By Nancy Wilberg Ricks, Senior Policy and Communication Strategist, NCLR
Prepaid cards sit somewhere between cash and credit cards. They enable online purchases, bill pay, and offer some protections—features that cash alone can’t promise. They also don’t have much of the liability of a credit card. These cards are growing in popularity and, if done right, could serve a role for those who do not have access to the mainstream financial market, which include bank accounts and credit cards. Most users, however, are unaware that prepaid cards are largely unregulated and do not have the same consumer protections as some other options.
The Consumer Financial Protection Bureau (CFPB or Bureau) identified the need for greater transparency, monitored fees, and assistance for those who were victimized in the prepaid card market. In response, the Bureau began a regulatory process to make cards better for honest card companies and consumers.
To ensure Latino families were heard in these decision-making stages, NCLR submitted recommendations to the CFPB responding to their newly proposed rules on prepaid cards. Many Latinos and vulnerable families rely on these cards to fill a need, and we hope that improvements made in Washington will result in a product that works better for them.
As several studies indicate, Latino families use prepaid cards for savings, to control spending, and as a means to gain access to online markets. When it comes to improving such a financial product, one should understand why the consumer selects that product, not just how the industry expects a card should be used. Fees, foreign-language access, and overdraft “protection” are three trouble spots that Latino families encounter when using prepaid cards, and we hope will be improved with the new rules.
A card user can unknowingly be subjected to a number of fees, including fees to add funds, to pay bills, or to activate the card. NCLR has recommended that the CFPB require fees to be reasonable and transparent, and that fee disclosures be published in any foreign languages that the card issuer used in connection with the acquisition and marketing of a card.
Services for the Limited English Proficient
Prepaid card issuers might advertise a card in a foreign language but offer no customer service in that language. NCLR recommended that the CFPB require customer services to be offered from a live representative who is fluent in the spoken foreign language. That representative should also possess expertise in the field of prepaid products and features.
Cards that permit overdrawn transactions are dangerous to low-income consumers and often communities of color who, research shows, have been found to have a higher rate of recurrent overdrafts. NCLR urged the CFPB to ban overdraft outright. If the Bureau does not ban it, we recommended that at the very least, they mandate clear and deliberate opt-in processes (in language) so the consumer knows exactly the moment when they can begin incurring such charges.
Through these recommendations and the overall improvements that the CFPB has brought to financial markets, we are hopeful that families will begin to see more consumer-friendly offerings. No family, especially the most vulnerable, can afford to incur arbitrary fees, especially ones that don’t result in better service. In their current state, prepaid cards can charge abusive fees with little protection for families. We are encouraged by the recent proposed regulations, however, and look forward to seeing improvements to the prepaid card market.