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Cordray says CFPB is obligated to regulate prepaid cards

Richard Cordray

CFPB Director Richard Cordray said during a prepaid card field hearing on Wednesday that the watchdog agency has an obligation to establish regulations for prepaid cards that remain largely unregulated.

“We are at a critical moment in the growth of the prepaid market,” Cordray said. “At the [CFPB], our job is to do all we can to ensure that financial products and services actually help consumers rather than harm them. Clear rules in the prepaid market will help prevent the spread of “low-road” competition that hurts both consumers and the honest businesses that seek to serve them well.”

Prepaid cards have enjoyed increasing popularity among the under-banked and un-banked, growing at an expected rate of more than 40 percent every year from 2010 to 2014. Industry analysts predict that the dollar amount loaded onto prepaid cards will reach $167 billion by 2014.

Cordray said that many American consumers who cannot afford or cannot open a traditional banking account often turn to unregulated prepaid cards as an alternative banking and budgeting tool.

“[T]hat is especially troubling because the people who use prepaid cards are, in many instances, the most vulnerable among us,” Cordray said. “Every dollar they pay in hidden fees is a dollar they cannot spend on supporting their families. These consumers are least able to take a hit if their prepaid card is lost or stolen, and yet they often have no guaranteed protection against this kind of disaster.”

Cordray said that the agency is focusing on ensuring protections for prepaid cardholders if the card is lost or stolen, increasing fee transparency, and streamlining card error reporting.

“Safety and transparency: these are and should be important hallmarks of all consumer financial products and services,” Cordray said. “As part of our rule-making, we will explore how best to extend these basic protections to prepaid cardholders whose funds may be at risk. We are working to provide evenhanded oversight of the consumer financial markets. We are committed to a careful and constructive rule-making process based on broad input and grounded in all the data we can assemble around these issues.”

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