Senate President Calls Industry Practices a “Tax on the Young & the Poor”
TRENTON – The Senate Commerce committee today approved a resolution sponsored by Senate President Richard J. Codey (D-Essex) that calls on the Board of Governors of the Federal Reserve to use its muscle to regulate the maze of hidden fees that have cropped up in the growing pre-paid debit card industry. Sen. Codey noted that as these cards continue to grow in popularity, more and more consumers have become frustrated by the litany of hidden fees imposed by an industry that preys on both the young and the poor while its revenue is expected to balloon to over $100 billion in the next several years.
“The Federal Reserve needs to be proactive on this issue, unlike credit card reforms, which took years of consumer abuse to prompt action from Congress,” said Sen. Codey. “Essentially you have this cottage industry that’s popped up, which amounts to nothing more than a tax on the young and a tax on the poor because it’s designed to appeal to struggling students and low-income families. The Federal Reserve must act now to require a level of transparency that will empower consumers to make smart choices when buying these cards.”
The measure builds on the letter Sen. Codey sent to New Jersey’s entire Congressional delegation last month urging them to get on board in pushing for regulations that would create transparency within this industry, which is outside the realm of state regulation. Sen. Codey said he was inspired to act after reading accounts of the exorbitant hidden fees that, in some cases, depleted much of the funds deposited by hard-working, low-income consumers, a practice that can prove devastating when every nickel counts.
The resolution officially calls on the Board of Governors of the Federal Reserve system to regulate prepaid debit cards in the same manner as traditional debit cards and gift cards by requiring all issuers of prepaid debit cards to disclose all information regarding fees and charges associated with prepaid debit cards and their use to consumers in an easy-to-read format on all packaging, website and on-site locations; and extending FDIC insurance and the protections guaranteed under the Electronic Funds Transfers Act to protect prepaid debit card users from unauthorized use of the card.
“Many of the people that use these pre-paid cards cannot obtain a bank debit card because they can’t afford to maintain the minimum monthly balance required or they can’t get a credit card. So they turn to these pre-paid debit cards as a means to get by in the growing world of e-commerce. Instead they end up sitting around helplessly as they watch their hard-earned money get eaten up by hidden fees. That isn’t right and we need to do something about it now,” continued Codey.
Pre-paid debit cards work in much the same way as phone cards or check cards issued by the major credit card companies, however they operate relatively outside the realm of regulation as a separate industry. The cards are sold at nearly every check-out counter, from supermarkets to drugstores to Walmart, and are reloadable. Once an individual pays for the card at the register, depositing however much money they choose into the account, it is ready to use for ATM withdrawals, store purchases and online shopping. However most of the cards come with undisclosed fees for a wide range of activities, including: activation, ATM withdrawals, customer service calls, balance inquiries, purchase charges and bill payments.
“I’m not asking these companies to provide a service for free, but consumers deserve to know what they’re getting into when they purchase these cards. It’s like buying a house without getting to look around inside. You have no idea what you’re getting into until it’s too late. And then forget about trying to get help because many of these companies charge you for customer assistance over the phone,” added Codey.
Sen. Codey also encouraged New Jersey residents to look into obtaining a checking account through one of the many state-chartered banks. Under the 1991 Consumer Checking Account Act, state-chartered banks are required to provide low-cost, low-volume basic checking services for state residents. Many of these banks require no more than $50 to open an account; no more than $1 to maintain the account and; no more than $3 per month as a service fee. For those that still can’t afford to pursue this option, Sen. Codey is pressing the Federal Reserve to act to create transparency in the growing pre-paid debit card industry.
The resolution now heads to the full Senate for approval.
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