On December 23, the Consumer Financial Protection Bureau issued a proposed rule amending Regulation E, 12 C.F.R. §§ 205.1 et seq. – which implements the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693 et seq. – and Regulation Z, 12 C.F.R. §§ 226.1 et seq. – which implements the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. – to create comprehensive consumer protections for prepaid financial products. Noting that prepaid products are among the fastest growing types of payment instruments in the country, the Bureau claims that, with certain limited exceptions, these products have not been subject to existing consumer regulatory regimes that mandate consumer disclosures, error resolution, and protection from unauthorized transfers.
With regard to Regulation E, the CFPB proposes an entirely new definition of “prepaid account” to bring certain prepaid products within the protection of the regulation’s ambit. Under the amended definition, Regulation E would generally cover prepaid products that are cards, codes, or other devices capable of being loaded with funds and usable at unaffiliated merchants or for person-to-person transfers (and are not gift cards or certain other types of limited purpose cards). The CFPB’s proposal would also modify Regulation E in certain key respects, including:
- Requiring financial institutions to make certain fee-related disclosures available to consumers before the latter agree to acquire a prepaid account;
- Extending to all prepaid accounts existing Regulation E requirements concerning the provision of transaction information that presently apply to payroll card accounts, federal government benefit accounts, and non-needs tested state and local benefit accounts;
- Adopting error resolution and limited liability provisions specific to prepaid accounts;
- Requiring prepaid account issuers to provide the CFPB with information about the terms and conditions for prepaid accounts, which would then be posted online;
- Prohibiting issuers from requiring consumers to set up preauthorized electronic funds transfers to repay credit extended through an overdraft service or credit feature; and
- Restricting issuers from applying different terms and conditions to a consumer’s prepaid account depending on whether the consumer chooses to link the account to an overdraft service or credit feature.
- Furthermore, the CFPB proposes to modify Regulation Z by:
- Subjecting prepaid account issuers that offer overdraft services or other credit features for a fee to the regulation’s credit card rules and disclosure requirements;
- Applying its credit card rules to separate credit lines linked to prepaid accounts;
- Requiring issuers to obtain a consumer’s consent before adding overdraft services and credit features to a prepaid account; and
- Providing that consumers receive periodic statements – not more than once per month – and then have at least 21 days to repay the debt the consumer incurred in connection with using the overdraft service or credit feature.
The CFPB proposes that, with certain exceptions, the effective date for the requirements established in the final rule would be nine months after the rule is published in the Federal Register. One exception the CFPB expressly offers is that, for twelve months after the final rule is published, financial institutions would be able to continue selling prepaid accounts that do not comply with the rule’s disclosure requirements as long as the account and its packaging material were printed prior to the proposed effective date.