A multistate coalition of attorneys general led by District of Columbia Attorney General Karl A. Racine is opposing three resolutions before Congress (S.J. Res. 19, H.J. Res. 62, and H.J. Res. 73) that would block a Consumer Financial Protection Bureau final rule intended to give users of prepaid cards some of the same protections given to users of traditional banking and credit products (the “Final Rule”). The Final Rule is currently scheduled to go into effect on April 1, 2018. On April 5, 2017, the coalition sent a letter to congressional leadership, urging opposition to resolutions that would block implementation of the rule.
The letter states that prepaid cards are a rapidly growing market and often used by consumers who have limited or no access to a traditional bank account. It is becoming more common for consumers to receive wages or financial aid funds for student loans on prepaid cards. In fact, since 2015, more consumers have been receiving their wages by prepaid cards than by conventional paper checks. Consumers frequently report concerns to the CFPB about hidden or abusive fees associated with the prepaid cards and fraudulent transactions that deplete funds loaded onto them. Although prepaid cards are generally designed to avoid overdraft fees, some of the payday lenders who provide funds through these cards have been subjecting consumers to poorly disclosed or undisclosed overdraft fees.
The CFPB’s Final Rule provides certain protections that are afforded to consumers for traditional financial products. Among the provisions intended to protect consumers, the Final Rule seeks to:
- Protect prepaid card users against fraud and unauthorized charges;
- Help consumers avoid hidden fees and encourage them to comparison shop with a simple chart of common fees;
- Provide convenient, free access to account transactions and account balances;
- Require employers to inform employees they do not have to receive wages on a prepaid card; and
- Require prepaid cards to comply with existing credit card laws (including an ability-to-pay analysis, limits on overdraft fees in the first year, and safeguards on how funds are repaid).
The resolutions to stop implementation of the CFPB’s Final Rule have been filed under the Congressional Review Act (“CRA”), meaning that if the rule is blocked by a CRA vote, the CFPB is forever barred from enacting a substantially similar rule unless Congress authorizes it. Congress has recently revived the CRA as a way to block consumer protections put in place during the Obama administration.
In addition to the District of Columbia, the states signing on to the letter include California, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington.