The bureau focuses on the impact of reported inadequate customer service and significant fees related to assistance provided on prepaid cards on consumers’ public benefits.
03/02/2023 1:30 P.M.
3 minute read
The Consumer Financial Protection Bureau released an issue spotlight this week examining how the financial products used to provide public benefits, like Social Security and unemployment compensation, affect consumers’ ability to fully access the resources available through those programs.
The issue spotlight outlines how governments frequently deliver public benefits through financial goods—notably prepaid cards—which may subject consumers to exorbitant fees and reduce the amount of money those in need would receive.
It also emphasizes how inadequate customer service can prevent customers from accessing vital funds and solve difficulties with their accounts.
“When cash assistance programs are drained by unnecessary fees and poor customer service, it hurts individual recipients and taxpayers,” said CFPB Director Rohit Chopra in a news release. “The CFPB will continue to ensure that companies delivering public benefits obey federal consumer financial laws and continue to work with federal and state officials to make public benefits delivery more effective.”
According to the issue spotlight:
- Some prepaid cards charge numerous fees on public benefits. For example, according to the Federal Reserve, in 2020 prepaid card administrators collected $1.3 billion in transaction fees on the $409 billion in public benefits distributed.
- Fee amounts in cash assistance programs vary across states, as do the types of fees charged to access cash assistance. For example, unemployment prepaid card users in some states pay up to $2 for out-of-network ATM withdrawals or up to $14 for replacements cards, while recipients in other states pay nothing for those same services.
- Consumers reported numerous issues dealing with unrecognized charges and poor customer service among card issuers, including inadequate protections against unauthorized transfers, high costs in order to replace a card, and insufficient or hypersensitive fraud filters that cause delays and account freezing.
- When recipients have few choices about how they receive their benefits, there is little competitive pressure to update products or provide consumer-centric customer service.
The issue spotlight specifically focuses on cash assistance delivered by prepaid cards. Many fees on prepaid cards frequently cut into the amount of money accessible to customers who are most in need, according to the CFPB.
The bureau plans to monitor and take action against entities who violate federal consumer financial protection laws in order to ensure compliance with policies related to the delivery of cash assistance, according to the press release.
Additionally, the bureau will share its findings with federal and state agencies that administer public benefits programs to support efforts to increase competition or otherwise address the findings of this spotlight.
Credit Card and Financial Fees
The CFPB has also focused on updating regulations on credit card fees and issued a request for information (RFI) regarding fees related to consumer financial products and services.
In February, the CFPB issued a proposed rule that would update regulations implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act).
The bureau sought comments on credit card fees through an advance notice of proposed rulemaking last summer and ACA International responded with an overview of the use of fees in the debt collection industry, ACA International previously reported.
ACA expected the proposed rule after the RFI on credit card fees was released in 2022 and is reviewing it for possible comments.
Congress also noted in a letter (PDF) that “the CFPB broadly groups all fees associated with consumer products and services as ‘junk fees’ and does not provide any legal definition of the term or any statutory authority to define such a term.”