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Government watch
The CFPB’s Prepaid Rule: Positive Changes & Compliance Challenges
The CFPB addresses each of these issues in its nal rule with mixed results. With respect to force-pay transactions, the nal rule appears to address industry concerns by including three exceptions from the nal rule’s requirements for credit o ered in conjunction with prepaid accounts. The exceptions include when a provider has a policy and practice of:
1. declining to authorize transac- tions where a consumer has insu cient funds and does not charge credit-related fees;
2. declining to authorize transac- tions where a consumer has insu cient funds except when the transaction will not over- draft the account by more than $10 (a “purchase cushion”) and doesn’t charge credit-related fees; or
3. declining to authorize transac- tions where a consumer has insu cient funds except where incoming deposits to the account are pending and does not charge credit-related fees.
Taken together, these exceptions should alleviate industry concerns that force-pay transactions would trigger Reg. Z requirements.
By contrast, the CFPB retained much of the proposed rule’s re- quirements with respect to credit services formally o ered as part of a prepaid account. Like the pro- posed rule, the nal rule amends Reg. E and Reg. Z to regulate
overdraft credit features o ered in connection with prepaid accounts. The nal rule retains many of the proposed rule’s obligations with respect to these covered products, including imposing a 30-day waiting period after an account is registered before soliciting a consumer to add an additional credit feature and requiring providers to conduct ability-to-repay analysis in evaluat- ing an application for a credit feature with a prepaid account.
The end result of these new require- ments is that it will be very di cult and costly for prepaid providers to o er credit features like overdraft. Providers have indicated they will end their overdraft programs in light of the nal rule’s requirements. Such a result is particularly frustrating for providers given that the CFPB’s overdraft requirements for prepaid accounts di er signi cantly from the requirements imposed on providers of traditional overdraft services o ered in connection with checking accounts. The rules governing overdraft o ered with checking accounts remain far less onerous.
Prior to the election, one could argue that such di ering treatment may be short-lived with “overdraft services on checking accounts” in the “pre-rulemaking” stage on the CFPB’s current rulemaking agenda. However, under new presidential leadership, those regulatory plans are in doubt.
More Time to Comply,
but Still not Enough
While the proposed rule included a nine-month e ective date, the nal
rule extended this period to nearly a year, with the nal rule originally set to go into e ect on Oct. 1, 2017. In March, the CFPB proposed to delay the e ective date another six months. Providers may be able to comply without doing a full-scale inventory swap of prepaid account packaging materials prior to the e ective date provided that up- dated disclosures are provided
to consumers within 30 days if the provider has received a consumer’s contact information. Although this provision is written into the rule and may, in theory, save millions
of dollars and pounds of plastic from the trash heap, it’s unclear whether issuers will be comfortable having outdated terms and condi- tions in the marketplace.
The e ective date may be particu- larly di cult for providers of prod- ucts and services that previously were not considered to qualify as prepaid accounts. For example, mobile wallet or P2P providers may not have the infrastructure in place that traditional prepaid card provid- ers do, making it more di cult for them to extend full Reg. E protec- tions to their products and services.