Consumer page: Know the limits of reloadable cards
BY PHIL MULKINS World Action Line Editor
Wednesday, January 09, 2013
1/09/13 at 3:20 AM
General purpose reloadable cards (GPR cards) are a type of plastic, prepaid, debit-like card containing a set amount of money and are becoming more popular in the "unbanked" community. Being "reloadable," consumers may add funds to them and use them to pay bills or receive payments and tax refunds by direct deposit.
The only problem with them is federal law does not limit the liability of their users for fraudulent or unauthorized use. The law does not protect consumers who lose them to theft and unauthorized persons access the full amount of remaining balances to make purchases or, with some cards, obtain the funds. Under federal law, consumers who use GPR cards bear the entire risk of loss from fraud or unauthorized use.
In a comment to the Consumer Financial Protection Bureau in May, the Federal Trade Commission staff expressed support for protecting users of GPR cards ( tulsaworld.com/CFPBFTCGPR) and for the bureau's proposal to solicit information about the costs and benefits of extending additional legal protection to GPR users.
The bureau issued an "advance notice of proposed rulemaking," asking for public comment on the issue to arrive by July 23, 2012. The bureau has until October 2013 to issue a "notice of proposed rulemaking" in the Federal Register ( tulsaworld.com/CFPBANPRGPR).
In response, FTC staff submitted a comment supporting the CFPB's request for information about the cost and benefits of extending protections to GPR cards that currently are applicable to other payment cards. Drawing on its enforcement and policy experience, the FTC staff focused on four types of protections applied to other payment cards: liability limits for fraud and unauthorized use, disclosure of fees and expiration dates, error resolution procedures and recurrent payments.
Current federal laws do not limit the liability of GPR card users due to fraudulent or unauthorized use. Consumers face the significant risk of loss using such cards and as students and others of limited means often use them for payment, these losses have a greater impact than on affluent customers. Extending liability limits might impose costs on issuers and consumers.
GPR cards often come with a range of fees, varying widely by type and amount, include charges for card purchases, monthly charges, cash advance charges, and others. They often have an expiration date, and when they expire, their value can be lost. Consumers have difficulties locating information on card expiration dates, according to the comment, and fee information varies card to card. It recommends clear and prominent fee disclosure and expiration dates to enhance consumers understanding and ability to comparison shop.
Merchants might unintentionally debit GPR cards for erroneous amounts and such errors can harm consumers as GPRs aren't covered by the same dispute resolution provisions covering debit and credit cards - enabling consumers to challenge erroneous charges or debits to their accounts and take corrective action. The comment states there appear to be benefits to mandating error-resolution procedures, with ready access to card balance and transaction history information, for consumers who use GPR cards.
Reloadable cards lack credit/debit protections
A growing percentage of the population - the "unbanked" (people who have no bank account) - are using GPR cards instead. The FTC Act protects consumers using GPR cards from unfair or deceptive practices, but such consumers currently are not protected by other federal laws that apply to credit and debit cards. GPR card users may not understand that these protections are lacking and fall victim to outlandish fees.
The FTC Act protects consumers using GPR cards from unfair or deceptive practices, but such consumers currently are not protected by certain federal laws applying to other payment cards and GPR card users usually don't understand these protections are lacking.
"Prepaid cards are one of the fastest growing payment instruments in the United States, says the Consumer Financial Protection Bureau website. "The prepaid card market consists of a wide variety of products. Some cards are "closed-loop cards," which a consumer can use only at a specific merchant or group of merchants. Other cards are "open-loop cards," which a consumer can use anywhere that accepts payment from a retail electronic payments network, such as Visa, MasterCard, American Express, or Discover. A prepaid card also may or may not be "reloadable," meaning that the consumer, or other authorized party, can add money to the card after the card is issued.
A GPR card is issued for a set amount in exchange for payment made by a consumer. A GPR card is reloadable, meaning the consumer can add funds to the card. While the bureau's "advance notice of proposed rulemaking" refers to a "card," these devices may include other mechanisms, such as a "key fob" (device randomly generating an access code) or cell phone application to access financial accounts.
"The GPR card market is one of the fastest growing segments of the overall prepaid market. According to the Mercator Advisory Group, the total dollar value of funds loaded to GPR cards is expected to grow at an average annual rate of 42 percent from 2010 to 2014. Both depository and non-depository institutions participate in the GPR card market. Recently, the GPR card market has benefited from competition and economies of scale, leading many market participants to voluntarily provide some protections for consumers.
"The Bureau is gathering information about GPR cards, however, in order to ensure consumers are protected regardless of the economic environment. Three factors in particular command greater attention to GPR cards: growth of the GPR market, consumer use and the lack of comprehensive federal regulation.
Original Print Headline: Know the limits of reloadable cards
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Unlike credit cards, general purpose reloadable cards (GPR cards) are not protected by federal limits for fraudulent or unauthorized use. Bloomberg file