Regulatory Comment: Proposed Rulemaking on General Purpose Reloadable Prepaid Cards

The Pew Charitable Trusts' Financial Security Portfolio is pleased to provide comments in response to the Consumer Financial Protection Bureau's Advanced Notice of Proposed Rulemaking on General Purpose Reloadable Prepaid Cards. In December 2011 and January 2012, the Portfolio analyzed the account agreements, fee schedules, and other web pages for the 52 GPR prepaid cards that are available for purchase online from the American Express, MasterCard, and VISA websites. This sample, which represents at least 75 percent of the market, typifies the type of prepaid cards a consumer can choose. Pew's quantitative research report on these cards, Loaded with Uncertainty: Are Prepaid Cards a Smart Alternative to Checking Accounts?, will be published next month. Pew also conducted qualitative research using focus groups with consumers who purchase and use prepaid debit cards. Key Focus Group Findings on Prepaid Cards  provides details on the results of these discussions. Pew's comments herein are based on the data and analysis from both of these research projects.

Introduction

General purpose reloadable (GPR) prepaid cards are often thought of as an alternative to a checking account. They are a burgeoning product; in 2009, consumers loaded $28.6 billion onto these cards, and by 2013 that figure is expected to reach $116.9 billion.

Given that prepaid cards can be used as a substitute for, as well as in addition to, a checking account, Pew compared the terms, fees, and conditions provided by GPR prepaid cards with those for checking accounts. Both products are used by consumers to receive deposits, make point-of-sale purchases, pay bills, and withdraw cash from ATMs. However, despite these shared purposes, significant differences exist between them. Most notably, the checking account has a fairly uniform fee structure, is federally regulated through mandated consumer protection laws, and carries up to $250,000 in federal insurance against bank failures. In contrast, the GPR prepaid card market is evolving, with an array of fee structures and services offered. The cards also currently lack meaningful federal consumer protection regulations and oversight.

GPR prepaid cards are marketed, sold, and maintained by companies that are known as “program managers.” Most program managers are not banks, but rather keep funds in “pooled accounts” in banks. If a program manager follows the rules outlined by the Federal Deposit Insurance Corporation (FDIC) for insuring funds in a pooled account, these cards can be insured for up to $250,000.

Funds can be loaded and reloaded onto GPR prepaid cards through cash loads, direct deposit, and bank transfers. Of the 52 cards Pew studied, 98 percent allow for cash loads, 92 percent permit direct deposits, and 58 percent provide at least one way to add money from a bank account. When the card balance is depleted, it may be reloaded with additional funds.