The Consumer Financial Protection Bureau (CFPB) has issued its long-anticipated final rule for general purpose prepaid accounts. As expected, the new regulations expand the products covered by Regulation E, introduce significant new disclosure requirements, extend consumer liability protections to prepaid accounts, and add onerous requirements for accounts with overdraft or credit features.
Many industry participants have already expressed disappointment with the CFPB's decision to apply Regulation Z requirements to the overdraft features of prepaid accounts. Digital wallet providers and others working on digital product innovations also have concerns. The effective date for most requirements in the new regulations is October 1, 2017.
We are continuing to analyze the final release, weighing in at 1,689 pages. Key components from our initial review include:
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Coverage. A "prepaid account" covered by the rule has been more clearly defined in the final rule. It includes payroll card accounts; government benefit accounts; accounts marketed or labeled as "prepaid" that are redeemable at multiple, unaffiliated merchants or usable at ATMs; and certain other loadable accounts whose primary function is to conduct transactions with multiple, unaffiliated merchants at ATMs and/or for person-to-person transfers. This final category brings a number of digital products, such as certain digital wallets, under the rule as well. The final rule also adds exclusions for dependent care assistance and parking and transit reimbursement to the originally proposed exclusions for open and closed loop gift cards, health savings accounts, flexible savings accounts, and medical savings accounts.
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"Know Before You Owe" Disclosures. A short-form and long-form disclosure of fees and other information must generally be given before a consumer "acquires" (purchases, opens, or chooses to be paid through) a prepaid account. However, if the consumer acquires the account in person in a retail store, short-form disclosures are visible through the card's packaging, and if certain other conditions are met, the long-form disclosure can be given post-acquisition. The long-form disclosure may also be given post-acquisition when an account is acquired by telephone. The final rule includes model and sample forms and revises certain existing Regulation E disclosures.
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Access to Account Information. The final rule requires issuers to deliver periodic Regulation E statements that include specified information about fees, deposits, and debits or, alternatively, make the account balance available to the consumer through a readily available telephone line, provide electronically at least a 12-month account transaction history, and provide a 24-month written history upon request.
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Overdraft and Credit Features. Despite many comments from the industry, the rule generally treats advances accessed by a prepaid account as "open-end credit" under Regulation Z, and requires that such credit features be structured separately from the prepaid asset account, turning the card into a "hybrid prepaid-credit card." More specifically, the rule applies various CARD Act credit card requirements to prepaid accounts with overdraft and credit features, such as interest, transaction fees, and annual fees. The CFPB has exempted certain transactions, including "force pay" transactions, de minimis $10 payment cushions, and delayed load cushions.
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Liability Limits and Error Resolution. Regulation E liability limits and error-resolution requirements are extended to all prepaid accounts. Provisional credit requirements apply only to accounts that have completed the collection of consumer identification and verification process for the account. Once an account is verified, errors occurring before verification are retroactively covered by the provisional credit requirements.
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Posting of Prepaid Account Agreements. Prepaid account issuers are required to submit their account agreements to the CFPB. In addition, issuers must post and update on their own websites account agreements for prepaid products that are offered to the general public. The effective date for the requirement to submit agreements to the CFPB is October 1, 2018.
Because of the rule's breadth and critical importance to the rapidly growing prepaid market, we will publish a series of posts on our CFPB Monitor focusing on key provisions, such as the rule's treatment of overdraft and credit features and its coverage of digital wallets and P2P accounts.
