At the end of January, the Consumer Financial Protection Bureau published its Prepaid Rule – Small Entity Compliance Guide. The Bureau intends for the Guide to provide a user-friendly summary of the Prepaid Rule, issued in October, but cautions that the Guide is not a substitute for reviewing the Rule, Regulation E, or Regulation Z. The new Guide complements the previously-released Prepaid Card Fact Sheet, published by the CFPB in November.
The Guide provides general definitions of applicable terms, such as “prepaid card,” in addition to describing those entities subject to the Rule and offering examples that illustrate the new Rule in action. The Guide also gives considerable guidance on the numerous new disclosures required by the Rule, including pre-acquisition disclosures, disclosures on access devices, and initial disclosures. Notably, the Prepaid Rule requires financial institutions to provide customers with both a short form and a long form disclosure before opening a prepaid account. The Guide explains both of these disclosures and provides links to sample forms in fillable, .pdf versions.
The Prepaid Rule was originally scheduled to take effect on October 1, 2017. However, on March 9, the Bureau proposed delaying the effective date of the Rule by six months. According to the CFPB, members of the industry have expressed concern over complying with certain provisions of the new Rule by the October deadline. “While we are not proposing to change any other part of the prepaid accounts rule at this time, we are asking the public to provide comments about any implementation challenges that may affect consumers, and how additional time will impact the industry, consumers, and other stakeholders,” the CFPB said in a statement.
On April 4, the American Bankers Association (“ABA”) submitted commentary to the CFPB, welcoming the Bureau’s proposal to delay the Rule’s effective date. In the letter, however, the ABA also encouraged the CFPB to adopt a more objective definition of “prepaid account” as any product marketed or labeled as a prepaid account or card. “Absent a usable distinction, banks face unfair and significant compliance risk and liability for inadvertent violations if an examiner or plaintiffs’ lawyer asserts that the bank’s checking account should be treated as a prepaid account and subject to the related disclosures and restrictions of the rule,” the ABA wrote. According to the ABA, ambiguity in the current definition could discourage banks from offering checkless checking accounts and prevent the development of other products to serve the unbanked.
These proposed changes may not be the final word on the Rule. As we reported previously, Republicans in both the House and Senate have proposed killing the Rule entirely and have offered bills that would submit the Rule to a vote of disapproval under the Congressional Review Act.