'Know Before You Owe' Prepaid Card User Protections At Risk From New Senate Bill

The pro-company Trump administration and Republicans are moving full throttle to unfetter companies, held back by myriad rules and regulations. In one such move, Republican Sen. David Perdue introduced a resolution on February 1 to provide for Congressional disapproval for the rule submitted by the Bureau of Consumer Financial Protection, or CFPB, relating to prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act.

Soon after, Republican congressman Tom Graves introduced a resolution in the House Financial Services Committee to that effect.

What Is The Rule All About?

The CFPB announced in October 2016 that it has finalized a new rule to protect pre-paid account users, with the new rule incorporating features to limit the losses of consumers on theft/loss of cards, investigate and resolve errors and give consumers free and easy access to account information.

The bureau also finalized "Know Before You Owe" disclosures to give upfront information on fees and other key details. Additionally, the rule also required prepaid companies be offered protection on overdrafts just like credit card companies.

Specifically, the rule seeks to limit consumers' liability for unauthorized charges to $50 and create a timely way for customers to get their money back. The companies are to allow at least 21 days for debt repayment before charging a late fee.

Netspend, which offers these prepaid cards and is a subsidiary of Total System Services, Inc. TSS, charges customers a fee of $15 for overdrafts, with this facility capped at three transactions a month.

A Wall Street report, quoting Isaac Boltansky, director of policy research at Compass Point Research & Trading, said the resolution has a 65 percent chance of being approved, given the Republican-controlled Congress.

Netspend's Windfall

It is believed that Netspend would benefit the most, as it is the only major prepaid card company allowing overdraft facility. Perdue, who introduced the resolution in the Senate Banking Committee, represents Georgia — the home state of Netspend's parent Total System Services.

In its September quarter conference call, Total System Services revealed a $80 million to $85 million hit annually because of the proposed CFPB rule. Overdraft revenue accounted for 10–12 percent of Netspend's revenues in 2016.

Opposition From Consumer Advocacy Groups

There has been a hue and cry over the blocking of the rule, with the opposition to the resolution premised on low-income customers getting hit. People belonging to this income group normally lack banking relations and load their pay on the cards, which is being used for day-to-day expenditure. Thus, this vulnerable section is likely to be the worst hit.

With the likelihood of the resolution being passed, one more shackle restraining companies from piling up egregious profits could be removed. However, it does come at the expense of the common man, who will be left as vulnerable as before. The ethics involved in the Republican move here is surely in question.