The rule has the effect of putting fraud and error resolution protections for prepaid cards on the same level as those that already exist for a traditional checking account. Because of the rule, prepaid card account holders will have stronger protections if funds are stolen from their accounts. Similarly, if a consumer wants to contest a charge, the process will be the same as it would be for a checking account.
Prepaid debit protections:
- Uniform long and short form disclosures with specific data points for the most common fees.
- Error resolution rights and fraud protection rights that are consistent with standard checking accounts.
- Companies will have to wait 30 days before offering an overdraft service to a new prepaid card account holder.
- Full CARD Act protections for billing and late fees; the rule established limitations on late fees and gives consumers the right to a periodic statement.
- Interest and fee charges may not exceed one-fourth of the credit line in the first year that account is open.
- Banks need authorization from the consumer to pull funds from a prepaid account in order to satisfy an overdraft obligation.
Much of the rule focuses on issues related to how overdraft and credit will be applied to the standard prepaid debit platform. Specifically, the Bureau's rule establishes a regulatory framework designed to protect consumers and prevent future evasions - for example, any future iterations of a hybrid form of a prepaid card and a credit card that are abusive.
This forward-thinking portion of the rule ensures that if prepaid card issuers do offer credit cards in connection with the prepaid card in the future, then consumers will receive full CARD Act protections. The CFPB is creating a firewall, where prepaid is prepaid and credit is credit.
The CFPB's action today is very important. Millions of American households, and most often those that have less wealth, are currently using prepaid debit cards as their main transaction account. Prepaid cards can save people money, as the decision to receive funds on a card allows a person to avoid the cost of check cashing fees.
The rule covers general-purpose reloadable prepaid debit cards, payroll cards, student cards, mobile wallets, P2P payment services, tax refund cards, and some government benefit cards.
For more, see "8 Principles for the Reform of the Prepaid Debit Card."