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In a press release lauding the new CFPB regulations, theNational Consumer Law Center saysthat prepaid cardholders should never be allowed to overdraw the amount ontheir cards, regardless of the terms and conditions.
“While these rules are a bigimprovement,” Saunders noted that “overdrafts should be prohibited entirely onprepaid cards. Consumers should be able to rely on a prepaid card being truly‘prepaid’ and as a safe way to control spending.”
That description of prepaid is deceptively simple, but alloverdrafts are not created equal. For example, NetSpend offers a ‘PurchaseCushion’ that will allow a cardholder to overdraw small amounts with no fee.From the CardholderAgreement:
However as a non-contractualcourtesy, and in our sole discretion, upon qualifying for an upgrade to theNetSpend Premier Card Account, we may from time-to-time approve purchasetransactions that you request that create up to a $10.000 negative balance inyour Card Account. We refer to this feature as the Purchase Cushion. You willnot be assessed any fees for Purchase Cushion coverage
For the NCLC, this is not acceptable, even if the cardholdermight need to overdraw to cover a bill or unexpected expense. Cardholders mustqualify for the service and must opt in to any additional overdrafts. Thequestion is whether or not prepaid can become a tool that allows its users tomanage their financial life in a way that is equivalent in respect to othertypes of financial accounts. The detailsof the rules lie buried in the 860 pages of the regulation, so it is too soonto say whether the appropriate balance has been struck. But, if all thecourtesies and protections of Regulation E and thus other deposit accounts areto be extended to prepaid cards, shouldn’t the options come with it as well?
Overview by Ben Jackson, Director, Prepaid Advisory Service for Mercator Advisory Group