Consumer Financial Protection Bureau Hearing on Prepaid Cards in Durham Tomorrow

May 22, 2012 at 3:30 pm

The Consumer Financial Protection Bureau (CFPB) is holding a hearing on prepaid cards in Durham tomorrow, May 23, at noon in the Junior Ballroom of the Durham Convention Center. The event is open to the public, but you must RSVP by sending your full name and organizational affiliation to cfbp.events@cfpb.gov.

The issue of prepaid cards is an important one for low- and moderate-income individuals and families, as their use and prevalence has increased in the past few years. If you watch TV you’ve probably seen the commercials for Kimora Lee Simmons‘ prepaid RushCard, or you may have heard about the Kardashians’ dabble in prepaid cards a few years ago (the card was eventually discontinued) .

As we’ve blogged before, banks are getting rid of their free checking accounts and the increased fees are prompting many to close their accounts. Reinvestment Partners published a report on prepaid cards, which showed that from 2010 to 2011, households with checking accounts or debit cards decreased 4 percent and 12 percent respectively, while the use of prepaid cards increased 2 percent. While these are designed to serve low- and moderate-income, un- or under-banked individuals, they are often more expensive than checking accounts, even thought they cost less, and have fewer protections.

Reinvestment Partners. “8 Principles for the Reform of The Prepaid Debit Cards.” page 10.

The report details eight principles for reforming prepaid cards, which address the issues of affordability, access, and consumer protections:

  1. Prepaid cards do not come with either a line of credit or an overdraft capability.
  2. Costs less than regular checking. Fees provide value proportional to their costs.
  3. Full functionality equivalent to services of a traditional checking account.
  4. Offers widespread access to surcharge-free ATMs.
  5. Offers a suite of consumer protections that are equivalent to those provided for checking accounts.
  6. Comes with a standardized set of transparent and simple disclosures.
  7. Help the previously banked or the never-banked to gain access to other financial services
  8. Provide a means for a consumer to rebuild their credit.

Prepaid cards should be held to the same standards and scrutiny as bank accounts. With these reforms, prepaid cards could provide an affordable alternative to traditional checking accounts.

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