In mid-November, the Consumer Financial Protection Bureau (CFPB) proposed comprehensive consumer protections for prepaid financial products under Regulation E (Electronic Fund Transfers) and Regulation Z (Truth in Lending). The Federal Register hadn’t published the proposal as of press time; comments will be due 90 days after publication.
The CFPB proposal would establish a new definition of “prepaid account” within Regulation E to extend its protections to prepaid products that are “cards, codes, or other devices” not otherwise considered “accounts” under Regulation E, and that:
Are capable of being loaded with funds;
Are redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or usable at either ATMs or for person- to-person (P2P) transfers; and
Aren’t gift cards or certain other types of limited-purpose cards.
Under the proposal, prepaid consumers would have access to:
• Standard disclosures before they acquire a prepaid account. The CFPB’s proposal includes two required forms: a short form that would concisely highlight key prepaid account information, including common costs such as the monthly fee, fee per purchase, ATM withdrawal cost, and fee to reload cash onto the account; and a long form that would contain all the fees on the short form, plus any other potential fees that could be imposed in connection with the account.
Note that for one year after the final rule is published in the Federal Register, financial institutions would be permitted to continue selling prepaid accounts that don’t comply wiThthe final rule’s preacquisition disclosure requirements, if the financial institution printed the account and its packaging material prior to the proposed effective date.
Account information. Under the CFPB proposal, financial institutions would be required to either provide periodic statements or make account information easily accessible online—for free. The proposal would ensure consumers can see their account balances and a history of their transactions and fees.
Error resolution rights. The proposal would adopt Regulation E error resolution and limited liability provisions specific to prepaid accounts. This proposal would require financial institutions to investigate errors that consumers report on registered accounts and to resolve those errors in a timely manner. If the financial institution cannot resolve an alleged error within a certain period of time, it would be required to temporarily credit the disputed amount to the consumer to use while the institution finishes its investigation.
Fraud and lost-card protection. The proposal would protect consumers against unauthorized, erroneous, or fraudulent withdrawals or purchases, including those made on lost or stolen registered cards. If consumers lose their prepaid card or find erroneous or fraudulent charges on their prepaid account, the rule would limit their responsibility for transactions they didn’t authorize and create a timely reiumbursement method. If the consumer promptly notifies his or her financial institution, the consumer’s responsibility for unauthorized charges would be limited to $50.
Publicly available card agreements. To facilitate comparison shopping, the proposal would require that prepaid account issuers post their account agreements on their websites. Additionally, issuers would be required to submit those agreements to the CFPB for posting on a public, bureau-maintained website.
Overdraft services and credit features
The CFPB also has proposed modifications to Reg Z and Reg E to address the treatment of overdraft services and other credit features offered in connection with prepaid accounts.
Under the proposed rule, if consumers choose to use a credit product related to their prepaid account, they would be entitled to the same protections credit card consumers possess under the Truth in Lending Act and the Credit Card Accountability. Responsibility. and Disclosure (CARD) Act of 2009.