The infamous U.S. government agency that has come under fire for being overly burdensome continues its efforts to protect consumers. Its latest action relates to the new age of digital wallets and the prepaid accounts consumers use to link them.
We’ve told you about this agency and complaints about its overreach several times. It is the Consumer Financial Protection Bureau (CFPB). When it suspects consumers are being taken advantage of by a financial institution, it swoops in with a rule or regulation.
This time the CFPB has set its sights on the prepaid card and digital wallets industries. The CFPB is worried about consumers not understanding the risks of this new-fangled way of making purchases. On that same note, industry players are worried that this agency is once again playing big brother in a matter that it should not.
Likely never thinking that it would be caught up with the regulations of this agency, two major tech companies have found just that. Google and PayPal have offer digital wallets, which put them right in the middle of this latest CFPB controversial rule.
When prepaid meets digital wallets
Over the past few years, the popularity of digital wallet offerings from companies like Google, PayPal and Square have grown considerably. Even Apple jumped in to carve out a share of this lucrative market.
Consumers enjoy the convenience of paying for their purchases with mobile apps instead of whipping out their debit or credit cards to swipe, or enter PINs.
These services work by being linked to a person’s banking account. In cases of loss or theft, the bank usually makes the account holder whole. This can be completely different for prepaid card account holders who link their accounts to digital wallets. For them, account compromises can lead to them being left holding the bag.
Enter the CFPB
It wasn’t long before the CFPB got involved. The agency was born from the Dodd-Frank Act of 2010, and it hit the ground running in terms of coming up with rules and slapping fines on industry players that did not toe the line.
Considering its aggressiveness and broad authority, it should have been of little surprise that it would eventually set its sights on the prepaid industry. In fact, the CFPB had already placed the industry under its microscope and upended the industry with a slew of regulations that place restrictions on businesses in the industry.
The CFPB charged that the reforms were needed to protect consumers. It is making the same case for its moves with the industry and digital wallets. Its main concern is protecting consumers from losses due to compromised accounts. It has stated:
“Right now, if someone accesses your prepaid account and steals your money, your protections depend on the type of account you have and your cardholder agreement. Under our new rule, your money will generally be protected if your card is lost, stolen, or your account is wrongly charged. You’ll also be able to easily monitor your account for free.”- CFPB
The CFPB determined that the bounty of prepaid accounts available come with their own set of features, functions, and fees. Consumers may find it “hard to compare accounts because each card displays fee information differently,” according to the CFPB.
Being the all-knowing body that it is, the CFPB came up with a rule it claims will help consumers “get clear, upfront information about these fees so [they] can know before [they] owe and shop for the best deal.
While this seems to be a common-sense approach consumers should be aware of using in managing their money, the CFPB seems to beg to differ. The CFPB’s proposed rule is admirable, but it is also reflective of the perception that consumers just aren’t sharp enough to do their homework to find the best options available.
Heavy hitters weigh in
One good thing is that the CFPB does allow for the public, including industry players, to comment on the proposed rules and regulations it concocts before they go into effect.
One of the first was Google. Its Google Wallet could be subject to the CFPB’s rule, and it objected by noting that overregulation could unnecessarily hinder growth in the fledgling digital wallet market.
Industry players have warned the CFPB tow be careful in reaching into this technology-driven space. Perhaps the CFPB is listening. In the spring, the CFPB announced that it was delaying the effective date for the rule until April 1, 2018. The rule had been set to take effect in October.