CFPB suggests changes to prepaid card rules

The Consumer Financial Protection Bureau has announced it is seeking public comments on proposed updates to its prepaid rule.

In April 2017, the CFPB delayed the general effective date of the prepaid rule by six months, to April 1, 2018. In a June 15  announcement, the Bureau said it is requesting comments on whether a further delay would be necessary and whether an express provision addressing early compliance is needed.

The effort is intended to addresses concerns raised by prepaid companies about what they described as unanticipated complexities with certain aspects of the rule that were not fully addressed in earlier comment letters.

“We know that effective implementation helps our rules deliver their intended value to consumers,” CFPB Director Richard Cordray said. “The request for comment shows we are listening closely to feedback on our rules to decide whether certain adjustments will help to achieve that goal.”

In October 2016, the Bureau finalized new rules for prepaid accounts—including innovative online and mobile offerings from PayPal, Google, Square, Dwolla, and Apple—and required enhanced customer protections and "know your customer" requirements.

Under the rule, financial institutions were required to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, and give consumers free and concise access to account information.

The Bureau also finalized new “know before you owe” disclosures demands for prepaid accounts to “give consumers clear, upfront information about fees and other key details.” Prepaid companies will also be required to offer protections, similar to those for credit cards, when customers are allowed to use credit on their accounts to pay for transactions that exceed their available funds.

Prepaid accounts may be loaded with funds by a consumer or by a third party, including employers. They can be used to make payments, store funds, withdraw cash at ATMs, receive direct deposits, or send money to others.

The amount consumers put on “general purpose reloadable” prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012. The total dollar value loaded onto these prepaid cards is expected to nearly double to $112 billion by 2018. Prepaid accounts may be loaded with funds by a consumer or by a third party, such as an employer.

Consumers generally can use these accounts to make payments, store funds, withdraw cash at ATMs, receive direct deposits, or send money to others.

For many, prepaid accounts are an alternative to traditional checking accounts, but have had limited federal protections, notably under the under the Electronic Fund Transfer Act. The 2016 rule applied specific federal consumer protections to broad swaths of the prepaid market for the first time.

The requirements covered traditional prepaid cards, including general purpose reloadable cards, as well as mobile wallets, person-to-person payment products, and other electronic prepaid accounts that can store funds. Prepaid accounts covered by the new rule include: payroll cards; student financial aid disbursement cards; tax refund cards; and certain federal, state, and local government benefit cards, including those used to distribute unemployment insurance and child support.

With the new round of public comments the CFPB is seeking additional details on concerns raised by industry after the prepaid rule was finalized about error resolution on unregistered prepaid accounts.

Some companies have claimed fraud concerns could lead them to changes that would have negative outcomes for consumers who do not register their accounts. Accordingly, the Bureau is seeking comment on whether to change the rule’s approach to error resolution.

Under the proposal, consumers would need to register their accounts to receive full fraud and error protection benefits such as the right to dispute charges and have stolen money restored. The proposal would require companies to provide these protections to registered accounts even if the theft or dispute occurred before registration was successfully completed.

The Bureau will also consider the need for more flexibility concerning credit cards linked to digital wallets.

Some digital wallets are also prepaid accounts because consumers can use them to store and access funds directly. The proposal would ensure that consumers continue to receive full CARD Act protections on their traditional credit card accounts while making it easier for them to link those accounts to their digital wallet prepaid accounts.

The Bureau is also proposing other minor adjustments and clarifications to aspects of the prepaid rule that prepaid companies say present obstacles to implementation.

Along with this proposal, the agency is releasing an updated version of its small entity compliance guide for the prepaid rule. That update reflects the recent effective date delay, and also includes clarifications on several other issues for which industry has raised questions or suggested might be unclear.

Comments on the proposal will be due 45 days after the proposal is published in the Federal Register. More information about the Bureau’s prepaid rule is available here.