For the past two years, the CFPB researched prepaid cards, gathering comments on topics such as transparent and timely disclosures, fee disclosures to facilitate comparison shopping and FDIC protections.

The public has 90 days to comment on the proposed rule, which will be available on the CFPB's website.

Some groups are already weighing in.

“It's time for consumer protections to catch up with this fast growing new way to pay,” Christina Tetreault, staff attorney for the Consumers Union, said in a press release. “The CFPB has proposed some important new safeguards that will make a real difference for consumers. But there's more work to be done to ensure consumers get the protections they deserve when they rely on prepaid cards.”

The CFPB's proposed new rules come on the heels of a new Consumer Reports investigation, which found that some prepaid cards have costly fees that aren't disclosed clearly, the press release said.

Under the CFPB's proposal, prepaid card issuers will be required to provide consumers with clear and simple disclosures of fees before purchase.

In addition, the CFPB is proposing new rules to make it easier for consumers to check their account records and dispute errors.

Under the proposal, a consumer's financial liability for fraudulent or erroneous charges on their cards would be capped at $50 as long as they report them in a timely manner, according to the Consumers Union.

This protection already exists for credit and debit card transactions.

The Consumers Union has urged the CFPB to require prepaid card issuers to provide FDIC insurance with cards, but the CFPB proposed that card issuers simply disclose their cards don't provide deposit insurance, according to the press release.

The Consumers Union also called on the CFPB to prohibit overdraft fees on prepaid cards, but the financial watchdog's proposal falls short of doing so, the press release said.

“More and more consumers are relying on prepaid cards to make purchases and manage their money,” said Pamela Banks, senior counsel for the Consumers Union. “We hope the CFPB will strengthen its proposal by adopting these other critical reforms.”

Other consumer advocates have praised the CFPB for taking steps to protect card holders.

“The proposal offers strong protections for prepaid and payroll cards that will help ensure that funds are safe, costs are transparent, and prepaid cards are free from abusive overdraft fee practices,” said Lauren Saunders, associate director of the National Consumer Law Center, in a press release. “The rules will increase consumer and employee confidence when they use prepaid and payroll cards.”

The CFPB proposal restricts, but does not completely ban, overdraft features offered on a few prepaid cards, especially those sold by payday loan stores, the press release said.

“Some prepaid cards push overdraft protection that makes it harder for families to make ends meet, draining scarce wages with fees and leaving a hole in the next paycheck.” Saunders said. “The proposed rule requires companies to be honest when they are offering credit and not disguise it as overdraft 'protection' that can balloon into hundreds of dollars of fees a year,” she explained.

The CFPB proposal requires prepaid cards that function as credit cards to comply with credit card rules including ability to repay, sufficient time to repay, limits on fees in the first year, and a wall between the credit account and the prepaid card funds, the press release said.

“While these rules are a big improvement, overdrafts should be prohibited entirely on prepaid cards,” Sanders said. “Consumers should be able to rely on a prepaid card being truly prepaid and as a safe way to control spending.”

The rule would also protect consumers in case of errors, theft or unauthorized charges, and provide clearer information about fees, the press release said.

“Prepaid cards will be safer and more transparent with better fee disclosures and the same protections that bank account debit cards get in the case of identity theft,” Saunders emphasized. “All fees should be on the outside of the card's package so you can easily see the full price before you buy.”