Charge Cards / CFPB Finalizes New Federal Protections for Prepaid Account Consumers
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the new rules include limits on losses for stolen funds and lost cards

October 05, 2016

The Consumer Financial Protection Bureau (CFPB) has announced it has finalized new, stronger protections for prepaid account users under the Electronic Fund Transfer Act.

Usually purchased online or in retail stores, prepaid accounts are one of the fastest growing consumer financial products in the United States.

The funds on prepaid cards grew from $1 billion in 2003 to $65 billion on 2012, and is expected to reach $112 billion by 2018.

According to CFPB Director Richard Cordray, prepaid account consumers were not previously guaranteed strong protections under federal law. The new protections close loopholes and protects consumers against hidden fees.

The new protections include a requirement that financial institutions must limit consumers' losses when their funds are stolen or cards are lost, investigate and resolve errors, and allow consumers to have free and easily accessible account information.

If consumers promptly alert their financial institution of a stolen or lost card, the consumer's responsibility will be limited to $50. It also creates a way for consumers to get their money back in a timely fashion.

The rules now state that financial institutions must work with consumers who discover fraudulent charges or other errors on their accounts. They must now investigate and resolve these incidents in a timely fashion, whether it be restoring consumers' funds or providing provisional credit until there is a permanent remedy.

The Electronic Fund Transfer Act also includes "Know Before You Owe" disclosures. These disclosures are meant to give consumers clear, upfront information regarding fees and other crucial details.

Before the Electronic Fund Transfer Act was finished, consumers could not make well-informed decisions regarding prepaid card activation, because of the lack of easy access to card disclosures and information; now that will change.

The CFPB now requires prepaid card companies to provide two forms with easy-to-understand information. The first form, a short form, must clearly highlight important prepaid account information, including fees, such as per purchase fee, ATM withdrawal fee, and cash reload fee.

The second form is a comprehensive disclosure that includes a complete list of fees and other important information deemed necessary before acquiring an account.

These new disclosures will make comparison shopping easier for consumers. The prepaid card issuer now must submit all agreements to the CFPB, then they will in turn post that information to a public, Bureau managed website. Also, any non-required agreements must be made accessible on the card issuers website.

Lastly, the new protections proclaim that prepaid companies must offer similar protections offered by credit card companies if consumers are allowed to use credit to pay for their transactions.

Now, prepaid card companies must be sure of the consumer's ability to repay the debt before offering the credit, give consumers regular statements, limit late fees and give consumers at least 21 days to repay their debt before late charges are applied, and limit total fees to 25 percent of the credit limit during the first year.

These protections stem from those in the Truth in Lending Act and the Credit Card Accountability Responsibility and Disclosure Act.

The new protections in the Electronic Fund Transfer Act started being applied to prepaid accounts on October 1, 2016, however the requirement regarding the submission of agreements to the Bureau takes effect in October of 2018.

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