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Prepaid Accounts Under the Electronic Fund Transfer Act and the Truth in Lending Act

April 1, 2015
Credit & Prepaid Cards
Overdraft Loans
Comment Letter

In response to a request for comment, CRL offered feedback to the Consumer Financial Protection Bureau about the agency's proposed rule addressing prepaid cards. The CFPB's proposed rule would expand consumer protections on prepaid cards in significant respects.

The CRL comment focuses on credit products associated with prepaid cards – with a particular focus on overdraft fees. The CRL comment strongly urges the CFPB prohibit any overdraft charges on prepaid cards.

CRL's comment supports that CFPB's proposal would apply stronger regulations to overdraft fees on prepaid cards than the wholly insufficient regulation of overdraft fees on traditional checking accounts. But it also explains that the proposal as written is not sufficient to prevent harmful overdraft practices on prepaid cards and includes research on the damaging effect of overdraft practices on consumers, especially consumers with limited incomes.

A summary of recommendations is below; the full comment (31 page PDF) expounds upon these recommendations.

  • Prohibit overdraft charges associated with prepaid card accounts.
  • Short of prohibiting overdraft charges associated with prepaid card accounts, strengthen the proposed rule to better prevent unfair, deceptive, and abusive acts and practices in the following ways:
    • An ability-to-repay requirement should be applied and strengthened.
    • A limit on fees should be applied and strengthened, extending the credit-limit cap on fees to include pre-account opening fees and to apply to every year the account is opened.
    • Consumer control over repayment should be reinforced, including requiring that overdraft loans over a specified dollar amount be structured as installment loans (with an option to prepay).
    • A waiting period between registration and solicitation of credit should be imposed but lengthened to 90 days.
    • As proposed, terms and conditions should not be permitted to differ depending on whether a consumer has an overdraft or credit feature on the card.