The Consumer Financial Protection Bureau (CFPB) highlighted prepaid cards in its most recent Monthly Complaint Report. Prepaid card complaints make up only a small percentage of the complaints handled by the CFPB historically; however, they recently have been on the rise. Of the 4,100 prepaid complaints handled by the CFPB since 2011, 35 percent have been filed since October 2015.
Highlighting prepaid card complaints is timely, not only because of the proliferation of complaints, but also because the CFPB is expected to issue final rules on prepaid cards in the coming months. CFPB Director Richard Cordray mentioned in prepared remarks to the Consumer Bankers Association on March 9, 2016, that “[s]oon we will be finalizing a rule to provide basic consumer protections for prepaid accounts for the first time ever, which many consumers would be surprised to learn they lack currently.” The final rules will make federal consumer protection laws applicable to prepaid products, including traditional plastic cards and emerging mobile and electronic prepaid accounts.
Over 80 percent of prepaid complaints lodged with the CFPB fall into one of three categories: managing, opening or closing an account; unauthorized transactions; and fraud. The CFPB focused on six common complaints relating to prepaid products: (1) inability to access funds loaded on prepaid cards for an extended period of time, resulting in financial hardship; (2) expired prepaid cards where the company declined to re-issue cards with the remaining balance; (3) fees, including monthly, inactivity, transaction, balance inquiry, PIN change, and overdraft; (4) unauthorized withdrawal of funds soon after card activation; (5) freezing the entire balance on a card pending resolution of consumer disputes; and (6) use of prepaid cards in scams to transfer money. The complaints reflect the varied purposes for which prepaid cards are used, including making payments, storing funds, and sending money. As the prepaid industry continues to grow – the CFPB previously noted its growth from a $1 billion industry in 2003 to a nearly $100 billion industry in 2014 – we can expect to see more complaints along the lines of those focused on by the CFPB, as well as yet-undreamt issues.
Do the complaints upon which the CFPB trained its sights presage the impending final rules on prepaid cards? Under the proposed rules, if a prepaid consumer registers her card, the financial institution would be required to provide periodic statements or online account access, investigate and resolve errors in a timely manner, and protect against unauthorized, erroneous, or fraudulent withdrawals or purchases. The proposed rules also include “Know Before You Owe” disclosures that would provide consumers with information about their prepaid card, such as applicable fees. On their face, these complaints fall within the purview of the protections outlined by the CFPB in its proposed rules on prepaid cards. But we will have to wait a little while longer to know if the trends in complaints seen by the CFPB will shape the final rules. What we do know is that prepaid cards have been at the forefront of the CFPB’s agenda, which could mean a spate of regulatory action once the final rules are released.