12.23.10

Durbin Asks Treasury, Consumer Financial Protection Bureau to Protect Consumers from Deceptive Banking Practices, Prepaid Cards

[WASHINGTON, D.C.] – Assistant Senate Majority Leader Dick Durbin (D-IL) sent a letter to Elizabeth Warren, Special Advisor to the Secretary of Treasury and the woman tasked with setting up the newly created Consumer Financial Protection Bureau, yesterday asking her to protect consumers from attempts to circumvent new regulations by pushing consumers to less regulated products like prepaid debit cards.

 

“It is an unfortunate reality that the big banks and card network giants often try to circumvent common-sense regulations in order to squeeze more fees out of their customers,” Durbin wrote. “With last week’s release by the Federal Reserve of draft rules to bring down the excessive interchange fees charged on debit card transactions, the big banks and card networks are likely to start steering their customers away from traditional debit cards and toward less-regulated products, including reloadable prepaid debit cards. These products are often loaded with deceptive and abusive fees, and are frequently marketed to appeal to younger Americans who may not be wise to their dangers. I urge the Bureau to closely monitor the marketing, fees and terms of these products and to alert businesses and consumers about deceptive and abusive products.”

 

Durbin’s letter follows the release of proposed regulations of debit card interchange fees by the Federal Reserve last week. The Fed was directed to establish standards to ensure that debit interchange fees are “reasonable and proportional” to the real cost of processing a debit card transaction by a bipartisan amendment Durbin included in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Final regulations will be released in April.

 

Last week, Durbin and Senator Bob Menendez introduced legislation which would curb hidden fees associated with many prepaid debit cards. The Prepaid Card Consumer Protection Act will eliminate some of the most egregious hidden fees, increase fee transparency for consumers and increase consumer protections

 

A copy of the letter is pasted below and attached.

 

December 22, 2010

The Honorable Elizabeth Warren

Special Assistant to the President and Special Advisor to the Secretary of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

 

Dear Ms. Warren,

 

Thank you for your service as you work to shape the establishment of the Consumer Financial Protection Bureau. It has been a privilege working with you to pass the legislation creating this Bureau, and I look forward to continuing our partnership as the Bureau begins to carry out its regulatory mission.

 

I write today to urge the Bureau to focus particular attention on efforts by banks and payment card networks to steer consumers to prepaid debit card products.

 

As you know, I have worked for years to promote reasonable regulation of the credit and debit card fees charged to consumers as well as the fees charged to the businesses, charities and government agencies that accept cards. The last two years have seen enormous progress on this front, including the 2009 CARD Act’s restrictions on abusive cardholder fees and the 2010 Dodd-Frank Act’s regulation of unfair and anti-competitive debit interchange fees.

 

It is an unfortunate reality, however, that the big banks and card network giants often try to circumvent common-sense regulations in order to squeeze more fees out of their customers. With last week’s release by the Federal Reserve of draft rules to bring down the excessive interchange fees charged on debit card transactions, the big banks and card networks are likely to start steering their customers away from traditional debit cards and toward less-regulated products, including reloadable prepaid debit cards. These products are often loaded with deceptive and abusive fees, and are frequently marketed to appeal to younger Americans who may not be wise to their dangers.

 

This letter is not to suggest that prepaid debit cards are inevitably harmful. If properly regulated, these cards show great potential for helping unbanked Americans who might otherwise rely on check cashing operations. There are companies offering prepaid debit cards today that provide their customers with fair and transparent terms. The key is to strike the right regulatory balance so we can protect innovation and competition in this industry, while protecting consumers from less scrupulous actors.

 

The amendment I added to the Dodd-Frank Act earlier this year took the first step toward regulating prepaid debit cards by subjecting those cards to interchange fee regulation if overdraft fees or certain ATM fees are charged in association with the cards. I intend to work with Senator Bob Menendez and other colleagues in the Senate to take further legislative steps to rein in abusive fees associated with prepaid debit cards. In the meantime, I urge the Bureau to closely monitor the marketing, fees and terms of these products and to alert businesses and consumers about deceptive and abusive products.

 

Thank you for your consideration of this request, and I look forward to continuing to work with you.

 

Sincerely,

 

Dick Durbin

United States Senator

Assistant Majority Leader