As technology elbows its way into financial payments, cash and paper checks become relics of the past. Employers pay employees not by writing checks but by loading money onto their prepaid re-loadable debit cards. Students receive their financial aid and meal plan swipes on their student ID cards. The government pays Social Security, SNAP, and other transfer or welfare payments through prepaid cards. Parents give their children prepaid debit cards as flexible gifts that let them pay with plastic well before they are of age to get credit cards.
The providers of these prepaid cards are raking in cash. They often charge an up-front activation fee, but many consumers are unaware that this fee does not give the cardholder the same rights and protections as a credit card owner. Credit card owners can dispute charges within at least sixty days, receive basic account information by phone or mail for free, and report their cards lost or stolen if necessary.
On April 1, 2019, the Consumer Financial Protection Bureau effected new regulations on many prepaid cards, fixing some of these injustices:
Employees have a right to refuse payment through a prepaid card; employers must provide at least one other choice such as a direct deposit or paper check.
Prepaid cardholders may report their cards lost or stolen within two days or dispute charges within at least 60 days.
Prepaid card providers must publicly post fee information and provide basic account information by phone or mail on request.
Prepaid cards that offer overdraft, which lets their holders make purchases beyond the money left on the card, must comply with credit card regulations, since an overdraft is essentially a purchase on credit with an extra fee.
While the mighty banks that underwrite these prepaid cards are FDIC-insured, meaning the government will reimburse depositors up to $250,000 if the bank fails, the cards themselves sometimes are not. Now, non-FDIC-insured prepaid cards must include a warning such as “Not Bank Guaranteed — May Lose Value.”
These new regulations supplement existing laws protecting employees, consumers, and students. If an employer pays an employee minimum wage ($8.46 per hour this year in Florida) by loading that much onto a prepaid card, but the prepaid card takes a fee out of that, then the employee is actually receiving less than minimum wage, so the employer is in violation of the Fair Labor Standards Act. The U.S. Department of Education places limits on the fees that universities can charge students. Universities must give students “several options” to receive financial aid and list fees associated with each of those options.
These new and old regulations have many exceptions and additional provisions with which experienced bankruptcy, foreclosure, and loan modification firms, like the Badgley Law group, are familiar. If you’ve been misinformed, overcharged, or underpaid by way of a bank, card, or other payment processor, contact the Badgley Law Group for a free consultation.