Consumers Union Cautions Municipalities about Prepaid Card Fees (May 9, 2013)
As municipalities continue to explore and, in at least one case, implement programs involving government-issued identification that doubles as a prepaid card, Consumers Union this week urged city leaders to be cautious of prepaid cards that might come with “high fees and weak consumer protections.”
In letters sent to the National League of Cities, an advocacy group for more than 19,000 municipalities, and the International City/County Management Association (ICMA), an association for appointed local government administrators, long-time prepaid card critic Consumers Union expressed concerns over unfair prepaid card practices. The policy and advocacy arm of Consumer Reports also asked local governments considering ID/transit/prepaid cards to keep fees to a minimum and provide cardholders with the same protections they get with traditional debit cards.
Oftentimes there are many ways for consumers to avoid fees on similar prepaid products, and municipalities are entitled to offset the costs of providing ID cards and the cost of servicing accounts, according to Madeline Aufseeser, senior analyst with research and advisory firm Aite Group.
“The prepaid industry is highly regulated by the Federal Reserve Bank and falls under the jurisdiction of the Dodd-Frank [Act] and the Durbin Amendment that contain plenty of consumer safeguards,” Aufseeser tells Paybefore.
“Additionally, most of the products on the market come with FDIC insurance, which requires Regulation E compliance, which is no different on a prepaid card as it is on any other payment form subjected to Reg E,” she says. “For Consumers Union to imply that prepaid cards are not regulated or do not comply with FDIC rules is actually irresponsible and misleading consumers.”
In March, Oakland, Calif., rolled out its Oakland City ID Prepaid MasterCard. In nearby Richmond, the city council approved an amendment authorizing a similar ID program and cards could be issued by June. And, in Los Angeles, the city council voted last November to begin soliciting proposals for a city ID card, which would include a prepaid option.