The growing number of people who prefer to store their money and shop with prepaid cards and mobile wallets should be better protected from fraud and errors by this time next year.
The Consumer Financial Protection Bureau recently finalized a rule that limits losses when funds are stolen or cards are lost; requires mistakes to be investigated and resolved; and provides free, easy access to account terms and balances.
“This rule closes loopholes and protects prepaid consumers when they swipe their card, shop online or scan their smartphone,” bureau Director Richard Cordray said. “And it backs up those protections with important new disclosures to let consumers know before they owe.”
Prepaid cards, which include brands such as GreenDot, Netspend and Walmart MoneyCard, and electronic prepaid services such as PayPal and Google Wallet are growing in popularity. Some people use them for convenience. Others use them because they shun traditional banking products.
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Prepaid cards can be purchased at stores and loaded with money by the cardholder or someone else at the point of sale, or by transferring it online. Cards also may be provided by an employer for payroll purposes, or by a government agency for student financial aid and unemployment and public assistance benefits.
The cards can be used to store and receive money, withdraw cash at ATMs, make payments online or in stores, or send money to other people.
Mobile wallets can be loaded with funds from bank accounts or credit cards and used to make purchases online and in stores, or to send money to others.
While many cards and mobile wallets already offer protections, the level has varied, according to Consumers Union, the public advocacy arm of Consumer Reports that had been lobbying for changes for more than a decade.
“Millions of Americans rely on prepaid cards every day to pay their bills and manage their finances,” Consumers Union attorney Christina Tetreault said. “But not all prepaid cards are created equal, and consumers have lacked the legal safeguards they deserve to protect their money. Now consumers will be able to compare cards more easily to find the most affordable option and have the peace of mind that their money will be safe if their card is lost or stolen.”
By 2018, the total dollar value loaded to cards is expected to reach $121 billion, according to the Consumer Financial Protection Bureau. In 2003, it was less than $1 billion.
The cards haven’t been easy for everyone to use.
Last year, I wrote about a Lower Saucon Township, Pennsylvania, man who agreed to accept his tax refund on a prepaid card and then worried he’d exposed himself to being charged fees to access his money.
I looked into it and determined he wouldn’t have to pay fees, but his card didn’t do a good job of explaining that. The term booklet that came with the card didn’t explain all of the ways it could be used at no cost. Additional information was available only online.
The new rule is designed to resolve those problems.
Access to terms has been limited in the past because disclosures often are inside the packaging for cards bought at stores, or may be hard to find on websites, the Consumer Financial Protection Bureau said. The new rule will require commonly charged fees to be disclosed on the outside of packages and more detailed information to be published online.
Prepaid account holders typically don’t get mailed statements as they would with a checking account. The rule requires financial institutions to provide account information such as balances and transaction history for free by phone, online or in writing if requested. Some already provide that information.
Financial institutions must investigate complaints from account holders about fraudulent charges or errors, just as a bank would. If the investigation would take time, customers must be offered provisional credit for the disputed amount.
People who lose a prepaid card or find unauthorized charges will be liable for only up to $50 if they report the problem promptly. Many prepaid services already protect their customers against all losses, such as one I experienced a few years ago when my PayPal account was hacked.
“These important new protections fill gaps in the law for consumers,” Cordray said. “The rapidly growing ranks of prepaid users deserve a safe place to store their money and a practical way to carry out their financial transactions.”
If a prepaid card or service allows people to exceed their deposited balance and buy on credit, the new rule requires the service to ensure the customer has the ability to repay before issuing a credit line. During the first year a credit account is open, total fees for credit features cannot exceed 25 percent of the credit limit.
Most provisions of the rule take effect Oct. 1, 2017.