Prepaid Cards to Add Regulations Next Year

Among the retailer-specific gift cards that are now a common fixture of many grocery and department stores you’ve probably also encountered prepaid cards branded with logos from Visa, Mastercard, and others. Although they are often referred to as prepaid credit cards these actually function more like debit cards where funds are preloaded and each purchase deducts from the balance. As a result these prepaid cards offer none of the perks of regular credit cards — such as protection against unauthorized purchases — while still charging fees for activations, overdrafts, and more. However that is now set to change in 2017.

As CNN Money reports, starting October 1st of next year, these prepaid cards will be subject to enhanced regulations intended to benefit consumers. This comes as use of prepaid cards has soared, with funds loaded to cards climbing from $65 billion in 2012 to an expected $112 billion in 2018. That’s because prepaid cards have proven popular with those who don’t maintain a formal bank account or can’t qualify for a credit card. It’s likely that the general shift away from cash in the country has driven adoption of prepaid cards as well.

Under the new regulations prepaid cards would be required to announce their various fees in a clearer manner. This would include a short form summary of fees on the card’s packaging as well as a longer form cardholder agreement which, in most cases, will probably be posted on a card issuer’s website. Cardholders must also receive regular balance updates and access to other financial information. Another big change is that cardholders’ liability for unauthorized purchases will be limited to $50 provided that they contact their card issuer within two days to alert them that their card had been lost or stolen. Previously no such limits applied.

Lauren Saunders who helped fight for the new regulations as the associate director of the National Consumer Law Center told the Los Angeles Times, “The rules bring prepaid cards out of the shadows, with protections that in many ways are stronger than those for traditional bank accounts.” In fact Saunders says she would like to see similar rules and regulations extended to bank accounts in the future. On the other hand the president of the Network Branded Prepaid Card Association Brad Fauss argues that that regulators, “moved forward with a rule that will harm the very consumers it aims to protect.” He also says the definition of prepaid in this case is too vague and that the October 1st, 2017 deadline doesn’t leave card issuers enough time to comply. 

Regardless of Fasuss’ concerns the new rules are set to take effect in just under a year’s time. With that in mind it’s possible that the changes will hinder cards from reaching that $112 billion estimate after all. Meanwhile this could be the start of even more regulation that will put caps on overdraft fees and other charges from major banks, which would amount to nothing short of a sea change in the banking industry. Stay tuned. 


Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded in 2015 to focus on personal finance and the emerging FinTech markets.

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