Senate Republicans aim to gut debit-card safeguards

A group of seven Senate Republicans are moving to gut consumer protections for prepaid debit cards before they’re enacted. The rules, aimed at providing many of the same safeguards that consumers take for granted with credit and debit cards, would require fee disclosures, fraud protections and limits on overdraft fees.

Using a rarely invoked law called the Congressional Review Act, the group wants to block implementation of the regulations before they go into effect in October. The Act allows legislators to quash regulations with a simple majority vote and the approval of the president. If successful, the resolution would stop the federal Consumer Financial Protection Bureau (CFPB) from implementing these -- or similar -- rules without prior congressional approval.

The effort to block the debit-card safeguards comes as President Trump proceeds with a plan to dismantle Dodd-Frank, the 2010 financial reform law passed after the housing crash. “We’re going to be doing a big number on Dodd-Frank,” Trump said earlier this week in a meeting with small business owners, calling the law a “disaster.”

Of the seven senators -- the resolution sponsor David Perdue, R-Georgia, and co-sponsors Johnny Isakson, R-Georgia, Ron Johnson, R-Wisconsin, Tom Cotton R-Arkansas, James Lankford R-Oklahoma, Mike Lee, R-Utah, and Mike Rounds, R-South Dakota -- only one immediately returned a request for comment.

A spokesman for Sen. Mike Lee said that the “CFPB’s prepaid card rule is overly broad” and would increase compliance costs. Those costs “would be borne by the consumers who use this fast-growing product, but it would also stifle innovation in the payments industry,” the spokesman said.

Consumer advocates decried the resolution as a thinly-veiled giveaway to Netspend, a controversial issuer of prepaid cards. Netspend is one of the main opponents of the CFBP’s proposed prepaid card disclosure requirements and would potentially lose up to $80 million annually in overdraft fees imposed on the largely low-income buyers of its prepaid cards, according to the National Consumer Law Center (NCLC).

“It is outrageous that Congress may block basic fraud protections on prepaid cards so that Netspend can keep gouging struggling families with overdraft fees that have no place on prepaid cards,” said Lauren Saunders, associate director of the National Consumer Law Center (NCLC). “Members of Congress that support Wall Street and predatory lenders over working families may also use this vote to continue their attacks on the CFPB, our consumer watchdog, which has returned nearly $12 billion to 29 million consumers across the nation.”  

A subsidiary of TSYS (TSS), Netspend was sued by the Federal Trade Commission last November for allegedly deceptive marketing tactics that misled consumers about their ability to access the money that they’d loaded on Netspend debit cards. Netspend said at the time that it would “vigorously defend” itself against the FTC complaint. 

In a response to the Senate move to thwart the proposed prepaid card rules, Netspend said it already complies with a range of financial and consumer protection rules. “We and many others outlined our reservations with the CFPB prepaid rule during the public comment period, including thousands of concerned citizens, highlighting the important role prepaid products and electronic accounts play in their lives.”  

The CFBP’s prepaid card rules, which were adopted after a multi-year rulemaking process and were slated to go into effect in October, have five main provisions:

Upfront fee disclosure: The rules would require that prepaid cards’ packaging includes disclosure of fees, so consumers could know what they’d be paying for the card before they bought it. Online fee disclosures would also be required so that consumers could compare costs between issuers.

Fraud protection: Prepaid cards that are lost or stolen would be subject to similar safeguards provided by credit and debit cards, leaving consumers liable for a maximum of $50 in charges if they report lost or stolen cards within two days of discovery.

Prompt dispute resolution: Like debit card issuers, prepaid card issuers would be required to investigate and resolve errors in a timely manner. When a dispute can’t be resolved promptly, the prepaid card issuer would be required to credit the disputed amount until an investigation is completed.

Balance disclosures: Prepaid card issuers would be required to provide either monthly paper statements listing the consumer’s balance, transactions and fees or make that information available online for the preceding 18 months at no cost. Consumers would have the right to request a written transaction history covering the preceding 18 months at no cost.

Overdraft features: Overdraft charges would not be banned, but issuers would be required to consider the customer’s ability to repay before offering credit. Customers who sign up for overdraft protection would have to be given regular statements detailing the interest rate, fees and how much they owe. Prepaid card issuers also would have to give those customers at least 21 days to repay their debt before they can be charged a late fee and cannot automatically withdraw the owed funds from a person’s prepaid card the next time it is loaded with funds. These protections mirror those currently required for credit card accounts.

“For years, millions of consumers who’ve relied on prepaid cards have lacked the legal safeguards needed to avoid high fees and keep their money safe,” said Christina Tetreault, staff attorney for Consumers Union. “The CFPB’s new rules will help consumers compare cards more easily so they can find the most affordable option and give them the peace of mind that their money will be protected if their card is lost or stolen. But those safeguards will disappear if Congress passes this misguided resolution and revokes these common sense protections for consumers.”