CFPB's Prepaid Card Rules Would Squelch Financial Inclusion

Network-branded prepaid cards are a financial tool of choice for millions of American consumers, cutting across all demographics in the U.S. — from young to old and from low-income to high. They make consumers' lives easier and help them manage their money. They also enable government agencies and businesses to distribute money more efficiently, safely and at lower costs.

Unfortunately, cumbersome regulations for prepaid products proposed by the Consumer Financial Protection Bureau could reduce consumer-friendly market competition, discourage innovation and effectively cut off many Americans' participation in the digital economy.

Over the past decade, prepaid cards have emerged as a way for consumers to receive wages and government benefits, pay bills, make purchases and budget effectively. The cards also are considered by many to be a convenient, cost-effective alternative to checks and checking accounts. Part of the appeal of prepaid cards is their near-universal acceptance. Prepaid cards can be used anywhere the card brand — American Express, Discover, MasterCard, and Visa — is accepted, in stores and online. Given how widely prepaid cards can be used, it's no surprise that they are the fastest-growing form of non-cash payment in the U.S., according to the Federal Reserve.

The cards also promote financial inclusion. They can be used by all consumers, regardless of their credit history or access to a bank account. Ongoing access to prepaid cards is especially critical for the 28% of U.S. households considered to be unbanked or underbanked. Additionally, an April survey by TD Bank found that millennials are embracing prepaid cards more than any other age group, citing convenience, simplicity and predictability.

Beyond consumer benefits, the cards offer businesses and government efficiency, security and flexibility. Businesses can achieve cost savings by making payments using prepaid cards, since according to the U.S. Treasury it costs $1.03 to process a check but only $0.10 for an electronic payment. Additionally, federal, state and local governments have emerged as the largest distributor of prepaid card payments, loading $142 billion onto network-branded cards in 2013.

The priority of the Network Branded Prepaid Card Association and our members is to ensure that consumers have access to safe and affordable financial products that meet their needs and preferences. Unfortunately, the CFPB's proposed rule on prepaid accounts adds onerous and, in many cases counterproductive, burdens on an already highly regulated industry.

Prepaid cards already offer substantial consumer protections. Regulation E coverage applies to many prepaid products, including payroll cards as well as certain government benefit cards and student cards. FDIC insurance applies in many cases as well. The card networks, through their zero-liability policies, further provide for reimbursement for unauthorized charges by issuers.

Unfortunately, the proposed CFPB rule applies one-size-fits-all regulations to over 15 unique products that are used by consumers to address diverse needs. For example, the rule would impose the same disclosure requirements to all product types, meaning that consumers would receive disclosures that might not even apply to the product they are buying or using.

In addition, this broad approach to regulation could mean that prepaid cards that do not offer credit features get classified as credit cards. These burdensome and inexact regulations could ultimately drive card providers out of the market and limit consumer choice among financial products.

We encourage the CFPB to implement rules that will encourage continued innovation that expands the market. We will continue to work with regulators to find common-sense solutions that protect consumers while safeguarding the prepaid card industry's ability to continue to offer this popular product. We are eager to work with the CFPB on rules that will allow the next generation of Americans to safely manage their money on their terms, which clearly includes using prepaid cards.

Brad Fauss is executive director of the Network Branded Prepaid Card Association.