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CFPB Prepaid Card Rule: How It Affects You

Prepaid accounts — including PayPal and Venmo — now get federal protections that already existed for checking accounts and credit cards.
April 8, 2019
Banking, Banking Basics, Banking News, Prepaid Debit Cards
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Prepaid debit cards are a popular budgeting tool in addition to being an alternative to checking accounts for many Americans, but historically they haven’t had laws to guard consumers from fraud or loss, among other things.

That has changed thanks to the Consumer Financial Protection Bureau’s rule, which gives prepaid accounts federal protections that already exist for checking accounts and credit cards.

» Want to compare prepaid options? See our list of the best prepaid debit cards

Quick details about the CFPB prepaid card rule

  • When the rule took effect: April 1, 2019.
  • Types of prepaid accounts affected: Prepaid debit cards, digital wallets, peer-to-peer transfer apps that hold balances (such as Venmo, PayPal and Square Cash), payroll cards, tax refund cards, government benefit cards.
  • Types of prepaid accounts not affected: Gift cards, disaster-relief and health- and transit-related cards.
  • For the rule to fully apply: Cards must be registered in a process similar to opening a bank account. Registering involves providing your personal information to the prepaid company or bank, generally through an online form, to identify the account under your name. Personal information required may include your Social Security number.
  • For Venmo and other P2P app users: You can find the app’s fees online (here’s Venmo’s disclosure) as well as dispute billing errors or fraudulent charges. In many cases, these features existed before, but now they’re mandated.

Protections for all prepaid debit cards

The new rule aims to treat prepaid debit cards more like checking accounts. This change benefits the many financially disadvantaged Americans who don’t have checking accounts and use these cards as a substitute. The rule includes:

Fees and other vital information can be found on the back of prepaid card packaging in stores, and for online card purchases, on issuer’s websites. This can help you compare cards to see which are cheapest. You can expect to see any optional and typically expensive overdraft programs, which let transactions such as purchases and ATM withdrawals go through even if your account balance drops below zero. Plus, you can see whether an account is eligible for deposit insurance (or “FDIC insured”), which lets you get your money back if the prepaid company goes bankrupt.
Prepaid issuers won’t be required to offer periodic statements like checking accounts do, but alternatives must be provided.

The issuer must let you access your account balance by phone, review at least 12 months of online account transaction history and request at least two years’ worth of written transaction history for free. The issuer also must include a summary total that shows all fees charged to your account.

If you inform your card issuer of an error on a card you’ve registered, the company usually must confirm or deny it within 10 business days, depending on the type of transaction. The issuer may take longer than 10 days only if it credits the account with the alleged error.
The rule guarantees some protection against unauthorized charges on lost or stolen cards as long as you’ve registered the card. You’ll be responsible for up to $50 of fraudulent charges provided you report the incident within two days of learning about it. After that period, the loss limit goes up.

Note: If a prepaid account is unregistered, the last two protections above don’t apply. You’ll receive those protections from the point of registration onward.

Protections for prepaid debit cards with credit components

Prepaid debit cards are not credit cards nor do they build a user’s credit history. But some of them let you borrow money through features such as overdraft programs, cash advances or other credit services. The CFPB calls these cards “hybrid prepaid-credit cards” and includes the following rules to regulate them:

Prepaid companies can’t you about overdraft or other borrowing services until you’ve had an account with them for 30 days. This allows you to learn more about your account before you choose whether to add a credit service.
No card issuer can sign you up for an overdraft or other credit service without your consent. This is in line with overdraft policies for checking accounts.
You’ll receive statements, which will include fees, other charges and information on how to repay debt.
Prepaid companies must give you at least 21 days to pay back any debt before they can charge a late fee. And that fee must be “reasonable.” This new repayment policy is better than overdraft policies for checking accounts, some of which can charge fees on overdrawn accounts after four or five business days.
The total fees for using credit features can’t go over 25% of the credit limit during the first year that the credit component is opened.

Overall, the rules aim to bring more transparency to a prepaid marketplace that’s been criticized for taking advantage of the unbanked and other financially vulnerable consumers.

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