The staff of the FTC’s Bureau of Consumer Protection has weighed in on the CFPB’s Advance Notice of Proposed Rulemaking seeking information on extending Regulation E requirements to general purpose reloadable prepaid cards or GPR cards. While the staff’s letter notes that the FTC voted to authorize the staff to submit a comment letter, it contains the disclaimer that the comments represent the staff’s views and such views “are not necessarily the views” of the FTC or any individual Commissioner. In the letter, the staff indicates that the information and views it offers “draw[s] on its experience” in enforcing Section 5 of the FTC Act (which prohibits unfair or deceptive acts or practices) in matters involving GPR cards, prepaid telephone cards and gift cards.
Observing that consumers risk loss through the use of GPR cards because federal law does not provide liability limits, the staff wants the CFPB to identify and propose for comment “specific requirements governing limitations on consumer liability.” The letter includes examples of varying practices for the disclosure of fees and information about expiration dates. Asserting the need for ”clear and prominent” disclosure, the staff thinks the CFPB should also identify and propose for comment “specific disclosure requirements for fees and expiration dates.”
In the letter, the staff discusses how mandated error resolution procedures may benefit consumers and how consumers would also benefit from “ready access to card balance and transaction history information.” The staff takes the view that current law does not sufficiently protect GPR cardholders from unauthorized recurrent debits. Accordingly, the staff would like the CFPB to identify and propose for comment “specific error resolution procedures” and “specific authorization requirements for recurrent payments.”
While touting the benefits of applying error resolution procedures to GPR cards, the staff’s letter overlooks various problems that can result. For example, the staff fails to acknowledge the special risks to financial institutions that can arise if they are required to provisionally re-credit funds to a GPR card while investigating an error. Reg E requires provisional crediting of an account while the customer goes through the error resolution process.
With GPR cards, however, there may not be enough funds on the card when the issuer completes the error resolution process to cover the reversal of an amount provisionally re-credited. In addition, prepaid card industry experience has been that the provisional re-crediting requirement has led to much higher fraudulent error claims than with other products and produced fraud losses since provisional credits must be made before the error investigation is completed.
The staff’s letter also overlooks that it can be difficult to know who has authority to use a card because GPR cards may be given as gifts after purchase or otherwise transferred for use by people who are not the original purchasers. As a result, for error resolution procedures to be effective, there will need to be methods for tracking the transfer and use of GPR cards to determine if charges are in fact unauthorized or fraudulent.
The FTC staff does at least appear to recognize that there will be costs associated with the extensive new requirements it wants the CFPB to propose. For each proposal the staff recommends, the staff says the CFPB should “tak[e] into account the costs and benefits of alternate ways” to achieve the desired protections.