Following a holiday season in which a record number of consumers were expected to use prepaid cards, U.S. Sen. Mark Warner (D-Va.) introduced legislation requiring banks to more fully disclose the hidden fees often charged for the use of these cards.
“At nearly $700 billion in sales each year, prepaid cards are one of the fastest growing parts of the financial industry,” Sen. Warner said. “However, these cards aren’t subject to the same kinds of consumer protections as other types of credit cards and gift cards. It’s important that young people and people without credit history or access to traditional banking tools have access to prepaid cards, but we can’t let the technology outpace smart consumer protections.”
“Pew commends Senator Warner for taking action to require clear disclosures for prepaid cards. Pew’s research shows that inconsistent disclosures make it very difficult for consumers to understand the terms and fees associated with each card. The growing number of consumers turning to prepaid cards as a way to manage their money underscores the need for reform,” said Susan Weinstock, director of safe checking research at The Pew Charitable Trusts.
Prepaid cards represent one of the fastest-growing segments of the financial services industry, with the amount of money loaded onto the cards topping $670 billion a year. Prepaid cards look like a standard credit card and often bear network logos of Visa, MasterCard or Discover. While it would be easy to assume that a prepaid card has the same features and protections as a traditional debit or credit card, it does not. Some issuers impose activation fees, and many include monthly maintenance fees. Others charge consumers 75 cents for checking the account balance, $1.75 to make a withdrawal, and as much as $5 per month for an “inactivity fee.” In addition, some issuers charge overdraft fees of up to $25.
“Greater transparency of fees in a consistent way will empower consumers to make more informed decisions before purchasing or using one of these prepaid products,” Sen. Warner, a member of the Senate Banking Committee, said. “These reloadable cards are popular as gifts, and many parents send their children off to college with them. As they become more prevalent in our economy, it just makes sense that consumers should have access to the same information that we require with gift cards and most major credit cards.”
Sen. Warner’s Prepaid Card Disclosure Act of 2014 would require the Consumer Financial Protection Bureau to issue rules mandating financial institutions to provide standard disclosure of fees associated with their prepaid cards:
- · Disclosure would be required to be made by way of an easily understood table, clearly and conspicuously displayed to the consumer prior to purchase, describing the amount and description of each fee that may be charged.
- · The bill also allows disclosure through a QR code or barcode, which would allow consumers to get real-time fee updates via their smartphones.
- · Additionally, the bill requires a toll-free telephone number and website to be clearly indicated on the card where consumers can obtain further information about the fees.
A copy of the legislation is available here.