Your Prepaid Card Is About to Get Better

prepaid-account-disclosures

Clear, straightforward information on fees and more protections on prepaid credit accounts? That’s the goal of the new federal consumer protections finalized by the Consumer Financial Protection Bureau (CFPB) on Tuesday.

According to a release from the CFPB, the new rule will require significant oversight by financial institutions. That means limiting “consumers’ losses when funds are stolen or cards are lost,” the CFPB said, investigating and resolving errors, and offering consumers “free and easy access to account information.” Notably, the CFPB also finalized new “Know Before You Owe” disclosures for prepaid accounts.

“Many of these important protections stem from the Electronic Fund Transfer Act, and they are intended to be similar to those for checking account consumers,” CFPB director Richard Cordray said in a separate prepared statement. “For instance, error resolution rights will now be similar for both types of accounts.”

Prepaid Account Protections 

Among the fastest growing consumer financial products in the U.S., the CFPB said, prepaid accounts are typically bought at retail outlets and online. (These include mobile wallets like PayPal or Google Wallet, peer-to-peer payment products and other electronic prepaid accounts that hold funds.) In 2012, said the CFPB, consumers put nearly $65 billion on these “general purpose reloadable cards,” an amount that’s expected to nearly double to $112 billion by 2018.

Here’s a look at the protections the CFPB brought prepaid account consumers under the Electronic Fund Transfer Act.

Free and easy access to account info: “Financial institutions must make certain account information available for free by telephone, online, and in writing upon request, unless they provide periodic statements,” the CFPB said.

Protections for lost cards and unauthorized transactions: Consumers are now protected against withdrawals, purchases and other unauthorized transactions — that is if their prepaid cards are lost or stolen. With the rule, consumers now have a way to get back their money so long as they notify the financial institution within a reasonable timeframe.

Error resolution rights: “Financial institutions must cooperate with consumers who find unauthorized or fraudulent charges, or other errors, on their accounts,” the CFPB said. If funds need repayment, these institutions will be held responsible, and if they cannot repay within a certain period of time, they’ll be required to “provisionally credit the amount to the consumer while it finishes its investigation,” said the CFPB.

Know Before You Owe Disclosures 

“Standard, easy-to-understand, upfront information” — that’s how the CFPB described its new Know Before You Owe prepaid disclosures, which may help consumers have an easier time comparison-shopping and make smarter decisions when it comes to their wallets. Here’s what that entails.

Clear information: Two forms with simply written disclosures will now be required, the CFPB said. One, which is shorter, outlines prepaid account information, including key fees for ATM withdrawals and balance inquiries. A longer disclosure form will have a full list of fees. You can view samples of the disclosure forms on the CFPB’s website.

Publicly available agreements: The CFPB now requires prepaid account issuers to post their agreements to the general public. They will also be accessible on a “Bureau-maintained website,” as the CFPB called it, down the line.

“These important new protections fill gaps in the law for consumers,” Cordray said in closing. “The rapidly growing ranks of prepaid users deserve a safe place to store their money and a practical way to carry out their financial transactions.”

Play It Safe 

While the CFPB has introduced these disclosure requirements and other protections for consumers using prepaid cards and credit products tied to prepaid accounts, which let you spend more money than they’ve deposited to the account, there are things you can do as a consumer to make sure you’re being smart with your money. For starters, it’s helpful to read the terms and conditions of any financial tool you’re considering very carefully. If something gives you pause, speak up, and don’t be afraid to ask questions.

Remember, prepaid cards don’t generally help you build credit. But, no matter what type of card you’re using, it’s important to keep tabs on your credit to ensure you’re not the victim of fraud or other unscrupulous activities. You can view a free snapshot of your credit report by signing up for an account on Credit.com.

Image: dnberty

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Will You Get Charged a Student Loan Origination Fee?

Startup Stock Photos
Startup Stock Photos

Most people know that when you’re considering borrowing money for your education, it’s extremely important to take interest rates into account. But did you know that in addition to interest rates, some types of student loans also carry origination fees?

What is an origination fee?

An origination fee is a one-time fee collected at the time the loan is disbursed; it is typically a percentage of the total loan amount. This means that instead of receiving the entire amount that you borrow, you receive the amount that you borrow minus the loan origination fee.

Origination fee rates

Most types of federal student loans, with the exception of Perkins loans, carry an origination fee. The current loan origination fees in 2016 for federal subsidized, unsubsidized, and PLUS loans are as follows:

Federal Direct Subsidized Loans: 1.068%

Federal Direct Unsubsidized Loans: 1.068%

Federal PLUS Loans: 4.272%

Decoding the cost

This means that if you take out, for example, a $10,000 unsubsidized loan from the federal government, the loan origination fee will be $106.80. So instead of receiving the full $10,000, you will only receive $9,893.20.

Similarly, if you take out the same $10,000 using a federal PLUS loan, the loan origination fee will be $427.20. In this case, you’ll only receive $9,572.80.

However, in both of these cases you will still be required to pay back the full $10,000. Additionally, interest will accrue on the full amount you borrowed and not just the amount you received.

Note also that the fees listed above are the current fees for new loans and are valid until October 1, 2016, at which time they may be adjusted. Additionally, if you took out a federal student loan prior to October 1, 2015, your fee may be different. You can find more information about origination fees on federal student loans at the StudentAid.gov website.

Private lenders don’t always charge origination fees

In contrast to the federal government, many top private lenders, such as Wells Fargo, Discover, Sallie Mae, and PNC, do not charge origination fees for loans that are applied toward study at undergraduate or graduate colleges. However, keep in mind that there may be other disadvantages to borrowing from private lenders, such as higher interest rates or a lack of the types of loan forgiveness, income-driven repayment plans or forbearance and deferment programs that are available through the federal government.

Always crunch the numbers

Origination fees are important to be aware of when considering taking out student loans. When you take out a loan with an origination fee, you will always be paying back the total amount that you borrowed, rather than the amount you received after the origination fee was subtracted, and interest will also accrue on that total amount. Although origination fees are one-time fees, they’re important to factor into your overall financial and loan repayment plan.

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