PHILADELPHIA (7/15/14)--Based on reports it released earlier this year, the Pew Charitable Trusts has urged the Consumer Financial Protection Bureau the (CFPB) to ensure prepaid cards include certain prescribed features to serve as viable alternatives to checking accounts.
The features include:
- No overdraft or linked lines of credit. Pew's survey research shows that consumers are using general purpose reloadable (GPR) prepaid cards to control their spending, ensure that they will not overdraw their accounts and avoid high fees. More than two-thirds (68%) of regular GPR prepaid card users would rather have transactions declined at the point of sale than have the transactions go through and pay overdraft fees.
- Access to transaction history and limitations on liability. Prepaid cardholders should be protected against liability for unauthorized transactions that occur when a card is lost or stolen or a charge is incorrectly applied, just as users of debit cards linked to a checking account (a requirement known as Regulation E) are, Pew said. Yet, only 38% of cards provide all of these protections for unauthorized transactions.
- Uniform, concise, and easy-to-read information about terms, conditions and fees. Consumers seeking to purchase prepaid cards should have access to all the important information necessary to make an educated choice before purchasing a card, whether in a store or online, Pew advised the CFPB. A concise and uniform disclosure document that summarizes fees and other important terms would allow consumers to comparison shop and make an informed purchase rather than the "trial and error" process of finding out about a fee or term after using a card.
- Federal insurance against all losses up to $250,000. Prepaid cards function exactly like checking accounts in most respects and are used similarly by many consumers, Pew said. Federal deposit insurance rules allow card issuers to use pass-through insurance that fully protects consumers by ensuring that deposits to their cards can be reimbursed if the company becomes insolvent. Most card companies have taken full advantage of this and disclose that they have deposited consumer funds in Federal Deposit Insurance Corp.-insured accounts.
- No predispute binding arbitration clauses. This type of clause prevents cardholders from challenging unfair and deceptive practices or other legal violations in court, impairing individual rights and potentially allowing abuses to spread without legal or public scrutiny. Such requirements are increasingly common in financial agreements. Of the 66 cards studied, 51 (77%) have contractual clauses that require cardholders to submit to mandatory binding arbitration. Fifty of the 66 cards (76%) also disclose that cardholders are not permitted to participate in class action litigation involving that card.