WASHINGTON (Reuters) - The consumer financial watchdog is turning its attention to the growing prepaid card market, announcing on Wednesday that it was seeking information about how to better regulate the industry.
The cards are being used by more consumers each year, particularly low-income Americans, in place of traditional checking accounts.
The amount of money loaded on these cards will rise from $57 billion in 2011 to $167 billion in 2014, according to Consumer Financial Protection Bureau estimates that are based on data from Mercator Advisory Group.
On Wednesday the agency is releasing a request for information in advance of writing new regulations and will also hold a hearing on the cards in Durham, North Carolina.
“All these consumers need, and deserve, products that are safe and whose costs and risks are clear upfront,” CFPB Director Richard Cordray plans to say at the hearing, according to his prepared remarks. “Yet right now prepaid cards have far fewer regulatory protections than bank accounts or debit cards or credit cards.”
The cards being scrutinized are similar to debit cards but are not connected to a checking account. Instead a customer can add money to the card, draw down those funds and then reload the account as they see fit.
Among the biggest providers of the cards are Green Dot Corp and NetSpend Holding Inc.. Some banks, like JPMorgan Chase and Co, are also boosting their presence in the market.
The agency said it wants to learn more about the fees, how overdrafts should be handled and whether the cards are a good way for consumers to improve their credit reports.
CFPB will also look at how card providers deal with stolen cards or when they are used without the a customer’s permission.
Consumer groups like Reinvestment Partners have criticized the cards for providing limited access to ATMs and have high replacement card fees.
The CFPB was created by the 2010 Dodd-Frank financial oversight law and is charged with policing lending markets like those for credit cards and mortgages.
The agency has the authority to write rules and supervise both banks and lenders outside the industry.
It said its focus on prepaid cards includes both banks as well as lenders who do not take deposits.
Reporting By Dave Clarke; editing by M.D. Golan