Since the CFPB issued its final rule for general purpose prepaid accounts on October 5, 2016, it has faced attacks from Congress and criticism from industry participants
On April 5, in a letter to Congressional leaders, attorneys general (AGs) from 17 states (Iowa, California, Maine, Hawaii, Maryland, Massachusetts, Illinois, Minnesota, Mississippi, Vermont, New York, Virginia, North Carolina, Washington, Oregon, Pennsylvania, and Rhode Island) and the District of Columbia urged Congress to cease its efforts to nullify the rule under the Congressional Review Act (CRA).
The CRA establishes a special set of procedures through which Congress can nullify final regulations issued by a federal agency. Multiple joint resolutions have been introduced to disapprove of the final rule under the CRA – Representatives Tom Graves (R-Ga) and Roger Williams (R-Tx) introduced House Joint Resolution 62 and House Joint Resolution 73, respectively, and Senator David Perdue (R-Ga) introduced Senate Joint Resolution 19. The Senate Joint Resolution was recently brought out of Committee and to the floor for consideration by way of a discharge petition filed by Senate Banking Chairman Mike Crapo.
In their letter, the AGs urge Congressional leadership of both parties to oppose these joint resolutions in order not to “eradicate important protections that have been proposed for consumers who use prepaid cards.” The AGs assert that there are numerous issues related to prepaid cards, which are increasingly used to receive payroll funds, Federal financial aid, and payday loans. The letter focuses on the use of prepaid cards in the payday loan context, specifically criticizing hybrid cards that enable a payday lender to “take consumers’ wages, which have been loaded onto a prepaid card, before consumers can even use them to cover their basic living expenses.” The AGs also criticize overdraft protection features on prepaid accounts, citing the statistic that consumers using those features incur an average of 7 overdraft fees per year.
In order to protect consumers from these “predatory” practices, the AGs emphasize the need for additional regulation of the prepaid industry. They note that the final rule covers a broad range of prepaid accounts, including certain mobile wallets and person-to-person payment products. The AGs commend the CFPB’s “careful approach to implementation demonstrat[ing] its dedication to crafting a rule that protects consumers and encourages a thriving, responsible industry.” The AGs suggest that the rule, as crafted, will not only protect the unbanked but also promote the popularity of prepaid accounts. The letter further defends the CFPB, noting that the agency has indicated that it is amenable to making substantive changes to the rule, and has proposed to delay the rule’s implementation date in response to feedback from the prepaid industry.
The AGs stress that if the rule is nullified by a CRA vote, “the agency is forever barred from enacting a substantially similar rule unless Congress authorizes it.” It remains to be seen whether Congress will heed the AGs’ concerns, but this is a clear signal that the AGs are paying close attention to prepaid accounts and will step up oversight if the rule fails.
