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N.J. Lawmakers Consider Tough Prepaid Rules

New Jersey legislators are considering a bill that would limit, or outright ban, a plethora of fees prepaid card providers can charge consumers, plus require providers to disclose certain information and restrict consumers’ liability for unauthorized fund transfers. In some instances, the bill (A 4965) is more restrictive than the rules set forth by the CFPB as part of its final rule on prepaid accounts.

New Jersey’s bill surpasses what the CFPB is proposing because it would restrict the types of fees that can be charged on a prepaid account, according to Eli A. Rosenberg, associate, banking and payment systems, Baird Holm LLP. The CFPB is concerned with clear, conspicuous and accurate fee disclosures, but doesn’t actually tell providers what fees they can charge, he adds.

“The New Jersey bill, by proposing to regulate the types and amounts of fees a prepaid account provider can charge, goes beyond what even the CFPB proposes in terms of regulations for prepaid account products,” Rosenberg tells Paybefore. “By doing so, it may negatively impact the ability of providers to continue offering products to New Jersey consumers.”

The legislation, introduced June 8 by Democratic Assemblyman Troy Singleton, could prove so restrictive that providers could deem offering prepaid cards unsustainable and pull out of the state—a difficult proposition for nationwide programs.

In addition to an annual fee, the legislation would prohibit providers from charging fees for overdraft; point-of-sale transactions, including declined transactions; use of an ATM owned or operated by the card issuer, including balance and transaction inquiries; two inquiries to customer service per month; account closing or request for remaining balance on an account. The bill permits fees or issuing a check for the remaining balance; activation; initiation or enrollment.

The legislation also spells out the fees providers may charge consumers, with some specifications around frequency and amount. For example, providers may charge a periodic fee, but not more frequently than once per month. It’s also acceptable to charge fees for a replacement card, which is not to exceed $5; expedited delivery of a replacement card; fund reloading as long as a free alternate method for depositing funds to the prepaid account is provided; funds transfers from the prepaid account to another account; bill payment by check; withdrawal from an ATM outside the U.S. not owned or operated by the issuer; withdrawal of funds in a foreign currency; an inactivity fee after one year; adding additional cards to a prepaid account; and face-to-face funds withdrawal.

The New Jersey bill requires initial disclosures, including a schedule of fees, contact information if cardholders believe unauthorized transactions have been made on their cards, a toll-free customer service number and website providing disclosure of fees, a summary of the consumer’s liability for unauthorized electronic fund transactions, the financial institution’s business hours, and a summary of consumers’ right to receipts and periodic statements, among other information.

The legislation also outlines cardholders’ liability for unauthorized use of the prepaid card. For example, if consumers notify the issuer within two business days after learning of the loss or theft of a card, consumers’ liability cannot exceed the lesser of $50 or the amount of unauthorized transfers occurring before notifying the provider.

Violators of the bill would be subject to a civil penalty of up to $1,000 per day for each day of the violations by the Commissioner of Banking and Insurance.

“My proposal is a pragmatic attempt to limit the ability by some unscrupulous companies to capitalize on a business model that profits on the backs of those struggling financially,” Singleton tells Paybefore. “The provisions of this bill offers commonsense transparency and the same robust protections for prepaid cards that apply to traditional credit and debit cards.”

The bill was referred to the Assembly Financial Institutions and Insurance Committee.

The New Jersey Assembly attempted to limit fees on prepaid products in 2012. That bill—sponsored by Singleton, among other Democratic Assemblymen—stalled in committee.

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