It’s been a couple months now, so you probably saw the CFPB’s Monthly Complaint Snapshot for November 2015, released in December. The product spotlight for November was money transfers. Notably, however, the CFPB also reported that, comparing the three-month periods of September to November 2014 against September to November 2015, consumer complaints involving prepaid card products showed the greatest percentage increase of any product type, up 215 percent.
During the September to November 2014 complaint period, the CFPB received 140 prepaid complaints, and, for the same period in 2015, 442 complaints. The complaints involved the full spectrum of products that may be classified as prepaid, including general purpose-reloadable (GPR) cards, gift cards, government-benefit cards, payroll cards and mobile wallets, as well as identification cards that double as prepaid cards and transit cards, among others.
Overview of Prepaid Card Complaints
Although it’s not completely clear how the CFPB counts complaints, data on the CFPB’s consumer complaint website seem to reflect significantly more complaints than the CPFB tallied. Even so, it still provides an indication of the nature and volume of the complaints.
First, based on the raw data, it seems highly possible that a major reason for the uptick in prepaid complaints from September to November 2015 was the widely reported system failure involving a prepaid card company (a factor not noted in the CFPB’s report). Absent this occurrence, it is likely that the complaint increase from last year would not have been as significant. At the same time, the data still provide a window into ways companies can better address consumer concerns and maintain compliance with applicable law. While it’s also clear that prepaid products overall represent a small percentage of complaints – for the three-month period examined, prepaid cards accounted for fewer than 2 percent of complaints filed, reducing complaints is always a good goal.
The top five prepaid complaint categories from September to November 2015, cover, in ranking order, (1) Managing, Opening or Closing an Account, (2) Unauthorized Transfers, (3) Fraud or Scams, (4) issues “Adding Money” or loading funds onto cards, and (5) Fees. Narratives released covering two of the top five complaint categories of particular interest involved fraud or scams and fees.
Fraud or Scam Complaints
Unlike the money transfer complaint narratives, where consumers informed the CFPB of fraud they had unwittingly participated in by consenting to funds being withdrawn from their accounts, the fraud narratives for prepaid cards tended to implicate factors largely outside the consumer’s control. Some examples are consumers complaining about receiving unsolicited prepaid cards, prepaid card accounts fraudulently being opened in their names, and a few income tax scams of which the consumers were victims.
These complaints are an opportunity for companies to assess their infrastructure for preventing prepaid card-related scams from being successful, to the extent possible, particularly because the product receives significant public scrutiny for fraud concerns, warranted or unwarranted.
The narratives released for this category tended to involve gift cards, including GPR cards marketed and labeled as gift cards, which were often received in connection with rebates and loyalty or rewards programs. A couple themes appear evident from the comments (neither of which is likely to surprise): (a) consumers admitted not reading disclosures on the back of the card or otherwise and (b) they have a perception that gift card fees are unjust, regardless of whether they paid value for the card. These comments suggest a couple recommendations for companies issuing gift cards for sale:
Fees should be disclosed as clearly as possible. A number of consumers explicitly stated that they wanted more conspicuous fee disclosures – some even said on the packaging. The short-form disclosure rules under the CFPB’s Prepaid Card Rule Proposal will require on-packaging disclosures for GPR and other cards subject to it, but the proposed disclosure requirements would not apply to loyalty, award, or promotional gift cards (or other gift cards). Loyalty or awards gift cards also are more likely to be exempt from federal and state law restrictions on fees and expiration dates. However, a by-product of the future release and implementation of the Prepaid Card Rule could be to increase regulatory expectations for fee disclosures for these gift cards. Bottom line: the better the fee disclosures, the less trouble with consumers and regulators.
Disclosures can be simpler and better inform consumers of applicable gift card laws. Consumer complaint narratives covering fees seemed to point to these related concerns – not just for fee disclosures, but also other disclosures applying to consumer use of gift cards. Although a card issuer only has so much room to include disclosures on the back of a card and naturally boils them down to the essentials as a result, there still might be room for improved clarity. For example, it appears that language such as “void where prohibited by law” may be confusing to consumers, as some expressed that there were state laws impacting their card values that were unexpected. The concept might be more clear to consumers if the disclosure more specifically indicated that state laws might impact permissible fees and other aspects of card redemption, for example.
Further, to the extent it is necessary or appropriate to refer consumers to additional disclosures for more information, those references will ideally provide meaningful detail as to what that information addresses. For example, if the referred disclosures relate to additional fees, the cross reference might be more useful if it said something like, “Please see [website] for a complete list of fees.”
Granted, it will still be up to the consumer to read disclosures – which no company can control, but a business can do its part to minimize the risks of complaints appearing in the CPFB’s database – or being raised in lawsuits.