Consumers Union Urges CFPB To Regulate Prepaid Credit Cards More Closely

Using a prepaid credit card and reloading at your convenience sounds like a great idea in theory, but there are many hidden fees and dangers involved. That’s why the Consumers Union, the policy and advocacy arm of Consumer Reports, is urging the Consumer Financial Protection Bureau today to adopt new rules to protect consumers who rely on prepaid cards.

The CFPB is holding a field hearing today in Durham, N.C. on prepaid cards, which have become very popular as an alternative to traditional banking accounts. The CFPB will feature a live stream of the event online at www.consumerfinance.gov beginning at noon eastern today.

In April, our wise elder siblings at Consumer Reports released a report that found that industry competition is beginning to help bring down fees, but fees aren’t always disclosed up front and can still add up quickly. Those prepaid cards offer weaker consumer protections than those provided by traditional debit cards.

“The prepaid card market has exploded in the U.S. but consumers still don’t enjoy the protections they need to ensure they are getting a fair deal,” said Michelle Jun, senior attorney for Consumers Union. “It’s time for the CFPB to require clear disclosure of all fees in a simple format so consumers know the costs before they purchase a card. Prepaid cards should get the same strong protections as traditional debit cards so consumers have the peace of mind that their money is safe if their card is lost or stolen.”

Consumers Union wants the CFPB or Federal Trade Commission to monitor credit building claims made by prepaid card issuers to ensure consumers aren’t being misled.

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  1. TuxthePenguin says:

    Or why don’t we just ban prepaid debit or credit cards… and instead try to put these people into the traditional banking system? Looking at just a few of them, there is no way the costs of even a basic checking account are near this.

    I’ve always wondered if these cards serve as an modern version of a cash-only economy… and a nice way to avoid tax records.

    • Hi_Hello says:

      some area doesn’t have banks in the neighborhood. that why you have a lot of cash checking places.

      These are mainly created for the poor so they can drain more money off from them.

      • TuxthePenguin says:

        So you’re telling me that these people are not serviceable by the traditional banking system… for whatever reason… and yet we are opposed to people trying to service them?

        Again, it looks like a lot of money being made off of them – but what are these company’s margins like? Are they similar to the bank industry average? If they are higher, we might have something to work on.

        But if this is a way to serve someone who cannot get a credit card by normal means (bad credit history, shaky income, etc) then are we surprised its tougher? Credit is all about risk – and risk is priced out in fees and interest rates.

        • Hi_Hello says:

          I think you are confused, they aren’t trying to get rid of them, they lower how much money they can make from them.

          yea, I hear that some of the fees and rates are worse than banks fees and stuff. I don’t know, I don’t use them.

          but the problem is the people who do use them, aren’t smart enough to even know the fees and stuff. Some of them don’t even know how to use them and it’s their only option since most company don’t want to do checks.

          I hear stories from my friend that their bonus isn’t in check form anymore, but in prepaid credit card. Which is fine, since they knew to do the one time withdraw and stick it in their bank account. My mom got one and wasn’t sure how it works. She was just going to use it until it ran out without realizing that after the first use, the fees start kicking in.

    • Nigerian prince looking for business partner says:

      I imagine they’re appealing to those who have bad ChexSystems reports.

  2. ferozadh says:

    What’s the point of a prepaid credit card? The whole point of having a credit card is that you don’t have to pay up front. Confuzzling…

    • spartan says:

      There is some use for them. It allows people with bad credit or no proper ID to shop or pay bills online.

      In other words they are marketing mostly to poor (and often uneducated) people.

    • Rob says:

      They are also great for online gambling.

    • Willow16 says:

      My teenagers each have a USAA prepaid card. They transfer money from their checking accounts to the cards if they want to buy online. There have beens times when one of them will be out and text me to add money to their card to buy something. We don’t use debit cards for anything but atm withdrawals so the prepaid cards work well for them. Oh, and there are no fees associated with them.

  3. spartan says:

    Also, there should be a provision that after a certain period of time (say 2 years) of inactivity, the monies are turned over to the state treasurers escheats department. So the cardowner (or their heirs) can reclaim the funds.

    If the card is sold anonymously, the money can go into some sort of consumer protection fund.

  4. teqjack says:

    Prepaid should for the most part act like other cards.

    Not all issuers abuse their customers, and they can be very useful.After several years without income I had sold off ecerything I gad, and of course stopped my credit cards – leacing me with pretty much no credit rating. A pre-paid card allowed me to buy via Internat and mail-order catalogs, and along with a new bank account build a history. Also, if someone hacks that account they will only be able to get at a few hundred dollars, nt thousands.

  5. DVnLRmxZBj5 says:

    Rebates are often sent as prepaid credit cards now.

    My state, Washington, prohibits fees on these cards. Even so, every one of these cards I’ve received has levied an inactivity fee on the card.

    The customer support for these cards is non-existent. The bank that issued a $10 pre-paid rebate card does not care about the poor schmuck stuck with the card.

  6. GreatWhiteNorth says:

    I received a rebate from the manufacturer of the furnace I bought a couple of months ago in the form of a prepaid CITI MasterCard. I read the fine print that came with it (not an easy task) and decided to go out and spend the whole damn thing all at once, bought a fridge, to avoid having the value of the card used up with fees.

    The real fun was calling CITI and getting them to officially kill the card. There is no way I wanted any sort of liability for a card I did not knowingly sign up for. CITI’s contact number listed on the card took me into a telephone tree that wouldn’t let me get to a live person or cancel the card. I ended up having to call the lost/stolen card number to get a person and they forwarded me to the cancel the card department. Then of course the rep on the other end of the phone couldn’t hear anything clearly after he got my card number and the reason for the call, to kill the account. At one point he even went all silent, I suspect, in the hope that I would assume the call was dropped and hang up. Eventually he confirmed the account closed, but who knows. Fun, fun, fun.

    If I discover any other companies offering rebates on cards, I will avoid buying their product. It seems to be a lot of work.

  7. zoomlens says:

    There is no such thing as a prepaid credit card. Prepaid is the opposite of credit. If you’re going to urge CFPB to regulate something, you should at least a vague understanding of what you are talking about.