The Consumer Financial Protection Bureau has proposed new rules to amend Regulation E (Electronic Fund Transfer Act) and Regulation Z (Truth in Lending Act) to create protections for consumers using prepaid cards.  These proposed rules  come as more and more people are using prepaid cards as a substitute for traditional checking accounts.  In addition to cards consumers purchase themselves, prepaid cards are used by some employers for payroll and by certain government agencies to distribute benefits.  CFPB Director Richard Cordray announced: “Consumers are increasingly relying on prepaid products to make purchases and access funds, but they are not guaranteed the same protections or disclosures as traditional bank accounts.”

The CFPB’s proposed rules would require card issuers to clearly disclose all potential fees under new “Know Before You Owe” disclosure rules; limit the consumer’s responsibility to $50 for unauthorized charges when a registered card is lost or stolen; require card issuers to provide free transaction statements to customers; and regulate the way that card issuers investigate and resolve account errors reported by consumers.  According to the CFPB, the proposed regulations would provide protections similar to those that consumers with checking accounts already receive.  The proposed rules also include added protections for those consumers who use prepaid card accounts that allow them to borrow money on credit beyond the funds pre-loaded on the cards.

 The CFPB has indicated that these rules would apply not only to traditional prepaid cards, but also to mobile and electronic prepaid accounts, like Apple Pay and PayPal.  “Our proposal would close the loopholes in this market and ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment,” said Cordray. 

These proposed rules are open for comment for 90 days after publication in the Federal Register, which is expected shortly.