In Consumer Financial Protection Bureau (CFPB) news that even opponents praised, the Bureau proposed a six-month delay in the effective date of the final prepaid accounts rule.

What happened

In October 2016, the CFPB finalized the Prepaid Rule, which imposed significant new requirements for prepaid accounts under Regulation E issued under the Electronic Fund Transfer Act as well as Regulation Z implementing the Truth in Lending Act. Initially proposed in November 2014, the Prepaid Rule was intended to "fill key gaps" for consumers with regard to prepaid products.

Pursuant to the Rule, providers of prepaid products—broadly defined to include payroll card accounts, government benefit accounts, student financial aid disbursement cards and tax refund cards, among others—must protect consumers against fraud and theft, with liability limited to $50 where a consumer promptly notifies the institution of theft.

In addition, consumers must be given free and easy access to product information (by phone, online, or in writing upon request), work with consumers to investigate any errors on covered products (with provisional credit for the dispute during the course of the investigation), and add "Know Before You Owe" prepaid disclosures to highlight key costs associated with the product prior to use, including periodic fees, balance inquiry fees, or fees for inactivity.

Prepaid cards must also adopt certain protections provided to credit cards such as monthly account statements, consideration of whether a consumer has the ability to repay the debt before offering credit, and limits on late fees, to achieve compliance with the new Rule.

As it currently stands, the Prepaid Rule is set to take effect on October 1, 2017. While the CFPB has taken steps toward enforcement—releasing guidance for participants in the prepaid card space—the Rule has also been the subject of challenges by critics, with legislators filing joint resolutions to initiate the process to nullify the Prepaid Rule via the Congressional Review Act.

With the joint resolutions pending, the CFPB proposed a six-month delay of the effective date for the Rule until April 1, 2018. Some industry participants have expressed concern about difficulties complying with certain provisions of the Prepaid Rule in time for the original date, the Bureau said, seeking comment on the proposed extension.

Through efforts to support industry implementation, the Bureau said it learned that some industry participants feel the need to pull and replace non-compliant packaging to ensure compliance at both the state and federal level and are uncertain about the production capacity of packaging manufacturers and other supply chain limitations due to increased demand leading up to October 1.

Other industry members have shared with the CFPB "unanticipated complexities arising from the interaction of certain aspects of the Rule with certain business models and practices" that were not fully addressed during the comment period.

In response to the industry's concerns, the CFPB proposed to extend the effective date for an additional six months. "In particular, a six-month extension would both allow more time for package printing and allow pull-and-replace processes at retail locations to occur after the winter holiday season, which is a particularly busy time for retailers," the Bureau noted.

In addition to providing more time for compliance, delaying the date "will allow the Bureau to more closely evaluate concerns raised by industry participants regarding certain substantive aspects of the Prepaid Accounts Final Rule," the CFPB said. If the Bureau determines that amendments to the substantive portions of the Rule are warranted, it will do so through a separate rulemaking and provide an opportunity for comment.

To access the CFPB's proposal, click here.

Why it matters

"The Bureau continues to believe that the Prepaid Accounts Final Rule will provide significant benefits to consumers and that, therefore, expeditious implementation remains essential to provide comprehensive consumer protections to users of prepaid accounts," the CFPB wrote in its proposal for the extension. Not everyone agrees. While some critics praised the extension (Rep. Scott Tipton (R-Colo.) said he was "pleased" the Bureau considered the concerns raised by industry and legislators), others felt the extra time wasn't enough. "[T]he CFPB should scrap this rule altogether," Sen. David Perdue (R-Ga.), who introduced a joint resolution to nullify the Rule, said in a statement. "From its initial stages, this rule was shortsighted and so sweeping that it would have stifled innovation in a growing marketplace millions of consumers rely on."