Consumer groups are praising the new rules on prepaid credit cards just released by the feds. The regulation, issued by the Consumer Financial Protection Bureau, goes into effect next fall and will make prepaid card issuers follow many of the same rules that apply to credit cards. Graciela Aponte-Diaz, with the Center for Responsible Lending, says prepaid cards often are used by low-income families who may not have a bank account. But the cards can come with hidden fees, something that will change with the new “know as you go” provision.
The new rules would force card issuers to underwrite a consumer’s ability to repay a loan on their prepaid card and would impose limits on companies’ rules for repayment, in an effort to make the process more fair.
But Aponte-Diaz thinks the rule doesn’t go quite far enough – and says she would have liked to see the rule ban overdraft fees entirely if people spend more than the face value of the card.
The rules also say that when errors are found, the card issuer will be required to open an investigation and give consumers a replacement card, instead of freezing their funds.