Earlier today, the Consumer Financial Protection Bureau (CFPB) announced it will delay its 1,700-page prepaid spending cards rule until April 1, 2018. This follows hints from the Bureau in March that it would delay the controversial new rule after learning that some businesses will have difficulty complying with it. The delay should come as welcome news to anyone who values greater access to financial services, particularly for the less fortunate.
The rule would be disastrous for the prepaid card market. As CEI’s Iain Murray has argued, while the industry estimates that compliance costs will be as much as $1.5 billion, the real blow is to the young, minority, unemployed, disabled, or very low income (under $15,000 a year) individuals who predominately use these services. The increased costs will be passed on to prepaid consumers in the form of increased fees and reduced services—which is exactly what the consumers were trying to avoid in the first place.
Further, the rule will likely regulate away another source of emergency funding available for consumers. Through the prepaid spending rule, the CPFB has sought to outlaw the ability of users to become overdrawn, an option that 30 percent of users say they want. Prepaid card customers are the least likely to have access to credit at all, which makes it harder to use limited funding to cover short-term costs. The rule would continue to restrict the few options vulnerable consumers have to cover their day-to-day expenses.
While today’s delay is encouraging, the next step for Congress should be to use the Congressional Review Act to disapprove the CFPB’s rule. Fortunately, two motions have been introduced in both houses to this end, H.J. Res. 73 and S.J. Res. 19. Last month, CEI, along with 11 other free-market organizations, submitted a coalition letter to lawmakers in support of such a resolution.
As the letter argued when the rule was first proposed:
Thousands of consumers and dozens of Members of Congress on both sides of the political aisle have repeatedly urged the CFPB to alter course so as to not hamper underserved consumers access to important financial products and features. However, the CFPB ignored this advice and has continued its aggressive approach to overregulation and will ultimately harm the vulnerable Americans it was supposed to help.
Millions of consumers look to prepaid cards as a beneficial alternative to traditional banking services. While the CPFB’s delayed rule is encouraging, Congress should override the regulation altogether in order to maintain financial freedom for the many vulnerable customers.