CFPB Takes Enforcement Action Against Prepaid Card Issuer

On October 19, 2021, the CFPB issued a consent order against a prepaid card issuer alleged to have engaged in conduct that targeted individuals released from federal, state and county corrections systems.  The issuer provided prepaid cards to incarcerated individuals who were required to receive the money owed to them at the time of their release.  The terms of the prepaid card provided for various fees and did not provide a reasonable way for consumers to close their card accounts to obtain their card balances without paying such fees. By assessing such fees on these captive consumers, CFPB found the issuer engaged in unfair, deceptive, and abusive acts and practices in violation of the Consumer Financial Protection Act, and further violated Electronic Fund Transfer Act, and its implementing Regulation E, by conditioning the receipt of a government benefit on opening an account with a particular financial institution.  The consent decree severely limits the fees the card issuer can charge going forward, permitting only inactivity fees after 90 days without card activity.  The order also requires the issuer to pay $4 million for consumer redress and a $2 million civil money penalty.

In a separate statement published with the consent order, recently confirmed CFPB Director Rohit Chopra stated his view that this case, “illustrates some of the market failures and harms that occur when the disbursement of government benefits is outsourced to third-party financial services companies that fail to adhere to the law.”  He identified unemployment insurance, stimulus checks, tax refunds, higher education benefits and juror pay as important benefits that are often managed and disbursed by companies offering similar services. Director Chopra went on to specifically identify the private equity investor alleged to control the prepaid card issuer, and declared, “CFPB will continue to scrutinize these companies, particularly when law violations and abuses of dominance undermine the intent of such government benefits, and where the harms fall heavily on people who are struggling financially.”  For an in-depth discussion of CFPB’s new direction under Director Chopra, please see WBK’s presentation.