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Business and Policy Areas
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CFPB Proposes to Regulate Prepaid Cards

January 9, 2015

The Consumer Financial Protection Bureau published proposed regulations last month that would require financial institutions offering prepaid accounts—such as general purpose reloadable (GPR) cards—to disclose terms and fees prior to account activation, provide certain consumer protections, and post agreements publicly. Some higher education institutions offer such cards as an alternative way for students to receive credit balance refunds or as an option for wage payments.

Prepaid accounts generally include "cards, codes, or other devices capable of being loaded with funds" and usable at unaffiliated merchants, ATMs, or for person-to-person transfers. GPRs (sometimes referred to as store-valued cards) and payroll cards would be covered under the CFPB proposal. Gift cards and closed-loop debit cards, popular on college campuses, would not. CFPB proposes to amend its Regulation E, which implements the Electronic Fund Transfer Act, to require financial institutions offering prepaid accounts to:

  • Disclose, before the consumer acquires the account, certain key fees. The "short-form" disclosure would highlight four set fees (periodic, per-purchase, ATM, and cash reload fees) followed by ATM balance inquiry, customer service, and inactivity fees. Issuers would then have to list the next three most commonly incurred fees for that particular product.
    • If the account is not insured, a statement to that effect must be included on the short form.
    • For government benefit cards and payroll cards, include a statement at the top of the short-form disclosure that the individual does not have to accept the card account and may receive payments through other means.
  • Disclose, before a consumer acquires the account, all fees, qualifying conditions, and certain other information in a "long-form" disclosure. Any overdraft or credit features of the account also would need to be disclosed.
  • Comply with existing Regulation E requirements to provide periodic statements of card activity and balance or an alternative that would allow prepaid card issuers to provide account balances by telephone and 18 months of transaction history in writing upon request and online.
  • Comply with modified limitations on liability and error resolution requirements.
  • Restrict linking a credit card plan to a prepaid account, except when certain conditions are met.
  • Post sample account agreements online for all prepaid accounts, and submit such agreements to the CFPB, which plans to maintain an accessible online database of agreements, much like it currently does for credit cards.

In addition, a few changes are proposed to Regulation Z, which implements the Truth in Lending Act, relating to credit and overdraft provisions.

The CFPB rulemaking is related to, but separate from, the Department of Education's ongoing rulemaking effort considering changes to the requirements for credit balance refunds that are part of ED's cash management regulations. ED is expected to issue proposed rules sometime this spring.

Deadline. Comments on the CFPB proposal are due March 23. Members are encouraged to share their concerns with NACUBO.

Contact

Anne Gross
Vice President, Regulatory Affairs
202.861.2544
E-mail