CFPB To Regulate Prepaid Cards

New debit-card regulations from the Consumer Financial Protection Bureau won’t just cover reloadable plastic cards, but also payment services like PayPal, Venmo, Square Cash and Google Wallet, according to Bloomberg Businessweek.

The proposal was outlined in a speech by CFPB Director Richard Cordray on Thursday (Nov. 13).

The new rules are largely designed to tighten up on prepaid cards with so-called “overdraft” protection, in which card issuers essentially loan cardholders money — with hefty fees — if they spend more than the card’s balance. Those cards would now have to offer consumers the same protections as credit cards and checking accounts under truth-in-lending laws. But only 7 of the 325 card products reviewed by the CFPB offered overdraft protection, and several of the overdraft cards are from a single issuer: NetSpend, which is owned by payments processor TSYS.

In addition, under the new rules, prepaid account issuers would be required to investigate and quickly resolve errors, and there would be a $50 cap on fraud losses, as long as a customer reported them in a timely fashion. The regulations would also require prepaid card issuers to either issue regular account statements to customers or make account information easily accessible online for free.

Card issuers, who are expected to lobby hard against the new rules, had reportedly hoped the CFPB would stick to clearer disclosures. Those are part of the new rules too: Prepaid-card packaging will have to spell out certain terms clearly so a customer can read them before buying the card, and two sets of disclosures — one short with key cost and fee information, the other longer and covering all fees and terms — will have to be made available to consumers. Prepaid card issuers will also have to post their account agreements on their own websites and on a CFPB website.

Despite the added layer of regulation, the new rules are likely to be less of a problem for online and mobile payments startups than for banks offering traditional plastic prepaid cards, because the startups will have little difficulty posting the required disclosures online or in mobile apps. Prepaid plastic card issuers will have to figure out how to add many of the disclosures to the outside of their products’ packages.