Prepaid cards are the latest focus of the Consumer Financial Protection Bureau.
At a field hearing today in Raleigh, N.C., CFPB Director Richard Cordray and staff will hear testimony from consumer and civil rights groups, industry representatives and members of the public. The Bureau was also expected to announce a preliminary rule for prepaid products.
The use of prepaid cards is on the rise, while checking accounts and debit cards are trending downward, according to TheStreet.com. According to Javelin Research, 13% of Americans used prepaid cards in 2011, cup from 11% in 2010.
Retail banks have found prepaid cards a way to serve the “unbanked,” such as immigrants or young adults without a bank account.
CFPB-regulated banks such as Wells Fargo and JPMorgan Chase offer prepaid cards, one of which comes with a monthly fee of $4.95. The new rules likely won’t impact the fees that banks and other providers can charge for prepaid cards, but they may require issuing banks to reimburse consumers for unauthorized charges.
In a statement, Cordray said that prepaid cards offer fewer regulatory protections than traditional bank accounts.
In a November 2011 focus group study conducted by Pew Health Group, consumers cited many benefits of prepaid cards, including:
- Helps limit spending because only set amount of money is available.
- Money is easy to track and manage.
- No overdraft charges.
- More anonymous than using a credit card.
“The desire to avoid incurring hidden bank fees is a factor in the adoption of prepaid cards,” according to Pew Health Group. In fact, many focus group participants had checking accounts.