WASHINGTON (3/24/15)--New regulatory requirements, and the associated compliance costs, for credit unions offering prepaid accounts should be minimized, CUNA told the Consumer Financial Protection Bureau (CFPB) in a letter filed Monday.
The bureau's proposed rule on prepaid accounts (including reloadable cards and digital wallets) would extend consumer protections to those accounts.
"We have concern that there are several aspects of the proposal that would be ineffective and/or counterproductive," reads the letter, signed by Luke Martone, CUNA senior director of advocacy and counsel. "We urge the agency to limit any new regulatory requirements on credit unions that offer prepaid accounts, so that such accounts remain accessible, especially by the underserved."
The proposal would apply the Federal Reserve's Regulation E, which provides a basic framework of rights, liabilities and responsibilities of those involved in electronic funds transfer systems, to prepaid accounts. While CUNA supports safe and transparent disclosures and appropriate consumer protections, it has concerns that applying Regulation E to prepaid accounts may not be appropriate.
The Federal Reserve Board decided against applying its payroll cards final rule under Regulation E to prepaid cards in 2006, deciding that it would result in limited consumer benefit alongside potentially significant compliance costs for card issuers.
"We share the Board's concerns that additional Regulation E requirements would impose additional compliance costs to issue prepaid cards, which are likely not the consumer's principal transaction account," CUNA's letter reads.
CUNA's outreach efforts during the comment period found roughly 800 credit unions that offer prepaid accounts, and the majority of those offer prepaid cards through a third-party vendor relationship.
"Even in instances where the third-party will update initial and other disclosures, it is the credit union that will continue to bear ultimate responsibility for ensuring compliance with these disclosures as well as all other consumer protections provided under Regulation E," the letter reads.
CUNA also strongly opposes the part of the proposal that would require financial institutions to disclose up to three incidence-based fees, the most frequently incurred during the previous 12 months, and those disclosures must be updated each year if changes are needed.
"We believe this will cause credit unions to incur undue expense in attempting to comply," the letter reads. "Since a prepaid account is typically short-lived, the annual assessment will likely not have a large enough base of mature accounts to provide a financial institution with a valid perspective of the most common fees."