Proposed Legislation Would Bring Transparency and Accountability to Relatively Unregulated, Multi-Billion Dollar Industry
Senator Nicholas P. Scutari, Assemblywoman Linda Stender and Assemblyman Troy Singleton on Thursday announced plans to crack down on the maze of hidden fees that have cropped up in the growing and lucrative pre-paid debit card industry.
The lawmakers introduced legislation (A-2144) on Tuesday that will regulate prepaid debit accounts by limiting the fees that may be charged in connection with the accounts and requiring financial institutions holding prepaid debit accounts to disclose certain information to consumers.
The legislation was inspired by numerous reported accounts of the exorbitant hidden fees that, in some cases, depleted a great deal of the funds deposited by hard-working, low-income consumers. Meanwhile, the industry continues to blossom, with analysts predicting that over $200 billion will be loaded onto pre-paid debit cards this year by consumers.
“Since prepaid debit cards are most often used by those with little to no credit or those without a bank account, undisclosed and hidden prepaid debit card fees serve as another example of these financial institutions unfairly taking advantage of those already struggling in these tough economic times,” said Scutari (D-Union, Middlesex and Somerset). “We must protect New Jersey residents from companies who use these predatory tactics to take advantage of those who may not have any other options when it comes to credit cards. By requiring prepaid debit card companies to disclose their fees upfront and to limit the type and frequency that these fees are charged, consumers will be able to make informed decisions on whether they wish to purchase and use these cards.”
“The pre-paid debit card industry has been described as the Wild West where very few regulations exist,” said Stender (D-Union, Middlesex and Somerset). “Low-income families and struggling students are among those that rely heavily on these types of cards. Without disclosure and accountability, this industry will continue to prey on the young and the poor. This legislation will limit excessive fees and empower consumers with the knowledge they need to make wise purchasing decisions.”
“This sort of predatory practice is particularly devastating in today’s economy,” said Singleton (D-Burlington/Camden). “Essentially, you have an industry that is expected to rake in over $200 billion this year, largely because they prey on some of the most disadvantaged consumers. This measure will provide a one-two punch to regulate both excessive fees and the current lack of disclosure that consumers must contend with.”
The bill would prohibit a financial institution from charging an activation or enrollment fee or any other fee that is not expressly permitted by the bill.
The bill would also require financial institutions to provide a consumer whose funds are contained in a prepaid debit account with a monthly account statement that sets forth certain details for each electronic fund transfer during that month. A financial institution would be exempted from this requirement if it provides consumers with certain information on an ongoing basis, such as access to the account balance through the Internet, telephone, and automated teller machines, as well as means to contact customer service and request an account statement.
The sponsors noted that there have been reports of some pre-paid debit card consumers being charged to contact customer service to obtain information or help.
The bill would also require financial institutions to provide consumers with a table of any fees that may be charged in connection with the prepaid debit account and an estimate of the average total monthly cost to a typical consumer for using a prepaid debit account, together with any application, offer, or solicitation for a prepaid debit account.
A financial institution must also provide a wallet-sized summary of any fees that may be charged in connection with the prepaid debit account and a toll-free telephone number for customer service relating to the prepaid debit account, and, on the access device, a toll-free telephone number and website at which the consumer may access a clear and conspicuous disclosure of the fees that may be charged in connection with the prepaid debit account.
Any person found to be in violation of the bill would be subject to a civil penalty of up to $1,000 per day for each day that the person is in violation.
The legislators also applauded U.S. Senator Bob Menendez for his efforts at the federal level to pass the Prepaid Card Consumer Protection Act, which would limit fees consumers who use these cards can be hit with and ensuring that consumers can get their money back if their card is lost or stolen.