Prepaid card providers will soon be held more accountable for their services. Starting Oct. 1, 2017, new rules will require financial institutions to limit consumers’ losses when funds are stolen or cards are lost from prepaid accounts.
Prepaid card providers will also be required to investigate and resolve errors, and give consumers free and easy access to account information, according to a statement published today by the U.S. Consumer Financial Protection Bureau (CFPB). The new rules apply consumer protections to broad swaths of the prepaid market for the first time.
The agency will also finalize new “Know Before You Owe” disclosures for prepaid accounts to give consumers “clear, upfront information about fees and other policies.
The bottom line: Prepaid companies must generally offer protections similar to those for credit cards if consumers are allowed to use credit on their accounts to pay for transactions for which they lack the money to cover.
“Many consumers rely on prepaid cards to make purchases and access funds, but until now they were not guaranteed strong consumer protections under federal law,” said CFPB Director Richard Cordray. “This rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone. And it backs up those protections with important new disclosures to let consumers know before they owe.”
The popularity of prepaid accounts is growing consumer. They amount to financial products that are easily purchased at retail outlets or online. The amount consumers put on “general purpose reloadable” prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012. The total dollar value loaded onto these prepaid cards is projected to nearly double to $112 billion by 2018.
Here’s a summary from the CFPB:
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.