Tomorrow, the Consumer Financial Protection Bureau will release its proposed disclosure form for general-purpose reloadable prepaid cards. The disclosure should be only one element among many, as the Bureau is expected to unveil its intentions for overdraft, credit, FDIC insurance, and a variety of other questions.
For a number or reasons, the concept and the execution of a disclosure box has been one of the more contentious conversations. Disclosures are complicated with prepaid cards, because consumers vary greatly in how they use them. Compared to checking accounts or credit cards, a higher share of prepaid cards are "burned and churned." Almost one in five is used for five or fewer transactions. Many consumers load a deposit onto a card and then draw it out in cash almost immediately. Others have chosen to make it their main payment device. Suppliers have responded by creating several fee systems. The most common are pay-as-you-go styles, where usage is priced a-la-carte, and volume accounts, where a fixed fee is charged but where most services are either free or far less costly. Pay-as-you-go accounts appear to be far more costly when prices are listed in a menu, but for the burners, they are most likely less expensive. So the possibility is that the creation of one box to express costs for both styles could ultimately lead to confusion rather than clarity.
Disclosure boxes are also difficult in the context of packaging. Some checking accounts now have more than thirty pages of disclosures. That simply is not possible for a j-hook card. As a result, brevity is a requirement.
So How Many Elements?
The Center for Financial Services Innovation, the Pew Charitable Trusts, and Reinvestment Partners all released proposals for a disclosure system. CFSI and RP tended toward more numbers, whereas Pew emphasized simplicity. The CFSI box had fourteen points.
RP's took a different tack. It listed the monthly fee, free ATM load networks, fees for signature versus PIN (to capture the difference between pay-as-you-go and volume), and then ATM fees. But its biggest point of differentiation was its use of two boxes - one for "everyday users" and another for pay-as-you-go consumers. It made estimates for likely monthly costs, based upon known usage patterns.
Last spring, the CFPB floated two possible approaches. Model one had ten elements; Model two had nine. Below, model one appears on the left and model two on the right:
Both seemed to draw more from Pew's example. If I had to guess, I would put money on the chance that the CFPB's proposal looks very similar to the one devised by Pew. One could surmise that industry would welcome that approach, as Chase chose to adopt the Pew box for its Liquid product.
What I will look for:
Register Reload and Remote Deposit? At the moment, both of these "add funds" methods are free. The key question is not how much they cost, but instead if these services are available. Register reload may soon become the default mode of depositing.
Will the disclosure box be updateable? The prepaid platform continues to evolve. It continues to add functionalities. There are new ways to make payments and new ways to add funds. Will the CFPB leave open the possibility that it might re-arrange elements in the future?
QR Code? The QR code is a great way to add nuance to a disclosure without taking up too much space on a j-hook. There has been a lot of debate about the likelihood that a consumer would go to the trouble. But the whole point of a disclosure is to help someone go to the trouble of learning. Besides, smart phones are becoming ubiquitous. The chance that a consumer uses a smart phone does not correlate to income. In fact, if there is a correlation, the best data suggests that the correlation is negative.
Credit or overdraft? Neither of the model forms had a listing for these two services. Nonetheless, there is a chance that a form of one or both will be allowed.
How Many Items? I am going to bet that the final number is higher than ten. I think the CFPB will need to have separate cost indicators for signature versus PIN. A fair share of pay-as-you-go cards make it less expensive to use signature. If I had to imagine an item that could fall off, it might be the cost of a replacement card. While the fee for a replacement card is known, it isn't often that one is issued. Besides, the fee to get a replacement is usually complemented by the fee to get rush service. No one wants to wait a week to regain access to their funds. Rush fees usually dwarf the cost of the replacement card. Some are higher than twenty dollars. Also, if either credit or overdraft is approved, then there will need to be additional listings for those features.