The Consumer Financial Protection Bureau announced this week that it would delay its rule on prepaid cards. The rule, which was supposed to take effect this April, will now go into effect April 1, 2019.
The prepaid card rule, which was first proposed in 2012 and finalized in 2016, gives prepaid cards consumer protections similar to those of debit cards. The rule is intended to protect the millions of people who use them instead of debit cards tied to traditional bank checking accounts.
The rule also places protections that limit liability in cases of unauthorized transactions or fraud. And it places limits on overdraft fees on the very few prepaid card brands that let consumers spend more money than they have loaded onto the card.
"While the delay is disappointing, the rule remains strong and will protect consumers from hidden fees and losing their money to fraud and mistakes," says Christina Tetreault, senior staff attorney for Consumers Union, the policy and mobilization division of Consumer Reports.
Tetreault also points out that although many prepaid card providers are doing a good job of disclosing fees and providing error resolution, that's not true across the board (see our ratings). "When the CFPB's rule is fully implemented, these protections will be guaranteed by law and not subject to the whims of providers," Tetreault says.
The CFPB says the reason for the delay in implementing the rule is that companies, which will be required to be more transparent about fees and terms, need more time to comply.
The prepaid card rule has come under attack before. Last year, for instance, Sen. David Perdue, R-Ga., was encouraging other members of Congress to nullify the consumer protections using a Congressional Review Act measure.
At the time, Perdue's office said the rules were too broad because they covered a range of prepaid debit products, including payroll cards used by employers to pay wages, benefits cards from government agencies, digital wallets, and even mobile peer-to-peer payment apps that are tied to credit and debit cards.
His office also said the rule's extension of mandatory protections against unauthorized charges to unregistered prepaid cards would lead to widespread fraud.
The rule, though, has many supporters. "Whether you're using a prepaid card to buy groceries, pay bills, or make rent, you should have the same protections that debit and credit card users have," Sen. Sherrod Brown, D-Ohio, the ranking member of the Senate Banking Committee, said at the time.
Steps to Protect Yourself
With protections now delayed, follow these tips if you use prepaid cards:
Review our prepaid card ratings. Choose a card from among the ones we recommend. These cards have low ATM fees, are widely accepted, and offer services such as online bill pay. They also voluntarily offer fraud protection and come with FDIC insurance.
Register your card with the issuer. Although some prepaid cards don't require that you register them, it's a good idea to do so. Some prepaid cards require registration in order to get the protections.
Take steps to reduce fees. You can do this by using the nationwide networks of thousands of fee-free ATMs commonly available with major prepaid cards, monitoring your transactions and balances online or with the card's mobile app, and loading money onto the card free of charge via direct deposit.
Editor's Note: This article was updated on Jan. 26, 2018, to include news that the CFPB had delayed its rule on prepaid cards.
