Prepaid debit cards have been called the Wild West because of their rapid growth, uncontrollable fees and little regulation.
That soon may change — or at least the regulation part.
The Consumer Financial Protection Bureau is taking its first step toward adding customer protections on the cards by requesting public input on how to make fees and terms transparent while also ensuring that consumers' money is safe on the plastic.
So-called general purpose reloadable cards have been rapidly growing, and much of that comes from consumers using prepaid cards as an alternative to a traditional checking account, the CFPB says.
According to Richard Cordray, the head of the CFPB:
"All these consumers need, and deserve, products that are safe and whose costs and risks are clear upfront. Yet right now prepaid cards have far fewer regulatory protections than bank accounts or debit cards or credit cards. And that is especially troubling because the people who use prepaid cards are, in many instances, the most vulnerable among us. Every dollar they pay in hidden fees is a dollar they cannot spend on supporting their families. These consumers are least able to take a hit if their prepaid card is lost or stolen, and yet they often have no guaranteed protection against this kind of a disaster."
Among the areas that the CFPB is looking into:
-- Disclosure of fees and terms. This information, the CFPB says, is often inside the card’s packaging so consumers aren’t aware of the fees, terms or if their card is FDIC insured until after they purchase it.
-- How to protect against unauthorized transactions. There’s a limit on how much a credit or debit cardholder ends up owing if a card is used without their permission. Prepaid card issuers voluntarily extend similar protections, but should they be required to do so?
-- Prepaid card features such as overdrafts and small lines of credit.
Consumers have 60 days to add their 2 cents to the prepaid discussion.
Also, the CFPB has a new online tool that answers 80 questions about prepaid cards.