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The CFPB’s Prepaid Rule: Positive Changes & Compliance Challenges
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account that the long-form disclo- sure is available by telephone and Website; (2) the nancial institution makes the long-form disclosure available by both telephone and Website; and (3) the long-form disclosure is provided after acquisi- tion of the prepaid account.
Error Resolution Largely Mirrors Reg. E
Providers looking to the nal rule for what error resolution and lim- itation on liability rights apply to covered products will be pleased to see that they likely already are familiar with most of the require- ments contained in the nal rule. Like the proposed rule, the nal rule generally extends the require- ments of Reg. E that apply to pay- roll card accounts today, with some modi cation, to prepaid accounts in general. For many products, the extension of Reg. E’s limitation on liability and error resolution re- quirements will not have a signi - cant impact as providers have been o ering these protections volun- tarily on the majority of covered products for several years. For other products, most notably nonreloadable cards, the extension of Reg. E’s unauthorized transac- tion and error resolution require- ments may prove more problematic as these protections generally have not been applied to these types of products in the past.
Exacerbating this problem is the nal rule’s extension of these protections to prepaid accounts where the provider has not yet nished its registration and
veri cation process. While the nal rule provides some protection to providers in the form of waiving Reg. E’s provisional crediting re- quirements for unveri ed accounts, in the case of nonreloadable and anonymous prepaid cards, it’s unclear how providers are ex- pected to investigate claims of unauthorized use and this may lead to providers simply re-crediting accounts any time a complaint is made, which, in turn, could lead to greater instances of fraud and the potential elimination of these products from the market.
Overdraft and Force-Pay Transactions
One of the most talked about issues in the proposed rule was its treat- ment of credit o ered in association with a prepaid account. The indus- try’s issues with this aspect of the proposed rule were twofold. First, the proposed rule would have
applied its requirements for prepaid accounts with credit features to “force-pay” transactions, which occur when a consumer has su - cient funds in his account to cover a transaction when it’s authorized but insu cient funds to cover the same transaction when it’s paid. The re- sult of applying the requirements
of the proposed rule to these force-pay transactions could have e ectively removed all prepaid products from the marketplace, whether such products o ered in- tentional overdraft services or not.
Second, the CFPB’s proposed rule moved the needle too far in an e ort to protect consumers, creating compliance requirements so onerous—triggering Regulation Z (Truth in Lending) requirements— that they e ectively would have banned from the marketplace any short-term loan capability associ- ated with a prepaid account.
LiNgeriNg uNCertAiNtY: WhAt Needs CLArifiCAtioN
As with any rulemaking, the industry is going to need some clari- cation to comply. Here are two of the key issues that don’t yet have clear answers:
1Do providers have to offer provisional credit for nonreload- able and anonymous prepaid cards? While the nal rule provides some protection to providers in the form of waiving Reg. E’s provisional crediting requirements for unveri ed accounts, in the case of non- reloadable and anonymous prepaid cards, it’s unclear how providers are expected to investigate claims of unauthorized use and this may lead to providers simply re-crediting accounts any time a complaint is made, which, in turn, could lead to greater instances of fraud and the potential elimination of these products from the market.
2Inventory replacement. Although the CFPB seems to have thrown the industry a bone in terms of not requiring the replacement of non- compliant products by the effective date, if certain conditions are met, there is some uncertainty in the market as to whether issuers (and their lawyers) would allow products with non-compliant fee schedules and terms and conditions to stay in the market beyond the new proposed effective date of April 1, 2018.