RepresentativeU.S. House of RepresentativesWashington, DC 20515
SenatorU.S. SenateWashington, DC 20515
Re: Oppose H.J. Resolutions 73 & 62 and Senate Res. 19 overturning fee transparency and fraud protections for prepaid cards
The undersigned consumer, civil rights, labor and small business organizations strongly urge you to oppose H.J. Resolutions 73 & 62, which would reject the Consumer Financial Protection Bureau’s prepaid card protection rule. The resolution would block basic fee transparency and fee disclosure protections set to go into effect on prepaid cards, including payday lender prepaid cards and low-wage employer payroll cards such as those offered by Georgia-based NetSpend.
Prepaid cards are a rapidly growing market, used by 9.8 percent of households overall.1 Prepaid card use is higher among lower-income households, less-educated households, younger households, black households, and working-age disabled households. Many consumers use prepaid cards because they have lost their bank account and cannot get a new one.2
While prepaid cards function in much the same way as bank account debit cards, they are not covered by the Electronic Fund Transfer Act, as prepaid cards did not exist in 1974 when the EFTA was written. Many prepaid cards also have hidden fees, making it difficult for consumers to comparison shop. Employees have at times been coerced into receiving their pay on fee-heavy payroll cards (a form of prepaid card).
The CFPB’s prepaid card rule enacts common sense protections. It:⚫ Extends the EFTA to protect prepaid card users against fraud, unauthorized charges and errors;⚫ Provides a simple chart of key fees (like the credit card “Schumer box”), with more details on a longer chart on websites and inside the package at retail;⚫ Ensures that consumers have convenient, free access to account information by providing free access to transactions and the account balance, with the ability to ask for a statement.⚫ Requires employers to inform employees that they are not required to accept wages on a payroll card.
The CFPB wisely did not make the rule instantly obsolete or subject to evasion by protecting only physical plastic prepaid cards. The rule applies these protections to modern and evolving versions of prepaid accounts offered online and through mobile devices. Whatever form the account takes, consumers need basic protection for the security of their funds, hidden fees and account information.
Finally, The CFPB’s rule does not ban overdraft services, but says unusual hybrid prepaid-credit cards that can overdraft must comply with the rules for credit cards, including limits on fees in the first year, consideration of ability to pay, time to pay and control over how to pay.
About 98% of prepaid cards are true to their promise of helping consumers control spending and cannot be overdrawn, but NetSpend - an outlier - is the only major prepaid company with overdraft fees and primarily sells its cards through payday lenders and check cashers (and, in an another unusual feature, permits payday lenders to debit the cards on payday, potentially triggering an overdraft fee).3 NetSpend has projected that the rule could cost it $80 million in revenue.4 In other words, NetSpend takes that amount of overdraft fees out of the pockets of families least able to afford it. They are pushing to roll back a rule which provides basic protections for millions of users in order to preserve this abusive business line. The Electronic Transaction Association has also opposed the rule, but has given no reasons other than vague claims that the rule is “overly burdensome, expansive and prescriptive, negatively impacting consumers.”5
The CFPB’s prepaid card rule enacts common sense protections that are not controversial. For example, Green Dot, the largest prepaid card provider, supports the rule:
"Green Dot embraces the new rule as recognition that the industry we started more than 15 years ago continues to serve an increasingly significant role in the everyday financial lives of a growing number of American families. We fully support the CFPB's mission to ensure fairness, integrity and consumer protections for all participants in the financial system. For many years, Green Dot has voluntarily provided full checking account style consumer protections for its customers and has never charged overdraft or penalty fees on Green Dot Bank's prepaid and checking products. It's gratifying to know that prepaid can now move to a level playing field that can better serve consumers while allowing the entire industry to move past the period of regulatory uncertainty."6
The rule will be a win-win for consumers and industry because it legitimizes prepaid cards and gives consumers more confidence in using them as a bank account substitute. The clear fee disclosures will help combat the industry’s reputation for hidden fees. Uniform legal protections against fraud and unauthorized charges are especially important in these days of constant data breaches.
A vote in favor of the Congressional Review Act resolution would upend protections for millions of consumers. If the resolution blocking the rule is successful, the entire rule is blocked and the CFPB cannot enact a substantially similar rule unless Congress passes new legislation. We urge you to reject any effort to block the rule and to relegate prepaid cards once again to unprotected, second class status.
1 https://www.fdic.gov/news/news/press/2016/pr16093.html2 Many NetSpend customers “no longer have access to checking accounts because they are among the 19 percent of U.S. adults who cannot qualify for an account because they are in the ChexSystems or TeleCheck’s database.” Prepared Statement of Daniel R. Henry, Chief Executive Officer, NetSpend Holdings, Inc., “Examining Issues in the Prepaid Card Market,” Hrg. before the Subcomm. on Fin’l Inst’ns and Consumer Protection of the Comm. on Banking, Housing and Urban Affairs, U.S. Senate, 112th Congress, S. Hrg. 112-560 at 35 (Mar. 14, 2012) (“NetSpend Senate Testimony”), http:// www.gpo.gov/fdsys/pkg/CHRG-112shrg76233/pdf/CHRG-112shrg76233.pdf.3 Lauren Saunders, National Consumer Law Center, Payday Lender Prepaid Cards (July 2015), https://www.nclc.org/issues/payday-lender-prepaid-cards.html.4 Kevin Wack, American Banker, CFPB Rules Will Take $80M Bite out of NetSpend's Revenue(October 26 2016).5 http://www.electran.org/wp-content/uploads/ETA-CRA-Letter-Ryan-Hensarling1.pdf. ETA has also expressed concern that the definition of “prepaid account” extends beyond plastic cards to online accounts like PayPal’s and Google’s that store funds that can be used to make payments in the same way as physical prepaid cards. The CFPB rightly wrote a rule that can would not immediately become obsolete and would provide fee transparency and fraud protections regardless of the physical form of the access device.6 http://ir.greendot.com/phoenix.zhtml?c=235286&p=irol-newsArticle_print&ID=2209529
Yours very truly,