The full New Jersey State Senate today approved a resolution that calls on the Board of Governors of the Federal Reserve to increase regulations on the prepaid debit card industry. The resolution’s sponsor noted that as these cards continue to grow in popularity, more and more consumers have become frustrated by the litany of hidden fees imposed by an industry that preys on both the young and the poor while its revenue is expected to balloon to over $100 billion in the next several years.
The resolution (numbered as SCR160 and approved by a vote of 36-0), officially calls on the Board of Governors of the Federal Reserve system to regulate prepaid debit cards in the same manner as traditional debit cards and gift cards by requiring all issuers of prepaid debit cards to disclose all information regarding fees and charges associated with prepaid debit cards and their use to consumers in an easy-to-read format on all packaging, website and on-site locations; and extending FDIC insurance and the protections guaranteed under the Electronic Funds Transfers Act to protect prepaid debit card users from unauthorized use of the card.
Senator Codey, the sponsor described the resolution as follows:
The Federal Reserve needs to be proactive on this issue, unlike credit card reforms, which took years of consumer abuse to prompt action from Congress. Essentially you have this cottage industry that’s popped up, which amounts to nothing more than a tax on the young and a tax on the poor because it’s designed to appeal to struggling students and low-income families. The Federal Reserve must act now to require a level of transparency that will empower consumers to make smart choices when buying these cards.
Many of the people that use these pre-paid cards cannot obtain a bank debit card because they can’t afford to maintain the minimum monthly balance required or they can’t get a credit card. So they turn to these pre-paid debit cards as a means to get by in the growing world of e-commerce. Instead they end up sitting around helplessly as they watch their hard-earned money get eaten up by hidden fees. That isn’t right and we need to do something about it now.
I’m not asking these companies to provide a service for free, but consumers deserve to know what they’re getting into when they purchase these cards. It’s like buying a house without getting to look around inside. You have no idea what you’re getting into until it’s too late. And then forget about trying to get help because many of these companies charge you for customer assistance over the phone.
New Jersey is traditionally quite aggressive at regulating banks and bank fees. For example, the 1991 Consumer Checking Account Act required state-chartered banks to provide low-cost, low-volume basic checking services for state residents. Many of these banks require no more than $50 to open an account; no more than $1 to maintain the account and; no more than $3 per month as a service fee.