The US Consumer Financial Protection Bureau (CFPB) has issued strong federal consumer protection rules for prepaid account users.
The new rules, which will become effective starting 1 October 2017, will give prepaid account customers similar protections which were enjoyed by current account and credit card holders.
As per the new rules, financial institutions will have to limit consumers’ losses to $50 when funds are stolen or cards are lost, investigate and resolve errors, and give consumers free and easy access to account information.
The new rule includes “Know Before You Owe” prepaid disclosures that give consumers clear, upfront information about fees and other key details.
Ultimately, prepaid companies must now generally offer protections similar to those for credit cards if consumers are allowed to use credit on their accounts to pay for transactions that they lack the money to cover.
The latest regulations also cover traditional prepaid cards as well as mobile wallets, person-to-person payment products and other types of accounts including payroll cards and student financial aid disbursement cards; tax refund cards; and certain federal, state, and local government benefit cards.
The new rules mandates financial institutions to give information about fees and account terms, establish that customers allowed to borrow using the cards are able to repay the debts, and cap interest charges.
CFPB director Richard Cordray said: “Many consumers rely on prepaid cards to make purchases and access funds, but until now they were not guaranteed strong consumer protections under federal law.
“This rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone. And it backs up those protections with important new disclosures to let consumers know before they owe.”
According to CFPB, the new rule gives prepaid account consumers important protections under the Electronic Fund Transfer Act, which are similar to those for current account consumers.
The users will be entitled to get free and easy access to account information, error resolution rights, and protections for lost cards and unauthorized transactions.
The new rule also includes strong protections for consumers using credit products that allow them the option of spending more money than they have deposited into the prepaid account.
Under the new rules, the card issuers will not be able to charge over 25% of a card's value in fees. They will have to give consumers at least 21 days to repay a debt before they are charged a late fee, which must be reasonable and proportional.
Furthermore, the prepaid companies will have to provide consumers with regular statements detailing fees, the interest rate, the amount borrowed and owed, and other key information.