Viewpoint: Let’s Reduce Complexity and Improve Disclosure

By Congressman Scott Tipton (R-Colo.)

A prepaid card is an essential financial tool that enables many Americans to access and participate in the mainstream economy. Many consumers who use GPR cards as an alternative to checking accounts find them a more affordable option than an account at a traditional bank. The CFPB, charged with protecting U.S. consumers who use financial services, should focus its attention on doing what’s necessary to ensure that prepaid cards remain a viable option for those who choose to use them.

Consumers who shop for and use prepaid cards deserve effective fee disclosures that enable them to judge for themselves whether the costs are reasonable for the service and benefits they receive or whether the costs for how they plan to use their cards suggest they look for other options.

In 2012, the CFPB released its Advanced Notice of Proposed Rulemaking (ANPR) for prepaid cards and clearly indicated it would seek to issue rules covering GPR cards, just one of the more than 15 prepaid product types. On Nov. 13, 2014, the CFPB released an 870-page proposed rule effectively seeking to regulate all prepaid cards. What’s not clear is why the CFPB went beyond its 2012 ANPR to propose to regulate products that are currently regulated,¹ such as student cards (Department of Education regulations), government benefits cards (Treasury regulations and Regulation E) and payroll cards (Department of Labor regulations, Reg. E and state wage laws). Moreover, all of these products already provide detailed disclosures to consumers.

During a recent House Financial Services Committee hearing, I questioned CFPB Director Richard Cordray about his proposed disclosure rules. Specifically, my line of questioning focused on the utility of providing consumers with multiple unique disclosures that likely will add to their confusion rather than promote comparison shopping the CFPB is attempting to facilitate.

The CFPB’s proposed rules require prepaid card providers to present consumers with two disclosures before they acquire a prepaid card: a short-form disclosure and a more comprehensive long-form disclosure. If you add these requirements on top of existing state and federal disclosure requirements, consumers could be holding three (short form, long form and cardholder agreement) or even four (short form, long form, state-required disclosure and cardholder agreement) similar, but not quite identical disclosures, by the time they open a prepaid card package.

The goal of my question to Director Cordray was to learn more about the reasoning behind his decision to mandate two additional disclosures for products that already provide extensive consumer disclosures. Director Cordray failed to acknowledge that the proposed rules include this duplicative requirement and that the rules, indeed, apply to all prepaid products, not only to the reloadable GPR cards he referenced during our exchange.

By the CFPB’s design, the short-form disclosure does not provide information on all fees consumers potentially may incur when using prepaid cards, and the CFPB admits that the long-form disclosure may overwhelm consumers with too much information. If the short form doesn’t provide enough information and the long form provides too much information, the solution to the problem is not to provide consumers with both short- and long-form disclosures.

What is needed in this situation is clarity, not more complexity, which is why the CFPB should work to develop one easy-to-understand disclosure that gives consumers the information they need to comparison shop for the best product for their needs.

In addition, I also expect the CFPB to allow prepaid to provide consumers access to the proper disclosures wherever they are located and in real time by allowing card providers to utilize cutting-edge technology (e.g., Web, mobile, etc.).

Alongside credit and debit, prepaid cards help millions of Americans participate in the mainstream economy. I share the CFPB’s goals of enhancing consumer protections, but I also think it’s possible to provide strong consumer protections without reducing convenient consumer access to prepaid cards. I strongly encourage the CFPB to work with consumers, Congress and those who provide prepaid cards to ensure we achieve the right balance of consumer protections, while ensuring that a viable market has the ability to thrive, grow and continue to provide millions of Americans with a doorway to the financial mainstream.

Congressman Scott Tipton was raised in Cortez, Colo., and graduated from Ft. Lewis College in Durango, Colo. After three decades of running a small business, he was elected in November 2008 to the Colorado House of Representatives. Scott was first elected to the U.S. House of Representatives in 2010 and is now in his third term. He has used his experience as a small businessman to inform his work in Congress, where he fights to protect a number of constituencies from regulatory overreach. He also continues to work to increase access to capital for small businesses from community banks and is working alongside his colleagues to repeal some of the Dodd-Frank Act’s unintended consequences, which have hampered local economic growth. In the 114th Congress, he serves on the House Committee on Financial Services and is a vice chair of the Congressional Western Caucus.

In Blogs & Viewpoints, prepaid and emerging payments professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed are not necessarily those of Paybefore.  

Endnote

¹In general, prepaid products are regulated, in part, by the following agencies: CFPB (Dodd-Frank), FDIC (supervisory and deposit insurance), Federal Reserve (supervisory), FinCEN (including Prepaid Access Rule), FTC, OFAC, IRS (including health care payments products) and Treasury (Government Payments Rule).