When Transparency Goes Only So Far to Protect Consumers

It’s hard not to support giving consumers a clear view of what a financial product costs. After all, no one likes a surprise fee, and with more info, consumers can shop around. But a new proposed disclosure form for prepaid cards raises the question, if banks have so many charges that just listing the fees is cumbersome, can transparency alone be enough to protect consumers?

The move to make clear disclosures took off in 1988, when Senator Charles Schumer (D-N.Y.) pushed through legislation requiring credit cards to outline the major costs and features of their products. Known as the Schumer Box, the model grid of fees has since spread to other financial documents, such as mortgages forms proposed by the Consumer Financial Protection Bureau. Today, Pew Charitable Trusts, in conjunction with JPMorgan Chase and Senator Mark Warner (D-Va.), is releasing a model disclosure cards for prepaid debit cards, the rapidly growing market that everyone from Suze Orman and Wal-Mart Stores to T-Mobile wants in on.

Pew’s new disclosure box lists 26 separate fees it found were commonly charged by prepaid card providers, from inactivity charges to the different costs for customers who sign to make a purchase rather than entering a PIN number. A similar prepaid disclosure box, proposed two years ago by the Center for Financial Services Innovation, includes 14 different fees.

Even with the shorter version, it’s hard to imagine consumers being able to compare more than a dozen costs across cards and weigh what’s best based on how they expect to use the cards—particularly for a financial product that’s often picked up in the checkout aisles of grocery or convenience stores.

That’s not to blame Pew or CFSI for the long disclosures—they’re just reflecting the fees that are charged in the market. Prepaid cards have developed a much more complicated fee structure than traditional checking accounts, their closest equivalent. Increasingly there’s little distinction between prepaid cards and checking—you can write checks from both, deposit funds directly, and look up balances on an app. Yet Pew’s model form for regular checking accounts lists half as many fee categories as its new prepaid form.

So what would it take to reduce the types of fees to a more manageable number? Market pressure is one possibility. Wal-Mart has tried reducing the number of fees with its Bluebird prepaid card, which has only a two types of charges: one related to withdrawing money from ATMs and one for ordering checks. Chase’s Liquid prepaid card has just a few fees too, namely a monthly service fee plus charges for using out-of-network ATMs or getting cashiers checks and money orders.

Alternatively, Congress or the CFPB could to limit the types of allowable fees. Pew, for example, has recommended that the CFPB prohibit prepaid card providers from letting customers overdraw their accounts or have other credit-like features. But don’t count on it. In the fights over consumer protection, battles over “transparency” typically are less fraught than those over “limits.” Take mortgages. There hasn’t been a massive push-back from lenders over the CFPB’s new model disclosure forms for getting a home loan. But the CFPB’s rules that limit the types of loans banks can make have been, and remain, hugely contentious.

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