Requires clear and conspicuous disclosure of the fees and restrictions prior to the sale of a prepaid debit card

* GBL § 396-ii(1) would set forth definitions, as follows:

o "General use prepaid card" would be defined as a card or other payment code or device issued by any individual, firm, company, partnership, limited liability company, corporation or entity that upon presentation is (i) redeemable at multiple, unaffiliated merchants or service providers, or automated teller machines; (ii) issued in a requested amount, whether or not that amount may, at the option of the issuer, be reloaded to increase its value a later period in time; (iii) purchased or loaded on a prepaid basis; and, (iv) honored by merchants for goods and services, or (v) used to access cash at automated teller machines.

o "Clear and conspicuous" or "clearly and conspicuously" would be defined as notice in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. In the case of an audio disclosure, "clear and conspicuous" and "clearly and conspicuously" means in a volume and cadence sufficient to be readily audible and understandable.

* GBL § 396-ii(2) would provide that a general use prepaid card must provide clear and conspicuous notice that "important terms and conditions affecting the balance apply" on the card, and prior to the sale of a general use prepaid card the consumer must receive clear and conspicuous notice in any such card advertisements or offers made that "important terms and conditions affecting the balance apply."

* GBL § 396-ii(3) would provide that clear and conspicuous disclosure of pertinent enumerated terms and fees that contribute to the costs associated with general use prepaid cards be made available to consumers prior to purchase. Such notice would be provided to consumers either via a toll-free telephone number, if an active toll-free telephone number is clearly and conspicuously provided on an envelope or the packaging containing the general use prepaid card, or on a printed document accompanying the general use prepaid card.

* GBL §396-ii(4) would provide that subdivisions 2 and 3 do not apply to general use prepaid cards that have no terms and conditions.

* GBL § 396-ii(5) would provide that nothing in this section would prevent any unclaimed general use prepaid card funds become abandoned property in accordance with the laws therein.

* GBL § 396-ii(6) would provides the Attorney General of the State of New York with enforcement authority. * GBL § 396-ii(7) would bar retroactive fees on general use prepaid cards.

* GBL § 396-ii(8) would require that this statute preempt local laws on the same subject.

Section 2 of the bill would provide for an effective of the January 1 following enactment.

Existing law

None.

Legislative history

This is new bill.

Statement in support

General use prepaid cards, also known as "prepaid debit cards" and "stored value cards," have emerged as a new product in the past decade. In essence, a consumer may purchase such a card and add a certain sum to it to use at any merchant that accepts the brand of the major credit card that is associated with that prepaid card (i.e. Visa, Master Card, American Express or Discover), or to access cash at an automated teller machine. The distinction between a general use prepaid card and a prepaid gift card bearing a major credit card logo is that a general use prepaid card can be used to access cash via an electronic payment system that is linked to a deposit account.

As general use prepaid cards continue to grow in popularity with the "unbanked," those persons who either chose not to use banking services, or who are unable to access banking and credit services because of poor credit history or legal status in the United States.(1) General use prepaid cards offer the unbanked the ability to make Internet purchases and bill payments, and to learn about financial transactions, fostering financial literacy. Thus, they can facilitate an introduction of the unbanked into the financial mainstream.

Unfortunately, there are often numerous fees associated with general use prepaid cards. The State Banking Department lists fourteen different fees that may be assessed against the sum of a general use prepaid card.(2) Such fees vary greatly. For example, one card imposes a $99 application fee and the next month charges a $27.95 maintenance fee.(3) Other charges imposed upon consumers by such cards include fees for calls made to the customer service number, use of the card to pay a bill, declining an automated teller transaction, use of the card for purchases, and balance inquiries.

Recent New York Times and Business Week articles highlight the need for regulatory oversight of prepaid debit cards.(4) Currently, general use prepaid card issuers are free to charge whatever fees they choose for any service provided without informing the consumer that (a) such fees are applicable and (b) the amount of such fees.

This bill enhances protections for New Yorkers and provides that any general use prepaid card being offered for sale clearly and conspicuously disclose on the card that "important terms and conditions affecting the balance apply." The proposal also requires that all pertinent terms and fees, which create a cost associated with the general use prepaid card, be clearly and conspicuously disclosed to consumers prior to purchase, either via an active toll free number that is provided on the envelope or packaging of the card, or in printed material accompanying the card.

Additionally, the legislation requires that clear and conspicuous notice that "important terms and conditions affecting the balance apply" be provided in offers or advertisements enticing the sale of any general use prepaid card.

This measure would define general use prepaid cards by using the definition recently set forth in the federal Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. While the CARD Act of 2009 defines and places limitations on general use prepaid cards, it only required that dormancy, inactivity, and service fees be disclosed.

In 2008, consumers loaded about $8.7 billion onto prepaid cards, which was a 125 percent increase over the previous year. Thus, it is imperative that consumers be provided with all the information necessary to make important financial decisions regarding such cards.

Budget implications

None.

Effective date

This bill would take effect on the first of January next succeeding the date on which it shall have become a law. FOOTNOTES : (1) A Summary of the Roundtable Discussion on Stored Value Cards and Other Prepaid Products, The Federal Reserve Board, (November 12, 2004). (2) Consumer Help and Information: Cards. Cards. Cards....and What You Need to Know About Using 171em, New York State Banking Department, (November 2009). SEE www.banking.state.ny.us/brcard.htm (3) The Card Game - Prepaid, but Not Prepared for Debit Card Fees, New York Times, (October 6, 2009). (4) Id., and Let's End the Debit Card Fee-for-All, Business Week (October 15, 2009).