Anyone who's ever lacked access to traditional checking, savings and credit card accounts knows how difficult it can be to manage personal finances. Everyday tasks like cashing payroll checks, paying bills, shopping online and renting a car can be much more difficult and expensive -- not to mention dangerous, if you're forced to carry large amounts of cash to pay your bills.
That's why many people use prepaid cards. Prepaid cards look and work much like regular debit cards except that instead of being funded through your checking account, you load money onto the cards by cash, check, funds transfer or direct deposit by an employer or government entity.
"More Americans are turning to prepaid cards as a way to manage money, but our research shows that these cards should be made more consumer friendly," said Susan Weinstock, who directs consumer banking research at The Pew Charitable Trusts, a nonprofit organization that provides nonpartisan reporting and research on a broad range of social and economic issues.
Prepaid cards often come with a host of fees, rules and restrictions that can be difficult to decipher and compare. As Visa Inc. President Ryan McInerney noted, "Consumers have been confused by an often complex prepaid landscape, where not all cards are created equally."
But that's about to change.
Visa, my employer, today announced a new designation for consumer reloadable prepaid products designed to simplify fees, improve consumer protections and create opportunities for cardholders to improve their financial health. The new classification was developed in conjunction the Center for Financial Services Innovation (CFSI) and The Pew Charitable Trusts, both major industry thought-leaders.
To qualify for the new Visa prepaid designation, prepaid programs must meet a rigorous set of standards. "We felt it was important to go beyond current marketplace regulatory requirements and bring transparency to this growing product area so that consumers better understand the fees, protections and benefits associated with cards," said McInerey.
Prepaid cards that meet these requirements will receive a seal -- think Underwriters Laboratory or Good Housekeeping -- that will be visible on card packaging and materials. Key features include:
Simplified fee structure and disclosures -- a flat monthly fee that includes all basic day-to-day activities. Consumers will not be charged:
- Fees for transactions being declined.
- Customer service fees.
- Fees for in-network ATM withdrawals or balance inquiries.
- PIN or signature transaction fees.
- Fees for cash back at point of sale.
Prepaid cards with the new designation will not include overdraft coverage, which means you can't accidentally spend more than the card's balance and thereby incur an overdraft fee. In addition, they will come with consumer-friendly communication of fees (e.g., prominent mention of fees and other disclosures), and a quick-use guide for finding the best ways to use the product at the lowest cost.
Greater level of consumer protections
- Funds linked to the card must be insured by the Federal Deposit Insurance Corporation or the National Credit Union Association.
- Dispute resolution rights as outlined in the Federal Reserve Board's Regulation E.
- All cards are covered under Visa's Zero Liability policy.
- Access to Visa's Prepaid Clearinghouse Service, which offers enhanced fraud protection.
According to Cecilia Frew, Visa's head of U.S. prepaid products, CFSI was instrumental in helping to shape the new prepaid card designation. "We drew on CFSI's Compass Principles, a set of aspirational guidelines they developed with key financial industry participants, that define how providers can work toward a vision for the future in which financial services are safe and actively contribute to improving people's lives," said Frew.
To learn more about how prepaid cards work, visit this Consumer Financial Protection Bureau website, or my read previous blog, The 411 on Prepaid Cards.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.