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The CFPB’s Prepaid Rule: Positive Changes & Compliance Challenges
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Like the proposed rule, the nal rule greatly broadens the common under- standing of what constitutes a prepaid account, pulling in companies like PayPal and other digital wallet providers.
from consumers for the prepaid account program. What’s more, providers now can assess the “additional fees” every 24 months, and can use information from all prepaid account programs that share a fee schedule. The addi- tional fee disclosure is subject to a 5 percent de minimis revenue exclusion, whereby a provider has the ability to list one or even zero additional fees if there are fewer than two additional fees that gen- erate 5 percent of revenue from consumers for the program.
Subject to some exceptions, a nancial institution must provide all of the pre-acquisition disclo- sures before a consumer acquires the prepaid account. The nal rule provides an exception to the re- quirement to provide the long-form disclosure pre-acquisition for pre- paid accounts acquired at a retail location, as long as (1) the prepaid account access device is contained in the packaging material; (2) the short-form disclosure is provided on or is visible through the pack- aging material; (3) the short-form disclosure provides a telephone number and Website address that a consumer may use to access the long-form disclosure; and (4) the long-form disclosure is provided after the prepaid account is ac- quired. The nal rule provides a second exception to providing
the long-form disclosure pre- acquisition if a consumer acquires the prepaid account by telephone, provided (1) the nancial institution communicates to the consumer prior to acquisition of the prepaid
such that products are not covered where their “primary function”
is not to conduct open-loop, ATM or person-to-person transactions. One impact of this clari cation in the nal rule is to remove reload packs from the de nition of pre- paid account.
Despite these positive changes, the nal rule’s de nition of pre- paid account continues to be overly broad, which will no doubt present challenges to the industry moving forward. The nal rule applies to certain nonreloadable, anonymous prepaid products, despite the fact that such products are not used by consumers as asset account substitutes, and applying Regulation E protections to these products will be di cult to manage.
Notably, on Jan. 31, 2017, the CFPB issued additional guidance in the form of a Small Entity Compliance Guide that helps to address some of industry’s concerns over the breadth of coverage under the nal rule. In particular, since the nal rule was issued, providers actively have been discussing whether or not “checkless checking” accounts were intended to be covered under
the carveouts in the rule for check- ing, share draft and NOW accounts. (See “Are You Covered?” on page 49.) The CFPB helpfully addresses this issue in the guide by clarifying that “checkless checking” accounts are not “prepaid accounts” for purposes of the nal rule.
Disclosure Requirements
With a few exceptions, the pre- acquisition disclosure requirements set forth in the proposed rule were broadly adopted, as proposed, in the nal rule. Like the proposed rule, the nal rule requires that consumers receive both short-
and long-form disclosures prior to acquiring a prepaid card account.
The major di erence from the proposed rule with respect to the short-form disclosure is the re- placement of the “incidence-based fee” structure with an “additional fee type” structure. The proposed rule would have required providers to disclose up to three of the most frequently charged fees (known
as “incidence-based fees”), to
be assessed every 12 months.
The nal rule has replaced this requirement with a requirement to disclose up to two additional fees that generate the highest revenue