A partial victory: release cards included in CFPB’s new regulations
by Aleks Kajstura, October 5, 2016
Today, the Consumer Financial Protection Bureau issued a final rule on prepaid debit cards. Last year, the Prison Policy Initiative and other groups urged the CFBP to use this rulemaking to address abusive practices related to prepaid debit cards issued to people upon their release from prison or jail. The CFPB’s decision today is a partial win, but more work remains to be done.
The good news is that release cards will be covered by the new consumer protections contained in the final rule. Specifically, correctional facilities will have to provide clear fee disclosures, card issuers will have to provide reliable access to account histories, and cardholders will have some ability to dispute inaccurate charges.
Prison Policy Initiative had argued that correctional facilities should be prohibited from requiring that people receive their money on prepaid cards. The CFBP declined to impose such a prohibition at this time. Instead, the Bureau acknowledged the concerns about release cards, but said more research would need to be done before it could consider taking action.
Finally, the CFPB ruling clarified that at least some release cards should be conforming to existing (and new) regulations:
[T]o the extent that… prison release cards are used to disburse consumers’ salaries or government benefits…, such accounts are already covered … and will continue to be so under this final rule.
As the CFPB proceeds with the “additional public participation and information gathering about the specific product types at issue”, correctional facilities are increasingly using these expensive cards to repay people they release — money in someone’s possession when initially arrested, money earned working in the facility, or money sent by friends and relatives.
Before the rise of jail release cards, people were given cash or a check. Now, they are instead given a mandatory prepaid Mastercard, which comes with high fees that eat into their balance. These cards charge for basic things like:
- Having an account (up to $3.50/week)
- Making a purchase (up to $0.95)
- Checking your balance (up to $3.95)
- Closing the account (up to $30.00)
To put this into perspective, if someone is released with $125, a $2-per-week maintenance fee is equivalent to a finance charge of 77% per year. If that same hypothetical cardholder makes ten purchases of $12 each, then a $0.50 per-transaction-fee would amount to $5, or 4% of the entire card balance (on top of maintenance fees). If the cardholder wishes to convert a prepaid card into cash, he or she must pay $10 to $30 (8% to 24% of the entire deposit amount) merely to close the account.
But while the new CFPB regulations take a more robust stance on fee disclosure, allowing many people to avoid predatory pricing, they won’t help incarcerated people, who have the cards foisted on them with no choice.