Published June 01, 2012
The Consumer Financial Protection Bureau announced last week that it will examine prepaid debit cards to consider new regulations to protect consumers.
The CFPB said it will focus its efforts on "General Purpose Reloadable" prepaid cards. These cards allow consumers to fund the card upfront and then use it as a debit card. These products have been growing in popularity recently, particularly among younger consumers and those without traditional bank accounts.
Proposed regulations for prepaid cards
According to the CFPB, the following areas need to be addressed and potentially regulated:
The bureau proposal has now entered a 60-day comment period. Comments from consumers and other interested parties will be accepted by the CFPB through July 22, 2012.
Prepaid cards popular with the young and unbanked
The proposed rules come at a time when prepaid cards are growing in popularity as an alternative to more traditional financial products. According to a study by Javelin Strategy & Research, use of prepaid cards rose 2% in 2011 from the previous year. During the same time, credit cards, debit cards, checking accounts and savings accounts all saw a decline in use.
Prepaid cards appear to be especially popular among Millennials and the unbanked. As banks move to eliminate free checking accounts, these demographic groups appear to favor prepaid cards as a low-cost way to pay bills and store their money. Javelin reports one in six consumers within these groups uses a prepaid card.
"The people who use prepaid cards are, in many instances, the most vulnerable among us," said CFPB Director Richard Cordray in a statement. "Yet right now prepaid cards have far fewer regulatory protections than bank accounts or debit or credit cards."
Until regulations are enacted, consumers can protect themselves by carefully researching available cards and their fees before selecting a product.
The original article can be found at Money-Rates.com:
Prepaid cards come under government scrutiny