After issuing an advanced notice of proposed rulemaking regarding general purpose reloadable cards in May 2012, the US Consumer Financial Protection Bureau (‘CFPB’) issued proposed rules on prepaid products in November 2014. CFPB Director Richard Cordray said, “[The proposed rules] would close the loopholes in [the prepaid product] market and ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment.”

The proposed rules would amend Regulation E under the Electronic Fund Transfer Act and Regulation Z under the Truth in Lending Act. The proposed rules cover prepaid accounts under Regulation E. A prepaid account means a card, code, or other device established primarily for personal, family, or household purposes, and which: (i) is either issued on a prepaid basis to a consumer in a specified amount or (ii) not issued on a prepaid basis but capable of being loaded with funds thereafter, and is: (A) redeemable upon presentation at multiple, unaffiliated merchants for goods or services, (B) usable at automated teller machines or (C) usable for person-to-person transfers (excluding gift certificates, store gift certificates, loyalty, award or promotional gift cards and general use prepaid cards that are both marketed and labelled as gift cards or gift certificates). Examples of these prepaid accounts include general purpose reloadable cards and other types of prepaid products that serve as transaction account substitutes. For example, prepaid accounts cover payroll card accounts that are directly or indirectly established through an employer and to which electronic fund transfers of the employee’s compensation are made on a recurring basis, certain types of federal, state, and local government benefit accounts (for example, unemployment insurance, child support and pension payments), student financial aid disbursement cards and tax refund cards. Excluded from the definition of prepaid accounts are health savings accounts, flexible spending accounts, medical savings accounts and health reimbursement arrangements. The CFPB is seeking comment on the specific types of prepaid products that should be included or excluded from coverage.

Originally published in E-Finance & Payments Law & Policy 12 - December 2014.