Increasingly, underserved Americans are turning to prepaid cards to meet their basic financial services needs. Functioning much like electronic banks accounts without checks, general purpose reloadable, or GPR, prepaid cards can be used make purchases, pay bills, access cash, monitor one’s finances, budget, save, and more. But prepaid cards have a significant weakness—their consumer protections do not serve current and prospective users well. Their fee disclosures in particular need improvement.
Companies typically disclose their fees in a list or box, but their design, content, and location vary widely and can be more consumer-friendly. Card users need to be able to more easily determine the true cost of a prepaid card and compare different products before deciding which to purchase. To help consumers make informed choices, prepaid cards should be offered with a well-designed fee box.
CFSI, which has been following the development of prepaid cards since 2004, has designed a model fee disclosure box based on research on current fee disclosure practices for GPR prepaid cards, best practices in disclosure for a variety of financial and nonfinancial products, and data on current prepaid card fees. They key principles identified through this research and behind the design of this model fee box are described below. The Model Fee Disclosure Box below shows how these recommendations could work in practice.
The CFPB should use CFSI’s model fee disclosure box or a similar one that adheres to the major principles and recommendations described below to call for comments and expand the dialogue among stakeholders about designing and implementing a fee box for prepaid cards. In addition, extensive consumer testing should be conducted on any potential model fee boxes to vet their effectiveness as well as research on consumer use of prepaid cards.
Industry should not wait for the CFPB to take action before improving their fee disclosure practices. Companies should adopt CFSI’s model fee disclosure box for their own products or at least create boxes that meet all the major recommendations. Until there is further testing and research, there may be multiple different ways to design an effective fee box. Companies should do some of this testing as well on their fee box designs to evaluate their effectiveness and help identify further best practices. Taking these steps will ultimately benefit consumers and industry alike as well as increase the potential of these products to help consumers achieve greater financial stability and prosperity.
Download CFSI's research paper : Thinking Inside the Box: Improving Consumer Outcomes Through Better Fee Disclosure for Prepaid Cards below.