FTC Supports New Protections for General Purpose Reloadable Card Users
In a comment to the Consumer Financial Protection Bureau on Monday, the Federal Trade Commission expressed its support of new protections for users of general purpose reloadable (GPR) cards.
GPR cards are a type of prepaid card that can be “reloaded” with a payment. GPR cards have been gaining in popularity in recent years - especially among consumers who are under-banked or those who don’t meet creditor standards for a traditional credit card.
Many parents also believe using a reloadable card is a good way to teach students about handling their finances, without risking the penalties and fees or damaged credit that might be incurred from mis-managing a traditional credit card.
GPR cards may carry the MasterCard, VISA, or American Express logo and can be used anywhere these major brands are accepted, but GPR card users don’t have the same protections as someone who swipes the traditional forms of plastic payment, the Federal Trade Commission said in its statement.
“The FTC Act protects consumers using GPR cards from unfair or deceptive practices, but such consumers currently are not protected by certain Federal laws that apply to different types of payment cards, such as credit and debit cards,” the FTC said. “GPR card users may not understand that these protections are lacking.”
The Consumer Financial Protection Bureau plans to eventually implement new protections for GPR card users. The FTC makes these recommendations for improving protection for GPR card users:
Liability limits for fraud and unauthorized use
While credit card users have a maximum liability of $50 and debit card users’ liability depends on how quickly they caught it, GPR card users have no liability limit. You can lose as much as the card is loaded for if your GPR card is lost, stolen, or used by someone without your permission.
The FTC points out that since GPR card customers typically have limited means, “these losses
may have a greater impact on them than they would on more affluent consumers.” The FTC also notes that if liability limits were imposed on GPR cards, there may be additional costs imposed on issuers and customers.
Disclosure of fees and expiration dates
GPR cards typically come with a wide range of fees. These can include charges for card purchases, monthly charges, cash advance charges, and others. In addition, GPR cards often have an expiration date, and when they expire, their value can be lost.
It can be difficult to find the expiration date information on the card, and the information on expiration dates can vary from card to card. The FTC recommends “the clear and prominent disclosure of fees and expiration dates to enhance consumers' understanding and their ability to comparison shop for cards.”
Error resolution practices
GPR cards also do not have the same dispute resolution provisions as credit and debit cards. If a vendor mistakenly overcharges the account, the GPR card user may have a difficult time catching inaccurate charges.
Some GPR card issuers voluntarily make account balance and transaction history available to their customers either by phone or online, but some issuers charge their customers a fee for this, and others may not make this information readily available. The FTC recommends mandating error-resolution procedures, and giving GPR customers ready-access to their card balance and transaction history information.
GPR cards are also lacking in protection from unauthorized recurring charges. For example, a recurring charge may be from a negative-option plan (e.g. joining a book club that automatically sends a new shipment periodically), but the problem is that merchants can post a recurring charge without the customer’s authorization.
The FTC has brought numerous actions for merchants who have violated Section 5 of the FTC Act by debiting recurring charges from customers accounts - many of which were job-related scams and government grant scams. It’s an ongoing problem.
The law requires merchants to get customers’ authorization in writing if they want to take recurring electronic funds transfers (including debit cards). The FTC recommends that similar protections be put in place for users of GPR cards.
Federal Trade Commission