Changes coming to prepaid card market

Posted 12:01 p.m. Sunday

Federal regulators recently announced new rules governing the prepaid debit card industry. It's a big change more than two years in the making that's expected to bring some basic account protections to its customers, who are often financially disadvantaged.

Here are some things you should know:


Prepaid accounts are among the fastest growing consumer financial products in the United States, according to the Consumer Financial Protection Bureau, which led the change.

Sold widely in grocery stores, convenience stores and online, consumers load money onto these cards and use them as they do a debit card, making everyday purchases or to get cash. Prepaid accounts may also be loaded with funds by a third party, such as an employer.

Prepaid debit cards have become increasingly popular over the last 15 years and have effectively replaced a traditional checking account for millions of Americans.

Roughly $65 billion was loaded onto prepaid cards in 2012, the most recent year for which data are available. That's more than double the amount loaded in 2009, only three years before. It is expected to continue to grow.

The cards are largely used by lower income Americans, who are statistically more likely to be young, from a racial minority and earning less than $25,000 a year, according to the Pew Charitable Trusts.


Under the new rules, prepaid debit card issuers will have to provide their users with basic account information like balances and transaction history free of charge. Protections for lost or stolen cards will also be extended to prepaid debit cards. Fees for the cards will have to be more clearly disclosed on the packaging.

The new rules apply to traditional prepaid cards as well as other electronic accounts that can store funds. The rules cover payroll cards, student financial aid disbursement cards and tax refund cards, as well as cards used to distribute social security benefits and unemployment insurance.


The CFPB said that until now these products largely lacked consumer protection under federal law. That's become a big problem as the industry has grown.

Early prepaid cards carried extremely high monthly fees, and sometimes they even charged fees to load money onto a card. The RushCard, which was backed by hip-hop mogul Russell Simmons, suffered a massive technical glitch a year ago that stopped more than a hundred thousand customers from accessing their funds, sometimes for weeks.

The industry's missteps have allowed more traditional banks and financial services companies to come out with their own prepaid cards, including JPMorgan Chase and American Express. But it's also raised the need for more protection.


The industry did win one significant concession: prepaid debit card issuers can still provide overdraft services, which would legitimize a small, controversial part of the industry. Only 2 percent of all prepaid debit cards allow for their customers to overdraft, according to the National Consumer Law Center. That percentage will likely expand.

The new rules go into effect October 1st, 2017.


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