4 Min Read
WASHINGTON (Reuters) - A group that supports a new rule governing prepaid cards sued the U.S. Consumer Financial Protection Bureau on Tuesday for information that it says could reveal why Republicans are trying to reverse the regulation.
The bureau, created after the 2007-09 financial crisis to protect individuals against fraud, finished a regulation in October requiring prepaid card sellers such as Mastercard Inc (MA.N) and Greendot to display their terms prominently and limit overdraft fees. However, a resolution introduced in the U.S. Congress in February would wipe out the rule.
Allied Progress, an advocacy group that seeks to hold Wall Street firms accountable and which sued in federal court for documents around drafting of the rule, says the resolution is a political favor to industry leader Total System Services Inc, or TSYS (TSS.N).
According to the Center for Responsive Politics, the company has donated thousands of dollars to Georgia Senator David Perdue, a Republican member of the Banking Committee taking the lead on the resolution.
TSYS's Netspend division is based in Perdue's home state and could lose at least $80 million a year in overdraft fees under the rule, according to the National Consumer Law Center.
Perdue's office says his objections to the rule are linked to his belief the CFPB has too much power. In February, Perdue introduced legislation to move funding for the agency from the Federal Reserve to the congressional budget.
"While Allied Progress continues to recklessly defend this overreaching government agency, Senator Perdue will continue working fearlessly to provide congressional oversight and hold them accountable to the American people," said Perdue's spokeswoman, Caroline Vanvick.
She added that Democrats, Republicans, and businesses had posted concerns about the rule on the CFPB website.
Netspend spokesman Cyle Mims said the company "supports smart regulation of our industry that promotes financial inclusion and empowerment for Americans, including those without access to traditional financial services."
The prepaid rule is new enough for lawmakers to repeal it under the Congressional Review Act, which allows them to wipe out recent regulations with simple majorities in both chambers and the president's signature. A companion resolution was also introduced in the House of Representatives. Republicans hold the majority in both chambers.
With time running out for Congress to repeal regulations from the administration of Democratic former President Barack Obama, Perdue recently took a procedural step to rush his resolution to the full Senate for a vote after the chamber returns from recess next week.
In response, Allied Progress asked the CFPB to quickly provide a raft of documents encompassing communications from Perdue and other lawmakers during the three years the rule was drafted, as well as interactions with TSYS and Netspend.
But the bureau said it could not meet the request expeditiously, and so Allied Progress filed suit with the U.S. District Court for the District of Columbia to require the agency to produce the documents promptly.
The CFPB declined to comment on the suit, but pointed to remarks its director, Richard Cordray, made while unveiling the final rule, where he said the rule "will give consumers easy-to-understand information about prepaid accounts right up front."
Providers of prepaid cards have said the rule's requirements are complicated and expensive to implement. They say they sometimes need overdraft fees to cover risks associated with cards, which are also often issued in place of traditional paychecks to lower-income workers.
Earlier this month, 18 states' attorneys general from 18 states wrote to congressional leaders opposing the resolution that would overturn the new rule, saying overdraft penalties and undisclosed fees can put consumers in significant debt.
Reporting by Lisa Lambert; Editing by Lisa Von Ahn and Frances Kerry