Consumer Fraud and Prepaid Credit Cards

Are consumers still using bank accounts to make payments for goods and services, or are prepaid debit and credit cards the bank accounts of the future? A recent article in Bloomberg suggests that more Americans use prepaid cards than most card issuers anticipated. Indeed, they’ve “surged in popularity in recent years as consumers began using them to substitute for checking accounts,” explained a senior financial analyst. But do these prepaid cards provide any consumer fraud protection, or do Chicago residents who rely on prepaid debit and credit cards need to worry about issues of identity theft, loss of significant funds, and personal bankruptcy?
The U.S. Consumer Financial Protection Bureau (CFPB) recently acknowledged the growth of the prepaid debit card industry, and it has proposed rules that would provide fraud safeguards, as well as free access to account data.
New Protections for Prepaid Card Owners
The CFPB wants to make sure that consumers in Chicago and across the country feel secure when they decide to use a prepaid debit or credit card. According to Richard Cordray, the director of the CFPB, “consumers are increasingly relying on prepaid products to make purchases and access funds, but they are not guaranteed the same protections or disclosures as traditional bank accounts.”
As such, the consumer bureau aims to provide such protections for consumers who opt for prepaid cards instead of traditional bank accounts. The new rules proposed would “close the loopholes” that currently exist in the prepaid card market, and they’d also “ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment.” Specifically, protections would include:
·      Limitations on consumer liability when fraudulent charges happen; and
·      Requirements for timely methods to recover lost funds.
How popular have these prepaid cards become? Estimates suggest that, in 2010, consumers had about $37 billion loaded onto these cards. By the end of 2014, however, analysts believe that this number may climb as high as $80 billion.
What Happens Without Consumer Protections?
Without such consumer protections, it’s easy to imagine a dangerous financial scenario in which a Chicago consumer loads a prepaid card with $20,000—all of the funds she’d have in a checking account—and she discovers fraudulent charges on her account in the amount of $15,000. Without certain consumer protections, she might not have recourse to get those funds back, and she may be out $15,000. Even worse, perhaps, would be fraudulent charges in the amount of $20,000+ that result in overdraft fees on her card. In addition to potentially losing more than $20,000, that consumer also may go into debt paying the overage fees.
And without requirements for the credit agency to attempt to recover lost funds in a timely manner, that consumer may find herself in an extremely difficult financial situation, particularly if she’s using her prepaid card in lieu of a traditional bank account. Do you have questions about your rights as a consumer? Or have you been the victim of financial fraud? You should contact an experienced Oak Park consumer protection attorney as soon as possible.
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