WASHINGTON—Following a new study on the prepaid market, Pew Charitable Trusts is urging the CFPB to finalize its proposed rules on prepaid to protect consumers.
Pew recently completed a study that examines consumers’ attitudes, usage, knowledge, and perceptions of prepaid.
“The report finds that many ‘unbanked’ consumers, those without bank accounts, are using prepaid cards like checking accounts, underscoring the need for the Consumer Financial Protection Bureau to finalize rules it has proposed that would extend greater safeguards to prepaid card users,” Pew stated.
Key study findings:
The study confirmed prepaid’s rapid rise continues. Prepaid usage jumped more than 50% between 2012 and 2014, driven primarily by increased adoption among consumers with bank accounts. Several analysts in the past year have stated that prepaid is becoming a product not just for the underbanked, but also for well-to-do Americans, who use the cards to manage spending and limit fraud loss.
Unbanked prepaid cardholders use their prepaid cards more like traditional checking accounts and to manage their budgets. “The unbanked, half of whom make less than $25,000 a year, check their balances more regularly, reload more frequently, and register their cards more often than banked cardholders do,” Pew stated.
Most prepaid card users do not want the option to overdraw their accounts. “Many cardholders use their cards to control their spending, in part by not having the ability to exceed their balances,” Pew said.
Most users don’t know whether their liability for fraudulent use is limited, funds are FDIC-insured, or cards have arbitration clauses. “Almost all cards include liability limitations and carry FDIC insurance, but a lack of knowledge of these provisions could hurt consumers. Mandatory arbitration requirements restrict how consumers can resolve a dispute,” Pew explained.