On October 4, the CFPB released its final rule for prepaid cards. The rule will cover traditional prepaid cards, general-purpose reloadable cards, mobile wallets, person-to-person payment products, and other electronic prepaid accounts that can store funds. Payroll cards, student financial aid disbursement cards, tax refund cards, and certain federal, state, and local government benefit cards such as those used to distribute unemployment insurance and child support are also covered.
The rule’s effective date is October 1, 2017, with the requirement for submitting agreements to the CFPB effective in October 2018.
The rule will give prepaid customers similar protections as checking account customers, that Regulation E provides. These include:
- Free and easy access to account information: Financial institutions must make certain account information available for free by telephone, online, and in writing upon request, unless they provide periodic statements. Unlike checking account customers, prepaid consumers typically do not receive periodic statements by mail. The rule ensures that consumers have access to their account balances, their transaction history, and the fees they have been charged.
- Error resolution rights: Financial institutions must cooperate with consumers who find unauthorized or fraudulent charges, or other errors, on their accounts to investigate and resolve these incidents in a timely way, and where appropriate, restore missing funds. If the financial institution cannot do so within a certain period of time, it will generally be required to provisionally credit the disputed amount to the consumer while it finishes its investigation.
- Protections for lost cards and unauthorized transactions: The new rule protects consumers against withdrawals, purchases, or other unauthorized transactions if their prepaid cards are lost or stolen. The rule limits consumers’ liability for unauthorized charges and creates a timely way for them to get their money back. As long as the consumer promptly notifies their financial institution, the consumer’s responsibility for unauthorized charges will be limited to $50.
New disclosures will be required for prepaid accounts. The disclosures are designed to give users:
- Standard, easy-to-understand, upfront information: The CFPB rule requires two forms, one short and one long, with easy-to-understand disclosures. The short form concisely and clearly highlights key prepaid account information, including the fees the CFPB believes are most important to consumers shopping for a prepaid account. These include a periodic fee, per purchase fee, ATM withdrawal and balance inquiry fees, cash reload fee, customer service fees, and inactivity fee. The short form also must disclose certain information about additional types of fees that the consumer may be charged. Consumers will also get or be able to access the comprehensive long form disclosure containing a complete list of fees and certain other key information before acquiring the account.
- Publicly available card agreements: To make comparison shopping easier, the rule requires prepaid account issuers to post on their websites the prepaid account agreements they offer to the general public. Additionally, with a few exceptions, issuers must submit all agreements to the CFPB, which intends to post them on a public, Bureau-maintained website at a future date. Also, issuers must make any agreement not required to be posted on their website available to applicable consumers.
The rule also includes protections for prepaid cards that are tied to credit products, thus allowing the consumer to spend more than they have. The protections come from Regulation Z and include determining the ability to repay, required monthly statements, grace periods on late fees, and limits on total fees and interest.
The Rule is 1689 pages long, and we will be analyzing and blogging about it in the future. In the meantime, you can use these links to learn more: