CFPB Approves New Prepaid Debit Card Regulations

o-debit-card-facebookLots of people depend on prepaid debit cards to maneuver through this complicated age of digital money. And its not only people who have had trouble with credit or banking in general.

According to Pew Charitable Trusts director of consumer finance, Nick Bourke, “Research shows many consumers turn to prepaid cards to control spending and to avoid overdraft fees.”

At the same time, the extensive Pew survey of prepaid card customers show that in excess of 80 percent of prepaid debit customers would prefer to have a transaction declined than to pay a $35 overdraft fee, somewhat intimating that many prepaid debit customers have probably experienced a few these in the past.

But while prepaid debit cards may help a lot of people, they also have their setbacks. One of the biggest issues prepaid card customers deal with is system failures: because the outage can lead to a lack of access to their money.

For example, for several days last year, thousands of RushCard customers were completely cut off from their money as the result of a computer conversion error that simply froze accounts. While the company did agree to pay $19 million in cardholder lawsuit settlements because of it, this was far from isolated. Barely a month later another similar failure in the Walmart MoneyCard system blocked cardholder access too.

On the bright side, these two incidents have somewhat forced lawmakers to demand answers over these technical glitches. Accordingly, they are now calling “more oversight and consumer protection,” within the prepaid card market.

And so, in approximately one year, new prepaid debit card regulations will go into effect. For one, the new rules will guarantee standardized disclosures regarding debit card monthly fees. The disclosures will also have to provide details on fees associated with customer service calls, card reloading, and cash withdrawals, among others.

Fees like these can average out to roughly $11 a month, which may not sound like much at first glace, but for many prepaid card carriers, this can actually account for a significant portion of their card balance.

Consumer Financial Protection Board Director Richard Cordray explains, “Our new rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone.”

However, CFPB lawyer Kristine Andreassen also warns, “No amount of rule making can create a force field around providers’ systems and products to categorically prevent this from happening in the future,” so time will tell just how effective these new regulations will be.