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Are prepaid credit cards assisting or harming consumers?

Are prepaid credit cards assisting or harming consumers?

The middle for Responsible Lending is really a research that is non-profit policy company specialized in protecting home-ownership and family members wealth.

Why don’t we start out with the following premise: when it comes to technology and therefore key item expenses, general function reloadable prepaid cards are indistinguishable from debit cards connected with checkless checking reports.

Both prepaid and debit cards must keep a database of specific account documents; both access the payments that are same via a bank person in a funds transfer community such as for example Visa or MasterCard.

Both prepaid and debit cards have actually a requirement to “know your consumer” considering that the reports must move across a bank to gain access to the re re payments system.

Ergo, the greatest differences when considering prepaid cards and debit cards are distinctions not in technology however in legislation, or what exactly is usually called “regulatory arbitrage” in support of the providers that are unregulated.

Some situations of regulatory arbitrage between bank providers of checkless debit card reports and presently unregulated card that is prepaid include:

  • Debit cards have periodic written statements of account under Regulation E;
  • Regulated debit card providers have actually mandated capital that is minimum;
  • Debit cards have actually customer protections for lost cards or unauthorized card usage; and
  • Prepaid cards are exempt through the Durbin interchange needs, at the very least for the smaller best site, rent-a-charter banking institutions.

Prepaid cards must certanly be necessary to meet up with the following three guidelines:

  • No mandatory arbitration clauses
  • No tie-in to debt services and products, either ahead of the prepaid credit card load or following the card stability is expended.
  • No penalty costs such as for instance nonsufficient funds or overdraft costs

Arbitration

We pulled yesterday evening the account disclosure type for Netspend, one of many biggest prepaid credit card providers.