Millions of underbanked Americans have found prepaid cards an effective way to meet their basic financial services needs. But functionality and ease of use are not the only important factors in the widespread adoption of prepaid cards. Consumers also need to be confident that the money stored on prepaid cards is secure, and they need to understand the exact costs of using them. As prepaid cards gain in popularity and are increasingly marketed and used as alternatives to bank accounts, it is time for formal consumer protections to be applied.

Most major prepaid card providers already offer basic consumer protections, such as deposit insurance, fraud and error resolution procedures, and account disclosures. But consumers need assurance that any general purpose reloadable (GPR) prepaid card account in the marketplace has these protections. Further, while the protections should be strong and clear, they should not make these products more difficult to obtain or restrict promising innovations to improve the value that they provide to underbanked consumers.  

CFSI has been studying the evolution of the prepaid card industry since 2004. CFSI has supported the development of high-quality and affordable GPR prepaid card accounts as a valuable and necessary tool for the financially underserved. CFSI has analyzed the consumer protections applicable to GPR prepaid card accounts, as well as alternative payment mechanisms, and has consulted with a wide variety of stakeholders, including policymakers, consumer advocates, and industry representatives. As a result, CFSI recommends the following extensions of consumer protections to GPR prepaid card accounts:

1) Mandate FDIC pass-through insurance.

2) Extend Regulation E as it is applied to payroll cards and enhance the protections by:
    • Lengthening the period for which transaction history is available;
    • Enabling consumers to make a single request for ongoing paper statements; and
    • Studying and leveraging advances in technology and insights in financial capability to improve the delivery of account information.

3) Require a standardized fee-disclosure box and encourage additional disclosure tools for consumers, based on advances in technology and insights in financial capability.

These steps will ensure that all GPR prepaid card accounts have strong, basic consumer protections. They will also help to eliminate undesirable practices or fees associated with some products and improve the industry overall. Consumers will benefit by gaining a high-value, low-cost transaction account with the potential to access asset-building financial services that can ultimately help them achieve greater financial stability and prosperity.

Click below to download the full white paper and recommendations.

Click here to read the press release.

Click here to read Melissa Koide's article in Paybefore.com on the fed's interchange rule and consequences for the underbanked.