Prepaid Debit Cards Said to Face Rules on Overdrafts, Disclosure

The U.S. Consumer Financial Protection Bureau will propose to limit overdraft charges on prepaid debit cards and require more disclosure from issuers about all fees they charge, a person briefed on the matter said.

The size of the market for prepaid debit cards has doubled to an estimated $80 billion since the bureau began reviewing the products after criticism that transaction fees on some cards were too high.

The agency’s proposal, which could come in early November, won’t include broad restrictions on transaction fees, said the person, who spoke on condition of anonymity because the discussions aren’t public. Competition in the prepaid market has driven such fees lower over the past four years.

Moira Vahey, a spokeswoman for the bureau, declined to comment on its plans.

Agency officials have been studying the prepaid market since 2010, when cards including one issued by the reality-show-performing Kardashian sisters were criticized for charging as much as $1.50 for withdrawals or for speaking with a customer representative. Such fees became rarer after Wal-Mart Stores Inc. made reductions on cards it sells and new products were introduced by American Express Co. and JPMorgan Chase & Co.

At the same time, the cards have risen in popularity, according to Madeline Aufseeser, senior analyst with the Aite Group, a Boston-based consultancy. Consumers had about $37 billion loaded onto prepaid cards in 2010, a number that may rise to $80 billion by the end of this year, according to Aufseeser.

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The proposed rules would extend to prepaid cards the strictures from a 2009 credit card reform law and the Truth In Lending Act that limit fees issuers can charge on payment cards when their customers overdraw their accounts, the person said. Only a small number of prepaid debit cards permit overdrafts.

The rules would be put out for public comment. The consumer bureau has already tested model disclosure forms for prepaid cards.

Aufseeser said that if the consumer bureau doesn’t create a “heavy” regulatory burden, it will deserve credit for understanding that the industry has changed.

“The market is starting to mature,” Aufseeser said. “The pricing is very competitive, and we’re seeing consolidation in the industry.”

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