Skip to main content

Search

Consumer Banking and Payments Law: 7.2.4.6.11 College student credit cards

The TILA, as amended by the Credit CARD Act, has a number of protections for college students,573 such as public disclosure of agreements between colleges and issuers and restrictions on an issuer providing inducements to students to apply for a credit card.574 These prohibitions not only apply to hybrid prepaid-credit cards but to prepaid accounts to which a covered separate credit feature that is a credit card account covered under the Credit CARD Act may be added in the future to the prepaid

Consumer Banking and Payments Law: 7.2.5.2.1 Overview

Separate from Regulation E, another regulation under the EFTA, Regulation II, has several provisions that impact the consumer fees and functionality of some prepaid cards. Those aspects of Regulation II are discussed in this section.

Consumer Banking and Payments Law: 7.2.11 Using the Prepaid Card and Accessing Funds

Prepaid cards work in virtually the same fashion as bank account debit cards. They can be used for purchases at merchants, online, over the telephone, and to withdraw cash at ATMs. Fees, however, may apply.

Consumers who wish to “cash” an entire payment deposited on their prepaid card may be frustrated by daily withdrawal limits on some ATMs and by fees for multiple ATM withdrawals. Two other methods of withdrawing cash may help with those limits and fees (though separate fees may apply, depending on the card).

Consumer Banking and Payments Law: 7.2.12 Account Holds and Inability to Access Funds

Under various circumstances, consumers may be temporarily or permanently unable to access their funds when the funds are frozen or the account is closed. The account agreements for some prepaid cards and mobile payment systems contain clauses in the account agreements that permit the provider to place a hold on funds under certain circumstances.

Consumer Banking and Payments Law: 7.2.13 Access to Statements and Account Information

Traditional bank accounts are required by Regulation E to provide periodic statements in any period in which an electronic fund transfer is made into or out of the account.757 The CFPB’s prepaid rule, effective April 1, 2019, extends this requirement to most types of prepaid cards but does offer an alternative that allows for statements to be provided orally when requested via the telephone and posted online for the consumer’s review.758

Consumer Banking and Payments Law: 7.2.15 Redemption of Unused Value; Card Expiration

Consumers often fail to use all of the funds on their prepaid cards. It can be particularly difficult to use the last few dollars. Amounts under $20 cannot be withdrawn from an ATM and might not be enough for a purchase.765 Some merchants permit consumers to do a “split tender,” paying part of a purchase with a prepaid card and the remainder in another manner. Some card networks, such as Visa, require all of their cards to support partial authorization.

Consumer Banking and Payments Law: 7.2.16.1 Overview

Consumer bank accounts are protected by FDIC insurance up to $250,000 if a bank becomes insolvent. The protection that a holder of a prepaid card has if the card provider becomes insolvent is more complicated.

Consumer Banking and Payments Law: 7.2.16.2 Deposit Insurance

For most general-use prepaid cards, the funds are held in an account at a bank.779 However, some prepaid accounts, such as PayPal, generally hold the funds on their own books without deposit insurance, though funds may be held at a bank under certain circumstances, such as for direct deposit of government benefits.

Consumer Banking and Payments Law: 7.2.17.1 Overview

Although credit on a prepaid card may sound like an oxymoron, some prepaid cards can be used to access various forms of credit. For example, a prepaid card may permit the consumer to complete a transaction, when the account lacks funds, by accessing linked credit or by permitting the card to be overdrawn.

Consumer Banking and Payments Law: 7.2.17.3 Federal Regulator Actions Involving Credit on Prepaid Cards

In 2012, the OCC took a supervisory action that resulted in the elimination of two different credit features on Insight prepaid cards issued by Urban Trust Bank. The cards were being used by the payday lender CheckSmart to evade the payday loan laws of Arizona, Ohio, and other states. In one version, the consumer could opt in to overdraft coverage, resulting in “negative balance” fees on the prepaid card that effectively amounted to a $15 per $100 payday loan.

Consumer Banking and Payments Law: 7.2.18 Credit Reporting and Prepaid Cards

Prepaid card issuers may claim or imply that using a prepaid card will help build consumer credit history or credit reports. Prepaid card issuers typically do not report routine transactions to credit reporting agencies (CRAs). Thus, the cards do not lead to or impact credit reports any more than bank accounts do.

Consumer Banking and Payments Law: 7.3.1 Description; No Mandatory Use

Payroll cards are a type of prepaid card account809 used by employers to pay their employees. Although many employers pay most of their workers through direct deposit to bank accounts, not all employees have bank accounts or are willing to provide their employer with the information necessary to enroll in direct deposit. Payroll cards provide employers with an alternative to cash or paper checks for those employees.

Consumer Banking and Payments Law: 7.3.4 OCC Advisory Letter

In a 2005 Advisory Letter, the OCC has identified the risks to consumers posed by payroll cards.832 The advisory letter was written before Regulation E was amended to include payroll cards,833 and before the FDIC issued an opinion permitting pass-through deposit insurance for payroll cardholders.834 Thus, some of the issues in the letter may no longer be relevant, but some may still be.

Consumer Banking and Payments Law: 7.4.1 Overview

Government agencies have largely replaced paper checks with cards to distribute government benefits and other types of payments traditionally made by check. Electronic Benefit Transaction (EBT) cards, an older type of payment card, are discussed in Chapter 8, infra.