Prepaid Cards & CFPB — Ohio Consumer Financial Protection

Walk into nearly any retail store and you’ll see a rack near the cash register full of different prepaid credit cards. These cards can be attractive when you need to give someone a gift or send money to a son or daughter in college. You buy the card, mail it, and the recipient uses it just like any other credit or debit card to make a purchase. The only difference is that it’s limited to the amount of money deposited or “loaded” onto the card at a given moment.

Why Consumers Turn to Prepaid Cards

Because prepaid cards can be refilled, people who can’t get bank accounts also often use them to manage their money in lieu of a traditional bank account. Someone may be denied a checking or savings account — or be unable to use their existing account — when they owe fees for bounced checks, debit card overdrafts, or other fees that they couldn’t afford to pay. As long as a person owes fees, they can’t open an account at any other bank. That in turn means they have difficulty cashing a paycheck, paying the rent, or any number of other financial tasks that most people perform with a bank account.

A 2013 FDIC survey found that 7.7 percent of American households, or 9.6 million, were “unbanked,” meaning they didn’t have a checking or savings account. About 20 percent of households, or 24.8 million, were considered “underbanked,” they had a bank account but also used some form of alternative financial services, such as a prepaid credit card. The survey showed that 34.1 percent of people who had become unbanked in the year preceding the survey did so because they lost a job or experienced some other event that resulted in a significant drop in income.

In the digital age, it’s a lot harder for anyone to do business using cash alone. You need a credit or debit card to make purchases online, to buy an airplane ticket, and sometimes to simply prove that you’re an actual human being in order to register for a website.

Additionally, more and more employers are requiring employees to be able to receive their paychecks via direct deposit — which can be a problem for someone who can’t get a checking account. But some prepaid cards are set up to allow direct deposit of paychecks and even automatic bill paying just like a bank account — often at higher fees.

The Perils of Prepaid Cards

One aspect of prepaid cards that can be problematic in terms of Ohio consumer financial protection is the slate of fees charged for these cards. You may be charged a fee to buy the card, to add money to the card, or even if you don’t use the card in a given month. Sometimes those fees can add up to more than you’d pay to a bank for a checking account.

When someone is using a prepaid card because they can’t get a bank account, they’re basically a “captive audience.” That often means that they become the victim of exploitative practices by purveyors of alternative financial services and pay a higher percentage of their limited income in fees than people with bank accounts and better credit.

Proposed Rules for Prepaid Cards

Because of the potential for exploitation of vulnerable consumers who have few other choices for managing their money, the Consumer Financial Protection Bureau proposed a new set of rules in late 2014 that would apply to prepaid cards. The rules are designed to offer consumers stronger protections against fraud and lost or stolen cards, and would require card issuers to disclose certain information up front so that a cardholder understands the terms of the prepaid card before purchasing one.

Among the proposed rules are:

• Free access to account information — The card issuers would have to provide the equivalent of online banking, which includes free and easy online access to balance statements, transaction records, and fees charged to the card.
• Resolution of mistakes — The card issuers would have to have processes for addressing errors in consumers’ accounts and fixing the problems, such as when someone gets charged twice for a transaction.
• Protection against fraud and lost or stolen cards — The card issuers would have to offer protection and limit consumers’ responsibility for transactions that are unauthorized or fraudulent, including when cards are lost or stolen.
• Upfront notice of fees — The card issuers would have to provide fee disclosures to consumers up front in an easily understandable format. Among the fees that would have to be disclosed are per-purchase fees, ATM withdrawal fees, monthly fees, and fees to refill the card.

In essence, these rules would bring prepaid cards more in line with the rules that apply to more traditional credit cards and debit cards issued by banks.

Help for Ohio Consumers

If you’re a consumer who is using prepaid cards because you can’t get a bank account, a qualified Ohio consumer financial protection lawyer may be able to help resolve the issue with your bank. A skilled lawyer can negotiate a payment plan for your NSF fees or overdraft fees that gets your finances back on track and allows you to escape the costly trap of relying on prepaid cards or check cashing services to conduct financial transactions.

If you want to talk about how a consumer lawyer can help you, call the experienced debt management lawyers at Luftman, Heck & Associates for a free consultation today. Our staff is available 24/7 at (888) 726-3181 to take your call.