On Oct. 5, 2016, Consumer Financial Protection Bureau (CFPB)
Director Richard Cordray announced a final rule governing the burgeoning consumer
prepaid card industry. The CFPB estimates that the amount of money
consumers load onto "general purpose reloadable" prepaid
cards increased from less than $1 billion in 2003 to nearly $65
billion in 2012. The scope of the new rule reaches not only
traditional prepaid cards, but also mobile wallets,
person-to-person payment products and other electronic accounts
that store funds (e.g., PayPal). The rules will go into effect Oct.
1, 2017, creating uniform standards across the industry.
In general, the new prepaid card rules impose three
requirements: First, they limit consumer losses when funds are
stolen or cards are lost; second, they require institutions to
investigate and resolve errors; and third, they must give consumers
"easy and free access" to their account information. The
CFPB also finalized "Know Before You Owe" disclosures for
prepaid accounts, with short-form declarations available on the
packaging of prepaid products and longer declarations available
Currently, the information and protection given to prepaid
product users can differ drastically, depending on the type of
account and on the cardholder agreement. The new rules will require
prepaid product providers to give consumers free and easy access to
account information – including transaction histories and
balances – and simplified, organized, upfront information
about fees and other key features.
Along with making information readily available, financial
institutions offering prepaid products will need to protect
consumers in a multitude of other ways. Many of these protections
stem from the Electronic Funds Transfer Act and are intended to
protect prepaid products in ways similar to traditional credit
cards. Under the new rules, as noted, financial institutions must
limit consumer losses when funds are stolen or cards are lost.
Further, these institutions will now have a duty to investigate and
resolve errors that occur. Additionally, the new rules impose
underwriting requirements, mandate that institutions provide
consumers detailed periodic statements, restrict the amount of fees
allowed during the first year that credit is extended, and limit
late fees and charges.
In the CFPB's press release, Cordray explained that
"though many prepaid companies already offer some of these
same protections to their customers, it is vital for all consumers
to have the settled assurance that these protections are now the
law of the land."
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Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
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