We told you here and here about the Consumer Financial Protection Bureau's inquiry into regulating the largely unregulated prepaid card industry. In late May, the agency issued an advance notice of proposed rulemaking (ANPRM) posing 10 questions on which it sought the public's input before it moves forward with proposed rules. The agency has also posted some basic information on prepaid cards.
Now, a coalition of 26 consumer groups, civil rights advocates, and community organizations have submitted comments to the CFPB urging a ban on overdraft fees and payday loans on prepaid cards. You can read the joint comments of the National Consumer Law Center, the Consumer Federation of America, and the Center for Responsible Lending here. Comments from the entire coalition appear here. To get a flavor of the groups' position read their press release. Here's an excerpt:
Consumer advocates, civil rights groups, and community organizations across the country urged the Consumer Financial Protection Bureau to ban overdraft fees and payday loans on prepaid cards in numerous comments filed with the Bureau yesterday. “Prepaid cards with overdraft fees and payday loan features are inherently deceptive,” says Lauren Saunders, managing attorney of the National Consumer Law Center. “People turn to prepaid cards when they have had trouble with overdraft fees on bank accounts or want controls on their spending, and they do not need to be lured into another dangerous cycle of debt.” * * * “Payday lenders are already using prepaid cards to circumvent state laws that protect people from loans with dangerous triple-digit interest rates,” said Jean Ann Fox, director of financial services at Consumer Federation of America. “The CFPB needs to put a stop to prepaid card payday loans or interest rate caps across the country will be wiped out.” Though prepaid cards claim to be “prepaid,” some permit purchases that exceed the balance or are used to deliver costly loans. The lender then typically takes the loan and fees out of the next deposit of wages or benefits, leaving a hole that the consumer needs to fill with another loan or overdraft.