Consumer advocates and Democrats hail the rule, set to take effect in October, but Republicans and industry groups see it as the latest example of an overly aggressive Consumer Financial Protection Bureau.
And they are moving to weaken the agency, itself.
In a statement last week, Sen. David Perdue, R-Ga., called the bureau “a rogue agency more focused on expanding its power than protecting the public.” He introduced a bill Wednesday giving Congress control over the now-independent agency’s purse strings.
Meanwhile, Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, is said to be planning a proposal to make the bureau director serve at the will of the president.
It would remove the bureau’s ability to impose fines like the $100 million penalty it levied against Wells Fargo, and take away its sweeping powers to create rules like the one on prepaid cards.
The CFPB was created as part of the Dodd-Frank financial reforms, passed after the 2008 financial crisis, and was set up by Elizabeth Warren before she became a Democratic senator from Massachusetts.
Much of the Dodd-Frank reforms were swept away by an executive order by President Donald Trump. Democrats are blasting Republican plans to defang the bureau as further indication of Trump going against his campaign promises to fight Wall Street.
Perdue, fellow Georgia Sen. Johnny Isakson and Sen. James Lankford, R-Okla., were among eight Republicans who introduced a bill rolling back the bureau’s rules on prepaid cards, saying they hurt the customers who rely on them.
The cards, which act like debit or credit cards, allow consumers to load money onto them in advance, and they’ve become increasingly popular, especially among people unable to open a bank account.
The CFPB rules extend to prepaid card users many of the same protections applied to credit cards, including limits on how much consumers have to pay for fraudulent purchases and disclosure of fees and conditions.
However, industry groups and Republicans say CFPB went too far in requiring issuers of re-loadable cards to determine whether customers can repay what amounts to a loan before giving them overdraft protection.
Overdraft fees are a major source of revenue for the prepaid card companies, say consumer groups. One company, Netspend, said during an earnings call that it made $80 million to $85 million in overdraft fees last year.
Fees can add up for individual consumers, many of whom already have financial problems, and push them deeper into debt, said Lauren Saunders, executive director of the National Consumer Law Center.
Banks do not have to do credit checks to offer overdraft coverage, she said, but people who use re-loadable cards are more likely to have bad credit histories and need more protection.
In response to the controversy, which parallels debate over the bureau’s proposed rules for payday lenders, Netspend said its customers rely on overdraft protection to get by.
The company declined comment but said in written comments to the bureau, “Consumers may prefer that a utility payment be paid even if a $15 overdraft fee is assessed, rather than incur a late payment fee imposed by the utility company or face having the utility service temporarily suspended.”
Netspend said it already protects its customers, including by giving them 24 hours to balance their accounts before imposing a fee.
The bureau’s rules are so “complex, onerous, costly and difficult to understand,” the company said, they would make it impractical to continue offering overdraft protection.
The company argues that existing rules, which require customers to opt-in to overdraft protection, are sufficient.
However, The Pew Charitable Trusts said in its own written comments to the bureau that many checking customers do not realize they have overdraft coverage — until they’re hit with hefty fees.
A federal court is expected to soon rule on a lawsuit challenging another controversial provision of Dodd-Frank allowing the president to fire the bureau’s director only for cause.
Hensarling, according to a widely reported memo from the Financial Services Committee, would give Trump power to fire CFPB Director Richard Cordray before his term ends next year.
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