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AFR Statement: Attack on common-sense rules for prepaid cards

Submitted by on February 6, 2017 – 5:15 pm
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Members of Congress have launched an attack on consumer financial protection by attempting to block an important rule for prepaid debit cards.

The rule, issued in October by the Consumer Financial Protection Bureau (CFPB), provides safeguards for those who use prepaid cards to make purchases and manage their money. In addition to protections against loss, theft, and unauthorized charges, the CFPB’s rule says that cards must actually be prepaid rather than serving as a vehicle for risky high-cost credit products and hidden fees.

This is a sensible rule that increases fee transparency while giving prepaid card users a set of basic protections that already apply to debit cards. Prepaid cards, currently used by nearly ten percent of U.S. households, are a rapidly growing market. Any rollback of the CFPB’s protections will disproportionately affect low-income and younger consumers, who use prepaid cards in unusually high numbers.

Nevertheless, corporate lobbyists and their friends in Washington are trying to do an end-run around the rule by invoking the Congressional Review Act (CRA), which allows Congress to strike down previously issued regulations with a simple majority vote in the House and Senate. The prepaid card resolution was filed by Senator David Perdue (R-GA) with the support of Senators Johnny Isakson (R-GA), Tom Cotton (R-AR), Ron Johnson (R-WI), James Lankford (R-OK), Mike Lee (R-UT), and Mike Rounds (R-SD). A companion resolution has been filed in the House by Representative Tom Graves (R-GA) and Barry Loudermilk (R-GA).

The biggest apparent beneficiary of their effort would be Netspend, based in Senator Perdue’s and Isakson’s – and Representative Graves’ and Loudermilk’s – home state of Georgia. Netspend is the nation’s largest provider of prepaid cards. By its own account, the company generates, and stands to lose, upwards of $80 million a year they make substantially from abusive overdraft charges linked to prepaid cards. Netspend is also a vehicle for payday lender prepaid cards, designed to help lenders grab the borrower’s next paycheck, generating even more fees. Almost no other prepaid cards charge overdrafts – they are actually “prepaid” and stop working when a holder does not have money in the account.

The Consumer Bureau’s continued progress on making financial markets fairer and safer confirms once again how important it is to have an independent and effective regulator with a consumer protection mission.  The rule making prepaid cards fairer and safer is one more example of “unrigging” the system for the American people, and it should be left in place.

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