Many prepaid account holders use the product as an alternative to a basic checking account. Prepaid cards and accounts provide access to payment networks and a more secure option than carrying cash. Before the proposed rules, these products existed in a largely unregulated market and some contain fees and features that harm consumers, such as expensive overdraft credit. The proposed rules would apply not only to traditional prepaid cards, but also to payroll cards, and prepaid accounts used via mobile and for distribution of certain government benefits and child support payments.
Significant elements of the proposed rules include:

  • Consumer  protections from loss, theft, and unauthorized transactions;
  • A uniform disclosure box that will clearly describe costs and functions of every account;
  • A requirement that overdraft and credit products comply with existing credit laws; and
  • Free access to account statements online or through period paper statements.

“As proposed, the rules will create a much-needed framework to protect consumers who use prepaid cards and accounts,” said Dory Rand, president of Woodstock Institute. “We are pleased that the rules will apply to a variety of prepaid products, including payroll cards and government benefit cards.”
According to a recent FDIC survey, prepaid card use among the unbanked has grown significantly in the past year. Of the 9.6 million unbanked households in 2013, 27 percent reported having used a prepaid debit card compared to 17.8 percent of unbanked households in 2011. Given the growing use of prepaid cards, it is imperative that strong rules ensure consumers are protected. At a CFPB field hearing in 2012,Woodstock Institute urged the CFPB to enact consumer protections for prepaid cards, including prohibiting credit on prepaid cards.
We urge the CFPB to strengthen their proposed rules by:

  • Requiring the disclosure of all fees on the card package;
  • Mandating all prepaid cards be FDIC insured; and
  • Prohibiting all forms of credit on prepaid cards, including overdraft.

“Since most prepaid card users are trying to control spending and avoid fees associated with checking accounts and credit cards, the possibility that the CFPB would allow a predatory credit product on prepaid cards concerns us,” said Dory Rand. “Woodstock Institute calls on the CFPB to restrict any form of credit on these products, including overdraft.”
Full text of the CFPB’s proposed rule is available at and the public will have 90 days to comment from the date of publication in the Federal Register.
For more information, contact Katie Buitrago or 312-368-0310.