CFPB Proposed Prepaid Account Rule

On November 13, 2014 the Consumer Financial Protection Bureau issued its long-awaited proposed rule on prepaid products. The rules would apply broadly to any “prepaid account,” whether in the form of a card, code or other device, capable of being loaded with funds that can be used at unaffiliated merchants, for peer-to-peer transfers, or for ATM withdrawals.

We have not fully analyzed the 870-page proposal yet, though the CFPB provides a glimpse of the proposed rules in its press release.  Some of the key proposals made by the CFPB appear to include:

• Extending and modifying current Regulation E protections to prepaid account products.  This would appear to include short and long form disclosures before and after purchasing the prepaid product; the right to receive periodic statements or free access to balance information; error resolution rights (including provisional credits); and limits on consumer liability for unauthorized transfers.
• Amending Regulation Z with respect to prepaid products that include credit features, such as overdraft services.  Such amendments would appear to impose some of the more demanding Regulation Z obligations on prepaid product providers, including the obligation to perform an “ability to pay” analysis on cardholders; provide monthly periodic statements; afford consumers at least 21 days to repay; limit the imposition of fees and interest charges (including under the Reg Z “first year” rule); and restrict rate increases without prior notice.
• Requiring a 30 day period before an issuer can offer credit features to a registered cardholder.
• Establishing controls over an issuer’s use of prepaid funds to repay debts under the credit product.

The comment period will begin when the proposed rule is published in the Federal Register and will remain open for 90 days.

Look for us to post further analysis and additional thoughts on the proposed rule on the PaymentLawAdvisor in the coming weeks.  In the meantime, you can review some other CFPB materials related to the proposed rule, including the Proposed Model Disclosures, Remarks from Director Cordray, and a Study of Prepaid Account Agreements.