Sen. David Perdue, Netspend, and the Consumer Financial Protection Bureau’s Prepaid Rule
Total System Services, Netspend’s parent company, has contributed more than $33,000 to Sen. Perdue’s campaigns, via its executives and PAC.
- Since 2014, David Perdue has accepted $17,500 from Total System Services’ PAC and $16,000 from six of the Total System Services (TSYS) executives: M. Troy Woods (TSYS Chairman and CEO), James Lipham (Former TSYS CFO), G. Sanders Griffith III (VP, General Counsel and TSYS PAC Treasurer), Ryland Harrelson (VP and Human Resource Officer), Paul Todd (VP and CFO), and Philip Tomlinson (Former TSYS CEO). [“Total System Services, Contributions to Federal Candidates, 2016 Cycle;” “Total System Services, Contributions to Federal Candidates, 2014 Cycle;” Donor Lookup results for “TSYS – Total System employees;” Donor Lookup results for “Total System Service, Inc. employees;” Donor Lookup results for “TSYS employees;” and Donor Lookup results for “Phillip Tomlinson,” all Center for Responsive Politics website, accessed April 3, 2017; and “Executive Management,” TSYS website, accessed April 3, 2017.]
In March 2017, Sen. Perdue sponsored a discharge petition–an archaic parliamentary maneuver—to pass a bill blocking the Consumer Bureau’s prepaid rule.
- On March 30, 2017, David Perdue filed a discharge petition “to block” the CFPB prepaid card rule “before it takes effect,” whose “main beneficiary could be Netspend, whose parent company is Georgia-based Total System Services.” A discharge petition is “a rarely used parliamentary maneuver” intended to “force . . . a bill” to be voted on. [Lois Norder, “Millions at Stake for Ga. Company in Fight over Regulation of Prepaid Cards,” Atlanta Journal-Constitution, February 9, 2017; and Mark Strand and Tim Lang, “The Discharge Petition: Bipartisan Effort Might Revive the Ex-Im Bank,” Sausage Factory (blog), Congressional Institute, October 15, 2015.]
This is the only discharge petition that Sen. Perdue has ever sponsored in his career.
- This discharge petition is the only discharge petition David Perdue has sponsored in his career. [Congressional Record search results for “‘David Perdue’ and ‘Discharge Petitions’,” Congress.gov website, accessed April 3, 2017.]
It appears that no bill successfully discharged from the Senate has gone on to become law.
- Based on a search of Congress.gov, which goes back to 1973, there has never been a bill for which a senator filed a discharge petition that went on to become a law. Discharge petitions are initiated “so infrequently” in the Senate that the Congressional Research Service skipped explaining the process in a 2008 report. [Judy Schneider, “House and Senate Rules of Procedure: A Comparison,” Congressional Research Service, April 16, 2008; and Congressional Record search results for “Discharge petitions on bills that became laws,” Congress.gov website, accessed April 3, 2017.]
Just one day after Sen. Perdue filed the discharge petition, Netspend agreed to refund consumers $53 million to settle Federal Trade Commission (FTC) charges it had “deceived consumers.”
- On March 31, 2017, Netspend Corporation agreed to refund $53 million to consumers to settle Federal Trade Commission (FTC) charges that it had “deceived consumers . . . about access to funds deposited on defendants’ debit cards.” The FTC alleged Netspend “tells consumers that its reloadable prepaid debit cards offer an alternative way to store and immediately access their funds. But once people have loaded funds onto the cards, many of them find they cannot access their money . . . because Netspend denies or delays activation of the card, or because it blocks consumers from using it.” [Federal Trade Commission, “FTC Charges Prepaid Card Company Deceptively Marketed Reloadable Debit Card,” news release, November 10. 2016; and Jim [sic], “Netspend Stealthily Settles FTC Charges Ahead of Fight over CFPB Prepaid Card Rules,” Americans for Financial Reform (blog), April 4, 2017.]
About the Consumer Bureau’s Prepaid Rule
What Does the Consumer Bureau’s Prepaid Rule Actually Do?
In October 2016, the Consumer Financial Protection Bureau (CFPB) finalized a rule extending “protections similar to those on credit cards” to prepaid accounts, ensuring financial security for consumers “against unauthorized withdrawals, purchases, or other transactions.” Slated to take effect next spring, the rule would obligate prepaid card issuers to “provide their users with basic account information like balances and transaction history free of charge,” as well as clear notification of all fees associated with the card. The rule also would cap consumer liability at $50 for “lost or stolen” prepaid cards reported missing within two days. The rule covers “payroll cards, student financial aid disbursement cards, and tax refund cards . . . [and] social security benefits and unemployment insurance” cards, but does not extend protections to prepaid gift cards or certificates, nor to “certain health, dependent care, and transit or parking” expense accounts.
- In October 2016, the CFPB finalized a rule extending “protections similar to those on credit cards” to prepaid cards, ensuring protection for consumers “against unauthorized withdrawals, purchases or other transactions.” [Susan Tompor, “New Consumer Protections Aim to End Prepaid Card Gotchas; They Include Disclosure Requirements about Fees and Limits on Losses Consumers Could Face,” USA Today, October 6, 2016.]
- The CFPB rule requires prepaid card issuers to “provide their users with basic account information like balances and transaction history free of charge to customers” and to “clearly” disclose their fees on the card’s packaging. [Ken Sweet, “Regulators Expand Protections to Prepaid Debit Card Users,” Associated Press, October 5, 2016.]
- The CFPB rule includes a requirement giving consumers “at least twenty-one days to repay their debt before they can be charged a late fee” and protections capping consumer liability at $50 for when prepaid cards are “lost or stolen, and the consumer reports the loss or theft within two days.” [Susan Tompor, “New Consumer Protections Aim to End Prepaid Card Gotchas; They Include Disclosure Requirements about Fees and Limits on Losses Consumers Could Face,” USA Today, October 6, 2016.]
- The CFPB rule covers “payroll cards, student financial aid disbursement cards, and tax refund cards, as well as cards used to distribute social security benefits and unemployment insurance.” [Associated Press, “Changes Coming to Prepaid Card Market,” USA Today, October 18, 2016.]
- The CFPB rule excludes accounts for gift cards and certificates, “certain health, dependent care, and transit or parking expenses” accounts, and any “accounts established by or through the United States government” to transact “on U.S. military installations or vessels, or similar government facilities.” [Bureau of Consumer Financial Protection, “12 CFR Parts 1005 and 1026, Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z),” October 5, 2016.]
While the CFPB’s rule does not explicitly ban overdraft charges, it does allow consumers “twenty-one days to repay their debt before they can be charged a late fee” and requires prepaid card issuers “consider the customer’s ability to repay before offering credit.” Prepaid issuers also would be prohibited from automatically withdrawing “owed funds from a person’s prepaid card the next time it is loaded with funds.”
- Under the CFPB’s rule, overdraft charges “would not be banned, but issuers would be required to consider the customer’s ability to repay before offering credit” and “would have to give those customers at least twenty-one days to repay their debt before they can be charged a late fee and cannot automatically withdraw the owed funds from a person’s prepaid card the next time it is loaded with funds.” [Kathy Kristof, “Senate Republicans Aim to Gut Debit-Card Safeguards,” CBS News, February 3, 2017.]
- “The CFPB will allow prepaid debit cards issuers to provide overdraft services, which would legitimize a small, controversial part of the prepaid debit card industry. Only 2 percent of all prepaid debit cards allow for their customers to overdraft.” [Ken Sweet, “Regulators Expand Protections to Prepaid Debit Card Users,” Associated Press, October 5, 2016.]
Who Will the Consumer Bureau’s Prepaid Rule Protect?
Approximately one quarter of Americans own a general purpose reloadable prepaid card. Of the roughly twenty-three million adults who use prepaid cards regularly, more than 25 percent do not have a checking account. In 2015, prepaid cards accounted for $244 billion, or 4 percent of all payment card purchases, up from $220 billion the previous year.
- “In August 2013, 25 percent of Americans owned a GPR prepaid card, up from 21 percent the year before.” [Tamara E. Holmes, “Prepaid Card and Gift Card Statistics,” Yahoo! Finance, December 1, 2015.]
- A GPR, or general purpose reloadable prepaid card, is a “reloadable prepaid card . . . sometimes called ‘prepaid debit’ cards or accounts [that] are not linked to a checking account but can be an alternative to a checking account. You can deposit your income or other money on the card. Purchase amounts, bill payments, or ATM withdrawals are deducted from the cash value loaded on the card.” [Susan Herbst-Murphy and Greg Weed, Millennials with Money: A New Look at Who Uses GPR Prepaid Cards, Federal Reserve Bank of Philadelphia, September 2014.]
- “Between 2012 and 2014, use of GPR prepaid cards among U.S. adults grew by more than 50 percent, with roughly one in eleven consumers reporting that they used a GPR prepaid card at least monthly. Based on these figures, approximately twenty-three million adults are regularly using prepaid cards.” [Pew Charitable Trusts, Banking On Prepaid: Survey of Motivations and Views of Prepaid Card Users, June 2015.]
- In 2015, $244 billion was charged on prepaid cards, accounting for 4 percent of all payment card purchases. [“S. Payment Cards” chart, Nilson Report, October 2016.]
- “Prepaid cards are growing in popularity. Americans charged $220 billion, accounting for 4 percent of all payment card purchases made at merchants in 2014, the latest year for which data are available, according to The Nilson Report” [“Prepaid Card Buying Guide,” Consumer Reports, last updated March 2016.]
- In 2014, “among GPR prepaid cardholders who use their cards at least monthly, 27 percent do not have a checking account. Unbanked cardholders in general have lower incomes than banked cardholders; half have household incomes of less than $25,000 annually, although 16 percent earn $50,000 or more annually.” [Pew Charitable Trusts, Banking On Prepaid: Survey of Motivations and Views of Prepaid Card Users, June 2015.]
The Consumer Bureau’s Prepaid Rule is Supported by Major Prepaid Debit Card Companies and Industry Trade Groups
Major prepaid companies and financial services groups support CFPB’s prepaid rule, including Green Dot, which “invented the prepaid debit card industry” and is still “the largest provider of reloadable prepaid . . . cards” in the United States.
- “Green Dot invented the prepaid debit card industry and is the largest provider of reloadable prepaid debit cards and cash reload processing services in the United States.” [Green Dot Corporation, “Green Dot Launches MoneyPak for Reloading Prepaid Cards with Cash,” news release, April 18, 2016.]
- In October 2016, Green Dot announced that it “embraces” the new prepaid rule, because it “fully support(s) the CFPB’s mission to ensure fairness, integrity, and consumer protections for all participants in the financial system.” [Green Dot Corporation, “Green Dot Comments on CFPB’s Final Rule for Prepaid Accounts,” news release, October 5, 2016.]
- The Center for Financial Services Innovation, a major financial services group that has been involved with the prepaid industry “for a long time” announced its support for the CFPB’s prepaid rule, because it “made it harder for bad actors . . . to flourish” while creating “an opportunity for prepaid card providers.” [Jennifer Tescher and Thea Garon, “BankThink: Why CFPB Rule Is Boon for Tomorrow’s Prepaid Customer,” American Banker, October 11, 2016.]
Netspend: A Predatory Prepaid Card Seller
Netspend Opposes the Consumer Bureau’s Prepaid Rule, It Also Happens to Be the Only Major Prepaid Company That Charges Overdraft Fees
Netspend, the “only major prepaid card provider” that charges overdraft fees, claims CFPB’s rule will cost them $80 to $85 million in “overdraft fee revenue and other fees.”
- Netspend, “one of the main opponents of the CFBP’s proposed prepaid card disclosure requirements,” is also “the only major prepaid card provider with overdraft fees.” [Kathy Kristof, “Senate Republicans Aim to Gut Debit-Card Safeguards,” CBS News, February 3, 2017; and National Consumer Law Center, “Congress Poised to Block Fraud Protections to Preserve Prepaid Card Overdraft Fees,” news release, February 2, 2017.]
- “Netspend, which is a division of Total System Services, expects to collect $80 million to $85 million this year in overdraft fee revenue and other fees that would be wiped out by pending regulations from the Consumer Financial Protection Bureau.” [Kevin Wack, “CFPB Rules Will Take $80M Bite out of Netspend’s Revenue,” American Banker, October 26, 2016.]
- “Netspend’s cards offer opt-in overdraft ‘protection’ that allows the card to be used when it is empty, with the overdraft and a $15 to $25 fee taken out of the next deposit to the card.” [National Consumer Law Center, “Congress Poised to Block Fraud Protections to Preserve Prepaid Card Overdraft Fees,” news release, February 2, 2017.]
Netspend Called its Rejection of Simple Customer Charges a “Safeguard”
Netspend policy in 2007 was to “automatically” deduct $50 from accounts when a consumer shopped at a gas station, calling it a “safeguard” against consumer purchases of gasoline.
- In 2007, a Chicago-area 16-year-old was denied access to $49 of unspent money on her Visa gift card, administered by Netspend. After “weeks of calling” to correct the problem, a Chicago Tribune writer finally got through and was told by a Netspend spokesman that the teen’s “$1 O-Ke-Doke popcorn purchase showed up as a ‘gas’ purchase,” which caused the company to “deduct $50 automatically, as a safeguard.” [Jon Yates, “Forty-Nine Dollars Pops Off Teen Girl’s Gift Card,” Chicago Tribune, April 4, 2017.]
Netspend’s Major Card Issuer Engaged in “Unfair or Deceptive Acts or Practices,” According to Federal Regulators
In 2010, Netspend admitted to potential investors that the company that issued 71 percent of Netspend’s cards had been investigated by the Office of Thrift Supervision (OTS). OTS found Netspend’s “major card issuer” had engaged in “unfair or deceptive acts or practices” and ordered it to discontinue marketing one of its products.
- In 2010, “ten days after filing plans for an initial public offering, Netspend” warned “potential investors that its major card issuer [was] under a direction of the Office of Thrift Supervision [OTS].” OTS demanded Netspend’s card issuer, MetaBank, “discontinue its iAdvance product,” alleging it “engaged in unfair or deceptive acts or practices in connection with iAdvance.” Roughly “71 percent of Netspend’s active cards were issued through MetaBank.” [“Netspend Could Stall IPO,” Austin Business Journal, October 14, 2010.]