The Next Fed Oversight Frontier: Prepaid Cards and Mobile Pay

The Next Fed Oversight Frontier: Prepaid Cards and Mobile Pay

After years of flying under the radar, prepaid accounts are about to come under closer government scrutiny.

Just this week, the Consumer Financial Protection Bureau announced its plans to expand many of the protections that apply to traditional bank products to prepaid cards and mobile payment systems as well.

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Prepaid products that fall under the proposed regulations run the gamut, from use-anywhere cards to ones companies use to pay their employees. The rules will also apply to mobile accounts through services like PayPal and Google Wallet.

In the last few years, the use of prepaid products has exploded: This year, consumers are expected to load nearly $100 billion onto prepaid cards, compared to $19.5 billion six years ago. Some of the most frequent users of prepaid products include those who don’t belong to traditional banks, who use those cards to make online purchases and pay bills electronically.

But as the prepaid industry has attracted growing numbers of consumers, it has also provoked criticism, mostly for charging high fees and having unclear terms. The CFPB's new regulations take aim at some of these issues, for example, by requiring card issuers to give consumers information about different types of fees before they actually buy the product.

The regulations are also designed to make it harder for consumers to borrow money from card issuers. If lenders decide to offer credit through a prepaid card, they must take into account the consumer’s ability to pay back the loan. Other new rules include limiting losses if prepaid cards are stolen and giving consumers free access to periodic statements.

The public has 90 days to comment on the CFPB proposal before it actually takes effect. Curious to know more before you voice your opinion? Learn about the history of prepaid card fees here.

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