Sen. Robert Menendez (D-N.J.) recently introduced the Prepaid Card Consumer Protection Act of 2013 (US S 1867), which is currently pending in the Senate Committee on Banking, Housing and Urban Affairs. The bill is similar to those sponsored by Sen. Menendez in 2009, 2010 and 2011. It seeks to extend certain Regulation E protections to prepaid cards and adds the term “spending account” to Regulation E.
Spending account encompasses pooled accounts, but exempts certain types of prepaid cards, such as:
- Accounts held by a financial institution pursuant to a bona fide trust agreement;
- Non-reloadable GPR cards not exceeding $250;
- GPR cards solely associated with certain health plans or transportation benefits;
- Certain electronic promises, plastic cards, payment codes or devices that are exempt from the CARD Act; in particular, those used solely for phone services, issued only in paper form or redeemable solely for or in conjunction with events/venue admissions. [Note: CARD Act exemptions for GPR cards and loyalty, award and promotional cards are not included in the Menendez exemptions.]; and
- Gift cards.
As in previous bills, the 2013 version requires all spending accounts to provide FDIC insurance (as well as NCUA insurance), establishes circumstances when a financial institution is required to provide periodic statements to consumers, prohibits a vast array of fees (including overdraft fees, POS usage fees, inactivity fees and customer service fees) and requires certain specific disclosures. The bill also prohibits spending accounts from offering credit features, other than electronic fund transfers to pay a credit account.
Certain fees—such as replacement card fees, reload fees and bill pay fees—are permitted under limited circumstances, but these fees must be disclosed clearly in table format and the disclosure must include an estimate of the average total monthly cost to a typical consumer for using the spending account based on a profile established by the CFPB.
New to the 2013 bill are provisions relating to payroll and government benefit cards. In particular, the bill requires that cardholders of payroll cards and government benefit cards have the option to receive their funds in another form to be determined by the CFPB. The bill adds that such other form shall include at least one of the following: direct deposit, cash or check.
Finally, the bill calls upon the CFPB to create a rule addressing “the headings, content and format of the fee table, estimate, and wallet-sized summary required” under the bill within a year after the 2013 bill’s enactment. The bill also requires the CFPB to conduct research to determine if there are differences on the short- and long-term economic well-being of consumers at different income levels who use prepaid-related spending accounts (i.e., prepaid products that are encompassed by the bill) versus those who use traditional bank accounts as their primary means of making financial transactions.
With the CFPB’s proposed rulemaking well underway, it is unclear whether Sen. Menendez’s 2013 bill will directly influence the bureau’s rules. However, just the existence of the bill, may indirectly affect the industry by influencing topics and prompting the CFPB to shorten its timetable.
Details may be found here.
As first published in the NBPCA Government Update.