That was the title of a Senate Banking Subcommittee hearing yesterday. Our David Rothstein was on the panel, a panel that could be characterized as extremely interesting, if not fiery. There ARE issues in the prepaid market, but there also was a surprising amount of agreement on the panel, it's amazing what can happen when folks stick to the facts and treat each other with a degree of respect (are you watching, Congress?)
Since I was in attendance and you probably weren't, I thought I'd take a shot at summarizing the main points of the panel and highlight a couple of takeaway thoughts. The full testimonies of all the participants and video of the hearing can be accessed at the link above.
Lauren Saunders from the National Consumer Law Center kicked things off with seven tests to measure whether or not prepaid cards are working for consumers:
- Consumers need choice in their accounts and payment systems.
- Consumers need to understand costs associated with their accounts.
- Consumers must be protected in case any party to their account becomes insolvent.
- Consumers need protection from errors and disputes.
- Consumers need free access to balances and customer service.
- No unfair fees or tricks and traps.
- Overdraft fees and embedded credit should be eliminated ("prepaid should mean prepaid.")
Jennifer Tescher from CFSI followed, noting that CFSI had just this week released a model "fee box" for prepaid cards (that paper was authored by our old friend and colleague David Newville.) This summer CFSI plans to follow up with a quality guide for prepaid cards. Ms. Tescher's key point was that prepaids can be a major step toward providing financial access for millions of Americans and that as the market grows truly beneficial features like savings pockets are appearing and proliferating. She argued that consumers valued the convenience, liquidity, value, and transparency of prepaid cards and that FDIC insurance, Reg-E protection, and a fee box should be mandated in the future.
Dan Henry, CEO of Netspend (a leading prepaid provider) described their business as empowering consumers. He argued that banks don't work for low income consumers and that the traditional model of brick and mortar banks could never be adjusted to appropriate take into account the needs of large numbers of small dollar account holders. Further, he argued that Netspend's card IS a bank account, only better and cheaper than bank accounts. Industry wide he pointed out that the cost of comparable bank products has been rising in recent years while prepaid prices are coming down. Mr. Henry noted that his company was working extensively with the CFPB and expressed a preference for a single regulatory authority over a fragmented regulatory model, and that ideally prepaid providers should be able to compete with banks on a level playing field. Finally he made the case that the market was in the best position to decide which fees were appropriate and that various fee-types shouldn't be categorically banned.
Rick Fischer, Partner, Morrison & Foerster argued that legislative action on prepaid cards isn't necessary, that the market is developing in a generally appropriate fashion. Oversight of the market is necessary but the CFPB has the necessary authority to regulate the market going forward. Mr. Fischer echoed Mr. Henry's argument that prepaids are cheaper than bank accounts and that the existing system (thanks to the CARD Act) has rules that sufficiently protect consumers.
David Rothstein, of Policy Matters Ohio and the Asset Building Program used his testimony to highlight the increasingly large role of prepaid cards in delivering state and federal benefits. Prepaid cards can have significant advantages in delivering these benefits (Unemployment Insurance is a common example), but Mr. Rothstein argued that shortcomings need to be addressed, especially given the vulnerable nature of recipients and since taxpayer dollars are at stake. Ohio also faces the issue of being partnered with a limited network of free ATMs for the card they've chosen to deliver their UI benefits, and this creates a situation where many Ohioans (particularly those in rural areas) are forced to pay fees to access cash from the UI cards. In general, Mr. Rothstein argued that:
- Transparency in fees are necessary in all cases.
- Some fees, such as overdraft and balance inquiry, are not appropriate on cards used to deliver benefits.
- Prepaid cards should supplement, not supplant, access to mainstream financial services.
That last point turned out to be the key, near-term disagreement among the panel. Mr. Henry's assertion that prepaids (at least, his prepaids) are bank accounts, and Mr. Rothstein's assertion that they should be a complement to bank accounts. At some point, one could see this being a distinction without a difference, but until additional protections (such as those pointed out by NCLC) are firmly extended to the entirety of the prepaid market (and not voluntarily followed by some providers and not others) then a true distinction exists, and one that shouldn't be ignored.
The message from the hearing seemed to be that the prepaid market is evolving, and steps can be taken to ensure it develops positively, with degrees of disagreement over how aggressively those steps should be pursued and through what vehicles (Senator Menendez' bill being one obvious point of disagreement.) It's good that the Banking Committee is keeping tabs on these issues and building knowledge, even if little action is going to occur in the near term.