Prepaid cards have become one of the most popular and inexpensive payment methods, especially for low-income consumers who have limited access to conventional banking. Prepaid cards allow consumers to load funds in advance, and later use the cards at ATMs or for debit payments. The market for such cards is thriving, competition is intense, the costs and fees associated with these cards are declining, and by all measures consumers are happy. In fact, the demand for such prepaid cards is growing phenomenally,rapidly approaching $100 billion annually.

Surprisingly, the Consumer Financial Protection Bureau (CFPB) decided that consumers in this market need a new regulation that would provide “comprehensive consumer protections” for prepaid account users. The CFPB now issued a 1689-page rule to repair this forgotten regulatory lacuna. The regulation is relatively light, focusing on disclosure, but it is unnecessary all the same.

There are few, if any, financial products that pose so little risk as prepaid cards. One of the universal goals of consumer financial regulation is to protect less sophisticated households from making unwise borrowing decisions. Whether through credit cards, payday lending, or risky mortgages, sub-prime credit can be expensive, deceptive, and destructive. The best way for consumers to avoid urgent ill-advised borrowing is to save money or to make precommitments to limit spending.

This is exactly what prepaid cards achieve. Loading these cards is a form of saving. Able to spend only pre-loaded funds makes borrowing impossible. And a card can be used as a budgeting tool to better manage the funds. (Parents may provide a prepaid card, as opposed to a credit card, to a child at college to control spending.)

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