On October 5, the Consumer Financial Protection Bureau issued its much anticipated final rules regulating prepaid card accounts. The final rules follow the proposed rules that the Bureau issued in December 2014, and are mostly unchanged from the proposed rules. The new rules apply to “prepaid accounts,” which the Bureau defines as accounts that are marketed or labeled as “prepaid” and that are redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or that are usable at automated teller machines (ATMs). The term also covers accounts that are issued on a prepaid basis or capable of being loaded with funds, whose primary function is to conduct transactions with multiple, unaffiliated merchants for goods or services, or at ATMs, or to conduct person-to- person (P2P) transfers, and that are not checking accounts, share draft accounts, or negotiable order of withdrawal (NOW) accounts. The term prepaid accounts also includes certain digital wallets that can hold funds. Prepaid accounts include payroll cards and government benefits cards, but do not include gift cards and gift certificates, or accounts used for savings or reimbursements related to certain health and dependent care.
The Bureau set forth the proposed rules shortly after issuing a bulletin reminding employers that Reg E applies to payroll cards to the extent that employers cannot force employees to receive their wages through payroll cards. The new rules further confirm that Reg E applies to all prepaid accounts. In particular, prepaid account issuers’ losses are limited to $50 when funds are stolen or cards are lost as long as the consumer informs the issuer about the lost or stolen card. In addition, issuers are required to investigate and resolve errors when a customer finds unauthorized or fraudulent charges, or other errors on their accounts. Issuers must provisionally credit the disputed amount to the consumer while it finishes its investigation if it cannot resolve the investigation within a certain amount of time. Issuers are also required to give consumers free and easy access to account information by telephone, online, and in writing upon request, unless the issuer provides periodic statements.
In the final rules, the Bureau did not deviate from the proposed rules’ efforts to respond to consumers stating that they were not aware of the costs associated with using prepaid accounts. Specifically, the final rule requires two forms of “easy-to-understand” disclosure – one short and one long. The short form must include information about periodic fees, per-purchase fees, ATM withdrawal and balance inquiry fees, cash reload fees, customer service fees, and inactivity fees. The long form must provide a complete list of fees and certain other key information, and consumers must be able to get or access the long form prior to acquiring the account.
With respect to Reg Z, the Bureau addressed prepaid accounts with credit features. Issuers of prepaid accounts must determine that a consumer has the ability to repay the debt prior to offering credit on a prepaid account under the final rule. Consumers are also required to wait 30 days from the date of signing up for a prepaid account before being allowed to obtain credit from the issuers. The final rule also requires issuers to provide consumers with a monthly credit billing statement, provide consumers with a “reasonable time to pay,” and limit late fees for tardy payments. In addition, the final rule forbids an issuer from automatically taking funds uploaded into the prepaid account to satisfy a credit repayment. The rule requires consumer consent prior to automatically withdrawing funds from the account.
The new rule will generally apply to prepaid accounts starting Oct. 1, 2017, though the requirement for submitting agreements to the Bureau takes effect in October 2018. The final rule includes other accommodations in certain situations.