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 online.
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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