Recently, the Consumers Union, Center for Public Policy Priorities, Center for Responsible Lending, Coalition of Religious Communities, National Consumer Law Center, SC Appleseed Legal Justice Center and U.S. PIRG called on the CFPB to extend various protections afforded to debit cards under the Electronic Fund Transfer Act and Regulation E to reloadable prepaid cards. The necessity of new regulation is questionable, since Reg E protections are already provided voluntarily by most issuers of prepaid cards, at least where the cards permit loads of wages or government benefits.
Worse, the consumer groups are not content with extending existing Reg E protections to prepaid cards. In addition, they are proposing that the period for consumers to complain about transactions on their statements should run from when the consumer actually accesses the statement rather than when the statement becomes available. This encourages consumer negligence and penalizes issuers by exposing them to potential liability for an indefinite period. It is precisely the kind of regulatory overkill that results in higher product costs and reduced availability.
The consumer groups have also expressed (or reiterated) the view that “overdraft fees should be completely eliminated from prepaid cards and the credit should not be tied to a deposit account ….” Thus, these groups seek to preclude any overdraft fees, thereby foreclosing the consumer’s option to affirmatively request overdraft protection after receiving disclosures carefully designed by the Federal Reserve Board. Seemingly, the consumer groups are assuming that credit or overdraft services relating to prepaid cards or deposit accounts are inherently unfair or abusive. However, assumptions of this type are insufficient; this kind of paternalistic regulation could only be justified by a showing that informed consumers are for some reason incapable of knowing what is in their best interests.
As the consumer groups recognize, consumers like prepaid cards and like overdraft protection. The groups in question are therefore at odds with their supposed constituents.