Wilmington, DE: Field hearing on prepaid accounts


Welcome. Welcome to the Consumer Financial
Protection Bureau’s public field hearing in Wilmington, Delaware, at Delaware Technical
Community College. At today’s field hearing, you will hear from Director Richard Cordray
and a panel of distinguished experts who will discuss the Bureau’s efforts to create comprehensive
consumer protections for prepaid financial products. The Consumer Financial Protection Bureau,
or the CFPB, is an independent federal agency whose mission is to help consumer finance
markets work by making rules more effective, by consistently and fairly enforcing those
rules, and by empowering consumers to take control over their economic lives. My name is Zixta Martinez. I’m the Associate
Director for External Affairs at the CFPB. Our audience today includes public officials,
community leaders, advocates, industry representatives, and, of course, consumers. We are especially
pleased to have in the audience Delaware State Representative Gerald Brady. We also have
with us congressional staff from the Office of the U.S. Representative for Delaware, John
Carney. We’re delighted that you’re here today. Let me spend just a few minutes telling you
about what you can expect at today’s field hearing. First you’ll hear from CFPB Director
Cordray, who will provide remarks about the Bureau’s notice for proposed rulemaking for
prepaid financial products. Then, Meredith Fuchs, the CFPB’s General Counsel, will lead
a discussion that includes a panel of experts on the subject. Following the panel discussion,
there will be an opportunity to hear from the public. Today’s field hearing is being livestreamed
at consumerfinance.gov, and you can follow CFPB on Facebook and Twitter. So let’s get started. I’m now very pleased
to introduce Richard Cordray. Prior to his current role as the CFPB’s first director,
he led the CFPB’s Enforcement Office. Before that, he served on the front lines of consumer
protection as Ohio’s Attorney General. In this role, he recovered more than $2 billion
for Ohio’s retirees, investors, and business owners, and took major steps to help protect
its consumers from fraudulent foreclosures and financial predators. Before serving as
Attorney General, he also served as an Ohio State Representative, Ohio Treasurer, and
Franklin County Treasurer. Director Cordray? [Applause.] Thank you, Zixta. Thank you all so much for
joining us today. It is our pleasure to be here in what I learned in schools is known
as “the first state.” At the Consumer Financial Protection Bureau, we try to get out and talk
with consumers on a regular basis across the country. Today, we are here in Delaware to
discuss a market that has seen rapid growth in recent years, which is the market for prepaid
cards and other prepaid products. Prepaid products are relatively new and they
are growing exponentially. Their most tangible form is the prepaid card product used to store
funds and carry out transactions. The most common format of the card product is known
as “general purpose reloadable” or GPR card, for short. Consumers can load money onto GPR
cards and use them for everyday purchases, just like they would use a bank account with
a debit card. Consumers can purchase the cards in any number of stores or online, which makes
them easily accessible to a wide range of people. Some prefer to use prepaid cards for online
shopping or bill payment. Others may receive their wages, benefits, or other disbursements
on a prepaid card. Still others turn to prepaid cards as a budgeting tool, as is true, for
example, of some parents who send their children off to college with a prepaid card that can
be used to cover expenses. The number of all prepaid card transactions is growing rapidly,
jumping from 1.3 billion in 2009 to 3.3 billion in 2013—an increase of more than 150 percent
in only 4 years. Prepaid products, however, are more than just
cards. As the prepaid card market has grown, so has the use of mobile or electronic prepaid
accounts. Products like PayPal or Google Wallet can be loaded with and store funds from the
consumer or from third parties, and they also can be used for a wide range of transactions,
without reliance on a card. The Federal Deposit Insurance Corporation
reports that prepaid card users are disproportionately unbanked and under-banked households. Unbanked
consumers, of course, do not have any kind of bank account. Under-banked consumers typically
have a bank account, but also use nonbank products to meet some of their financial needs.
These consumers either have to, or choose to, operate outside of the traditional brick-and-mortar
banking system. More than one out of every five unbanked consumers has used a prepaid
card, and this number is growing. Many of these prepaid consumers are living
paycheck to paycheck, and are engaged in a constant battle to make ends meet. They are
some of the most economically vulnerable among us, and most of them have no idea that the
prepaid cards they choose to purchase are largely unregulated at the federal level and
carry few, if any, protections under federal consumer financial law, at least up to now. Technology and innovation can be powerful
forces to improve human life. They can create new products like prepaid accounts that could
serve the needs of consumers who are left out or opt out of the banking system. In growing
numbers, people are finding that these products are helping to meet their needs, which is
a good thing. But with this expanded access to financial services, it is also crucial
that consumers have strong protections under the law. Our goal as a financial regulator
is to implement rules of the road that protect consumers across different products and services,
both in today’s marketplace and in the markets of the future. Today, we are proposing a new rule to bring
strong consumer protections to the prepaid market. Consumers need and deserve to be able
to use sustainable products whose costs and risks are clear upfront, and where their money
is protected. The proposed rule covers prepaid cards as well as mobile and electronic prepaid
accounts that can store funds. In addition to general purpose reloadable prepaid cards,
our rule would also apply to prepaid cards that are used to distribute payroll wages,
certain government payments, child support payments, and government benefits that are
not needs-tested such as unemployment insurance and public pensions. Under our proposal, consumers would have some
new protections if their prepaid card is lost or stolen. The new disclosures we are proposing
for prepaid accounts would give consumers clear information about the costs and risks
before they agree to open the account. And if they choose to connect a credit product
to their prepaid account, they would receive the same protections that credit card consumers
have. As described more fully below, the proposed rule will help the prepaid market work better
both for consumers and for responsible providers. So, a little more detail. The new prepaid
account protections we are proposing today are important because they fill key gaps for
consumers. People use prepaid accounts as a convenient way to store and access their
funds, and many consumers see them as effective alternatives to checking accounts. But these
products are still fairly new and most have not yet been brought within the coverage of
federal consumer financial laws. By bringing prepaid accounts under the Electronic Fund
Transfer Act, we are proposing to give consumers the basic protections—including safety of
the funds—they have come to expect when they pull a debit card out of their wallet
or shop online with it. All prepaid consumers would receive the same basic protections as
long as they register the card with the institution that provided it. The first thing consumers should be able to
count on is easy access to their account information. Unlike checking account customers, prepaid
users typically do not automatically receive periodic statements. Under our proposal, financial
institutions must either provide periodic statements or make account information easily
accessible online and for free. We want consumers to be able to see their account balances and
a history of their transactions and fees. This helps them keep track of their affairs
and exert more control over their financial decisions. Second, our proposed rule would require financial
institutions to work with consumers who encounter errors with their account. Right now, if someone
is double-charged for a transaction or a merchant enters the incorrect amount, the consumer
may not be guaranteed any way of fixing the problem. Under our proposed rule, institutions
would be required to investigate errors on registered cards that consumers report to
them and work to resolve those errors in a timely manner. Third, if consumers lose their card, our proposed
rule would protect their funds, and if their card or their password is stolen, our rule
would protect them against fraud. If consumers lose their card or find erroneous or fraudulent
charges on their account, our rule would limit their responsibility for transactions they
did not authorize and create a prompt method for them to get their money back. As long
as consumers notify their financial institution in a timely manner about their lost card or
an unauthorized charge on their prepaid account, they can limit their responsibility if any
harm occurs. Clear and understandable disclosures are another
important element in safeguarding consumers. The new protections would make sure that consumers
have upfront information about prepaid accounts so they can shop for the best deal. This is
part of our “Know Before You Owe” initiative, to empower consumers to make informed choices
about financial products. We have done similar projects on mortgage disclosures, student
financial aid shopping sheets, and credit card agreements. We want to make sure that
people know about the costs, risks, and terms of the deal before they sign up and begin
to pay fees. Unfortunately, consumers often do not have
this type of information about a prepaid card until after they have purchased it. Most cards
list major fees on the exterior packaging, but the fee information is not in any way
standardized, making it difficult for consumers to comparison shop among prepaid products.
Further, some fees may be tucked away in the fine print inside the packaging or buried
in some obscure place on the website. Thus, people may not know the fees that would be
charged until after the prepaid card has been purchased or the prepaid account has been
opened. But that is clearly insufficient. We want consumers to know about the costs
and fees before they buy a prepaid product so that they can compare prices and terms
to decide on the best deal to meet their particular needs. So we are proposing “Know Before You Owe”
prepaid disclosures that would provide people with clear information upfront. Our proposal
includes a model form with easy-to-understand disclosures designed to help consumers. We
also took care to validate these disclosures through consumer testing. This form would
clearly and concisely highlight key information about a prepaid account such as common costs
like the monthly fee, fee per purchase, ATM withdrawal cost, and the fee to reload cash
onto the card. For those providers who use the model form,
the information will be presented in the same format for easy comparison, to allow more
informed consumer shopping. In addition, under our proposal, consumers must be able to access
a full set of the fees and related information before acquiring an account, purchasing a
card, or receiving a card from an employer or most other sources. Our proposal requires companies to make their
prepaid account agreements publicly available. Because consumers do not often see the full
agreement until after they have purchased a prepaid card, today’s proposal would make
card issuers post their account agreements on their websites. Prepaid card issuers would
also have to submit their agreements periodically to the Bureau for posting on a public website
that we would maintain. We are determined to make it easier for consumers to be able
to shop and compare the terms of different prepaid cards, and we are interested in having
consumer groups assess these agreements and size up the positives and negatives for consumers
to access that information, as well. As with all of our “Know Before You Owe” efforts,
we have been careful and deliberate in creating these model disclosures. Yet we recognize
that these forms are only useful if they work for consumers. For that reason, we took pains
to test these forms and we welcome your thoughts on them and the broader proposal. Through
our collaboration, we will be better able to serve consumers in this important and growing
market. Finally, some prepaid cards extend credit
to consumers in connection with their prepaid account by allowing them to spend more money
than they have deposited onto the card. This can pose certain risks. In light of this,
we are also proposing strong new credit protections for these scenarios. Most prepaid cards do
not currently have credit features, which makes sense because they are marketed as “prepaid”
for a reason. Consumers often use these cards because they
want to avoid credit features that can cause them to rack up fees and fall into debt. In
fact, some of them have previously lost bank accounts for this very reason. Under the proposal
we are issuing today, when a prepaid card issuer offers credit features in connection
with a prepaid account, it would be treated the same as a credit card under the law. This
approach would ensure that consumers who use credit on prepaid accounts will be just as
protected as those who use credit cards. Many protections conferred on credit cardholders
stem from the Truth in Lending Act. Others stem from the Credit Card Accountability Responsibility
and Disclosure Act of 2009, otherwise known as the CARD Act, which made sweeping changes
in the credit card market to protect consumers. Our proposal would guarantee key credit card
protections to prepaid consumers when the accounts offer credit features. We recognize
this may make certain credit features impractical for prepaid cards, but these protections are
very important in this context. First, like credit card issuers, prepaid companies
would be required to make sure at the outset that the consumer has the ability to repay
the debt before offering credit. They could not open a credit card account or increase
a credit line on a card account unless the card issuer first assesses the consumer’s
ability to make the required payments under the terms of the account.
Second, prepaid companies would be required to give consumers the same monthly credit
statement that credit cardholders now receive. This statement would detail their interest
rate, any fees, what they have borrowed, how much they owe, and other key information about
repaying the debt. Third, prepaid companies, like credit card
issuers, would be required to give consumers at least 21 days to repay their debt before
they are charged a late fee. Late fees and other penalty fees must also be “reasonable
and proportional” to the way in which the account terms were violated. Fourth, as with credit cards, the total fees
for prepaid credit products during the first year would not be allowed to exceed 25 percent
of the initial credit limit. Card issuers generally are prohibited from increasing the
interest rate on an existing balance unless the cardholder has missed two consecutive
payments. Card issuers may increase the interest rate prospectively on new purchases, but must
generally give notice to the consumer 45 days in advance, during which time the consumer
may cancel the credit feature. Our proposal also includes some important
additional protections to ensure that the prepaid product is distinct from the credit
product. It is critical that prepaid consumers fully understand the costs and risks of any
credit product that is offered to them before they sign up. For this reason, our proposal
requires a 30-day waiting period before prepaid companies can offer credit. Consumers should
have the chance to decide whether the basic prepaid product is a good fit for them before
they add any credit features. If prepaid consumers choose to sign up for
a credit product, our proposal would keep their prepaid funds walled off from credit
repayment. Issuers could not automatically demand and take repayment whenever a card
is reloaded. Further, issuers could not sweep funds from the prepaid account to repay the
credit unless the consumer has affirmatively authorized such a repayment plan, and they
cannot take funds more frequently than once per calendar month. This keeps prepaid consumers
in control of their funds. Certainly it would be easier for financial
institutions to extend credit without complying with these basic requirements. But these important
safeguards are already required for credit cards, and we believe they should apply equally
to credit features offered on prepaid cards and prepaid accounts. Fairness and transparency are important hallmarks
of all consumer financial products and services. Today’s proposal would help us achieve these
goals for prepaid account consumers. Our first-ever comprehensive federal protections in this
market would give people easy and free access to account information, require companies
to investigate and resolve errors, limit consumer losses on lost cards or where funds are erroneously
removed or stolen, and mandate adherence to credit card protections if the account offers
credit features. Our new disclosures would further allow consumers to “vote with their
feet” because they would be better informed with clear information about the costs and
risks of different prepaid products upfront. Just because consumers may not be able to
afford or qualify for a bank account, or just because they do not want to be a part of the
brick-and-mortar banking system, this does not mean they deserve to be treated as second-class
citizens. Like anyone else, they deserve to have a safe place to store their money and
a practical means of carrying out financial transactions. And though many prepaid companies
already have opted to offer some of these basic, common-sense protections, as we welcomed,
it is important to ensure that they are not simply optional but instead are cemented as
the standard for the industry and enshrined in law. Consumers deserve that from us. As Helen Keller
once noted, “Alone we can do so little; together we can do so much.” We agree wholeheartedly.
By working together, we can build a more fair and transparent marketplace for all consumers,
whether they are banked, unbanked, or under-banked. And so we look forward to a vigorous discussion
of our proposed prepaid rule here today, just as we look forward to the instructive comments
that we expect to receive from the public in the days ahead. Thank you. [Applause.] Thank you, Director Cordray. At this time,
I’d invite the panel to please take the stage, and while they are doing so, I’ll briefly
introduce the CFPB staff members who will participate in today’s conversation, as well
as our guest panelists. Meredith Fuchs, the CFPB’s General Counsel, will facilitate today’s
panel discussion. She will be joined by the CFPB’s Deputy Director and Associate Director
for Supervision, Enforcement, and Fair Lending, Steve Antonakes, as well as Will Wade-Gery,
the CFPB’s Assistant Director for the Office of Card Markets. Our guest panelists include Rashmi Rangan,
Executive Director, Delaware Community Reinvestment Action Council; Susan Weinstock, Director
of Consumer Banking, The Pew Charitable Trusts; Lauren Saunders, Associate Director, National
Consumer Law Center; Doug Bower, Executive Director and President, Network Branded Prepaid
Card Association; Cecilia Frew, head of U.S. Prepaid Products with Visa; and Steve Street,
Chairman, Green Dot Corporation. Meredith, you have the floor. Great. Thank you, Zixta, for making all of
those introductions. We have a panel of real experts here. What we’re going to do today
is each of our panelists is going to give some brief remarks, and then our group will
ask some questions, which they’ll have the opportunity to respond, and then, after that’s
done, we’ll move to comments from the floor. Let me start us off, however, by framing what
our discussion is today. Prepaid products have been the subject of piecemeal federal
consumer protection regulations to date, as the Director talked about. Payroll cards have
been regulated, there have been Treasury rules applicable to other cards, but most other
prepaid products were left out of this regulation. Today’s CFPB announcement is the first formal
proposal for comprehensive federal consumer protection rules for prepaid cards, and we’re
very proud to be doing that today. I say prepaid products, not cards, deliberately. In 2014,
some prepaid products are not cards. Digital accounts, including mobile accounts, are potentially
within the scope of our proposed rule, if they can store funds. Some of these accounts
have cards associated with them, but, of course, that’s not necessary for the proposed rule
to apply. We put out an ANPR in 2012, to start the process
of drafting this proposed rule. We received 220 comments in response to that Advanced
Notice of Proposed Rulemaking. We considered those comments carefully, prior to this point.
We’ve also conducted rigorous consumer testing, and we’ve done a fair bit of outreach with
industry and consumer groups over the last 2 years. We have analyzed the consumer protection
issues rigorously, and the result of all that work is the proposal that the Bureau issued
today. As those of you know, if you’re fast readers,
this proposal covers a wide range of issues, including preacquisition disclosures, account
information requirements, error resolution processes, liability limits for unauthorized
transactions, credit provision, and agreement postings, all important consumer protections.
Since we proposed our ANPR 2 years ago, these prepaid products have continued to grow in
significance in our economy, for both consumers and for the industry. They’re now mainstream,
as we talked about earlier. Next year, the total volume loaded onto general purpose reloadable
products is expected to be around $100 billion. As I throw these questions open to our distinguished
panelists, and give them an opportunity to talk, I want to note that what we’ve issued
today is not the rule; it’s a proposal, a proposed rule. Today, we are starting the
process of getting feedback from all of you on the rule, and we look forward to hearing
what you have to say. We’ll then analyze that carefully and we will move from the place
we are now to issuing a final rule, that takes into account the comments that we received
throughout this process. So thank you. We’re going to get started. I’m going to ask
Susan Weinstock to get us going. Thank you. Great. Good morning and thank you all very
much. Thank you, Director Cordray, and the staff of the CFPB. There has been, obviously,
a lot of work that has gone into these rules and we greatly appreciate all of your efforts.
Pew has been studying prepaid cards for a number of years, and we’ve found that these
cards really offer some great potential for consumers, particularly for the unbanked and
the under-banked, who can use these cards if they don’t want to or can’t get a checking
account. Our research on these cards, however, show
that they lack important consumer protections to make them an appropriate substitute for
a checking account, and regulations are important as they will allow for a level playing field
with only safe and transparent products. With today’s proposal, the CFPB has taken important
steps in making these cards a safe and viable option for consumers to use. Pew’s research has led us to develop the following
policy recommendations, many of which have been addressed by the CFPB in their new proposed
rules. First, we have to commend you all. We’re very pleased with the application of
Reg E protections, that cover checking accounts, that will now cover prepaid cards now, as
well, in your proposal. These are obviously important protections which will make it easier
for these two products to compete head-to-head for consumers. Second, we’ve seen that overdraft fees can
cause checking account holders to become trapped in debt. In addition, our research shows most
overdrafters don’t seem to understand the opt-in system for debit card overdraft. The
proposed rules include provisions requiring companies to ensure that the consumer has
the ability to repay any credit offered, and requires any offering of credit to be safe
and fair. These are important provisions to eliminate the growth of abusive overdraft
practices. And this is an important step in ensuring that credit is only offered in a
responsible manner. We’re pleased with the overdraft programs commonly offered with checking
accounts, that drive consumers, actually, to use prepaid cards will not be duplicated
in this thriving product. In the final rule, the CFPB should clearly
delineate what sort of marketing will be allowed to regard to consumers opting in to linking
their prepaid funds and credit repayment. The rules need to ensure that a provider cannot
mislead or pressure a consumer into opting in to link these two products. Unfortunately, the new disclosures that the
CFPB has mandated will not do enough to eliminate the guesswork in deciding which prepaid card
to purchase and use. While we are pleased that the CFPB is going to mandate that providers
public all long-form prepaid card disclosures on their own and on the CFPB’s website, this
proposal does not facilitate comparison shopping at the store, since all of the fees are not
listed on the outside of the packaging. By requiring only some fees to be prominently
disclosed, the proposed rule creates an incentive for card providers to disclose lower rates
for the fees listed on the outside of the packaging, that consumers can see and use
to comparison shop, while revealing significant additional costs only inside the packaging
or online, that consumers can only examine after they’ve made the purchase or when they
have access to the Internet. Also, this may not be helpful for those who don’t have Internet
access or only have Internet access on a mobile device, and it may be difficult for them to
read the long form on a small phone screen. We’re also concerned that the information
on overdraft and credit may be hard for consumers to understand, since no context or further
information is provided. Finally, GPR prepaid card funds need to be
federally insured against all losses up to $250,000, as are checking account funds, yet
the proposed rule does not seem to address this issue, other than through disclosure
of whether funds are insured. These cards bear great similarity to checking accounts
in their functionality, including allowing direct deposit of paychecks. Yet there is
no way for a consumer to track whether the bank holding their prepaid funds is financially
sound. Our research has shown that money transmitter licenses do not provide the protections afforded
by FDIC and NCUA insurance. The CFPB has the regulatory authority to require the prepaid
card providers to ensure that funds loaded on these cards are federally insured, and
we would like to see them do that. So let me conclude by saying we are so pleased
that the CFPB has moved forward with the application of Reg E to prepaid cards, and has fashioned
a rule that will keep abusive overdraft fees off of these products. These are very important
provisions. We plan to work to ensure that the final rules will require FDIC insurance
on prepaid card funds and that disclosures include key fees, terms, and conditions on
the outside of the packaging, so that consumers can choose the card that works best for them.
Thank you. Great. Thanks, Susan. Let’s turn it over to
Rashmi Rangan. Good morning, everyone. On behalf of the consumers
of financial products and services in the great state of Delaware, a warm welcome, thank
you for being here, and, on a burgeoning new, growing industry, prepaids. Prepaids are here
to stay, unfortunately, so, the proposal are a good step forward. What I want to do today
is, I had to rewrite this speech, actually, after I read the proposals, so I said let’s
talk about our experiences. Oftentimes, a very tiny segment of the prepaid
consumer market goes into the prepaid product responsibly, knowing that we have to manage
the money that we have, responsibly, so they use the prepaid to curb overspending. However,
a majority of our clients use the prepaid cards because they have been practically cornered
into them. They are either unbanked, under-banked, never-banked, or de-banked. That is our consumers
that use the prepaid products. They are often older Americans on fixed income, unemployed,
employed and receive their paychecks on the payroll card or in cash, often very low-wage
worker, those that receive the earned income tax credit, the immigrants. The most vulnerable
in our community are the ones that are using prepaid cards. These days we have also noticed that acceptance
of direct deposit of a paycheck is increasingly becoming a condition of employment. The fees
that we have seen from our consumers are for essential information such as what is the
balance left on my card, to activate the card, to load on it, to transact with it, or using
it as credit. In one instance, a consumer that had loaded $200 a week on that card spent
$40 that week in fees alone. This is highway robbery. In 5 years, this industry has grown, and it
will continue to grow. To the advocacy world, this growth comes as absolutely no surprise.
The financial crisis has left a much larger number of Delawareans even more vulnerable
and needing this product. People are losing faith in the financial institutions. Not a
month passes without a new revelation of abuses in this section. There is distrust with the
government itself. Despite that distrust, nearly 2,500 Delawareans used the CFPB’s complaint
process and filed complaints. In fact, our office, in addition to filing complaints,
did pick up the phone, talked to somebody at CFPB, and resolved a very troubling servicing
issue for a client of ours. For that, thank you so very much. People are concerned about their privacy,
especially when they read about the frequency with which data breaches occur everywhere.
Prepaid is a very profitable industry. Our banks are in it. In the Community Reinvestment
Act world, we have seen what happens when banks do not meet the credit needs of their
communities, much as when loan sharks step in, in the name of serving that need, often
with capital from the banks that chose not to invest in the community in the first place.
So, this is the right step, the right first step, and, of course, things will change and
we will be watching. Thank you so much. Great. Thank you, Rashmi. Let’s move on to
Lauren Saunders. Thank you, Director Cordray, and the rest
of the staff at the CFPB for inviting me here to speak to you all today, and for all of
your work to protect consumers in the prepaid card market, and in so many other important
financial services markets. Prepaid cards are playing an increasingly
important role in providing transaction accounts to consumers who have been shut out of bank
accounts, have had trouble with overdraft fees, to banked consumers who are looking
for a way to control spending, to employers and public agencies who are looking for a
fast and safe way to provide payments to people who don’t have direct deposits. Prepaid cards
can be safer, more convenient, and cheaper than paying to cash a paper check, or walking
around with a lot of cash in your pocket. Many prepaid cards live up their promise,
but not all do, and we don’t, right now, have a clear set of rules that provides uniform
protections to consumers who use prepaid cards. Prepaid cards don’t, right now, get the
clear, uniform protections that bank account holders get, if there are errors, fraud, or
other problems with a lost card. Prepaid cards operate as bank account substitutes, and many
are insured by the FDIC, but not all are, and funds can be at risk. The vast majority
of prepaid cards are truly prepaid. Ninety-eight percent of the cards in the report that the
CFPB just issued are, in fact, prepaid, but a few, especially cards sold by payday lenders,
offer misnamed overdraft protection that lures people into overdrafting at the end of the
month, hits them with overdraft fees, and then leaves them with a hole in their paycheck
that leads them into overdrafting again, at the end. These overdraft features can rack
up hundreds of dollars a year in fees for people who can least afford to pay them. Basic account information can be hard to find,
and expensive for prepaid cards. Most do not automatically come with statements. For consumers
who don’t have computers, the cards can be a black hole. It can be difficult to find
out the fees and charges that are coming out of the account. Basic fundings, like finding
out your account balance or calling customer service, can end up with a fee. For employees, a well-designed payroll card
can be a useful option for receiving your pay, but too many employees are pushed into
fee-laden cards, and are not offered the clear choice that they have, under the law, to choose
how to receive their pay. Finally, fees can be difficult to find out and compare, and
consumers can’t get clear pricing information to pick the right card for themselves. Now, I have not read the rule, but I believe
that in all of these areas the rule does make progress and will make prepaid cards safer
for consumers and for employees. I know that in all of these areas there are also going
to be improvements that we will be urging, and places where we think the rules should
go farther and should be tightened up to avoid evasions. But, overall, I think it’s a strong
rule, and it will be a win-win for both industry and consumers and employees, who will have
more confidence when they use prepaid and payroll cards. I should also note that banks should not use
prepaid cards as an excuse not to offer safe and affordable checking accounts to consumers
of modest means, and we have a lot of work to be done there. We don’t want prepaid cards
to be the place where people are shunted. But for many people, they will be useful and
they will be safer and more transparent after this rule. So I thank the CFPB for your work and for
inviting me here today. Thanks very much, Lauren. We’re going to move
into some perspectives from the prepaid card industry, so Doug Bower, why don’t you get
us started. Thank you. Director Cordray, thank you for
the generous invitation to participate in today’s field hearing. My name is Doug Bower
and I am the Executive Director of the Network Branded Prepaid Card Association. NBPCA is
the only trade association focused solely on the network branded prepaid card industry,
and our unique membership represents the entire prepaid value chain. Network branded prepaid
cards are debit cards that carry the Visa, MasterCard, American Express, or Discover
logo. NBPCA is excited to be part of this dialog
with the CFPB, to help establish common-sense consumer protections that will reassure consumers
about the safety and security of their funds while providing a level playing field for
all industry players. We look forward to the opportunity to read and review the 870-page
rule released this morning. [Laughter.] I’m not that fast of a speed reader. General purpose reloadable cards represent
an increasingly popular financial services tool that provide nearly all of the benefits
of the checking account but avoids many of the drawbacks, such as credit checks and high
fees. As a result, it is no surprise that the prepaid card industry has experience dramatic
growth over the last 10 years. In fact, prepaid cards are gaining in popularity because they
address an important consumer need, providing secure payments that are safer than cash.
Prepaid cards have opened the door to the card-based financial system for many of the
approximately 90 million Americans who are unbanked and under-banked. Many consumers
in these groups have limited or no access to bank branches or ATMs in their neighborhoods.
Moreover, many are simply not eligible for or do not have enough money for traditional
banking services. Recently, we have observed prepaid card usage
trending upward among generation-wide consumers. In fact, according to a recent study conducted
by the Federal Reserve Bank of Philadelphia, the general purpose reloadable card is highest
in persons ages 18 to 48. In fact, 59 percent of those surveyed said that their prepaid
card helped them manage their money better and spend less. This study also found that
the cumulative monthly fees for general purpose reloadable cardholders averaged between $5
and $6, which is less than the cost of many traditional banking accounts. In addition, our industry is focused on providing
a safe payment alternative for all consumers. For example, a review of some of the largest
reloadable card programs demonstrates that once a consumer submits their personal information
to an issuer, the cardholder is fully protected against loss, theft, and unauthorized transaction.
Finally, NBPCA has long supported efforts to develop a way to make general purpose reloadable
card fees clear and understandable. In fact, we have published our own leading practices
for consumer disclosures on general purpose reloadable cards. NBPCA and our members stand
ready to work with the Bureau to develop meaningful prepaid card disclosures. Thank you for the opportunity to share my
thoughts and experience of the more than 70 member companies of the NBPCA, and I welcome
any questions you may have. Thank you. Great. Thanks very much. We’re going to move
on to CecIlia Frew. Good morning. Hi. I’m CecIlia Frew, and I
manage prepaid for the U.S. for Visa. Thank you to the CFPB for inviting Visa here to
participate. As more people continue to choose the security, convenience, and reliability
of prepaid cards, the proposed rulemaking is an important first step in the ongoing
evolution of the prepaid category. First let me take a minute to explain what
Visa does. Visa is a global payment technology company. We connect consumers, businesses,
financial institutions, and governments in more than 200 countries and territories, to
fast and reliable payments. We operate one of the world’s most advanced processing networks,
VisaNet, with fraud protection for consumers and assured payments for merchants. We do
not issue cards, but rather we work with financial institutions and program managers to create
a wide variety of products, distributed through multiple channels, to meet a broad set of
consumer needs. Prepaid has evolved significantly over the
last several years. What started out a single-use, non-reloadable card, really targeted to gift
and rebate, later evolved to products aimed at delivering government, health care, and
corporate disbursements in a less expensive and more efficient way. Today, the category
has evolved even further, in to general purpose reloadable cards that any consumer can attain,
regardless of their involvement in traditional brick-and-mortar financial services, their
lack of credit history, or previous experiences in banking. This evolution has opened up a new solution
for many consumers to manage their money. Consumers that were cashing a payroll check
and using cash to pay bills now can have direct deposit directly onto the card, giving them
access to their pay up to 2 days earlier, and in a more convenient way. Consumers now
have more ways to pay their bills, in real time, by using their card, without having
to travel to merchants to pay their bills in cash. Today, the vast majority of utility
providers accept cards. And, finally, prepaid cards give a previously
excluded segment of the population, a segment that was using cash entirely, access to participate
in e-commerce and mobile solutions. Recently, we’ve seen an especially interesting evolution
of the product. We have found that mainstream consumers are often using the product in unexpected
ways, such as a companion card to their traditional checking account, where they would segregate
funds in order to help them manage and control their spending. We see these consumers using
prepaid in addition to checking, debit, and credit, not instead of them. We imagine a
day when prepaid cards are one more tool in the wallet to help consumers manage their
financial lives and build their financial future. These rules are one more step in that evolution,
which will bring clarity to both consumers and the industry. Already, today, in market,
the majority of these prepaid programs have already adopted the same consumer protections
available on checking and debit cards today. In addition, we’ve seen prepaid become more
consumer-friendly, with simplified fee structures, and features and functionality that aid the
consumer in the day-to-day management of their money. Finally, prepaid has been on the forefront
of innovation and we expect to see that continue. A good part of the financial services innovation
is utilizing prepaid as its platform, because it’s easy to get up and running and to iterate
services quickly. Innovators see prepaid as a way to deliver new products and services
to consumers, to meet unmet needs, and even to redefine how banking is done. We are excited
by the ongoing investments in the prepaid platform happening all across the financial
services landscape. Visa is committed to opening up our network to enable these innovators
and, thus, helping consumers to thrive. In conclusion, Visa constantly strives for
better understanding the needs of our clients and cardholders, and, in doing so, add product
features that make Visa the best way to pay and be paid by everyone, everywhere. Again,
thank you for having me. Thanks very much, Cecilia, and we’re going
to hear some opening remarks from our last panelist, Steve Street. Thank you. Thank you. Director Cordray and attendees
of today’s field hearing, my name is Steve Street and I’m Founder, Chairman, and CEO
of Green Dot Corporation, and Founder and Chairman of Green Dot Bank, a state-charted,
Fed member commercial bank, regulated by the Board of Governors of the Federal Reserve
System and the State of Utah Department of Financial Institutions. That’s a little bit
of a historical perspective. Fifteen years ago, while working from my small
bedroom at a folding table in the corner of the room, I came up with an invention called
the I-GEN MasterCard. The idea was to create a so-called credit card for kids who wanted
to buy stuff online without having to ask their parents to use their credit card. With
that basic invention, my friends and I started a company and went to market. We sold our
first I-GEN card at a Rite-Aid store in Loudoun County, Virginia, on May 21, 2001. Sales started
to pick up but we quickly learned that kids were not the ones buying the I-GEN card. In
fact, our customers turned out to be low-income Americans who needed a MasterCard at that
time but couldn’t get a traditional bank debit card or a credit card. So we knew we had a good product, but that
kids were not the customer, so, in true entrepreneurial fashion, we changed course. We called all
the I-GEN packaging off the shelf and relaunched with a new product, called the prepaid MasterCard.
So, why prepaid? I chose the word “prepaid” because my friends and neighbors all knew
what a prepaid phone card was, and so I figured that naming this new product a prepaid MasterCard
would help consumers more quickly understand how the card worked. You load cash at the
register, you spend what you loaded, repeat. We couldn’t afford customer research back
then, but the name “prepaid” stuck, and that basic product created the prepaid debit card
industry that is the subject of today’s field hearing. Of course, 15 years ago, there was no CARD
Act, no Dodd-Frank, no CFPB, in fact, and no specific prepaid regulations at all. Even
consumer advocates hadn’t yet become familiar with our little product. But even in those
early days, when we couldn’t always make payroll for our company, and many thought we would
fail, we pressed ahead with a strong belief that putting the customer first—and, in
our case, that customer was a single mom struggling to make ends meet—that truly loving and
respecting that customer would bring Green Dot long-term success. I guess to borrow a
phrase from a country song, Green Dot was pro-consumer before being pro-consumer was
cool. And the customer has responded, blessing us over all those years with their ongoing
loyalty and patronage, making Green Dot the biggest in the industry, and allowing me to
now have a bigger bedroom office. I’m so humbled and honored to be here today,
not just to represent our company, but, more importantly, to represent our customers. When
a customer uses a prepaid card, any prepaid card, they deserve to be treated fairly and
honestly. They deserve to have their money protected in the same way any bank account
holder is protected, and they deserve to use a product that helps and does no harm. Today,
the prepaid industry takes another step towards maturity and passes another milestone on its
path to long-term sustainability in a critical mass. I, as a person, and Green Dot, as a
company, fully support the CFPB’s mission. A football game without rules and referees
isn’t a sport. It’s a brawl. Like sports, to be successful, industry also needs rules
and referees to ensure fairness, integrity, and safety for all participants. Director Cordray, on behalf of Green Dot,
its retail distribution partners, our investors, our nearly 3,000 associates in the United
States and around the world, and our many millions of customers who rely on our prepaid
products every day, thank you for giving me the honor of sharing my thoughts on such a
historic and important day for the prepaid debit card industry. We would also like to note, for the record,
you’re displaying the best corporate-branded necktie I’ve ever seen. [Laughter.] Thank you. Thank you all so much for talking about the
evolution of this industry and really setting the stage for why we are here today, and why
CFPB has issued this proposed rule. I’m going to start the questions and I’m going to start
with Rashmi, if that’s okay. We’ve heard so much now about the growth and
evolution of the prepaid card industry, and you talked about why consumers in your community
are almost forced to have to use prepaid cards. I’m curious if you could talk to us a little
bit more about the issues consumers in your community are facing when they use these kinds
of products. Thank you. For starters, consumers do not
know what this product is all about. Most of them are moving into some kind of a systematic
use of finances outside of cash. So the very fact that they’re using this card for the
very first time, unaware of the fees associated with them, I kind of always get reminded the
very first time I saw a MAC machine, when I came to the U.S., and said, “Ooh, you put
a card in and money comes out. Magic.” Truly, I actually do get the fact that my
consumers don’t know this product at all, don’t understand how much is there, so they
tend to overdraw because they just don’t know. They know there was a $100 deposit. I’ve used
up $50, so there should be $50, but let me double-check. They’re being very smart about
making sure to know what’s there, and they’ll pick up the phone, call, and suddenly only
$30 is left. So, I think that ignorance is one huge thing, and the concern, really, for
us, with this prepaid product, is that the consumers have very few choices, or actually,
like I said, they’re cornered. They have no choices. So education, information is something
we need to do, but the protections, and glancing at the proposed rule, I feel comfortable with
some of the protections, but the protections have to translate into informing my consumers,
preparing them on how to read, comparison shop, and do the right thing by themselves. Thanks, Rashmi. Doug, this one is for you.
You talked a little bit about this in your remarks, but could you say a little more about
the developments that you’ve seen in the prepaid market in recent years? How has the market
grown? How has it changed? It’s very interesting that we, obviously,
see unprecedented growth, but we also see that the product has moved very mainstream.
If you look at the average income for prepaid cardholders back in 2011, it was about $45,000
a year. The most recent Fed study indicated that it was over $63,000 a year. That’s a
huge change that illustrates these products are really moving mainstream. A lot of the
growth is being driven by federal payments, as I think you are all aware. It’s a much
more efficient way to issue payments to consumers, but also, we’re seeing a huge uptake, as I
mentioned in my comments, by the Gen-Xers, and we expect to see the industry continue
to grow and prosper, and we like the competition that’s in the marketplace now, because we
think it will continue to support very fair and competitive fees. Good morning. My name is Steve Antonakes.
I serve as the Deputy Director of the Bureau, and also the Associate Director for Supervision,
Enforcement, and Fair Lending. Let me add my thanks to the panel for taking the time
to come today, and also to the audience for participating in our field hearing, as well. My first question is for Susan. The question
is, really, could you take a little bit of time and describe the benefits to consumers
of a standardized disclosure regime across the prepaid market? Sure. When we did a survey of prepaid card
users and we released it earlier this year, we found that only 32 percent of consumers
had actually compared terms before choosing a card, and they mostly selected a card without
comparison shopping, or they used a card that a friend or a family member told them to use.
Our market scan found a variety of disclosure methods that were not uniform, that were hard
for consumers to understand, that they couldn’t make those comparisons and pick the card that
works best for them. We’ve done a number of focus groups in many
different cities, looking a disclosure, and we have developed our own disclosure box for
prepaid cards, and we found that folks really like the idea of having this disclosure box
that’s available to them in the store, pre-purchase, and online. They wanted to use it to help
them avoid unanticipated charges, to aid in the comparison shopping. It can be a useful
reference tool. If somebody has a question after the fact, they’ve bought the card, “Wait,
I don’t remember this part of it. What did it say?” They can go back and look at that
disclosure and understand it, and it can eliminate the need to call customer service, which,
what we found, often comes with a fee. So that’s helpful to consumers, as well. And it’s great that this new rule is going
to include uniform disclosures, so consumers can make those apples-to-apples comparisons,
because, as I said, when we looked at the market and we looked at many, many cards across
the industry, what we found is they’re all different, and it makes it very difficult
for consumers to make those comparisons. A couple of things that the box, I think,
leaves out that might be helpful, like funds availability information. So when is my money
going to be available to me, once I load funds onto the card, whether and how the monthly
fee can be waived, whether there’s a savings account option, and how much would it cost
for a paper check bill pay, or for a money order. But this is a wonderful start in the
right direction, and we’re very pleased and thank the CFPB for their work on this. Great. Thank you. Hi, Steve. This one’s for you. Obviously,
you’ve been in the market for a very long time. What do you think are the benefits of
increased consumer protections across the industry at this point? Well, when you have a new product category
that turns into an industry that’s growing, you want the category, in general, without
regard to any particular one brand, to be viewed positively. You can’t grow a category
and create a vibrant, sustainable industry, if consumers feel it’s bad for them or if
it gets bad articles written about it, or if regulators have concerns. So having standardized
rules across the industry helps to level the playing field, much like the comment about
a football game. It just wouldn’t be any fun to watch if anyone could do whatever they
wanted on the field. So, I think, hopefully what it will do is
keep the industry on the up-and-up, especially on the issues of Reg E and consumer protections,
which we have long been so supportive of, because it doesn’t take too many consumers
to lose their money or not be dealt with fairly to destroy an industry. So we like the fact
that this will, I believe, help the industry be viewed positively, in the same way that,
even with all the issues that traditional banks have had, people do feel safe having
their money in a traditional checking account. They may not like certain aspects of it, but
nobody feels that they’re endangered by doing it. We need prepaid to have the same positive
view by consumers. Great. My next question is for Lauren. Lauren,
what are the potential benefits, as well as drawbacks, for consumers who access credit
in connection with prepaid accounts? Like other consumers, prepaid cardholders
sometimes have unexpected expenses or income swings that can make it hard to make ends
meet, and sometimes credit can help in those circumstances. Credit does need to be affordable,
with affordable payments that don’t push people into a cycle of debt, and it’s not a panacea.
Credit is not for everybody. Credit cannot make up for low wages, and it can’t help somebody
who has a month-in, month-out problem of not enough income to cover their expenses. And
those people do turn to prepaid cards because they’re looking for a way to control spending.
Ninety-eight percent of the cards are truly prepaid. People turn to them because they’ve
had trouble with credit or overdraft, and prepaid cards are offered to people who have
blemished credits. They’re offered without a credit check, even if you have bad credit,
and that’s a good thing. That’s opening up an important market to these consumers. But for many of these people, credit is not
a good thing, and, when offered, it needs to be offered in a safe and sustainable way.
It can be tempting to take up an offer, to spend more at the end of the month when you’ve
run out of money. But what happens is then you get hit with overdraft fees and you start
the next month with a hole, and you get into that cycle that just puts you into a cycle
of overdrafting every month, and fees that rack up, month-in, month-out, that add to
the cost of the card in a way that makes it harder to make ends meet and harder to meet
those expenses at the end of the month. Now, the proposed rule doesn’t completely
ban overdraft features on prepaid cards, and that’s one place where we will be urging the
Bureau to go a little further. We think that companies should be free to offer separate
credit products to prepaid cardholders, but then when the prepaid card is empty, the transactions
just be denied, and the consumer can choose whether to skip the purchase or to pay another
way. That said, the proposal does add important protections that will hopefully eliminate
many of the problems that we do see with overdraft features on prepaid cards today. First of all, they have to be honest that
they’re actually offering credit, which, of course, is what overdraft is, but it’s not
designed that way. They’ll have to tell them how much credit they have. They’ll have to
assess, so the person does have the ability to repay the credit, and just being able to
grab that paycheck when it comes in is not going to be enough. They’ll have to have more
time to repay credit, at least 21 days with payments due no more than once a month. They’ll
have to limit the fees in the first year. Now, there’s no cap on the interest rates
that could be charged, but at least the fees can’t pile up in a way that makes something
look deceptively cheap. And, those who offer credit won’t be able
to automatically stick their hands into the prepaid card account to repay themselves,
just like a credit card right now doesn’t have the right to insist that they can repay
themselves from your bank account, unless you choose to do it that way. So, overall, I think the rule will make credit
products, when they are appropriate, more honest, transparent, and safe for prepaid
cardholders. Thank you, Lauren. My next question is for
Cecilia. Cecilia, can you talk about some of the security initiatives in the prepaid
space, and other attempts to reduce fraud? Sure. Happy to. Fighting fraud and protecting
cardholders’ data is obviously of key importance to everyone in this industry, and, unfortunately,
there is no silver bullet, but there are multiple layers of security and protection that we
can enable in order to protect as much as we can. One key piece of consumers’ protection that’s
already in place is zero liability coverage, so all the major networks—Visa, MasterCard,
American Express, Discover—have provided those strong consumer protections for years.
In addition, we’re starting to see real progress on items like EMV, the chip card, tokenization,
which was obviously a big part of the Apple Pay launch. And then, finally, Visa has announced,
earlier this year, that it’s putting together what we’re calling the prepaid clearinghouse
service, very similar to what was done in credit cards back 20 years ago or so. We will be creating a repository of fraud
information. Anyone can contribute to this. It’s not just Visa programs. But it allows
real-time monitoring for all of the issuers to decide whether or not a transaction is
fraudulent, a cardholder is impersonating someone, whether or not that dispute is legitimate—so
lots of protection there. I mean, at the end of the day, it’s got to be all around a multilayered
approach. Thank you. Before we move to get testimony and statements
from all of you in the audience, I want to just go back to each of you and give you an
opportunity to sort of wind things up. I’ll try to focus that a little bit by asking you
what you anticipate seeing in the prepaid market in the coming years. What innovations
are you expecting? What are the directions that you think it’s going to go? I guess we’ll
start down there, on this end, and move along. So thanks, Susan. I think what we’ll probably see in prepaid,
and I commend you for the way that you handled this, is the definition of prepaid is not
just based on a card. It’s a product that can be something that you use your phone with,
or whatever, whatever new technology we haven’t thought of that’s going to come our way, but
these rules will cover that, and that’s really important. So I think that’s what we’re going
to see, and I think it’s really great. And I’d like to think that we will see a burgeoning
market, even more so than we’ve seen before, because now there is a level playing field,
as Steve said, and there are rules of the road, and consumers can have certain expectations
and know that they will be fulfilled with this product. The future for prepaid is amazing. I mean,
you can’t even figure what it will be. Today you can do that Apple Pay, and amazing things
already. But with technology, regulation, innovation, the potential to use technology
to build a community is enormous. To be able to push information out on the smart phone—hey
guys, do you know you just used up $2.50 over the last couple of weeks? It added up to so
much. Did you really budget this much for your coffee every morning? I mean, there’s
tremendous potential in this market, if used right. Stars just have to align perfectly
for it to do good in our community. I think we’re going to see a lot of growth
in the payroll card market. I think this is a place most employers still don’t use them,
and I think that is really going to explode, both in large and small employers, in the
years to come. I do think that’s a place where the rules are going to need to be stronger.
I think we need to do more than a little disclosure. I think we need to have really clear rules
to make sure that employees know their choices up front, and the better choice for them is
usually going to be direct deposit to their own account, if they have one. I agree with Susan, that obviously the use
of mobile is increasingly important. It’s going to have great functionality to prepaid
cards, if I can use that term for a mobile product. Here again, I think we need to remember
that not every consumer has a smart phone, and even though there may be great features
there, they’re not going to help everybody, and even for those who do, for lower income
consumers, they may be on prepaid phone plans, data plans. Data is expensive. They may run
out by the end of the month and have interruptions in access. So we have to keep those consumers
in mind as we think about how these products are used, and not assume that everything is
as seamless as it is for many of us. We are very bullish on the growth opportunity
in prepaid. One thing that we’ve seen, as a key thing that’s happened here in the last
3 or 4 years, as I mentioned earlier, is this product is rapidly growing mainstream, and
we expect that with things like technology, that was just mentioned, this product is a
lot about building financial confidence for folks. They like the product. The customer
satisfaction scores are off the charts. It’s a wonderful product. People feel like they’re
gaining control of their own finances. And when you marry that with real-time technology
that allows them to better manage their money and recognize their spend rates and everything,
it’s a terrific opportunity for the industry, and we see it being more mainstream and we
expect to attract more people from traditional banking accounts to the product, so we’re
very excited. As I mentioned in my opening comments, one
of the things that gets me the most excited about prepaid is really the innovation and
entrepreneurships—Steve is a great example of that—that have created this entire industry.
And it really started out with an unmet customer need, and developed all around trying to solve
that need. So we see those same kind of entrepreneurs and innovators out in the market today, trying
to understand unmet needs, whether that’s an easier way to pay your friend to split
dinner, or to pay your landlord, or to deposit a check using your smart phone. I think the
future is all going to be around, how do we take this technology and really leverage it
for people to manage their financial lives better, and develop a stronger financial health. Well, I’m going to put in a little plugs for
bank. My sense is that prepaid accounts, over time, will be viewed more and more as just
a bank account. You have checking accounts, you have CDs, you have savings accounts, and
you have prepaid accounts. I think, over time, if you fast forward, the days of a prepaid
card being viewed as a neo-account, or a kind-of, sort-of something like a bank account, those
kinds of distinctions will go away, and that they’ll just be viewed as another kind of
bank account. I also think that banks will become more and
more important in the prepaid ecosystem, but also the payments ecosystem, more broadly,
because no matter what the payment device or instrument, no matter what the technology,
whether it’s the Google Wallet or an Apple Pay overlay or something else, the consumer
will also need and demand an underlying, safe, regulated, FDIC-insured bank account, because
they expect their money to be there, they expect regulators to be making sure the bank
is solvent. All the technology in the world will not replace that core need, both, in
my view, in regulation, and just in consumers’ behavior, for that underlying bank account
to be there and to be safe and sound, supporting all that new, cool stuff. Great. Well, I really want to thank all of
the people on this panel. This has been a really interesting discussion. We’re going
to move to the next phase now, which is going to be an opportunity to hear from people in
the audience, and I’m going to turn things back over to Zixta Martinez. Thank you, Meredith. At this time, will the
guest panelists please rejoin the audience, and please join me in thanking them for their
participation today. [Applause.] An important part of how the Bureau helps
consumer finance markets work is to hear directly from consumers, from industry, from our state
and local partners, and from community advocates from across the U.S. One of the ways that
the Bureau gathers public feedback is through events such as these. We have held field hearings,
town halls, and other public events, in places such as Indianapolis, Philadelphia; Minneapolis;
Cleveland; Birmingham; New York City; Sioux Falls, South Dakota; Durham, North Carolina;
Detroit; St. Louis; Itta Bena, Mississippi; Phoenix; Nashville; New Orleans; El Paso,
Texas; and Wilmington, Delaware, among many others. At these events, we not only hear
from experts in the field, we also invite the public to participate and share their
views. Before I open the floor for comments, I want
to remind folks that there are several other ways to communicate your observations, concerns,
or complaints to the CFPB. You can file a consumer complaint with the CFPB through out
website at consumerfinance.gov. Our website will walk you through the process for filing
a consumer complaint. If you don’t have a specific complaint but would like to share
your story with us, we have a feature on our website called “Tell Us Your Story,” where
you can tell us your story, good or bad, about your experience with consumer financial products.
Your story will help inform the work that we do to protect consumers. We also have another feature called “Ask CFPB,”
where you can get answers to over 1,000 frequently asked questions about consumer financial issues,
as well as additional resources. I encourage you to visit consumerfinance.gov to learn
more about the resources and tools the Bureau has developed to help consumers make the best
decisions for themselves and for their families. Now it’s time to hear from members of the
public here today. A number of you signed up to share comments and observations about
today’s discussion. The open mic portion of the field hearing is also an important opportunity
for the CFPB to hear about what’s happening in consumer finance markets in your community.
Each person who signed up to provide testimony will have 2 minutes to do so, and what we
hear from you is invaluable, and we want to hear from as many of you as possible, so I
encourage you to please observe the 2-minute limit so that as many folks as signed up to
share their observations have the opportunity to do so. So, with that, I’ll call on our first public
commenter, Pam Banks. Pam, someone will bring you a microphone. Thank you. First of all, thank you for holding
this important field hearing on prepaid cards, and certainly, thank you very, very much for
your proposed rule on prepaid cards. From a consumer perspective, there is a lot to
like with respect to your rule. We like the error resolution protection, better disclosures,
and certainly we like the fraud protection. However, as you might guess—there is always
a however—we are concerned about offering credit features on these prepaid cards, for
the obvious reasons. It traps consumers in debt, and prepaid is prepaid. And then, finally, we would love to see pass-through
FDIC insurance on these accounts, if possible. Having said that, we will work with you as
you finalize this rule, and before I leave, I would like to ask permission to submit,
for the record, our recent report on prepaid cards. The report rates 23 different cards
in terms of value, convenience, safety, and transparency with respect to fees. So, thank
you again. Long-awaited, it’s here, and we’ll work with you on this. Thank you. Thank you, Ms. Banks. We’d be happy to take
the report for the record. Melissa Diaz. Good morning. My name is Melissa Diaz and
I’m Executive Director of Master Your Card: Oportunidad, a community empowerment program
for MasterCard. Whatever you do, please make sure prepaid cards and payroll cards remain
a viable option for the 46.4 percent of Latino households who don’t have a bank account.
The use check-cashers and payday lenders, losing money at every step. Prepaid cards
and payroll cards can help them step forward into the modern economy. Master Your Card:
Oportunidad is helping them make that step, and so can you. Financially underserved Latinos immediately
gain greater buying power, savings, convenience, and safety when they are armed with their
prepaid card and they know how to use it. Prepaid payroll cards help under-banked Latinos
bank on their cards, providing direct deposit, online purchasing, and bill paying, financial
management tools, and significant cost savings over the expense of check cashing and purchasing
money orders. That’s why Master Your Card: Oportunidad’s Latino Advisory Board works
with MasterCard to implement the Six Standard for Prepaid Payroll Cards. MasterCard payroll
cards are now voluntary, provide for greater services, no or low fees, full disclosure
of benefits and fees in a simple language, and education to help employees understand
how to use the technology to their benefit. Please recognize prepaid cards as a powerful
vehicle for financial inclusion, and make certain they remain affordable for those who
can least afford to be outside the financial system. Thank you. Thank you, Ms. Diaz. Jaclyn Quinn. Hi. I’m Jaclyn Quinn from the Delaware Community
Reinvestment Action Council, and I wanted to stress the importance of the uniform fees
when it comes to these cards. As someone who has sat down with many clients to find out
what kind of fees they were incurring, it takes some time and effort to go through the
pamphlet that can come with the card. So, that’s one point that I wanted to make. The other thing is, I wanted to stress the
importance to everyone that’s here of submitting complaints so that the CFPB knows what we’re
seeing, and so that the issues can be addressed. So thank you for being here today. Thank you, Ms. Quinn. Devon Lyon. Director Cordray, distinguished members of
the CFPB, my name is Devon Lyon. I’m the Director of Compliance and BSA for State Department
Federal Union. First, let me thank you for the job security over the last couple of years
with the regulatory pace. In all seriousness, I think everyone here think that this is a
terrific rule and long overdue. Two things I would like to have married within
the rule. One, with the request for monthly statements, make sure that is in compliance
with the E-Sign Act, so if there is a paper statement requirement, that members or participants
in receiving a prepaid card can opt-in to receive it electronically through normal channels,
with existing regulation. Number two, what we find challenging, from
a BSA standpoint, is when members load cards through our prepaid product, Visa codes that
as a purchase, not as a cash load. So, from a tracking standpoint, that becomes tricky.
So, with looking at this regulation, maybe mirroring it with Treasury’s recent rule,
making for BSA and FinCEN, to make sure that all of the coding is accurate, as well, so
institutions that do choose to offer these products can do it in the most compliant manner
possible. Thank you. Thank you, Mr. Lyon. Adam Rust. Good morning. I’m Adam Rust from Reinvestment
Partners. I wanted to generally compliment the CFPB for what seems like a really great
rule. Looking back, I think the big issues that needed to be addressed were the question
of credit versus overdraft, or credit and overdraft, and then how the disclosures would
be done. And as I had thought, over time, the concept of a hard no on credit seemed
a little bit indefensible. What I really like about this proposed rule is that credit is
separated. It’s still possible to get credit here, but if you do, it’s completely well-regulated
with TILA and CARD Act compliance, so it’s really the kind of credit that’s the best
kind of credit that the law will currently allow, and other products, so it should be
the same thing that’s available for people on prepaid. With overdraft, though, we’re a little more
hesitant to support that. We’re generally against the idea of overdraft. As much as
anything, we’re against overdraft on checking or on prepaid, because overdraft still isn’t
really fixed. Even if you have an opt-in system, people are still ending up with overdrafts
on certain types of transactions. That’s what I wanted to say about credit and overdraft. With respect to the disclosure rule, I think
the problem that are hard, there’s a fee heterogeneity, there’s a user heterogeneity. What do you
do about that? I really like that they’ve used incident fees to deal with the question
of heterogeneity of fees, and with respect to cards that have, I think it’s Model G,
where there’s a pay-as-you-go price plan, and then a standard user plan. That’s been
addressed. I would like to see a little more effort on
functionality. What’s really happening in the marketplace is that register reloads and
a remote deposit are a new way to add money, and that’s really not on the card disclosure
form. So, thanks a lot. Thank you, Mr. Rust. Shaylin Lowell [ph]. Thank you. My name is Shaylin. I’m a consumer.
I have a NetSpend card. I’ve had it for about 8 years. A lot of the regulations that you’re
putting in place now, it already has. I get monthly statements. I get updates. As far
as overdraft, it is something that they offer and it’s very convenient. I think limit it
to just once a month. You know, life happens, and, no, I don’t use it every month, but some
months two things may happen in one day and I may need the overdraft. So limiting it to
just once isn’t realistic, because things happen. So I think you need to take a look
at that. But other than that, the suggestions you make, they’re already doing. I’m very
happy with my card, and I continue to use it. I have a regular checking account, I have
a credit card. The reason I’m using the card is not because I can’t have a bank account
or I don’t use a credit card. It’s a choice. It’s very convenient and it helps me monitor
everything in a more convenient way than a traditional bank. Thank you. Thank you, Ms. Lowell. Chris Harris. Thank you. Well, I don’t think I could have
said it better than our customer here. We, too, are in the process of interpreting the
rule, having gotten it this morning, so my comments will be brief. We spent the morning,
instead of digging through the rule, meeting with customers. I’m always amazed, when we
are out in the field and we invite customers, how willing people are to come to something
like this. People take the time off work to come visit with us, to talk about their life
and their passion for this product. I think it speaks volumes about how important this
decision is. And so, over the coming weeks, we’ll go through
the rule, and what I’m left with in these meetings is how important it is that we get
it right. These are real live stories and real live consumers, and that’s what guides
us. And my hope is, through the comment period, that the Bureau will take that feedback. Thank
you. Thank you, Mr. Harris, and, indeed, we are
in agreement with you. Thank you, everyone in the audience, who took time from your busy
day to join this discussion. We appreciate it greatly. Joe Valenti. Good afternoon. My name is Joe Valenti. I’m
with the Center for American Progress in Washington, D.C. Thank you for convening the hearing and
for putting out what looks like a very strong rule. I do admit I did not have a chance to
read all of the details on the train coming up this morning, but it looks to be very strong,
in terms of expanding transparency and protecting consumers. I’m not sure how the credit features
are going to be viewed, but we have time in the process to sort that out. It was almost 2 years ago that our organization
had an op-ed in American Banker, suggesting the prepaid cards be regulated as bank accounts,
and this is definitely a major step in that direction. It’s also an important step, given
changes in technology. When we have products on a mobile phone, whether they are prepaid
or bank accounts, mobile products need to be banking products first, and I think this
rule moves us in that direction. Thank you. Thank you, Mr. Valenti. Ingrid Shepard. Hi. Good afternoon. My name is Ingrid Shepherd.
I’m the Executive Director of The One Less Foundation. We are based in Philadelphia.
Many of the individuals my organization currently works with, they use prepaid products and
cards as their sole means of participation in financial transactions. The new rules,
as laid out today, are a step in the right direction. I want to echo the sentiments of
my colleagues who spoke before me with regards to concerns of the credit product and their
attachment to the prepaid cards, as there are many consumers who are already in a vulnerable
state, who do not currently understand those risks, and they need to be made aware of those
risks. These products do serve a valuable purpose
to those consumers who are currently outside of the mainstream and traditional banking
community. I think it should be the goal of the CFPB that the most vulnerable population
is not taken advantage of, and that they are a targeted population who is made aware of
all of the risks, and it involves in a product that may be their sole means and options of
participating in day-to-day life in the U.S. Thank you, Ms. Shepard. Nicola Foggie. Hi. Good morning. My name is Nicola Foggie.
I’m the Director of Compliance for the New Jersey Credit Union League. I just want to
thank the CFPB and certainly the panel for their time and attention to this important
regulation, and while we certainly support regulation in the matter of prepaid accounts,
certainly in the area of these types of products and services, we just want to ensure that
the CFPB and all agencies involved stay very involved with the credit union industry and
the leagues that support credit union industries, because certainly, as those who are serving
people, our members often are some of those that are in the low wealth areas and certainly
are a preponderance of users of these prepaid cards. So we want to make sure that we pay
attention to the regulations. We also keep the regulatory compliance burdens to a minimum,
on behalf of the credit unions that serve these members, and certainly on behalf of
the members that we keep those fees in check. Thank you very much. Thank you, Ms. Foggie. Darlene Battle. Good afternoon, and thank you again for having
here forum so all of us can, as community organizations, can voice our feeling, talk
to you guys about the people that we serve. I am the Executive Director of the Delaware
Alliance for Community Advancement. I serve pretty much over 2,000 people a year. I help
people file their taxes for free. I know a prepaid card is here to stay, but I refuse
to introduce it to my customers until we get some clear instructions that they will be
able to understand. You mentioned that the employers should educate their employees,
but to the organization like myself that provides services to low- and moderate-income families,
we need to have some clear instructions where we can post it all over, so they can understand
how much fees are involved. And then we service young people who are about
to go to college, first generation. They, too, will get trapped with the prepaid card
and be left with all these fees, and we want to be able to provide the young people with
some clear instructions—how much fees are involved, is it fees every transaction? We
need to know that so we can educate the people that we serve on a daily basis. Thank you. Thank you, Ms. Battle, and thank you to all
that provide thoughtful comments. Thank you to the audience, to the panelists, and to
all those watching via livestream at consumerfinance.gov. Thank you to Delaware Technical Community
College for hosting the Consumer Financial Protection Bureau. That concludes the CFPB’s
field hearing in Wilmington, Delaware. Have a terrific afternoon. [Applause.]

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