Congressional Efforts To Remove Protections For Prepaid Debit Cards Fall Short

Image courtesy of Ludovic Bertron

The window of opportunity has closed for legislative efforts to prevent new consumer protections from going into effect. 

Lawmakers in both the House and Senate had sought to undo new regulations from the Consumer Financial Protection Bureau intended to make prepaid payment cards more affordable and their policies more transparent.

The deadline for any of these resolutions — S.J. Res.19, H.J Res. 62, or H.J. Res. 73 — to be passed is today, and the Wall Street Journal reports that the clock will run out without any votes being taken.

Each of the resolutions attempts to do the same thing: Repeal the rule and prevent the CFPB from replacing it with something similar. Just like a number of other recently rolled-back regulations, this process is allowed through the Congressional Review Act (CRA), a previously seldom used law that allows lawmakers to undo recently finalized regulations within a limited window of time.

Once a resolution is introduced, lawmakers are given another short window to take action. The Senate resolution to erase the prepaid rules was referred to the Committee on Banking, Housing, and Urban Affairs, which discharged [PDF] the bill on March 30.

This discharge means that the Committee didn’t address the bill, but passed it along for the consideration of the full Senate. The period for this to take place ends today.

And according to the office of Georgia Sen. David Perdue, who introduced the resolution, no vote will take place.

In a statement on Tuesday, Perdue, in a roundabout way, noted that efforts to nullify the CFPB rule had failed.

“The Congressional Review Act (CRA) process was an important tool to inject some oversight of this rogue agency, and something we will utilize again to rein in future overreaching rules,” he said in a statement, while calling on the CFPB to answer to Congress and consumers.

Consumer advocates applauded the apparent failure of the resolutions, while noting that they would keep an eye on possible attacks against the rules.

“We’re pleased that Congress won’t be standing in the way of these common sense and long overdue rules for prepaid card users,” said Christina Tetreault, our colleague and staff attorney for Consumers Union.  “Once they go into effect, these safeguards will help consumers avoid getting hit with unexpected and excessive fees and ensure their money is protected if their card is lost or stolen.”

The National Consumer Law Center and Center for Responsible Lending called the resolutions failure to see a vote welcome news and a victory for consumers.

“People use prepaid cards to control their finances and avoid overdraft fees, and it would have been a travesty if Congress had vetoed fee and fraud protections on all cards just so that one company could charge overdraft fees,” Lauren Saunders, associate director of NCLC, said in a statement.

CRL director of federal advocacy Scott Astrada notes that had the rules been erased, consumers would have been left open to abuse by bad prepaid cards practices.

Consumerist reached out to the CFPB for comment on the situation. We’ll update this post if we hear back.

How We Got Here

The prepaid card rules, when they take effect in April 2018, will 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.

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.

While the rules have been backed by several big names in the prepaid industry — including GreenDot and the Center for Financial Services Innovation, which noted last month that the positives of the rules “outweigh the negatives” — the future of the protections was thrust into question when Sen. Perdue introduced the first resolution to erased the rules back in February.

Perdue’s move wasn’t exactly surprising, as the Sentor’s home state is the same as Total System Service (TSYS), the parent company to NetSpend, a large prepaid card company that previously declared it stood to lose $80 million in fees if the rules took effect.

Additionally, TSYS has provided election contributions to the lawmaker. According to the Center for Responsive Politics, TSYS contributed $2,500 to Perdue during the 2016 election. Back in 2014, TSYS contributed $15,000 to Perdue.

Shortly after Perdue introduced his resolution, Allied Progress filed a Freedom Of Information Act lawsuit asking a federal court in D.C. to compel the Consumer Financial Protection Bureau to immediately turn over emails and other communications between industry lobbyists, lawmakers, and federal regulators involving the pending prepaid card rules.

It’s unclear what will happen with Allied Progress’ lawsuit now that the resolutions to nullify the prepaid rules won’t move forward.