US federal proposals released on 13 November to tighten regulation of the prepaid card market will prompt a consolidation of small, high-fee prepaid issuers leading to low-cost, more transparent providers, according to Fitch Ratings.
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The new proposals, that include standardized fee disclosures, billing statement guidelines, payment cycle terms and limits on fees, will encourage growth in prepaid card usage by enabling consumers to make informed decisions based on card fees and features.
The market opportunity in prepaid cards is significant and the industry has already become one of the fastest growing segments of the financial services industry, expected to garner $100bn in transaction volume in 2014.
The rating agency said that prepaid card account consumers are gaining new protections that move the cards nearer to having the same disclosure and reporting protections that credit card users enjoy.
Examples of the protections and features include monthly statements with a history of transactions and fees paid, 21-day post-cycle payment terms, and practical ways to fix billing problems.
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By GlobalData"The total fees paid for prepaid credit products would not be allowed to exceed 25% of the credit limit. In an effort led by the Consumer Finance Protection Bureau, the protections would be promulgated under US Electronic Fund Transfer Act and The Truth in Lending Act of 2009," said by Fitch Ratings.
