18 States Urge Congress Not To Stop Prepaid Card Reforms

Image courtesy of Patrick Fagen

Earlier this year, lawmakers on Capitol Hill began the process of dismantling the Consumer Financial Protection Bureau’s long-awaited prepaid card rules — meant to improve transparency and curb runaway fees — that are set to to go into effect. As Congress prepares to consider three bills that would erase these rules, attorneys general from 18 states have called on legislators to put consumers’ needs over those of the prepaid card industry.

In an eight-page letter [PDF] to Speaker of the House Paul Ryan and the majority and minority leaders of both the House and Senate, the state AGs argue for preserving the consumer protections that would be granted under the CFPB’s prepaid card rules.

The AGs asked the lawmakers to oppose three resolutions — S.J. Res.19, H.J Res. 62, and H.J. Res. 73 — that would eradicate the rules.

“The final rule provides common-sense protections to some of the most vulnerable consumers – those who do not have access to bank accounts,” the letter states.

The three resolutions — which explicitly declare that the Senate or House “disapproves the rule” and that “such rule shall have no force or effect” —  each use the Congressional Review Act (CRA) to essentially erase the rules now set to be implemented in April 2018. The rules were previously expected to take effect in Oct. 2017.

Until this year, the CRA had been a little-used piece of legislation that gives Congress a short window during which they can seek to undo a new federal regulation. In order to roll back a rule under the CRA, both the House and Senate must approve (by simple majorities) a joint resolution of disapproval, which must then be signed by the President.

The resolutions, which were introduced in February, are either currently awaiting discussion by the House Committee on Financial Services or have been placed on the Senate Legislative Calendar.

The attorneys general believe that passing the resolutions and erasing the rules would “derail crucial protections for millions of consumers who use prepaid debit cards.”

The finalized rule, announced in Oct. 2016, essentially provides users of prepaid cards with the same protections that are currently provided to traditional debit cards, such as, free account balance info; timely dispute resolution; and limited liability on fraudulent transactions.

These protections would cover an estimated 24 million unbanked consumers who use the sometimes costly and fee-laden financial products.

“These protections are increasingly important as the use of these cards expands in the marketplace,” the AGs write in the letter. “The final rule also combats abuses that arise when prepaid cards are used by outliers in the prepaid card marketplace, such as payday lenders.”

In fact, the prepaid card rules, if they were allowed to take effect, would cover the vast range of prepaid debit products, including: cards you purchase at retail and load via ATM (or through direct deposit); payroll cards used by employers to pay workers’ wages; benefit cards offered by federal, state, and local agencies; school ID cards used to disburse student loan funds; and even mobile debit products that don’t use a physical card.

Additionally, the rules require prepaid cards to have clear, detailed information on a card’s fees so consumers can know what to expect before they buy. Cards that offer an overdraft “protection” line would face regulations similar to traditional credit cards. Card issuers won’t have automatic, direct access to funds stored on the card’s debit account.

The letter was signed by the attorneys general for Iowa, California, Maine, Hawaii, Maryland, Massachusetts, Illinois, Minnesota, Mississippi, Vermont, Virginia, New York, North Carolina, Washington state, Oregon, Pennsylvania, Rhode Island, and the District of Columbia.