Last week, a coalition of 26 consumer groups, civil rights advocates, and community organizations submitted comments to the CFPB urging it to issue regulations banning overdraft fees and short-term, small-dollar loan features on prepaid cards. Among those groups submitting comments were the National Consumer Law Center, the Consumer Federation of America, and the Center for Responsible Lending.
We previously wrote here and here about the CFPB’s advance notice of proposed rulemaking that, among other things, suggests that the CFPB is contemplating extending Regulation E to prepaid cards. The notice also implies that the CFPB is considering possibly banning or otherwise restricting the ability of prepaid card issuers to offer certain products in connection with their products, as well as impose additional requirements on fee disclosures, marketing, and account access policies.
In their comments, the consumer groups assert that prepaid cards with overdraft and short-term, small-dollar loan features are inherently deceptive.” These groups further assert that if these features are not banned, “interest caps across the country will be wiped out.” They also urge the CFPB to extend fraud and loss protections to all prepaid cards, give consumers free access to their balance and account information, require FDIC insurance, improve fee disclosures, and require card providers to give consumers the option to have direct deposit to their card accounts.
In our view, the comments go too far. Adopting all of the positions advocated by these consumer groups is likely to reduce the supply of these products because the costs may end up outweighing the benefits. If so, consumers are likely to have significantly reduced access to various non-traditional financial products that all signs indicate consumers both want and need.
The consumer groups want prepaid card issuers to act like banks, but would deny them the tools that banks use and need in order to have the revenue necessary to service customer accounts and provide various customer services while remaining profitable, i.e. the ability to charge fees and make loans. Moreover, these groups assume that short-term, small-dollar loans are inherently bad and should not be available in the marketplace. But these types of loans are a valuable and necessary tool for some consumers in meeting their financial obligations. The CFPB must remain cognizant that, in some instances, consumers need and want such products and therefore, a balance needs to be struck that will permit the issuers of such financial products to continue to make those products available to consumers.