Pre-paid credit card holders now have added protections
Lost among the election furor, the Consumer Financial Protection Bureau (CFPB) has quietly modernized regulations associated with a 38-year-old law, the Electronic Funds Transfer Act of 1978, in order to bring consumer safeguards into alignment with the modern era.
The CFPB is a federal agency responsible for consumer protections in the financial sector. In October, it finalized strong federal protections for pre-paid card holders. Its recent action was intended to provide wide-ranging protections to pre-paid cardholders.
The new rule applies specific federal consumer protections to broad sections of the prepaid market for the first time. It covers traditional prepaid cards, including general purpose reloadable cards. It also applies to mobile wallets, person-to-person payment products, and other electronic prepaid accounts that can store funds. Other prepaid accounts covered by the new rule include: payroll cards; student financial aid disbursement cards; tax refund cards; and certain federal, state, and local government benefit cards such as those used to distribute unemployment insurance and child support.
The protections included a requirement for financial institutions to limit consumers’ losses when their funds are lost or stolen; to investigate and resolve errors associated with pre-paid accounts; and to provide consumers with free and accessible information about their accounts, among other protections.
In addition, although the rule changes were primarily focused on pre-paid cards, the CFPB expanded the protections to cover electronic, person-to-person payments, like those made via PayPal.
Debit cards became prominent in the 1970s by using the same magnetic swipe technology the public had grown used to with credit cards; however, debit cards allowed people to access their own bank account to make their purchases without having to carry cash or a check book.
However, the introduction of debit cards fueled concerns on the part of all involved in the process. For example, consumers were worried that a single mistake could expose all the funds in their account; banks were concerned about the potential for millions of dollars in loss from fraud; and merchants were worried about not being paid for fraudulent transactions.
In response to these concerns Congress enacted the Electronic Funds Transfer Act of 1978 which provided clear guidelines and assigned liabilities to the parties regarding their rights and responsibilities. The law assigned limited liability to consumers of between $50 and $500, provided the consumers reported their loss in a responsible and timely manner. As a result of CFPB action, millions of Americans who hold pre-paid cards now have added protections.
According to CFPB, pre-paid accounts are among the fastest growing consumer financial products in the United States, usually 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 pre-paid cards is expected to nearly double to $112 billion by 2018.
Much of the information contained in this report was originally published by the Penn Program on Regulation at the University of Pennsylvania Law School.