Today’s action by the Consumer Financial Protection Bureau to issue unprecedented burdens on providers of prepaid debit cards shows why the bureau needs to be held accountable to our elected representatives. This lack of constitutional accountability is why CEI, in partnership with the 60 Plus Association seniors group and the tiny Texas community bank the State National Bank of Big Spring, is challenging the structure of the bureau created in the Dodd-Frank legislation of 2010 in a lawsuit to be heard before the D.C. Circuit on November 19.
Though the CFPB says and many of the fawning headlines say the regulations are simply about consumer disclosure, the CFPB proposal—set to go into effect after a brief 90-day comment period—actually would subject prepaid cards to more stringent rules than checking accounts. It takes the very radical step of treating overdraft features on a prepaid card as an “extension of credit.”
Under the new rules, as described by the CFPB proposal, ”prepaid cards that access overdraft services or credit features for a fee would generally be credit cards.” But, as noted in news articles on the proposal, most of the lower-income consumers are getting prepaid credit cards in place of debit cards and checking accounts. As Time notes, “almost 80% of unbanked households with prepaid cards used them to make everyday purchases, pay bills, or receive payments.”
But under the CFPB, an express “ability to pay” rule would be added that is absent from checking accounts with overdraft features. This means another option lost by many of the unbanked.
And why have there been so many unbanked in the past few years? In addition to economic woes that big-government policies caused and have failed to solve, the Durbin Amendment of Dodd-Frank decimated free checking for low-income consumers by capping what debit card issuers can charge retailers for debit card processing. This shifted the cost of infrastructure costs like preventing hacking to consumers.
George Mason University Law Professor Todd Zywicki, now chairman of the Competitive Enterprise Institute's board of directors, has found that the Durbin Amendment bears much of the blame for more than 1 million consumers becoming unbanked over the past few years.
If CFPB Director Richard Cordray were really concerned, as he says he is, that prepaid card consumers are “some of the most economically vulnerable among us,” he would push to repeal the Durbin Amendment instead of putting forth the proposal today to limit further those consumers’ options.