Preserve consumer protections for prepaid cards

Prepaid cards look and work just like a debit card, often with a Visa, MasterCard or American Express logo, and they’re available to those who cannot get a bank account, since they do not require a credit check and are designed not to overdraft. That’s particularly important to the third of S.C. households who are unbanked or underbanked.

But they come with a catch. They do not have the same federal protection against fraud and errors that bank account debit cards have. Many have fees for things like account-balance inquiry, customer-service calls, ATM withdrawals and denied transactions. A few “prepaid” cards even have overdraft fees.

To fix these problems, the Consumer Financial Protection Bureau — the agency set up after the financial crisis — has finalized a regulation that gives prepaid cards the same fraud protections as debit cards through a simple, uniform chart of fees.

The rule is a welcome change for the 9 percent of South Carolinians who used prepaid cards in 2015.

Yet this common-sense regulation is suddenly under attack in Congress, due to an obscure, fast-track law, the Congressional Review Act. The attack is pushed by NetSpend, which stands to lose up to $85 million each year in fees. NetSpend (which recently settled FTC charges) provides cards through payday lenders and low-wage employers such as fast food stores and retail chains.

U.S. Sens. Lindsey Graham and Tim Scott will be key to making sure that NetSpend does not undo protections for all South Carolinians. Blocking fraud and fee-transparency protections would hurt both prepaid card users and the prepaid card industry. The largest prepaid card company, Green Dot, supports the rule. Its CEO explained: “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.”

I hope South Carolina’s congressional delegation agrees.