New regulations are on their way..here’s an FAQ to help you and your students sort it all out:

• How big is the market for prepaid cards and who uses them? (Atlantic):

The market for prepaid debit cards has grown dramatically in recent years: The number of people using the cards in addition to their checking accounts increased by 50 percent between 2012 and 2014. According to a report from Pew by 2014, around 23 million Americans were regularly using reloadable cards, and more than one-quarter of those users were Americans who didn’t have bank accounts and were mostly low-income and black. For all their shortcomings, prepaid debit cards fill an important role for Americans who don’t have access to traditional checking or credit accounts. These services allow them to perform basic tasks, such as paying for goods or services online or taking cash out from a convenient ATM, that many Americans take for granted.

• What complaints do people currently have about the cards (Atlantic); who’s guessing fees?:

Read just a few complaints about these cards on the CFPB website, and it’s easy to understand why many Americans are frustrated. “I proceeded to use my card to pay bills and do things I needed to do for my family. Tonight I looked over my charges because I was short and couldn’t figure out why. I have various fees for every time I used that card … I counted over $30.00 in fees in TWO DAYS,” reads one complaint from a prepaid card user in North Carolina. Another complaint alleges that after a card expired, the owner simply lost the remaining funds instead of being sent a new card for the account: “I saved this card to spend on something special. $50.00 is a lot of money to lose.” The complaints go on, referencing issues with fees, poor customer service, and other troubles.

• What changes are coming to address these complaints? (NY Times)

Beginning in October 2017, packages containing prepaid debit cards — which are typically sold in convenience stores and other establishments — will be required to carry a standardized disclosure of the card’s monthly fee. They will also have to detail charges for cash withdrawals, customer service calls, reloading the card and other activities.

• What about overdraft protection (full disclosure: I didn’t realize this was offered on these cards too)? How is that being changed? (LA Times)

Some issuers allow consumers to spend more money than they have on their cards, and the CFPB rules will extend credit card-type protections to those users. Companies offering such cards will have to make sure the consumer has the ability to repay before offering credit. Issuers also will have to give customers regular statements detailing fees, interest rates and other information and must offer at least 21 days to repay the credit before charging “reasonable and proportional” late fees.

• Is liability protection changing also (NY Times)?

Prepaid card issuers will also have to offer liability protection on par with the coverage that applies to credit cards. If a customer’s prepaid card is lost or stolen and the cardholder notifies the provider within two days of discovering the loss, responsibility for unauthorized charges will generally be capped at $50.

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A few different ideas on how to use this current event:

• 15 minute webquest for students to summarize key provisions in these new regulations
• Discussion about student experience with prepaid debit cards, as these are quite popular with young people.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.