The Color of Money: Don't let Congress block consumer protections for prepaid card users

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WASHINGTON — If you use a prepaid card — and millions of you do — take heed because there’s an effort in Congress to block new rules that would give you the kind of federal protections afforded to debit and credit card users.

General-purpose prepaid cards increasingly are being used to make purchases, pay bills and get cash at ATMs. Government agencies and employers use the cards to direct deposit benefits or paychecks.

So the Consumer Financial Protection Bureau issued a set of comprehensive rules to guarantee that prepaid cards come with a simple fee chart or give cardholders basic fraud protection.

Here are some specifics of the rules that, if not overturned, will go into effect in October:

• Unauthorized charges are limited to just $50.

• Financial institutions must investigate unauthorized or fraudulent charges. If fraud is found, the cardholder’s funds must be restored.

• Cardholders get free and easy access to account information. Unless financial institutions send customers a periodic statement, they can’t charge for access to account information by telephone, online or in writing.

• Fee information has to be upfront and clearer. Prepaid cards can come with numerous fees including for reloading the card with cash, making purchases, checking a balance, withdrawing money from an ATM — or even for not using it enough.

• Companies must make sure that people can afford credit linked to the prepaid card. Consumers also get at least 21 days to repay the credit debt before they are charged a late fee.

Here’s why the new rules really matter and why you need to tell your Congress member to stop this nonsense about lifting all these regulations.

Prepaid cards have become the go-to financial product for people who don’t have a banking relationship. About half of households that used the cards in 2015 were either unbanked or underbanked, according to the Federal Deposit Insurance Corp.

The National Consumer Law Center says unbanked prepaid cardholders are more likely to be female, disabled, young, unemployed or black and less likely to have a college or postgraduate degree.

Half of unbanked prepaid cardholders have household incomes under $25,000 a year, according to a report by the Pew Charitable Trust.

“Consumers — especially the unbanked — use the cards to help control spending, stay out of debt and avoid overdraft fees,” Pew said. “Ensuring the safety and transparency of these financial products is critical to the health of this fast-growing market and to the financial well-being of its customers.”

If people are using prepaid cards much like a credit or debit card, why shouldn’t they have similar protections?

Apparently Republicans in Congress don’t think prepaid cards deserve the same protections and are trying to impede the CFPB’s implementation of the new rules by steamrolling legislation.

Here’s one complaint that I just find ridiculous. Some critics argue that the fee disclosures are too upfront and may force people to pay more attention to what they are being charged. And if this happens, people may opt not to use prepaid cards in a way that will cost them more money.

On this issue, it comes down to this: Opponents of the new rules object to helping people who can least afford a whole bunch of fees so that card companies can make more money off them. It’s an example of putting business interests first and the interests of the nation’s most financially vulnerable consumers last.

There always have been businesses profiting off products sold to folks living on the edge.

Payday lenders like to argue that they provide a much-needed service to cash-strapped people who need just a little bit of money to make it to their next payday. But far too many of their customers end up in a bad cycle of using one payday loan to pay off another.

It took me the longest time to get my disabled brother to stop going to liquor stores to cash his paychecks. The fee to cash each check didn’t seem like much to him. But he needed every dollar he made when he could work.

I finally persuaded him to open a regular checking account and have his pay direct-deposited.

Critics argue that the Consumer Financial Protection Bureau’s new rules are another example of government overregulating. They’re not.

Prepaid cards can be a good alternative for folks who are living on so little that they are scared to bank at a financial institution and incur overdraft charges. Used properly, the cards can help people manage their money.

But when there is a business model that profits off financially struggling people, the government should step in and provide consumer protections.

l Write to Michelle Singletary c/o Washington Post, 1301 K St. N.W., Washington, D.C., 20071; michelle.singletary@washpost.com; @SingletaryM.

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