(Adds Perdue, Netspend, and CFPB comment)
By Lisa Lambert
WASHINGTON, April 18 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
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
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
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