Increasingly, un-banked and under-banked consumers use a prepaid debit card to make payments and receive deposits. This is an important financial service that can capture the scores of low-wealth households that are closing their bank accounts because of high fees and high minimum balance requirements.
Reinvestment Partners believes that if properly regulated, prepaid cards can help previously unbanked or underbanked households to access the formal payments system. In our paper 8 Principles for the Reform of the Prepaid Debit Card, we outlined ways that regulators should approach this new product.
Reinvestment Partners applauds the Consumer Financial Protection Bureau (CFPB) for issuing a strong final rule on prepaid cards.
In 2012, Reinvestment Partners hosted the CFPB’s field hearing that kicked off the rulemaking process. The outcome is consistent with Reinvestment Partners’ comment on the proposed rule. Many of the elements of the rule match our recommendations for regulation of this product, as outlined in our 2014 paper 8 Principles for the Reform of the Prepaid Debit Card.
For more, please see Adam Rust’s testimony to the CFPB on May 23rd, 2012, where he outlined the 8 Principles.
8 Principles for the Reform of the Prepaid Card establishes the following guidelines for general purpose reloadable (GPR) cards:
- Credit products associated with a prepaid card should be CARD Act compliant.
- Card fees provide a value that is proportional to their costs.
- Should provide the same range of payment and account services as offered by a traditional checking account.
- Card accounts should offer access to a surcharge-free ATM network.
- The cards should carry consumer protections that are equivalent to those provided for checking accounts.
- Disclosures should be clear and comprehensive, and a common form should me made standard for all cards.
- Accounts should help the previously banked or the never-banked to gain access to other financial services
- The cards should be more than merely transactional, but should also encourage cardholders to build assets.