As the 2010 Congressional session comes to a close, some hot topics were on the Senate’s agenda, including “Don’t Ask, Don’t Tell”, and the START nuclear weapons treaty. Amidst all the hot agenda items, Senator Menendez (D NJ) introduced a bill referred to as the “Prepaid Card Consumer Protection Act of 2010” (or S. 4041). The bill proposes regulation of general purpose prepaid debit cards.
On December 17, 2010, Senator Menendez introduced S.4041 – “A bill to amend the Electronic Fund Transfer Act to provide protection for consumers who have prepaid cards, and for other purposes.” The bill is referred to as the “Prepaid Card Consumer Protection Act of 2010” and would amend the Electronic Fund Transfer Act to provide for greater regulation of certain prepaid cards (referred to in the bill as “spending card accounts”).
The bill would regulate prepaid debit cards in a number of ways, including:
- Providing a definition of “spending card accounts” which encompasses non-reloadable prepaid debit cards of less than $250, and reloadable general purpose prepaid debit cards other than HSA cards, and transportation fringe benefit cards. Gift certificates, rebate cards and other limited use card would not be covered by the definition.
- Spending card accounts would require full FDIC insurance (e.g., the accounts would need to comply with the requirements for pass-through deposit insurance of the Federal Deposit Insurance Act).
- Prohibitions on certain fees, including:
- Annual fees,
- Overdraft fees,
- Usage fees at the POS,
- Declined transaction fees,
- Inactivity or dormancy fees,
- Account closing fees, and a few other fees.
- Certain fees are expressly allowed by the bill, although some allowed fees are capped or restricted. Permitted fees include:
- A cap on the price and charge for replacement cards,
- Expedited card delivery fees,
- Periodic fees (but no more frequent than monthly),
- Reload fees (so long as an alternative method for loading exists that does not require payment of a fee),
- ATM fees outside the US, and outside of the network of the issuer,
- Activation or enrollment fees.
- Specific requirements about the disclosure of fees by an issuer or program manager which include a table of fees that “can be easily understood by the consumer” and an “estimate of the average monthly cost to a typical consumer for using the spending card account”. Further, a “wallet-sized summary of any fees that may be charged in connection with the spending card account” must be provided to every account holder.
Senator Menendez described the need for the bill as follows:
This holiday season, the weather outside isn’t the only thing frightful for shoppers. Responsible consumers are finding out the hard way that the purchasing power of many prepaid cards, is often much less than the dollar amount they loaded onto them. We need to ensure that families who rely on prepaid cards are not surprised by hidden fees and are not hit with fees that are totally unnecessary.
Senator Menendez was a vocal critic of the Kardashian Kard, and has repeatedly called for legislation of the prepaid card industry (the 2010 bill is substantially the same as a draft circulated by the Senator last year).
The Network Branded Prepaid Card Association has criticized the bill, stating that “regulation that prohibits or eliminates certain fees doesn’t recognize that consumers use prepaid cards differently and they choose services based upon the costs for these features”.
At GetDebit.com, we support clear and full disclosure of all fees and terms (and rate the best prepaid cards using these factors). However, we think the proposed regulation goes too far, and lumps some of the better prepaid cards with the few outliers (like the now-defunct Kardashian Kard).