Last fall, weeks before the election, the Consumer Financial Protection Bureau concluded a three-year process of trying to make prepaid cards less costly. Those new rules, which would improve transparency and curb runaway fees, are set to go into effect later this year, but not if lawmakers on Capitol Hill have their say.
As we’ve covered before, the Congressional Review Act is a little-used piece of legislation that gives Congress a short window during which they can seek to undo a new federal regulation.
In order to roll back a rule under the CRA, both the House and Senate must approve (by simple majorities) a joint resolution of disapproval, which must then be signed by the President.
This week, Sen. David Perdue (GA) got the CRA ball rolling on the prepaid card rules, introducing a resolution that would erase the CFPB’s efforts.
The prepaid card rules, if they were allowed to take effect, would cover the vast range of prepaid debit products, including: cards you purchase at retail and load via ATM (or through direct deposit); payroll cards used by employers to pay workers’ wages; benefit cards offered by federal, state, and local agencies; school ID cards used to disburse student loan funds; and even mobile debit products that don’t use a physical card.
The finalized rule, announced in Oct. 2016, essentially provides users of prepaid cards with the same protections that are currently provided to traditional debit cards, such as, free account balance info; timely dispute resolution; and limited liability on fraudulent transactions.
Additionally, the rules require prepaid cards to have clear, detailed information on a card’s fees so consumers can know what to expect before they buy. Cards that offer an overdraft “protection” line would face regulations similar to traditional credit cards. Card issuers won’t have automatic, direct access to funds stored on the card’s debit account.
Yet, all of these would-be protections may never materialize.
Undoing The Rules
Perdue’s resolution — co-sponsored by senators Johnny Isakson (GA), Tom Cotton (AK), Ron Johnson (WI), James Lankford (OK), Mike Lee (UT), and Mike Rounds (SD) — explicitly declares that the Senate “disapproves the rule” and that “such rule shall have no force or effect.”
The resolution was introduced on Wednesday and referred to the Committee on Banking, Housing, and Urban Affairs, which will review the bill and then either pass it on to the Senate or leave it to die.
Why Are They Gutting Consumer Protections?
While consumer advocates, including our colleagues at Consumers Union, have called the prepaid rules “common sense protections for consumers,” companies that provide prepaid cards are looking for ways to preserve their bottomline and that often means campaign contributions.
For example, one of the nation’s largest providers of prepaid debit cards, NetSpend — a division of Georgia-based Total System Services (TSYS) — has admitted that if the CFPB’s rules take effect it stands to lose $80 million in overdraft fee revenue.
According to the Center for Responsive Politics, Total System Services contributed to several of the sponsors and co-sponsors who were up for election during the 2016 election cycle. Specifically, the company contributed $7,000 to Isakson, $5,000 to Johnson, and $2,500 to Perdue. Back in 2014, TSYS contributed $15,000 to Perdue.
While these funds are just a drop in the bucket as far as campaign contributions go, it should be noted that TSYS has other connections to the lawmakers. The corporation is located in Georgia, the same state as both Isakson and Perdue.
Additionally, NetSpend — and its overdraft protection program — were part of an apparent grassroots initiative during the rule-making process, where the company was mentioned nearly 700 times.
“I support NetSpend & their overdraft feature,” one comment posted in March 2015 states. “It is very convenient for me during those off pay weeks when I need a little more extra money to make it til my next deposit.”
“I have stayed with NetSpend because of the services especially the overdraft protection,” another comment from April 2015 states. “Don’t take it away from people that really need this because having an actual bank account is not possible.”
“The $10 overdraft protection fee has proved very beneficial to me,” a comment from March 2015 states. “Please do not eliminate this privilege to NetSpend customers.”
Despite the hundreds of apparent fans of the company, NetSpend has come under fire from regulators in recent years. In Nov. 2016, the Federal Trade Commission accused the company of violating federal law for allegedly misleading users into believing that funds loaded onto these cards will be available immediately, while some users say they had to wait weeks or were never able to access their funds.
According to the FTC complaint, NetSpend misleadingly markets its cards as ready-to-use, with guaranteed approval. Additionally, the complaint says company tells customers that when a transaction has been disputed, cardholders will be eligible for a provisional credit until the matter is resolved. The government alleges that NetSpend is not being honest about any of these marketing claims.
More To Come
The resolution to erase the prepaid rules are just the beginning of the new administration and legislature’s action to weaken the CFPB’s ability to protect consumers and financial regulations.
CNN reports that Friday afternoon the Trump administration is expected to begin the process of undoing a number of financial regulations put in place after the 2008 financial crisis.
The expected executive orders will allegedly direct administration staff to evaluate regulatory action related to rules governing financial services firms and a requirement for retirement advisors to act in their clients’ best interests.
While the repeal and erasing of financial protection rules is just getting underway, consumer advocate are already raising concerns about the possible changes.
Consumers Union sent a letter [PDF] to legislators on Wednesday, urging them to oppose the use of the CRA to overturn consumer protections.
“Consumers depend on federal safeguards to protect them against foodborne diseases, unsafe medications, dirty air and water, and predatory lending practices, among myriad other harms,” the organization wrote.
With respect to the resolution introduced to scrap the prepaid card rule, CU called the action “misguided.”
“For years, millions of consumers who’ve relied on prepaid cards have lacked the legal safeguards needed to avoid high fees and keep their money safe,” Christina Tetreault, staff attorney for Consumers Union, said in a statement. “But those safeguards will disappear if Congress passes this misguided resolution and revokes these common sense protections for consumers.”
by Ashlee Kieler via Consumerist