Cordray: ‘Change is Coming’ to Prepaid Card Industry (Nov. 14, 2013)
Change is coming to the prepaid card industry, whether by regulation or legislation, Consumer Financial Protection Bureau Director Richard Cordray promised lawmakers this week at a Senate Banking Committee hearing, but he declined to provide a timetable. “[Prepaid cards] are one of the problem areas in consumer financial protection because they’re a hole in the current fabric [of regulation],” Cordray said during his appearance as the only witness discussing the CFPB’s fourth Semi-Annual Report to Congress, issued earlier this month.
During the two-hour hearing, Cordray faced questions about the agency’s progress and regulatory moves around financial services data collection, mortgages and auto lending. Toward the end of the hearing, Sen. Robert Menendez (D-N.J.), raised the issue of prepaid card industry regulation, noting he plans to re-introduce legislation because the prepaid card industry is “a very significant area where a lot of money gets spent and people don’t know what they’re buying.” Menendez in late 2011 introduced legislation aimed at beefing up disclosures, extending Reg E requirements and banning certain fees on prepaid cards; he proposed a similar bill in 2009 but neither made it past committee.
Cordray pointed to the CFPB’s May 2012 Advance Notice of Proposed Rulemaking signaling the agency’s commitment to regulating prepaid cards, adding: “Prepaid cards are an odd and a new product and it falls in the cracks, and that’s very problematic because this product has exploded in recent years.” Noting that consumers are loading millions of dollars onto prepaid cards, Cordray said the CFPB is now “playing catchup” and must ensure consumers have adequate prepaid card protections.
Though Menendez alluded to “all types of fees beyond what I believe are necessary” for prepaid card issuers to make a profit, Cordray did not address specific product features, saying only that prepaid cardholders should have the same kinds of protections—such as disclosures, error correction and dispute resolution—that exist for credit and debit cards.
The fourth annual analysis of reloadable prepaid cards by Bretton Woods Inc., released the same day as the hearing, suggests that any high GPR card fees are an anomaly and most GPR cardholders pay less than half the cost of what consumers pay for a basic checking account.