Their obscure fees strip more than $160 a year out of the average customer’s pocket each year. Their fee structures hit black customers, teenagers, and widows hardest. And their business model had gone largely unregulated for years until last October, when the Consumer Financial Protection Bureau finalized a suite of modest reforms.
But prepaid debit card companies are suddenly holding a get-out-of-jail-free card, courtesy of Sen. David Perdue (R-GA). Perdue is pushing legislation to override and permanently derail the CFPB’s three-month-old rules package for the cards, reviving even the most deceptive practices over expert advice to the contrary.
Prepaid debit cards now account for tens of billions of dollars in financial activity each year, creating a giant profit opportunity for the financial companies that issue cards to consumers. One Federal Reserve report in 2014 found the average customer pays $15 to $17 in fees each month on the cards, and that fees skew higher for customers who are black, younger than 15, widowed, or living in areas with relatively high rates of violent crime.
Card issuers aren’t always forthcoming about the fees customers will incur. The sudden boom in the use of prepaid debit cards — which banks began flogging to customers in 2010 in hopes of replacing revenue lost when Congress changed the rules governing transaction fees and overdraft protection for traditional bank cards — has pushed a huge amount of money into the cards market before regulators could catch up. The combination of a glut in demand and the oversight lag from banking regulators has allowed card providers to skim hundreds of millions of dollars in fees in the past few years.
The rule Perdue is trying to kill would have provided basic protections for prepaid card customers. The agency did not bar companies from tacking charges onto their products. Instead, the rule mandated transparency in the form of a plain-English document listing all potential fees a customer might incur using the card. It also set limits on the interest prepaid card companies can charge.
It’s a modest package of reforms, simultaneously safeguarding customers from nickel-and-dime ambushes at the cash register and protecting a company’s right to charge for a service. If your business model is ruined by the rule CFPB crafted, it was probably a deceitful and predatory business model. The largest player in the prepaid card marketplace is on board with the rule.
It makes sense that companies interested in playing fair in this multi-billion-dollar consumer marketplace would be on board with the basic protections the CFPB issued last fall. But firms that make their nut by tricking card users would view those same modest measures as an existential threat.
Only one major provider of prepaid cards charges overdraft fees. NetSpend, which does most of its business by partnering with storefront payday lenders, is uniquely reliant on the most deceitful species of fee-for-service practices.
Again, CFPB’s rule doesn’t bar the overdraft charges; it just forces companies to be honest and forthright about them. NetSpend couldn’t stand that sunlight. NetSpend and its parent company, Georgia-based TSYS, say they would lose some $80 million a year if consumers were finally protected from its policies.
Perdue and his co-sponsors say their move to end consumer protections for prepaid cards is about preserving access for consumers. The fact that it is also an $80 million favor to an unsavory financial company based in his state—and a thumb in the eye of the millions of people who have turned to the cards as a substitute for traditional bank accounts — is apparently a coincidence.
Perdue’s gambit on behalf of TSYS and NetSpend is emblematic of his party’s broader approach to the CFPB. Republicans and some Democrats with deep ties to the financial industry have been waging guerilla war on the agency for years, using everything from conspiratorial cross-examinations of agency head Richard Cordray at public hearings to sneaky legislative sabotage in back-room deals.
The congressional assault on the barely-five-year-old agency was ramping up even before President Trump signed an executive order pledging to undo the 2010 Wall Street reform package that birthed the CFPB. An administration stacked with Goldman Sachs alums can now partner with Republican lawmakers who want to get Cordray fired, replace him with an easily controlled commission of directors, and rip up the agency’s budgetary independence from Capitol Hill.
But Perdue’s move and other highly specific actions like it could escape scrutiny thanks to the ongoing gong show at the White House. Much like a roguish teenager siphoning your gas tank while his friends distract you with dirty jokes, the administration’s antics give cover for financial scammers’ friends in Washington to dip their fingers back into your wallet and pinch whatever they can.