On March 1, the Consumer Financial Protection Bureau (CFPB) issued an issue spotlight highlighting concerns about prepaid card programs for accessing public assistance benefits. In particular, the spotlight notes “specific recurring issues” related to cash assistance benefits including Social Security, Temporary Assistance for Needy Families (TANF), and unemployment benefits that are provided on prepaid cards. The spotlight focuses on two areas that it claims limit recipients’ access to funds: fees and inadequate customer service. This spotlight follows on the heels of the CFPB’s submission of an amicus brief to the Fourth Circuit on a similar issue, discussed here.

According to the CFPB, in 2020, prepaid card issuers administering public assistance benefits collected around $1.3 billion in fees. These include maintenance, balance inquiry, customer service, and ATM fees. The CFPB found that fees varied between state programs, even when the card issuer was the same. The CFPB finds these fees particularly troubling because even low-dollar fees can pose “outsized harm” to those who rely on public assistance benefits.

The CFPB also highlighted concerns that consumers have with customer service for benefit cards, including “inadequate protections against unauthorized transfers, high costs to replace a card, and insufficient or hypersensitive fraud filters that cause delays and account freezing.” The CFPB observed that if issues such as unauthorized charges are not resolved in a timely manner, recipients may wait weeks or months for access to their funds. The CFPB noted that “the often-acute needs of the populations who receive and rely on cash assistance” make it “critical that beneficiaries have full and timely access to these funds.”

Even with these two highlighted issues, the CFPB acknowledged the merit of prepaid benefit card programs. As the spotlight notes, card programs have advantages over other types of fund transfers, including that prepaid cards are more cost-effective for administrators than printing paper checks and recipients often have faster access compared to check-cashing.

Going forward, the CFPB stressed that it intends to monitor public-benefit prepaid card programs and take action when appropriate to protect consumers. The CFPB also indicated that it plans to collaborate with federal and state agencies that administer public benefits programs in an effort to increase competition and efficiency in the delivery of benefits.

Why it matters: Vendors offering benefit card programs should be conscious of their fees, customer service effectiveness, and the security of the funds accessible through their cards. We expect the CFPB to continue to pay attention to issues affecting recipients of public benefits through prepaid cards.

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Photo of Mark Furletti Mark Furletti

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.

Photo of Keith J. Barnett Keith J. Barnett

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts…

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts, state courts, and before arbitration and administrative law panels in the financial services industry.

Photo of Taylor Gess Taylor Gess

Taylor focuses her practice on providing regulatory advice on matters related to federal and state consumer protection, consumer finance, and payments laws, including those that apply to payment cards, lines of credit, installment loans, electronic payments, online banking, buy-now-pay-later transactions, retail installment contracts…

Taylor focuses her practice on providing regulatory advice on matters related to federal and state consumer protection, consumer finance, and payments laws, including those that apply to payment cards, lines of credit, installment loans, electronic payments, online banking, buy-now-pay-later transactions, retail installment contracts, rental-purchase transactions, and small business loans.

Photo of Carlin McCrory Carlin McCrory

A seasoned regulatory and compliance attorney, Carlin brings extensive experience representing financial institutions, fintechs, lenders, payment processors, neobanks, virtual currency companies, and mortgage servicers.

Photo of Melanie Griffith Melanie Griffith

Melanie is an associate in the firm’s Consumer Financial Services Practice Group. Prior to joining the firm, she clerked for Chief Justice Lorie S. Gildea on the Minnesota Supreme Court and was a civil division law clerk in the Minneapolis City Attorney’s Office.

Melanie is an associate in the firm’s Consumer Financial Services Practice Group. Prior to joining the firm, she clerked for Chief Justice Lorie S. Gildea on the Minnesota Supreme Court and was a civil division law clerk in the Minneapolis City Attorney’s Office. She gained industry experience working at a credit union and a community bank before attending law school.