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Group sues over proposal to kill new U.S. rule on prepaid cards

By Lisa Lambert

WASHINGTON, April 18 (Reuters) - A group that supports a new prepaid card rule sued the U.S. Consumer Financial Protection Bureau on Tuesday for information it says could raise doubts about why Republicans are trying to kill the measure.

In October, the bureau, created after the 2007-09 financial crisis to protect individuals against fraud, finished a regulation requiring prepaid card sellers such as Mastercard Inc and Greendot to display their terms prominently and limit overdraft fees.

The group, Allied Progress, said a resolution introduced earlier this year to wipe out the rule was a political favor to industry leader Total System Services Inc, or TSYS. 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 if the rule takes effect, according to the National Consumer Law Center.

The bureau declined to comment. Neither Perdue's office nor TSYS had an immediate comment.

The rule is new enough for Congress to repeal it under the 1996 Congressional Review Act, which allows lawmakers to wipe out recent regulations with simple majorities in both chambers and a signature from the president.

A counterpart resolution to repeal the rule has also been introduced in the House of Representatives.

Perdue and U.S. Representative Roger Williams, a Republican member of the House Financial Services Committee, wrote in Forbes that the rule "would upend an entire sector of our economy, stifle innovation, and deprive consumers of access to credit."

With time running out for Congress to repeal Obama-era rules, Perdue has taken 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 Consumer Financial Protection Bureau 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 process the Freedom of Information Act request in an expedited way, and Allied Progress is now asking the U.S. District Court for the District of Columbia to require the agency to provide the documents promptly.

Prepaid card providers have said the new rule's requirements on posting terms are complicated and expensive to implement. They also say they sometimes need overdraft fees to cover risks associated with the cards, which are also often used in place of traditional paychecks for lower-income workers and for student loan disbursements.

Earlier this month, 18 states' attorneys general sent a letter to congressional leaders opposing the resolutions, saying that overdraft penalties, as well as undisclosed fees, can put consumers in significant debt. They also wrote that others offering prepaid cards largely support limiting overdrafts. (Reporting by Lisa Lambert; Editing by Lisa Von Ahn)