The prepaid card industry is on fire. Having grown from $1 billion in 2003 to $112 billion estimated today it is the hottest financial product around.
But as a consumer, I was always afraid to buy or use prepaid cards. It was always like carrying cash in your wallet which I never like to do. I figured out if I ever lost the card, I would be out of luck because those pre-paid cards were never covered under the same rules as credit cards.
It turned out I was right, but that is all about the change. The CFPB just announced some good news for consumers, and maybe not so good news for PrePaid Card companies. On top of a whole host of new protections for consumers, prepaid cardholders are no longer responsible for fraud after the first $50 if their card is lost or stolen.
Additionally, if a prepaid cardholder is a victim of fraud, the company has 10 days to provide a credit back to the consumer for the amount of the fraud. That sounds a whole lot like a credit card.
Which is exactly the point. The CFPB rulings across all of the areas; initial disclosure, fraud, and credit protections all closely mimic the way credit cards work.
Too Many Consumer Complaints
PrePaid cards were always a source of ire for consumers. If you read the complaints on the CFPB Website, you can see just why they took action.
Many cards either charged exorbitant fees or consumers felt that they were being ripped off. The rules the CFPB came up with were clearly to help consumers get a better shake from this $112 Billion industry.
Fraud and Expenses Will Increase
The new laws are sure to raise the exposure that companies will have related to prepaid card fraud. Whether it is due to friendly fraud, or careless consumers, fraud losses will undoubtedly increase on prepaid cards.
In countries like Mexico where lost/stolen credit card losses are not reimbursed to the consumers banks take on significantly less fraud than issuers here in the US.
Banks will need to get more serious on their fraud prevention efforts to include more front end monitoring, and more back-end fraud challenge on fraud claims to make sure that friendly fraudsters are not taking advantage of them.
Read the Whole Report If Can
You can download and read the whole boring 1,678 CFPB document here, but I warn you it might put you to sleep – Prepaid-card