FTC Staff Comment to CFPB Supports Protection of Consumers Who Use General Purpose Reloadable Cards

In a comment submitted to the Consumer Financial Protection Bureau (CFPB), staff of the Federal Trade Commission expressed support for protecting users of general purpose reloadable (GPR) cards and for the CFPB's proposal to solicit information about the costs and benefits of extending additional protections to these cards.

GPR cards are a type of prepaid card that is issued for a set amount and is reloadable, so consumers can add funds to the cards. In recent years, consumers' use of GPR cards has expanded. 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. GPR card users may not understand that these protections are lacking.

To determine whether to extend additional protections to users of GPR cards, the CFPB issued an advance notice of proposed rulemaking requesting public comment on the issue. In response, FTC staff submitted a comment supporting the CFPB's request for information about the cost and benefits of extending protections to GPR cards that currently are applicable to other payment cards. Drawing on its enforcement and policy experience, FTC staff focused in particular on four types of protections that have been applied to other payment cards: 1) liability limits for fraud and unauthorized use, 2) disclosure of fees and expiration dates, 3) error resolution procedures, and 4) recurrent payments.

First, the comment states that current federal laws do not limit the liability of GPR card users due to fraudulent or unauthorized use. Accordingly, consumers face the significant risk of loss when using such card, and because students and others of limited means often use GPR cards for payment, these losses may have a greater impact than they would on affluent customers. Extending liability limits, however, also may impose costs on issuers and consumers.

Second, the comment notes that GPR cards also often come with a range of fees, which can vary widely by type and amount. 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. Consumers can have a difficult time locating information about the expiration date on the cards, according to the comment, and information about expiration dates varies from card to card. Accordingly, staff recommends the clear and prominent disclosure of fees and expiration dates to enhance consumers' understanding and their ability to comparison shop for cards.

Third, noting that merchants may unintentionally debit GPR cards for erroneous amounts, the comment states that such errors can cause harm to consumers, as the cards are not covered by the same dispute resolution provisions that cover debit and credit cards. These rights enable consumers to challenge erroneous charges or debits to their accounts and take corrective action. Thus, the comment states that there appear to be benefits to mandating error-resolution procedures, with ready access to card balance and transaction history information, for consumers who use GPR cards.

Finally, the comment states that while current law protects consumers from unauthorized recurring charges to their debit cards, GPR cards do not have such protections. Merchants often make recurrent debits in negative option plans and the payment cards to which merchants may post these debits include GPR cards. The FTC has brought numerous actions for violation of Section 5 of the FTC Act and other laws against merchants that posted debits involving recurrent payments from consumers' accounts without authorization. Consumers face the risk of incurring substantial injury if these debits occur without their consent.

The Commission vote approving the comment to the CFPB was 5-0. It was sent to the Bureau on July 23, 2012. (FTC File No. P064808; the staff contacts are Teresa Kosmidis and Carole L. Reynolds, Bureau of Consumer Protection, 202-326-3224)

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(FYI 25.2012.wpd)