NetSpend Stealthily Settles FTC Charges Ahead of Fight Over CFPB Prepaid Card Rules

By Lauren Saunders

The Georgia company leading the charge against new rules for prepaid cards has agreed to refund $53 million for denying customers’ access to their own money despite ads promising “instant access.”

The under-the-radar settlement between NetSpend and the Federal Trade Commission was released late last Friday night, just two days after Senator David Perdue and other Georgia lawmakers quietly moved to utilize an obscure law to block the Consumer Financial Protection Bureau’s prepaid card rule. That rule would guard consumers against fraud, improve disclosures of hidden fees, and limit — although not prohibit — prepaid cards with overdraft features that turn the cards into high-cost credit products. The rule also protects workers by requiring employers to disclose fees on payroll cards before employees sign up and making sure that workers know they do not need to accept their pay in that form.

Prepaid cards should be just that: prepaid, as are 98 percent of such cards currently on the market. NetSpend is the big exception to the rule — the only major prepaid company with opt-in overdraft fees, deceptively marketed as “protection.” NetSpend primarily sells its cards, which can repeatedly trigger $15-$25 overdraft fees, through payday lenders and employers, such as fast food chains. The company’s biggest single distributor is the payday lending chain ACE Cash Express. NetSpend cards are also unusual in permitting payday lenders to debit accounts on a user’s payday, potentially triggering an overdraft fee.

The company is fighting the CFPB rule because, it has told investors, it stands to lose roughly $80 million in fees annually if the rule goes through.

Users of prepaid cards often live paycheck to paycheck. But after wooing customers with ads promising “guaranteed approval” and “immediate access” to funds with “no waiting,” NetSpend kept some people waiting for weeks, or never approved them at all, even after they had loaded money onto their cards. The FTC order prohibits NetSpend from misrepresenting its card activation procedures in the future, in addition to requiring the company to return $53 million to those who were denied access to their money.

Largely at NetSpend’s behest, lawmakers have filed resolutions in both the House of Representatives and the Senate, invoking the rarely used Congressional Review Act to keep the CFPB’s prepaid card rule from taking effect. If the resolutions are approved, the consumer watchdog will be forever barred from enacting a substantially similar rule without Congress’s permission.

The largest prepaid card company, Green Dot, supports the CFPB’s rule, which basically assures prepaid card users of protections they already enjoy with credit and debit cards. In fact, no prepaid card company other than NetSpend has come out against the rule. It would be outrageous for Congress to block these common sense protections for millions of Americans simply in order to allow a single company to keep gouging cash-strapped families with overdraft fees to the collective tune of $80 million or more a yea

The prepaid card rule is scheduled to go into effect on October 1, 2017, although the CFPB has agreed to extend the effective date until to April 1, 2018, to allow companies more time to bring their practices into full compliance. — Lauren Saunders

Lauren Saunders is Associate Director of the National Consumer Law Center
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