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Statement: Sen. Lankford urged to reject measure to block fraud and fee protections on prepaid cards

February 8th, 2017

CONTACT: David Blatt, Executive Director, Oklahoma Policy Institute, 918-794-3944

 Obscure, fast-track law would stop CFPB prepaid card rule, impacting more than 200,000 Oklahoma households.

Tulsa, OK – February 7, 2017 – Today, Oklahoma Policy Institute called on U.S. Senator James Lankford to not use an obscure law to block the Consumer Financial Protection Bureau’s new prepaid card rule. The move would block basic fraud and fee disclosure protections for all prepaid cards, the vast majority of which don’t have overdraft fees.

“We urge Senator Lankford to side with Oklahoma veterans, seniors and struggling families and not with a company that takes overdraft fees out of the pockets of these and other Oklahoma residents,” said David Blatt, Executive Director of Oklahoma Policy Institute, a Tulsa-based think-tank that supports policies that expand financial security and economic opportunity. “This attempt to allow predatory financial practices and thwart the Consumer Financial Protection Bureau’s important work on behalf of the public would jeopardize  basic fraud protections that have saved Oklahoma residents millions of dollars. The CFPB, in just a few years, has demonstrated its value to Oklahoma residents and consumers around the country, returning nearly $12 billion to 29 million consumers across the nation.”

In Oklahoma, more than 200,000 underbanked households used prepaid cards in 2015, according to the FDIC. Prepaid cards are a rapidly growing market, used to receive direct deposits and manage money by consumers shut out of the banking system or those trying to avoid bank account overdraft fees.

The fast-track resolution to block the prepaid rule, co-sponsored by Sen. Lankford, was filed last week by Senator David Perdue of Georgia, the home state of the parent company of NetSpend, the only major prepaid card provider that has overdraft fees.  NetSpend has projected that the rule, which limits but does not ban overdraft fees on prepaid cards, could cost the company $80 to $85 million.

NetSpend is the only major prepaid card provider with overdraft fees. It primarily sells its cards at payday loan and check cashing stores and through payroll cards used by fast food chains, retail stores and other employers of low-wage workers. NetSpend’s payday lender prepaid cards have other unusual features that allow payday lenders to repay themselves from the card, potentially triggering an overdraft fee.

NetSpend’s cards offer opt-in overdraft “protection” that allows the card to be used when it is empty, with the overdraft and a $15 to $25 fee taken out of the next deposit to the card. A few other payday lender prepaid cards also have overdraft fees. NetSpend was recently sued by the FTC for telling consumers they can access deposits to the card “today” but then blocking immediate access to the funds.

A CFPB survey found that 98 percent of prepaid cards do not have overdraft fees. The largest prepaid card company, Green Dot, does not charge overdraft fees and supports the CFPB prepaid rule.

The CFPB rule was issued last fall and is scheduled to go into effect October 1, 2017. It extends to prepaid cards the same basic protections against fraud, unauthorized charges, and errors that debit cards have. The rule also gives consumers a simple chart of fees to help them shop for a prepaid card and avoid unwanted fees. The CFPB rule does not prohibit overdraft fees but requires hybrid prepaid-credit cards that can overdraft to comply with the rules for credit cards, including limits on fees in the first year, consideration of ability to pay, payments only once a month, and a ban on requiring automatic repayment from incoming deposits.

The senators filed the resolution under the Congressional Review Act (CRA), an obscure law that gives Congress, with the President’s signature, a window to veto a rule from going into effect. The CRA has special provisions to expedite a vote and prevent a filibuster. If a rule is blocked by a CRA vote, the agency is forever barred from doing a substantially similar rule unless Congress authorizes it.

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Oklahoma Policy Institute is a Tulsa-based non-profit think-tank that promotes fair and adequate funding of public services and expanded economic opportunity for all Oklahomans by providing information, analysis and ideas.