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Evaluating ways to promote regular saving habits among prepaid card users

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Today, we’re announcing that, as part of Project Catalyst, we’ll be working with American Express to evaluate practices to promote regular saving habits among prepaid card users. Project Catalyst is our initiative to encourage innovations that make financial products more consumer-friendly. The research will focus on saving behavior among low- and moderate-income prepaid card users who often do not have access to or use traditional savings accounts and who may face unique challenges building regular saving habits.

It’s important to save. Savings can help people achieve greater peace of mind when it comes to handling unexpected expenses and help people reach their short-term and long-term financial and life goals. To build enough savings to cover these expenses and meet certain goals, it is important to form regular saving habits.

We believe that consumers are more likely to save if they have access to the right tools. Consumers with low and moderate incomes may be less likely to have access to or use a traditional savings account and instead may use a checking or prepaid account to make purchases and save. For these consumers, who are possibly already financially strapped, having to mentally separate the money allocated to spending and saving within a single account could make saving even more challenging.

Through Project Catalyst, American Express has agreed to share insights with the Bureau from its trial program focused on encouraging users of its prepaid cards to develop regular saving habits. Through its program, American Express is evaluating the effectiveness of its product feature that allows American Express prepaid cardholders to set money aside in a savings wallet that is separate from funds used for regular transactions. Cardholders can separate money from their main prepaid account into a subaccount dedicated for savings. Funds stored in the subaccount can’t be accessed at the point of sale. When cardholders wish to use their saved funds, they need to transfer the funds in their subaccount into their main prepaid account. To promote regular saving habits among its prepaid customer base, American Express will be launching an educational marketing campaign detailing the importance and benefits of saving and will also offer promotions to encourage certain cardholders to save.

Using the insights provided by American Express, the CFPB is going to study what strategies may be effective at encouraging and making it easier for prepaid card users to develop regular saving habits. We will also study the impact and potential benefits of saving on consumer financial health. Through this work, we hope to gain a better understanding of consumer saving behavior and the effectiveness of a savings feature on prepaid accounts.

As part of Project Catalyst, we continue to encourage consumer-friendly innovations. Through collaborations such as this one, we’ll have the opportunity to improve our understanding of what works best for consumers in the consumer financial marketplace. Learn more about Project Catalyst by viewing some of our past and current initiatives, and remember to check back for more updates on this collaboration.

 

Prepaid products: New disclosures to help you compare options

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Last March, we asked you to comment on possible prepaid card disclosures. Thanks to your feedback and additional consumer testing, today we’re proposing new disclosure requirements that consumers would receive before deciding to open a prepaid account.

These new disclosure requirements are part of our larger prepaid accounts proposal to extend many federal consumer protections to prepaid products.

Currently, each prepaid card company’s retail package discloses different information in different ways. This can be confusing if you’re trying to compare costs between prepaid accounts. Below are a couple examples of the disclosures on the packaging of major prepaid cards we found in stores near our Washington headquarters in March:

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As you can see, each prepaid card varies in style, format, and content. Website disclosures have similar problems. As a result, it’s challenging for consumers to make sense of each product’s cost.

Proposed disclosures

We’re proposing to standardize these disclosures with a new requirement: that prepaid companies adopt model disclosure forms so that consumers can make better choices between prepaid options.

The disclosures would take two forms: (1) a short form that would highlight key information about the account’s fees and (2) a long form that would list all of the account’s fees.

Below is an example of the proposed short form disclosure that you would see in a retail store, which includes a link and a telephone number to access the long form disclosure on a smartphone or mobile device.

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The short form disclosure lists four types of fees in large and bold font, that we think are most important to many consumers: the monthly fee, ATM withdrawal fees, per purchase fees, and cash reload fees. The design makes it easier for consumers to identify the best prepaid account for their needs.

For consumers that aren’t shopping for a prepaid account at a retail store or by phone, we’re proposing that they receive the short and long form disclosure before getting the account.

Tell us what you think

Now, we want to hear from you! Take a look, and tell us if you think this model form does a better job of disclosing fee information compared to other forms you’ve seen on prepaid card packaging. We’re eager to get feedback from consumers, industry, advocacy organizations, and anyone else who is interested in making prepaid account disclosures better.
While you’re looking at the form, some questions to consider might be:

  • Does the short form disclosure above make it clear how much the account would cost you to use?
  • What would you like to see added or changed? Is there some way to make the information clearer?
  • Is there anything you find confusing?

We want to get your feedback so that we can consider it as we develop a final rule.

If you want to influence the design of a new prepaid card fee disclosure, let us know what you think. You can send us an email with your comments. We will update this post soon with a link to submit a formal comment on Regulations.gov.

To learn more, check out the preamble, the proposed rule, and the official interpretations.

Prepaid cards: Help design a new disclosure

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Today, we’re in Los Angeles, CA to show people potential disclosures that we may propose to be used on the packaging of prepaid cards. We’re developing new disclosures as part of a larger project that will provide a variety of protections for prepaid card users. We expect to propose a rule on this topic later this spring.

Current disclosures

Currently, each prepaid card company’s retail package discloses different information, which makes it difficult to do side-by-side comparisons. Below are a few examples of the disclosures that appear today on the packaging of several major prepaid cards that we recently bought in stores near our Washington headquarters:

201403_cfpb_prepaid-cards-attachment-A

As you can see from these examples, each prepaid card has a different style and format for presenting fee and other important information. We think this could make it difficult to find the information important to you and to compare fee information between cards.

We’re developing a model disclosure form to standardize these disclosures to include in the proposed rule. We want our model form to clearly present a prepaid card’s most important fees so you can easily identify the best prepaid card for your needs.

Testing new disclosures

To help us design this model disclosure, we’re conducting interview testing with consumers around the country. We’re presenting testing participants with versions of the forms we’ve developed to see which works the best. Our first round of testing took place last month in Baltimore, MD, our second round of testing begins today, and we expect to complete the testing in April.

These are two model form designs that we’re testing in Los Angeles:

Model form 1

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Model form 2

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Tell us what you think

Now, we want to hear from you! Take a look, and tell us if you think these model forms do a better job of disclosing fee information compared to other forms you’ve seen on prepaid card packaging. We’re eager to get feedback from anyone who is interested in making prepaid card disclosures better.

While you’re looking at the forms, think about these questions:

  • Do you understand how much each of these cards will cost to use?
  • What would you like to see added or changed? Is there some way to make the information clearer?
  • Is there anything you find confusing?

We want to get your feedback now so that we can consider it as we continue testing model forms over the next few weeks.

If you want to influence the design of a new prepaid card fee disclosure, let us know what you think! You can use the comments section below, send us a tweet, let us know on Facebook or send us an email.

Giving or receiving gift cards? Know the terms and avoid surprises

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My family and I just moved into a new house. With all the packing and unpacking, my kids and I found three gift cards we had forgotten about. Mine was from my birthday, almost a year ago. Theirs were from last Christmas. So while most consumers are shopping for this year’s holiday season, we’re putting the wraps on last year by spending these long-lost gift cards.

If you have old gift cards sitting around, you might want to consider doing the same. Federal rules say that gift cards cannot charge inactivity or service charges for 12 months, but after that first year, these fees could start to eat away at your card’s value.

If you find a gift card that has an expiration date, call the phone number on the card to see if the funds are still available. Under current federal law, a gift card cannot be sold that will expire in less than five years. If funds are still available to you, a new card must be issued at no cost to you. Your state may provide additional protections and rights.

Thinking about giving a gift card to someone for the holidays?

Here’s a quick rundown of the different kinds of cards:

  • Store gift cards
    Branded by a single merchant or group of merchants, and can only be used at those stores.
  • Network branded gift cards
    These will have a logo like American Express, Discover, MasterCard, or Visa and can be used wherever the network credit cards are used. They are reloadable, which means the recipient can add more money to them when they run out.
  • Reloadable prepaid cards
    You can use these cards the same way you’d use reloadable gift cards, but the rules that cover these cards are not the same. If it isn’t sold as a gift card, then the federal rules that cover gift cards don’t apply. For example, for such cards, the card issuer might immediately start charging fees, like monthly service fees.

When you give the card, give the terms and conditions and the receipt, too. The terms and conditions are sometimes included in the original packaging. Also, consider the financial condition of the business offering the card. For example, if you give a store gift card and the retailer goes under, the card may not be redeemable. Also, if locations near your recipient close, the card may be harder to use.

If you get a card as a gift

Here’s how to make sure you’re getting the most out of it.

  • Gift cards should spell out what fees they charge, so read the fine print. For example, even though the federal rules are the same for all gift cards, additional policies may be set by the merchant or bank issuing the card. Be sure you understand these policies.
  • What happens if you lose your card or if it’s stolen? Some issuers, like stores, might not replace them . Other issuers might replace the card, but only if you registered it before it was lost or stolen.Use the card sooner, rather than later. Take my word for it, these cards can be easily misplaced and forgotten.
  • Write down the card number, security code, and customer service phone number and keep them in a safe place.
  • Treat the card like cash, especially if the issuer will not replace it, and keep your card until you are sure you will not be making any returns. Some merchants require that refunds be added back to the card.

To learn more about pre-paid cards, Ask CFPB.

Live from Durham, NC!

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We’re in Durham, NC, today to hold a field hearing on general purpose reloadable prepaid cards, commonly known as prepaid cards. If you’re looking for our livestream, you’ve come to the right place.

Today’s live events have now ended. You can watch the recording below, or read CFPB Director Richard Cordray’s remarks.

If you missed the event, CFPB Director Richard Cordray announced that the Bureau is asking for comments about general purpose reloadable prepaid cards, referred to here simply as “prepaid cards”, through an Advance Notice of Proposed Rulemaking (ANPR). Before we act, we want your input. Here are some of the things we’re considering:

What steps could the Bureau take to most effectively regulate these products to provide the consumer with transparent, useful, and timely fee disclosures? Should market participants be required to provide disclosure pre-sale, post-sale, or both?

The Bureau intends to extend federal consumer protections to prepaid cards. Should proposed consumer protections be the same as for checking account debit cards? Should there be any modifications to protections as they are extended to prepaid cards?

Currently, most prepaid cards do not offer a savings account associated with the card. The Bureau seeks public input on the costs, and benefits, and consumer protection issues related to savings features offered with prepaid cards.

Additional questions are in the ANPR. Do you have questions or comments of your own to share? We’d love to hear them.

Sign up for our email list and we’ll notify you when the comment period opens.

Here’s the recording of today’s panel and field hearing.