On May 23, 2012, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) designed to elicit information from the public, including the business community, about GPR cards. The agency said it is especially interested in learning about the costs, benefits and risks of GPR cards to consumers. It intends to extend to GPR card users the Regulation E fee disclosure protections afforded credit and debit cardholders. Reg E is part of the Credit Card Accountability, Responsibility and Disclosure Act of 2009.
The ANPR asks 10 questions about GPR cards, such as how the cards should be defined in the context of Reg E and issues related to GPR card providers offering savings accounts on their products. The ANPR is available at files.consumerfinance.gov/f/201205_cfpb_GPRcards_ANPR.pdf. The comment period ends July 23, 2012.
The CFPB also held a public field hearing in Durham, N.C., on May 23 which brought together consumer advocates and industry experts in a panel discussion hosted by CFPB representatives. In opening remarks at the hearing, CFPB Director Richard Cordray noted that 9 million U.S. families are considered unbanked, with an additional 21 million families falling into the category of underbanked.
"All of these consumers need and deserve products that are safe and whose costs and risks are clear and upfront," Cordray said. "Yet right now prepaid cards have far fewer consumer protections than bank accounts or debit cards or credit cards. And that is especially troubling because the people who use prepaid cards are, in many instances, the most vulnerable among us. Every dollar they pay in hidden fees is a dollar they cannot spend in supporting their families."
During the panel discussion, members from consumer advocate groups echoed Cordray's sentiments in pushing for more consumer protections. Adam Rust, Director of Research at the Durham nonprofit Reinvestment Partners, said his company is advocating for the same standards across all types of payments. He couched his comments in terms of fairness.
Rust said, "If I lose my credit card, I can have it replaced for free. If I lose my prepaid debit card, it might cost as much as $35 to replace it. That's not right." The same goes for customer service calls, which are free for debit and credit cardholders but can cost prepaid card users $2 to $3 per call, according to Rust.
Deyanira Del Rio, Associate Director at New York-based community economic justice center NEDAP, recognized the appeal of prepaid cards as alternative banking tools for low-income people. However, she is not convinced that the reality of the cards matches the industry's "rhetoric." She mentioned the "laundry list of high fees" and "inferior protections" that often accompany the cards.
"[O]ne of our broader concerns and one I hope we can think about as we look at this market is also about whether this is actually serving to bring people into mainstream, regulated financial systems or if it's a wedge that is keeping people out," Del Rio said.
Martin Eakes, Chief Executive Officer at the Durham-based nonprofit Center for Responsible Lending, argued that prepaid card accounts are indistinguishable from checkless debit card accounts, but that prepaid cardholders are not provided the same protections as debit card users. Additionally, he called programs that tied prepaid cards to payday loans "unacceptable" and does not think prepaid cards should provide overdrafts.
"Prohibiting overdraft and NSF [nonsufficient funds] fees is the single most important step for CFPB to take at this time," Eakes said.
In the second phase of the panel discussion, industry representatives countered that the major providers of prepaid cards are already affording customers those very protections argued for by the consumer advocates.
Dan Henry, CEO at NetSpend Holdings Inc., said, "We at Netspend, and most of our leading competitors, already adhere to the same requirements as traditional bank checking accounts under the Fed's Regulation E, including disclosure requirements [and] protection against unauthorized transactions."
Jeremy Kuiper, Managing Director of the Bancorp Bank's Payment Solutions Group, seconded Henry. "I reviewed a number of the terms and conditions associated with all the major general-purpose reloadable programs, and every single one provided protection for cardholders against loss, theft and unauthorized transactions," Kuiper said.
Kuiper also took issue with statements made by other panelists. "Contrary to earlier statements, prepaid cards are, in fact, currently afforded strong consumer protections," he said. "For example, virtually all bank-issued reloadable card programs qualify for FDIC deposit insurance coverage on a pass-through basis." Henry was equally resolute about the benefits of NetSpend's services for the financially underserved. He said NetSpend offers free real-time text message alerts on all account activity and free person-to-person money transfers for transfers of up to $1,000. "[W]e talk so much about the fees on the card, but we don't look at what savings are generated for this consumer," Henry said.
Henry also highlighted the bank account feature on NetSpend cards that provide a 5 percent interest rate. "I don't know any bank that offers 5 percent interest on savings," he stated.
Henry further described NetSpend's overdraft program as "the most consumer friendly overdraft program in the country that includes buffers and grace periods that result in most overdraft transactions avoiding any fee whatsoever." He added that when NSF fees are charged, they are less than half of what is charged by most banks and credit unions in the United States.
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