Fraud Protection for Prepaid Cards

The Federal Reserve has issued guidance applying the Customer Identification Program (CIP) to prepaid cards in March of this year. Customers are able to reload prepaid cards, use direct deposit and in some cases, receive overdraft protection, which the Federal Agency determined enough for it to be considered an account relationship. These reloadable prepaid cards are now considered as an account relationship, and the Consumer Financial Protection Bureau (CFPB) has recently issued new rules requiring fraud protection support for those using them.

Reloadable prepaid cards are rapidly growing in popularity. Twelve million Americans used prepaid cards at least once a month. The amount of money consumers put on prepaid cards grew from less than $1 billion in 2003 to almost $65 billion in 2012. It is expected to grow to $112 billion by 2018. Prepaid cards have quickly become a widely used financial tool, and are being regulated like bank accounts.

The CFPB stepped in with a comprehensive ruling applied to prepaid cards, of course, but also to mobile wallets, P2P products like Venmo, payroll cards, tax refund cards and other electronic accounts that can store funds (like PayPal). Much of the ruling takes after the Electronic Fund Transfer Act, which is an intentional effort to get protections similar to those offered to checking account consumers. It includes the following:

1 – Fraud protection for when cards are lost and/or funds are stolen. Just like with checking accounts, if consumers see what they believe to be a fraudulent charge, the financial institution must investigate the claim and restore the missing funds back to the account.

2 – Easy and clear access to account terms and information. The CFPB has new “Know Before You Owe” disclosures for prepaid cards that provide all necessary information about fees and other details about the account upfront.

The rule will apply to all prepaid accounts starting in October 2017. Prepaid issuers will also be required to publicly post their account agreements on their websites so that the general public can research them before committing to a card. See also .

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