Financial exclusion affects consumers on both the national and global scale. With other means of managing capital gaining popularity, the Consumer Financial Protection Bureau (CFPB) has proposed legislation to regulate the alternative banking landscape. General-purpose reloadable (GPR) prepaid cards are an example of alternative capital management, and are increasingly becoming an essential financial tool for consumers. GPR prepaid cards are used similarly to debit cards; they can be reloaded through direct deposit or with cash, are able to be used at ATMs, and are capable of in-store purchases. Between 2012 and 2014, use of GPR prepaid cards among U.S. adults grew by more than 50 percent.
According to the CFPB’s proposed prepaid rule, “the lack of access to checking accounts and other types of more established financial products and services such as credit cards appear to be the key driver of their use of GPR cards.”
A study published in June 2015 by The PEW Charitable Trusts reports the motivations behind prepaid card use for over 500 consumers, representing an estimated 23 million Americans, who use prepaid cards at least once a month. The report details insights on the attitudes, knowledge, and perceptions of the prepaid banking consumers, some of which include:
- Prepaid card use is becoming more common.
- Unbanked prepaid cardholders use their cards more like traditional checking accounts.
- Prepaid cards are often used as a budgeting tool.
- Most prepaid card users do not know whether their funds are FDIC insured or whether their cards have an arbitration clause.
- Many prepaid cardholders who are covered by liability protections do not know it.
The Pew Charitable Trusts iterates the need for federal regulation and protection of consumers through the Consumer Financial Protection Bureau (CFPB) proposed regulation. Consumers using this financial tool in lieu of traditional banking should be protected under federal law. In support of GPR prepaid cards, Pew outlines additional features that could be added to make the financial tool more relevant and useful for consumers. Pew underscores the lack of knowledge surrounding prepaid cards, and the potential for the bureau to help educate consumers through clear labeling and packaging.
With numerous exploitive financial services in the market, GPR prepaid cards are being considered an interesting alternative solution. Many believe through further regulation calling for transparency, consumer protection and financial education, GPR cards could be the future of complete financial inclusion nationwide.
To learn more about this study, head over to The PEW Charitable Trusts