GOP Senator's Push To Let Debit-Card Companies Rip People Off Fails

The measure "would have been a travesty" for consumers, an advocate said.

Congressional Republicans’ mad rush to repeal Obama-era rules ended with a whimper Thursday, when the Senate failed to repeal regulations that aim to protect consumers from being cheated on prepaid debit cards.

The period for invoking the Congressional Review Act, which Republicans have been using to undo Obama administration rules before they take effect, expired on Thursday. But the debit-card bill failed to get a Senate vote because it didn’t have enough support to pass, according to a Senate source.

Republicans have used the Congressional Review Act to roll back rules on such things as a ban on internet companies selling your browsing history without permission, and limits on coal pollution in rivers. But as the period to use the act drew to a close, senators seemed to lose their taste for it. A repeal of methane rules for drillers on federal lands failed Wednesday, 49-51, after three GOP senators defected. 

The new rules for prepaid debit cards, written by the Consumer Financial Protection Bureau, give customers the same protections debit card users already have against errors, fraud and unauthorized charges. The rules, which take effect in April 2018, don’t eliminate nasty fees like overdraft charges, but they require fees to be affordable and clearly disclosed.

A study by the CFPB found that 98 percent of prepaid debit cards don’t charge overdraft fees. The remaining 2 percent of those cards mostly come from a Texas company called NetSpend, which is a subsidiary of a Georgia-based company called TSYS. The new rules could cut NetSpend’s annual revenue by 12 percent, or $85 million, according to an analysis conducted by American Banker.

A NetSpend spokesman told HuffPost the CFPB rule “will limit unbanked and underbanked consumers’ access to products and features they find valuable” and the company will continue lobbying for changes. “Netspend supports robust but smart regulation of our industry, and we will continue to engage with policymakers to ensure we have rules that protect consumers while promoting financial inclusion and empowerment.”

Unsurprisingly, the sponsor of the repeal bill was Sen. David Perdue, of Georgia. 

Perdue’s office declined to comment on the bill’s failure, but a spokesperson pointed to a Tuesday statement that called the CFPB “a rogue agency” that needed Congressional Review Act oversight. “Ultimately, the CFPB should have scrapped this rule altogether but we were able to extract significant concessions to narrow its scope,” Perdue said in the statement.

A spokesman for Senate Majority Leader Mitch McConnell (R-Ky.) declined to comment on the lack of a vote, and referred HuffPost to Perdue’s statement. 

The new rule also bans the requirement that overdraft fees be repaid when new money is deposited on prepaid debit cards. That’s a practice used when a prepaid debit card is connected to a payday loan, and it makes getting out of debt more painful in two horrific ways.

First, the overdraft fee is often obscured in a pile of exorbitant interest costs, so many people don’t realize they’re paying a fee. Second, it puts the prepaid debit card company first in line for any money deposited to the card from new payday loan, without giving the borrower any choice. The payday loan industry has admitted that “very few” borrowers pay back their loans on time, and a study found four out of five borrowers paid back their loans by either renewing their loan or taking out out another one.

“People use prepaid cards to control their finances and avoid overdraft fees, and it would have been a travesty if Congress had vetoed fee and fraud protections on all cards just so that one company could charge overdraft fees.” said Lauren Saunders of the National Consumer Law Center.

This article has been updated to include a NetSpend spokesman’s comment.