Many Americans take for granted using their debit card to shop online or getting paid by direct deposit. They can check their bank account balances, call customer service and withdraw cash at ATM or tellers for free. Federal law protects them if their debit card is lost or stolen or if a data breach leads to unauthorized charges.
But 33.5 million American households — 114,000 in Maine — are unbanked or underbanked. They may have lost their bank accounts because of trouble with overdrafts. And they are blacklisted from opening a new one. The risk of costly overdraft fees may be too great. Or banks may be sparse in the lower income or rural areas where they live.
Prepaid cards have opened up access to the banking system for these underserved communities. Prepaid cards look and work just like a debit card, often with a Visa, MasterCard or American Express logo. Importantly, they do not require a credit check, and they are designed not to overdraft.
Employees at companies from Hannaford to Wal-Mart receive their wages on payroll cards (a form of prepaid card) or get direct deposits to their own prepaid cards. Families use prepaid cards for their teenagers and college students.
Unfortunately, many prepaid cards do not have the same legal protection against fraud, unauthorized charges and errors that bank accounts and debit cards have.
Prepaid and payroll cards also may have fees that bank accounts do not, including balance inquiry, customer service, denied transaction, ATM and teller fees. A few “prepaid” cards even have overdraft fees. Some employers have coerced workers into using payroll cards.
The Consumer Financial Protection Bureau — the federal consumer watchdog set up after the 2007-2008 financial crisis — has spent years working on a regulation to protect consumers who use prepaid cards. The regulation, about to go into effect, gives prepaid cards the same fraud protections as debit cards; provides a simple, uniform chart of fees; and allows people to check their account balances and transaction history for free. Employers will have to provide workers clear payroll card fee information and advise them that they do not have to use a payroll card. The rule caps overdraft fees, requires them to be affordable, and gives consumers a 30-day waiting period before overdraft features are added.
The prepaid card rule is a welcome change for the nearly 60,000 Maine households — or close to 10 percent of Maine households — who used prepaid cards in 2015.
The rule also will benefit banks, credit unions and employers that offer low-fee prepaid and payroll cards or see their branches clogged on payday with workers trying to cash other companies’ payroll cards — with tellers caught in the middle explaining fees they have no control over.
Yet, this common-sense regulation is under attack in Congress, which will soon vote under an obscure fast-track law, the Congressional Review Act, on whether to block the prepaid card rule. The move is pushed by the prepaid card company NetSpend, which stands to lose up to $85 million each year in overdraft and other fees under the rule. NetSpend — which recently settled Federal Trade Commission charges — mostly provides its cards through payday lenders, check cashers and low-wage employers, such as fast food stores and retail chains. While 98 percent of prepaid cards really are “prepaid,” NetSpend charges $15 overdraft fees on its general use cards and $25 on its Skylight payroll cards to those who opt in to so-called “overdraft protection.” So, it’s no surprise that the company spent $1.2 million lobbying Congress just last year.
U.S. Sens. Susan Collins and Angus King will be key to making sure NetSpend does not get its way. The odds may be stacked against Maine’s families, workers, students and law-abiding banks, credit unions and employers. So far, Congress has overturned 12 regulations that have been challenged under the Congressional Review Act.
Blocking fraud and fee transparency protections would hurt both prepaid card users and the prepaid card industry. The largest prepaid card company, Green Dot — which sells its cards at Wal-Mart and other stores — supports the rule. Its CEO explained: “a football game without rules and referees isn’t a sport; it’s a brawl. Like sports, to be successful, industry also needs rules and referees to ensure fairness, integrity and safety for all participants.”
I hope Maine’s congressional delegation agrees.
Tom Cox is of-counsel at the National Consumer Law Center, where he specializes on foreclosure and mortgage issues. He lives in Yarmouth.