The Bureau of Consumer Financial Protection (CFPB) recently issued proposed regulations that would amend Regulation E (12 CFR part 1005 et seq.) and Regulation Z (12 CFR part 1026 et seq.). The proposed regulations would adopt specific disclosure, periodic statement, limited liability, error resolution and other requirements for prepaid cards and accounts.
In its release of the proposed regulations, the CFPB noted that, among all non-cash payment forms (such as credit, debit, and check), usage of prepaid cards and accounts increased at the fastest rate from 2009 to 2012, reaching 9.2 billion transactions in 2012. The amount loaded to general purpose reloadable (GPR) cards grew from $1 billion in 2003 to $65 billion in 2012, and is projected to reach $98 billion in 2014. The CFPB also recited several positive attributes of prepaid cards and accounts, including their popularity among individuals who do not have traditional bank accounts.
As currently in effect, Regulation E applies to payroll cards, gift cards, and cards that accept government loads but does not apply to other prepaid cards or accounts. The CFPB stated that prior regulations did not address other types of prepaid cards or accounts due to the wide variety of types and usage. In an apparent response to the increased usage of prepaid cards and the perceived lack of consumer protection under Regulation E for other types of prepaid cards and accounts, the CFPB proposes to amend Regulation E so that it would generally apply to all prepaid cards and accounts on a consistent basis.
Prepaid Account. As proposed, Regulation E would generally apply to a Prepaid Account, which is defined as any card, code or other device that is established primarily for personal, family or household purposes and that satisfies each of the following criteria: (i) it is issued on a prepaid basis in a specific amount or is capable of being loaded with funds after issuance, (ii) it is redeemable upon presentation at multiple, unaffiliated merchants for goods or services, usable at ATMs or usable for person-to-person transfers, and (iii) it is a not a gift card or loyalty, award or promotional gift card that is marketed and labeled as such. Prepaid Accounts do not include HSAs, flexible spending accounts, medical savings accounts or health reimbursement arrangements.
Fee Disclosure Requirements. Issuers would generally be required to provide two fee disclosures before a consumer agrees to acquire a Prepaid Account. The first disclosure would highlight certain fees, such as periodic, per-purchase, and inactivity fees. The second disclosure would set forth all of the fees and the conditions under which the fees could be imposed.
Transaction Information. Issuers would generally be required to provide periodic statements or, in the alternative, make available the account balance through a readily available telephone line and at a terminal, an electronic history of account transactions that covers at least 18 months, and a written history of account transactions that covers at least 18 months upon request. Issuers would be required to disclose monthly and annual summary totals of fees imposed, as well as the total amount of loads to and debits from the prepaid account, when providing a periodic statement or account history.
Limitation of Liability/Error Resolution. Regulation E provides that a consumer may be liable for an unauthorized transfer only if the issuer has provided certain disclosures and other conditions are satisfied. Regulation E also limits the amount of liability that may be imposed on the consumer. With certain modifications, this regime would be extended to all Prepaid Accounts.
Credit Features. If overdraft services or other credit features are offered in connection with a Prepaid Account, the services would generally be subject to Regulation Z’s open end credit rules, including (i) obtaining the consumer’s consent to add such services and waiting at least 30 days until after card registration to add such services, (ii) obtaining the customer’s consent to an automatic repayment plan, (iii) under an authorized repayment plan, not deducting payments more frequently than once per calendar month, (iv) providing periodic statements at least 21 days in advance of the payment due date, and (v) complying with error resolution and limited liability provisions that are more consumer-protective than those under Regulation E.
The full version of the proposed regulations may be found at: http://www.consumerfinance.gov/regulations/#proposed
The CFPB invited public comments regarding the proposed regulations.