If you have a bank account with a debit card, your money is pretty safe. If your card is lost or stolen, you can cancel it and get a replacement. As long as you check your statement and report fraudulent charges, you can get the money back.
For various reasons (poor credit history, lack of proper ID or a permanent address, etc.) a lot of people don’t have or can’t get a credit card or even a bank account. For them, the invention of the prepaid card has been a great boon in many ways — but has had its downsides.
For one thing, the consumer protection rules for prepaid cards are different — and worse. Fortunately, they’re about to get a whole lot better, thanks to the Consumer Financial Protection Bureau, which has just published new rules for prepaid cards. (See also: 5 Best Prepaid Debit Cards)
The new rules take effect in about a year. Here are the key improvements:
1. Fees Have to Be Disclosed in a Standard Format
Currently, there’s no good way to compare one prepaid card to another. Their fees are different, their rules are different, and their dispute resolution policies are different.
Starting next year, fees and rules will have to be disclosed in a standard format, so that it will be easy to compare two different cards. In addition, the policies that they will follow if you dispute a charge will be standard across all prepaid cards.
2. Fraudulent Debits Have to be Credited Back
With a credit or debit card, you just have to report fraudulent charges to the bank promptly after you get your statement, and the bank has to investigate the charge. If their investigation shows that it was fraudulent, they have to give you your money back. (There are limits. If you authorize someone to use your card and give them your PIN code, the bank won’t replace any money they take out of your account.)
For prepaid cards, the rules in effect right now allow the issuer to say, “Treat the card like cash, because if it’s lost or stolen, the prepaid value is gone.”
That’s always been a pretty self-serving rule for the card issuers. They can just ignore thefts. (They’re not obliged to even investigate, let alone give you your money back.) In fact, the issuers come out ahead when you lose a card. They can just keep the money, charge you an “idle” account fee, and then (maybe) turn over any money that’s left to the state as “abandoned property.”
The new rules make prepaid cards almost the same as credit and debit cards, but there is one key difference. With credit or debit cards, if the bank can’t complete its investigation promptly, it has to give you your money back while it keeps looking into the matter. With a prepaid card, the bank can take extra time to make sure you’re who you say you are before that clock starts ticking.
3. There Has to be Some Way to Track the Use of the Card
The deadlines for reporting fraudulent transactions to the bank start as soon as you find out about the transaction, or as soon as you get your statement. Since a lot of prepaid cards don’t even have regular statements, there needed to be some kind of adjustment to that rule.
The bank can just start issuing monthly statements, but they’d really rather not. The new rules say they don’t have to, as long as they do all these things:
- Let you access your balance by telephone;
- Let you access your last 12 months of transactions electronically;
- Give you a way to get the last 24 months of transactions in written form on request.
4. Overdraft Fees Are Strictly Limited
The basic rule here is that banks aren’t supposed to let you overdraw a prepaid card at all. They can only let you go negative on your prepaid balance if you have a deposit pending, or if the amount is less than $10 — and then only if they don’t charge a fee for doing so.
To allow any other kinds of overdrafts, they have to get you to set up a separate credit facility, with all the usual rules for loan fees and disclosures involved in offering credit.
That’s a summary of the main rule changes. If you’d rather see a video, the Consumer Financial Protection Bureau has you covered with this quick video summary of the new protections:
Still Under the Old Rules
Remember — for the next year, we’re still under the old rules.
Still, even under the current rules things are better than things used to be, and the Consumer Financial Protection Bureau has done its best to make sure you can figure out what your rights are. They’ve got a webpage with the details of the limited protections that currently apply.
The new rules go into effect October 1, 2017.