Those of you who read this blog with any regularity know I talk about prepaid cards a lot. As a financial product on the rise, and the one well-positioned to take advantage of the decline of cash and checks, they're a product I think deserves more attention than they're getting. Apparently, some New Yorkers agree.
At the Consumer Financial Protection Bureau town hall I attended in New York last week, prepaid debit came up many times, with participants complaining about high fees and what they perceived to be shady practices. One of the very first New Yorkers to speak up was Stacey Thompson, a worker at a local nonprofit, who had this to say on prepaid debit.
I switched to one of those NOW accounts, one of those prepaid accounts, and it was supposed to be to get rid of all these extra fees that they were charging, all the insufficient fees. And they were only supposed to allow you to spend what you have on that card, so I was wondering how come my account ended up in the negative balance and I'm paying out of the pocket for this card. ... They took off those things but added ... a whole lot of extra hidden fees. I mean, I'm paying just to check a balance.
CFPB Director Richard Cordray's answer mostly went back to the bureau's new push on overdraft fees on checking accounts. But eventually, in response to a question about high fees on the prepaid cards local courts use to distribute child support, Cordray said the CFPB will be taking action on prepaid debit, at least as it concerns government payouts.
This is an issue that comes up in a lot of different settings, not just with respect to child support, as you're describing it here, but there are states, counties and cities that now, when they distribute any form of public benefits, whether it's unemployment insurance or maybe assistance for food and other things, they are often now using some sort of prepaid card that is loaded with the money, and it's loaded over time. But some of those products are better than others. Some of them have a lot of fees. Some of them become quite expensive for people who obviously are in a position where every dollar counts.
One of the things that we can do, and we intend to do, is to provide guidance to state and local governments across the country that when they negotiate these agreements with financial institutions, they need to strike a harder bargain. They need to understand the kinds of problems they can get into. Many of the officials who negotiate these programs are not sophisticated in the different charges associated with these cards themselves. So some of them have struck very good deals, some of them have struck miserable deals, and it comes out of the pockets of people like you and others.
This is a good start, but I think we'll inevitably see the CFPB intervene further into the prepaid debit card market. As a consumer financial product, the cards clearly fall under the Bureau's jurisdiction, and I think a lot of people who use them can relate to Thompson's situation as far as fees go. Prepaid providers point to their easy-to-find fee schedules, but when they start charging fees for 10 different types of common transactions, it starts getting hard to keep track, especially when you consider prepaid providers are often targeting their cards at people who have trouble managing a conventional checking account.
I don't think the CFPB will be able to directly regulate what fees prepaid cards charge -- they're specifically not allowed to set prices -- but I do think the CFPB will be looking at ways to make it easier to understand and manage those fees. For what it's worth, I think requiring a fee notice directly on debit terminals and ATM screens could be a good way to help prepaid card users like Thompson keep track of what they're paying and manage their balance better.
What do you think? Should the CFPB be doing more on prepaid debit?
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