Last year, Georgia Watch kept you up-to-date on Senate Bill 88 which allowed employers the right to place employee earned wages or salary on a payroll card instead of the traditional payroll check. While Georgia Watch recommends that, if at all possible, employees opt to have their wages deposited directly into their bank accounts so that they may earn credit and avoid arbitrary fees, under certain circumstances, a prepaid card can be a viable alternative for the 10-12% of Georgians without bank accounts who wish to avoid expensive check-cashing fees.
According to the Consumer Financial Protection Bureau (CFPB), prepaid accounts are among the fastest growing consumer financial products in the United States with the amount placed on the cards growing from less than $1 billion in 2003 to $65 billion in 2012. That number is expected to nearly double to $112 billion by 2018. With so many people utilizing this relatively new service, certain measures were necessary to enact in order to protect the consumer in a largely unregulated financial space.
In early 2015 CFPB invited comments on preliminary rules regulating prepaid account services. In March of that year, Georgia Watch formally submitted recommendations to the CFPB to strengthen the proposed protections. These recommendations included the following measures:
- Protect access to the courts by banning forced arbitration for prepaid products.
- Hold prepaid cards to the same standards as credit cards with regards to fees.
- Ban all overdraft fees and declined transaction fees.
- Extend the deadline for disputing transactions and errors to 120 days minimum.
- Ensure that ATM balance inquiries are free for consumers.
- Disclose all fees associated with the prepaid card before and after issuance.
- Provide both students and employees the opportunity to opt-out of receiving funds via a prepaid card in favor of direct deposit or paper check.
- Require that prepaid card companies hold funds in custodial accounts that have deposit insurance, protecting consumers from the company’s creditors.
Georgia Watch is pleased to announce that today the CFPB finalized new rules which will offer increased protection for consumers who utilize prepaid accounts. The new rules include:
- Free and easy access to account information: Financial institutions must make certain account information available for free by telephone, online, and in writing upon request, unless they provide periodic statements. Unlike checking account customers, prepaid consumers typically do not receive periodic statements by mail. The rule ensures that consumers have access to their account balances, their transaction history, and the fees they’ve been charged.
- Error resolution rights: Financial institutions must cooperate with consumers who find unauthorized or fraudulent charges, or other errors, on their accounts to investigate and resolve these incidents in a timely way, and where appropriate, restore missing funds. If the financial institution cannot do so within a certain period of time, it will generally be required to provisionally credit the disputed amount to the consumer while it finishes its investigation.
- Protections for lost cards and unauthorized transactions: The new rule protects consumers against withdrawals, purchases, or other unauthorized transactions if their prepaid cards are lost or stolen. The rule limits consumers’ liability for unauthorized charges and creates a timely way for them to get their money back. As long as the consumer promptly notifies their financial institution, the consumer’s responsibility for unauthorized charges will be limited to $50.
Georgia Watch commends the CFPB on its steps to protect those who utilize prepaid accounts. While today’s announcement improves transparency it does little to regulate fees; therefore, we echo the sentiments of the National Consumer Law Center (NCLC), expressing “hope that the prepaid industry would completely eliminate overdraft fees”. The new rules go into effect October 1, 2017.
To learn more, please visit the links provided below.
State of GA: