Consumer Bureau’s Plans For Prepaid Somewhat Of A Mystery

 The Consumer Financial Protection Bureau likely will focus on the mortgage industry when it officially opens its doors July 21, some observers believe. And while the agency has made it known it will examine the prepaid card market, its specific intentions remains unclear.

“That’s the great unknown,” Tim Smith, senior vice president at Firstsource Solutions Ltd., tells PaymentsSource. Firstsource handles business processes such as collections, revenue management, back-office operations, and customer care for banks and other financial-services companies.

The bureau, which was created as part of the Dodd-Frank Act, will have the authority to regulate a wide variety of consumer financial products

Smith’s prepaid clients are worried the bureau will scrutinize the industry more if banks decide to issue prepaid debit cards to make up for lost revenue caused by the Federal Reserve Board decision to reduce debit interchange. The new interchange caps will reduce the amount banks earn from debit card purchases to about 24 cents per transaction from the current average of 44 cents.

Prepaid cards, however, also took a hit in the Fed’s final ruling.

For banks wanting to claim an exempt status for prepaid cards, cardholders must not be able to access funds in a card account using a check, the automated clearinghouse system, wire transfers or other methods (see story).

That said, fees tied to prepaid cards would be the primary focus for the bureau, Smith believes.

“What I’m hearing is that the focus will be on making sure that it’s not confusing to the least-sophisticated consumer on what fees are charged and when those fees are charged,” Smith says.

Consumer-advocacy groups contend fees represent one the biggest problems facing the industry, Smith adds.

Indeed, one consumer group, the National Consumer Law Center, released a report in May criticizing prepaid debit cards related to unemployment benefits (see story).

The group is urging the bureau to ban overdraft and other “unfair” fees and to improve transparency and competition by requiring issuers to place all fee schedules in a central location so states and consumers “can compare who has the best hand.”

Smith does not believe the consumer groups will have too much influence with the bureau going forward but believes they are making enough noise in the space to warrant attention.

“Where there’s smoke, there’s fire,” he says.

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