Tuesday, October 14, 2014

Prepaid Card Fees and Fraud

With the Consumer Financial Protection Bureau (CFPB) tackling a variety of issues, from confronting student loan abuses (See, CFPB Sues Corinthian) to new rulemaking on home mortgage disclosure, when will it finally turn to prepaid debit cards?  While the use of prepaid debit cards as alternatives to traditional checking accounts has often been associated with those with credit problems, the cards have grown in popularity with consumers wanting to avoid banking fees. Oh, and there has been the string of failed celebrity sponsored prepaid cards, often with high fees.  The CFPB hasn't exactly been quick to tackle issue with fees, card loss and fraud on these cards, though. 
Even though the CFPB is late to take up these issues, it has started accepting consumer complaints online with expectation that companies resolve complaints within 90 days.  The CFPB is working on draft regulations to keep consumers of pre-paid cards safer, specifically disclosure requirements. A lot of the pre-paid cards don't allow the consumer to understand the system of fees until after they have purchased the cards.  In particular, the CFPB is continuing with the CARD Act's popular tabular method for disclosure in the prepaid card arena

Only time will tell what type of regulations will be effective on the fee front, but the CFPB is not yet tackling the fraud front. While a consumer may have recourse for some frauds if they use their Debit or Credit Cards under the Truth in Lending Act or the Electronic Funds Transfer Act, victim of prepaid card fraud have little protections outside of criminal law.  While most of these losses are small in nature, some victims have lost substantial amounts of money through alleged tax collection, bill collection and lottery schemes.  While it never hurts to be informed, particularly when your money is involved, pure public awareness of fraud is not likely to protect vulnerable consumers.  Sometimes disclosure alone is insufficient.  Perhaps its time for the regulators to more aggressively pursue the card issuers?

- JSM (with Devon Locay, St. Thomas University J.D. expected 2016)