WASHINGTON (7/26/12)--New disclosures and consumer protections for users of general-purpose reloadable prepaid debit cards would offer many benefits to consumers, but the potential application of some Regulation E requirements may not be appropriate for the different risks and attributes of these cards, the Credit Union National Association (CUNA) said in a comment letter filed this week.
The CUNA comment letter is in response to an advanced notice of proposed rulemaking (ANPR) issued earlier this year by the Consumer Financial Protection Bureau (CFPB).
The CFPB announced in May it would begin the process of regulating prepaid cards under Reg E, which implements the Electronic Funds Transfers Act. Before launching the rule-writing effort, the agency ANPR is seeking information on the costs, benefits, and risks of prepaid card use.
The CFPB has said that improving the safety and transparency of prepaid cards and that of their providers will be two main goals of its rulemaking effort.
CUNA, in its comment letter, suggested that the CFPB first take steps to reduce the abusive practices of some non-depository institutions that provide prepaid cards before any Reg E rulemaking is initiated. In fact, the CFPB has announced plans to use its authority under the Dodd-Frank Wall Street Reform Act, to begin supervision of some larger non-depository institutions soon.
CUNA noted that, also under Dodd-Frank, the agency authority to prescribe rules and take actions against entities, which could include prepaid card participants, that are engaged in "unfair, deceptive or abusive acts or practices" on prepaid cards.
If the CFPB does decide to apply Reg E rules to prepaid cards, the agency should provide appropriate flexibility and limit additional compliance requirements, CUNA said.
CUNA also suggested that traditional periodic statements should not be required as part of a prepaid card product.
Reg E error resolution and liability provisions could be adjusted to account for the increased risks related to prepaid cards, and the regulation could also be modified to give prepaid card issuers additional time to investigate and resolve errors and disputes, the comment letter said.
The CFPB could also amend language that requires prepaid card issuers to resolve disputes or provisionally credit funds to card users within ten business days, CUNA added.
CUNA noted that card issuers can have issues when they try and contact prepaid cardholders, and subjecting prepaid card issuers to a hard ten-day deadline could increase instances of prepaid card fraud.
Overall, CUNA encouraged the CFPB to coordinate with credit unions on any regulatory issues regarding prepaid cards to minimize compliance burdens. The CFPB should also work with the National Credit Union Administration (NCUA) and other regulators as it develops prepaid card regulations. Any future prepaid card rulemaking should be preceded by a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel, CUNA said.
For the full CUNA comment letter, use the resource link.