Back in mid-November the CFPB (Consumer Financial Protection Bureau) issued their proposed rules to offer certain protections under the existing Electronic Funds Transfer Act’s implementing of Regulation E and the Truth in Lending Act’s implementing Regulation Z to certain prepaid financial products. The CFPB also released the results of a study they conducted on the prepaid financial service industry.
The rule that is being proposed by the CFPB defines prepaid accounts as a code, card or other device which is given for individual, households or family purposes and which also is issued on a prepaid basis to customers in specified amounts or not issued on a prepaid basis but with the potential of being loaded with funds at a later date; and that is redeemable upon presentation at merchant locations for goods or services, able to be used at ATMs or for person-to-person financial transfers.
Prepaid accounts would also include payroll card accounts (given by some employers in lieu of actual pay checks or direct deposits to checking accounts) and government benefit accounts. However, prepaid accounts would not include store gift cards, gift certificates, promotional or loyalty card benefits or general use prepaid cards that are clearly labeled or marketed as gift certificates or gift cards.
Regulation E Extended
Under this proposed rule, Regulation E’s current definition of an account would include prepaid accounts and these protections would be extended to consumers that receive such prepaid financial products:
- Periodic account statements or the ability to access account information for free online.
- Limited liability for any unauthorized charges if the consumer promptly notifies their financial institution of any unauthorized charges that have taken place.
- Timely investigations and resolutions with regard to any errors that are reported.
The Know Before You Owe Clause
The new rule also includes the “Know Before You Owe” disclosures for prepaid accounts. Financial institutions that offer these types of financial products to consumers would be required to provide short and long form disclosures to consumers before a prepaid account of any type is acquired. And for some types of prepaid products that are sold in retail stores, the proposed rule would allow prepaid account issuers to only be required to provide the short form disclosures prior to purchase. This short form disclosure only displays information about some fees, including monthly fees, fees per purchase, ATM fees and any fees that consumers have to pay to reload the accounts.
The long form disclosure includes details about all fees that are related to the prepaid accounts. The CFPB created some template forms for both long form and short form disclosures. Prepaid account agreements must also be posted on the websites of prepaid issuers and the CFPB website.
Other Features of the CFPB Proposal
Some other features that are packed into this proposal include:
- Verification of the consumers’ ability to repay debt before new credit lines are extended.
- The provision of periodic account statements.
- Consumers are given a minimum of 21 days to repay debts before late fees are incurred.
- Total fees are limited to 25 percent of the credit limit during the first year of the credit account.
These provisions are laid down for any prepaid accounts that offer lines of credit or overdraft services and don’t necessarily apply to the prepaid accounts that many people may use on a regular basis. Finally, the rule regulates the way that prepaid products can be marketed to consumers. For example, prepaid product issuers would be required to wait at least 30 days before they could offer any credit products to their prepaid account holders.