CFPB Delays Prepaid Card Rule Until April 2019

The CFPB is delaying implementation of a rule designed to protect consumers from prepaid cards that have few consumer protections and high fees.

Many consumers who can't get a credit card—or who can only qualify for a credit card with a high interest rate—turn to prepaid cards to make purchases and pay for services. But prepaid cards come with some significant downsides. These cards tend to have high fees, and most cards don't protect you if you lose the card or if you need to dispute an item or service you bought with it.

In 2016, the Consumer Financial Protection Bureau (CFPB) finalized its Prepaid Card Rule, which requires certain upfront disclosures for prepaid cards, limits the harm from lost or stolen prepaid cards, and generally makes prepaid cards a safer product for consumers. The rule was scheduled to go into effect in 2017, but the CFPB postponed it until April 2018. Then, on January 25, 2018, the CFPB announced it was delaying the rule's effective date yet again—until April 1, 2019.

What's a Prepaid Card?

A prepaid card is an alternative to using cash or a credit card.

How prepaid cards work. A consumer loads funds to a prepaid card with direct deposit, checks, or cash, and then withdraws money from ATMs or makes purchases at retail outlets using the card.

Prepaid cards are costly. Prepaid cards often charge monthly fees, activation fees, fees to get cash, fees for customer service, reloading fees, bill payment fees, ATM withdrawal fees, overdraft fees, and more.

How prepaid cards are different from credit cards. Prepaid cards look like debit cards and credit cards in that they usually have a bank or credit card name brand. But unlike credit cards—where you're borrowing money each time you make a charge—with a prepaid card you're drawing upon money already deposited on the card. (To learn more about credit cards, see Choosing a Credit Card: What You Need to Know and How to Avoid Credit Card Debt.)

Currently, most prepaid cards don't come with protections if you lose it or dispute an item or service you bought with it. This is in contrast to the protections that come with credit cards, and to a lesser degree, debit cards. (Read about how to dispute a billing error on your debit or credit card statement.)

The Prepaid Card Rule

Among other things, the Prepaid Card Rule requires financial institutions to:

  • provide certain disclosures before you get a prepaid card
  • limit your losses if you lose the card or if it's stolen (so long as you tell the financial institution within two business days, then your responsibility for unauthorized charges is limited to $50 or the amount of unauthorized transfers that occur before notice to the financial institution)
  • protect you from expensive overdraft penalty fees
  • investigate and resolve errors, and
  • give you free and easy access to account information.

But now these protections won't go into place until 2019 at the earliest. Delaying the Prepaid Card Rule is one of many changes in the direction of the CFPB since Mick Mulvaney took charge of the agency. Recently, the CFPB announced it is going to "reconsider" the Payday Rule, a rule designed to restrict the actions of payday lenders. Also, Congress shot down the CFPB rule allowing consumers to sue banks and other financial companies.

Along with extending the effective date of the Prepaid Card Rule by one year, recent changes to the rule include adjusting requirements for resolving errors on unregistered accounts and providing greater flexibility for credit cards linked to digital wallets.

Effective date: January 25, 2018