The US consumer financial watchdog has trained its sight on reloadable prepaid cards, as it moves to regulate a fast-growing product that has gained popularity as an alternative to checking accounts for lower-income Americans and a new source of fees for some banks.
Consumer advocates have been calling for regulation of the cards, which appear similar to conventional credit cards or debit cards tied to bank accounts. However, the prepaid cards are not required to offer the same consumer protections, such as clear disclosure of fees and caps on losses in case they are stolen.
Reloadable prepaid cards that let customers add money to the accounts, were pioneered by alternative financial services companies such as Green Dot Corp in Monrovia, following which a number of large banks have launched similar products.
Consumers are expected to load prepaid cards with around $82 billion this year, an amount expected to more than double to $167 billion by 2014, according to the Consumer Financial Protection Bureau.
At a hearing today in Durham, North Carolina the agency would start seeking public input for new regulations "to ensure that consumers' funds on prepaid cards are safe and that card terms and fees are transparent."
According to the director of the agency, Richard Cordray, people who used prepaid cards were, in many instances, the most vulnerable.