The 870-page tome of proposed rules issued Nov. 13 by the Consumer Financial Protection Bureau to govern prepaid cards may end up benefitting the top prepaid card issuers, says securities-rating agency Fitch Ratings.
The regulations would require so-called “Know Before You Owe” disclosures and aim to improve consumers’ access to account information. They also would create error-resolution procedures and provide protections when cards are lost or used fraudulently, according to the CFPB, a creation of the 2010 Dodd-Frank Act. The CFPB also plans to strictly control credit products linked to prepaid card accounts.
The CFPB says its plan is to bring to prepaid cards, which often are used by people with few or no traditional banking relationships, a number of federal consumer-protection regulations that currently apply to conventional debit and credit cards, but not specifically to prepaid cards.
“We believe the new consumer-friendly rules should further bolster growth in prepaid card usage by enabling consumers to more easily make informed decisions on card fees and features,” Fitch says. “Among the many prepaid issuers in the U.S., fee structures can vary widely and standardized disclosures may push consumers toward lower cost, greater feature providers.”
Fitch noted that five large banks that issue prepaid cards, including American Express Co., J.P. Morgan Chase, US Bank, PNC and BB&T, “carried significantly lower fees than other cards, reflecting banks’ ability to leverage their broader scale, infrastructure and marketing to drive more favorable economics for both the card holder and the card issuer.”
In a Nov. 14 survey of Digital Transactions News readers, 33% of respondents said the CFPB’s rule will make the prepaid market better for issuers and consumers. Equally 17% said they will do more harm than good, and they will make the prepaid market much worse for issuers and consumers. The remaining 33% had no opinion.