Removing Barriers Blog

CFPB Finalizes Lengthy Rule on Prepaid Accounts
Posted October 05, 2016 by CUNA Advocacy

Today, the CFPB finalized a nearly 1,700-page rule on prepaid accounts, most of which becomes effective October 1, 2017. A "prepaid account" generally includes general purpose reloadable cards, payroll and government benefit cards, as well as certain mobile or electronic prepaid accounts, such as PayPal or Google Wallet. The definition of "prepaid account" includes several exclusions, including for gift cards and gift certificates.

Prepaid Account Rights: The rule amends Regulation E to establish certain consumer rights under the Electronic Fund Transfer Act for prepaid accounts—similar to those for checking accounts. Under the rule, financial institutions must: generally make certain account information available for free by phone, online, and in writing upon request; investigate and resolve in a timely manner consumer-initiated claims of unauthorized or fraudulent charges, and restore missing funds if appropriate; and cover unauthorized transactions beyond $50 on lost or stolen prepaid cards.

Prepaid Account Disclosures: The rule requires new "Know Before You Owe" disclosures for prepaid accounts. The disclosures must be provided in both a long and short form (samples here). The short form disclosure must highlight key prepaid account information, including the fees the CFPB believes are most important to consumers, such as periodic fees, per purchase fees, ATM withdrawal and balance inquiry fees, cash reload fees, customer service fees, and inactivity fees. The long form disclosure must include a complete list of fees and certain other key information, which must be provided or available to the consumer before acquiring the account. The rule also requires issuers to post on their websites the prepaid account agreements they offer to the general public. Additionally, issuers will generally be required to submit all agreements to the CFPB, which intends to post them on its public website at some point in the future.

Prepaid Accounts with Credit Features: The final rule establishes protections in connection with credit products that allow consumers to spend more than they have deposited into the prepaid account. More specifically, the final rule "generally covers under Regulation Z's credit card rules any credit feature offered in conjunction with a prepaid account." The rule establishes new requirements and limitations stemming mainly from the Truth in Lending Act and the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). These include: conducting an ability to pay assessment of the consumer, providing monthly billing statements, and adhering to certain limits on fees and interest charges.

While we are still analyzing the rule, we have noticed several improvements urged in CUNA's comment letter to the Bureau. One such improvement relates to the proposed "incidence-based fees" section (renamed "disclosure of additional fee types" in the final rule), which would have required financial institutions to include in the short form disclosure the three fees most frequently incurred during the prior 12-month period by consumers using a particular prepaid account. The final rule adopts several CUNA-backed changes, including extending the frequency of which financial institutions must review and update disclosures from 12 to 24 months, as well as decreasing the number of fee types that must be disclosed from three to (up to) two. Also consistent with CUNA's ask, the Bureau extended the effective date from 9 to 12 months from publication in the Federal Register.

CUNA will be providing a more detailed final rule analysis shortly.