document-review-thumb-200x133-156.jpgThe CFPB today finalized its rule on prepaid cards.  Over four years in the making, the final rule, which weighs in at nearly 1700 pages, provides “strong federal consumer protection for prepaid account users,” according to prepared remarks of CFPB Director Richard Cordray.  The final rule covers not only traditional “general purpose reloadable” cards, but also mobile or electronic prepaid accounts, with PayPal and Google Wallet being named specifically as examples.  The CFPB cites the proliferation of prepaid cards – $1 billion in 2003 to an expected $112 billion in 2018 – and the lack of existing protection under federal law as justification for the new prepaid rules.  The final rule requires transparency in prepaid accounts and affords consumers protections similar to those found in traditional checking accounts.

The final rule includes “Know Before You Owe” disclosure requirements that provide transparency.  Prepaid card issuers must provide consumers with both a “short form” and “long form” disclosure statement – examples of both are available through the CFPB’s website.  The short form is meant to help consumers shop for and differentiate between prepaid accounts, by disclosing certain fees that the CFPB deems important, including periodic fees, per purchase fees, ATM withdrawal and balance inquiry fees, cash reload fees, customer service fees, and inactivity fees.  Included in the final rule are several model forms that, if used accurately, provide a safe harbor to financial institutions.  The long form, on the other hand, must include all of a prepaid account’s fees, qualifying conditions, and other pertinent information.  The final rules do not include a model long form, but do provide a sample.  A financial institution is not required to provide a periodic statement to consumers as long as the consumer is able to obtain balance information by telephone, at least 12 months of electronic account transaction history, and, upon request, 24 months of written account transaction history.  However, if periodic statements and transaction histories are provided to consumers, they must contain a summary of all fees assessed against the account on a monthly and annual basis.

The final rule provides protections common to checking accounts to prepaid accounts.  The final rule requires financial institutions to work with consumers to resolve errors in their accounts and restore missing funds.  In some instances, financial institutions will also be required to provide provisional credit to consumers during the investigation if the prepaid account is verified.  The final rules also protect consumers from lost cards and unauthorized transactions by, among other things, limiting a consumer’s responsibility for unauthorized charges to $50.

For prepaid accounts with credit features, the final rule also extends protections from the Truth in Lending Act (TILA) and Credit Card Accountability Responsibility and Disclosure Act (CARD Act) to prepaid accounts.  For such accounts, the final rule also requires financial institutions to separate the prepaid and credit features of the account, e.g., financial institutions cannot take funds loaded on a prepaid account to repay credit, absent consumer consent.

The final rule is effective on October 1, 2017, though financial institutions are not required to submit prepaid account agreements to the CFPB until October 1, 2018.  We will continue to unpack the final rule and monitor its effect on the prepaid industry in the coming weeks and months.