disclosures should be designed to foster good decision-making inside the retail environment – and that means using smart phone technology to enhance choice.
AFFORDABLE does not mean a card without fees, but it does mean a card where the price is worth what you pay for it. Until consumers get better disclosures, we won’t see pricing that reflects that standard. One example: when you lose your card, you should be able to get a replacement card – and just like with a credit or debit card, you should be able to do that for free. Yet today we see cards with $35 replacement fees. That is not right.
FUNCTIONAL means a card that is essentially a checkless checking account. These cards should come with the option of a savings account – because they can do that. Functionality inevitably is tied to cost: Today there are cards that advertise no fees for ATMs – but they fail to mention that their limited or non-existent surcharge-free ATM networks consign cardholders to paying lots of foreign ATM fees. That’s not right. Think about how much it costs to transfer your check to your card: perhaps $5 to cash the check and another $4.95 to load. That’s not right, especially since enabling cards with remote deposit could help people to save ten dollars.
EMPOWERING means a card that paves the way for card holders to return to the mainstream banking system. This is very important – these cards should not be a dead end. We want people to have a financial home and the starting off point for deeper financial relationships.
I think it will take regulatory attention to accomplish all of these points. I applaud the CFPB for putting its attention and concern to this product.