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Sens Lindsey Graham and Tim Scott Urged to Reject Measure to Block Fraud and Fee Protections on Prepaid Cards

Obscure, fast-track law would stop CFPB prepaid card rule

CONTACT: Sue Berkowitz (803)779-1113 x101 

Columbia, SC  – February 6,  2017 – South Carolina Appleseed Legal Justice Center today called on South Carolina Senators Lindsey Graham and Tim Scott and members of Congress to reject a fast-track resolution filed in the Senate on Wednesday that would allow Congress to block the Consumer Financial Protection Bureau’s prepaid card rule in order to allow NetSpend, owned by Georgia-based Total System Services Inc., to keep charging customers $80 million a year in overdraft fees on prepaid cards. The move would block basic fraud and fee disclosure protections for all prepaid cards, 98% of which, unlike NetSpend’s, don’t have overdraft fees.

“It is outrageous that Congress may deprive all prepaid card users of basic fraud protection and fee transparency just so that one company that takes overdraft fees out of the pockets of struggling families and are jeopardizing basic fraud protection and fee transparency for all prepaid card users,” said Sue Berkowitz, Director of SC Appleseed  “We call on Senators Graham and Scott and members of Congress that support predatory financial firms and attack the Consumer Financial Protection Bureau’s important work on behalf of the public should be ashamed. The CFPB, in just a few years, has demonstrated its value to South Carolina  residents and consumers around the country, returning nearly $12 billion to 29 million consumers across the nation.”

In South Carolina 183,356 used prepaid cards in 2015, according to the FDIC. Prepaid cards are a rapidly growing market, used to receive direct deposits and manage money by consumers shut out of the banking system or those trying to avoid bank account overdraft fees.

The resolution to block the prepaid rule was filed Wednesday by Senator Perdue of Georgia, the home state of the parent company of NetSpend, the only major prepaid card provider that has overdraft fees.  NetSpend has projected that the rule, which limits but does not ban overdraft fees on prepaid cards, could cost the company $80 to $85 million.

NetSpend is the only major prepaid card provider with overdraft fees. It primarily sells its cards at payday loan and check cashing stores and through payroll cards used by fast food chains, retail stores and other employers of low-wage workers. NetSpend’s payday lender prepaid cards have other unusual features that allow payday lenders to repay themselves from the card, potentially triggering an overdraft fee.

NetSpend’s cards offer opt-in overdraft “protection” that allows the card to be used when it is empty, with the overdraft and a $15 to $25 fee taken out of the next deposit to the card. A few other payday lender prepaid cards also have overdraft fees. NetSpend was recently sued by the FTC for telling consumers they can access deposits to the card “today” but then blocking immediate access to the funds.

A CFPB survey found that 98% of prepaid cards do not have overdraft fees. The largest prepaid card company, Green Dot, does not charge overdraft fees and supports the CFPB prepaid rule.

The CFPB rule was issued last fall and is scheduled to go into effect October 1. It extends to prepaid cards the same basic protections against fraud, unauthorized charges, and errors that debit cards have. The rule also gives consumers a simple chart of fees to help them shop for a prepaid card and avoid unwanted fees. The CFPB rule does not prohibit overdraft fees but requires hybrid prepaid-credit cards that can overdraft to comply with the rules for credit cards, including limits on fees in the first year, consideration of ability to pay, payments only once a month, and a ban on requiring automatic repayment from incoming deposits.

The senators filed the resolution under the Congressional Review Act (CRA), an obscure law that gives Congress, with the President’s signature, a window to veto a rule from going into effect. The CRA has special provisions to expedite a vote and prevent a filibuster. If a rule is blocked by a CRA vote, the agency is forever barred from doing a substantially similar rule unless Congress authorizes it.

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SC Appleseed fights for low income South Carolinians to overcome social, economic and legal injustice.

Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has used its expertise in consumer law and energy policy to work for consumer justice and economic security for low-income and other disadvantaged people, including older adults, in the United States.