A new federal rule will mean better protections for people who use one of the fastest-growing financial products — prepaid debit cards.
Many prepaid accounts have lacked strong consumer protections under federal law, the director of the Consumer Financial Protection Bureau, Richard Cordray, said in an announcement Wednesday. The new rule closes what he called “loopholes” in the law.
Under the rule, financial institutions must meet new requirements that include:
- Limiting consumer losses when funds are stolen or cards are lost.
- Investigating and resolving errors.
- Giving consumers free and easy access to their account information.
- Offering protections similar to those for credit cards if the financial institution allows a prepaid card to be used to cover a transaction, even though the account lacks sufficient funds.
Additionally, new disclosures will give consumers information about key details such as fees.
The new rule will take effect primarily in October 2017. In addition to traditional prepaid cards, the rule will apply to:
- Mobile or electronic prepaid accounts, such as PayPal or Google Wallet
- Person-to-person payment products
- Payroll cards
- Student financial aid disbursement cards
- Tax refund cards
- Certain federal, state and local government benefit cards, such as those used to distribute Social Security benefits and unemployment insurance
“The rapidly growing ranks of prepaid users deserve a safe place to store their money and a practical way to carry out their financial transactions. And though many prepaid companies already offer some of these same protections to their customers, it is vital for all consumers to have the settled assurance that these protections are now the law of the land.”
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