Plastics, Benjamin

“I just want to say one word to you, Benjamin.  Plastics.”

During the cocktail party scene in the classic movie “The Graduate,” that’s the advice Ben Braddock got for mapping out his future.  It wasn’t such a bad tip after all since so much stuff — including the pocket money we use for day-to-day expenditures — has gone plastic.

“Plastics” was the subject of a recent comment by the staff of the FTC’s Bureau of Consumer Protection in response to a request from the Consumer Financial Protection Bureau for more information about general purpose reloadable cards.  We’re not talking about credit or traditional debit cards here.  With reloadable cards, you add cash and use them for everyday expenses.  These cards are being increasingly used by students and people without ready access to banking services — and business is booming as mobile service providers often encourage customers to use them as a payment method.

But here’s where these reloadable cards are different.  With credit cards, debit cards linked to a bank account, gift cards, etc., consumers have certain protections under the Truth in Lending Act, Electronic Fund Transfer Act, Credit CARD Act, or Regulation E.  But with general purpose reloadable cards, many of those safeguards don’t apply.  Yes, the FTC’s ban on deceptive or unfair practices could kick in, but the cards don’t come with the specific protections other laws offer.

That’s a problem, said the FTC staff.  They pointed to four specific areas where consumers could be at risk.  First, with cards like this, federal law doesn’t limit a consumer’s liability for fraudulent or unauthorized use.  If somebody steals the card and bleeds the balance, under the current state of the law, consumers have no recourse rights.

Second, the disclosure of fees and expiration dates.  Some companies disclose the expiration date only online or on the paperwork that comes with the card — not easy places for all consumers to get the info they need.  Also, although these cards usually involve a variety of fees, the fees applicable for a particular card and the way the fees are disclosed to consumers (if they’re disclosed at all) varies a lot.  The comment cites the example of additional fees imposed by one major seller:

• card purchase: as much as $4.95
• monthly charge: $5.95 (waived if a consumer loads $1,000 in a month or has at least 30 qualifying purchases posted)
• fee for loading cash at retail locations: as much as $4.95
• fee for replacing a lost or stolen card: $4.95
• fee for a second card:  $4.95.

Another company charges $2.95 for issuing a card; $2.95 per month for maintenance; $4.00 for each cash advance; $4.95 to replace a missing card; $29.95 for express shipment; $29.95 for printed or mailed statements; and $1.00 for card-to-card transfers.  Are consumers fully informed about how much they’re going to have to cough up?

A third problem:  error resolution procedures.  With some other forms of payment, the law gives consumers protections if there’s been a misplaced decimal point or multiple deductions for a single transaction.  At minimum, consumers have a right to access information about their accounts.  But those safeguards generally aren’t in place for reloadable cards like this.  Some companies flat-out don’t give users access to that information.  Others charge them a fee.

A fourth problem is the use of these cards for recurring charges, like negative option plans.  Over the years the FTC has brought numerous law enforcement actions against companies that have dinged consumers for recurring charges without their authorization.  To make matters worse, some companies have refused to stop even when consumers have contacted them to say they didn’t OK the charges.  Given how easy it is for a merchant to drain funds from a consumer’s account, general purposed reloadable cards could pose a particular problem.

The staff’s big-picture point:  Consumers need more protections when they use cards like this.