A new report from Aite Group LLC indicates payroll cards are gaining broad acceptance as demand for reloadable prepaid debit cards grows. But another recent report, from Mercator Advisory Group, warns that a regulatory proposal pending at the Consumer Financial Protection Bureau could turn the tables on this trend.
The CFPB proposal aims to increase consumer protections on all types of open-loop prepaid card programs, including payroll cards. But experts warn it may achieve the opposite.
Reloadable prepaid debit cards represent a huge and growing market. Mercator estimates that 56 percent of adult Americans purchased reloadable prepaid debit cards in 2014, up from 53 percent in 2013, and 47 percent in 2012. In 2013, 5 million payroll cards were in consumers' wallets; employers loaded $30.6 billion onto the cards, according to Mercator.
In a report on payroll cards published in October 2013, Aite Senior Analyst Madeline Aufseeser said that since 2010, dollars loaded onto the cards by employers had been posting a 19.9 percent combined annual growth rate. Her projections put the yearly total value of payroll card loads at $68.9 billion by 2017.
A new research note from Aite, Checkmate: U.S. Payroll Card Programs Trump Paper Checks, paints an equally optimistic view of the market for reloadable payroll cards. "Possibly the most complex product niche in the prepaid card category, payroll cards are swiftly usurping paper checks as employers' preferred back-up alternative to direct deposit on checking accounts, and they represent one of the largest growth opportunities," the report noted.
The CFPB's pending proposal – spelled out in an 800-plus page document released in November 2014 – could change all that because it would extend to prepaid debit cardholders the protections currently covering debit cards linked to checking accounts and those covering credit cards. This includes extensive disclosure requirements which, experts warn, could diminish the appeal of payroll and other types of prepaid debit cards.
"While the rule contains some good ideas that could benefit providers and card shoppers, there are several provisions that would actually reduce consumer protections," said Ben Jackson, Director of Mercator's Prepaid Advisory Service. Jackson authored a recent Mercator report titled Murphy's Law and the CFPB: The Proposed Prepaid Rule Won't Protect Anyone.
The American Payroll Association said it has concerns about the CFPB's planned rulemaking. One big concern is a plan to require employers to provide disclosure forms the APA argues will discourage adoption. The proposed wording for the form: "You do not have to accept this payroll card. Ask your employer about other ways to get your wages."
The National Consumer Law Center, meanwhile, wants an even more stringent rule. In a comment letter to the CFPB, the NCLC, which represents the interests of low-income Americans, wrote that "the CFPB needs to do more to stop employers and colleges from forcing consumers to use cards they do not want."
The public comment period on the CFPB' package of proposals closed in March. Final rules are not expected immediately. The CFPB has said any final rules would take effect two years after issuance.
This isn't the first time payroll cards have come under scrutiny in Washington. Before the Dodd-Frank Act created the CFPB as the nation's top consumer watchdog, the Federal Reserve Board addressed payroll cards in several rule-making activities related to Regulation E (which details federal consumer protections for electronic payments). The CFPB now has exclusive rule-making authority for Reg E.
The Network Branded Prepaid Card Association compiled a fact sheet defending the use of payroll cards. These are some key points the group made:
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