Protection for debit cards expanded
NEW YORK — Federal regulators announced new rules Wednesday governing the quickly growing prepaid debit card industry, an effort more than two years in the making which should bring basic account protections to its customers, who are often financially disadvantaged.
Prepaid debit card issuers will have to provide their users with basic account information like balances and transaction history free of charge to customers. Protections for lost or stolen cards will also be expanded to prepaid debit cards. Fees for the cards will have to be more clearly disclosed on the packaging.
“Before today ... many of these products lacked strong consumer protections under federal law,” Richard Cordray, director of the Consumer Financial Protection Bureau, said in a prepared statement. “Our new rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone.”
Once a product whose only purpose was to function as a gift card, prepaid debit cards have become increasingly popular over the last 15 years and have effectively replaced a traditional checking account for millions of Americans. Roughly $65 billion was loaded onto prepaid cards in 2012, the most recent year for which data are available. That’s more than double the amount loaded in 2009, only three years before. The amount loaded is expected to double again by 2018.
Sold in most grocery or convenience stores, the cards are largely used by lower income Americans, who are statistically more likely to be young, a racial minority and likely to earn less than $25,000 a year, according to the Pew Charitable Trusts.
As the industry has grown, it has had more than its fair share of controversy. Early prepaid cards carried extremely high monthly fees, even sometimes fees to load money onto a card. The RushCard, a card backed by hip-hop mogul Russell Simmons, suffered a massive technical glitch a year ago that locked more than a hundred thousand customers out of their funds, sometimes for weeks.