On October 5, 2016, the CFPB issued its long-awaited final prepaid accounts rule. The rule applies to traditional prepaid cards, such as general-purpose reloadable cards, as well as a variety of other products, including mobile wallets, person-to-person payment products, payroll cards, student financial aid disbursement cards, tax refund cards, and certain government benefits cards, such as cards for unemployment and child support disbursements. Providers of these products generally must comply with the rule by October 1, 2017. The key aspects of the rule include required consumer protections, product disclosures, and requirements applicable to products with credit or overdraft features.
Consumer Protections: The rule will apply the protections of the Electronic Fund Transfer Act to prepaid accounts, including:
- Providers must make account information available to consumers for free, either by telephone, online, by written request, or through periodic statements; and
- Providers must promptly investigate and resolve claims of unauthorized charges and other errors and, where prompt resolution is not possible, give provisional credit to consumers while the investigation continues. In addition, if a consumer promptly notifies his or her provider of an unauthorized charge, the consumer’s liability is limited to $50.
Account Disclosures: The rule contains substantial disclosure requirements.
- The rule requires that providers give consumers short-form and long-form disclosures. The short-form disclosure must highlight key information about the product, including periodic fees, per purchase fees, ATM withdrawal and balance inquiry fees, cash reload fees, customer service fees, inactivity fees, and two additional fees that generate the highest revenue. The long-form disclosure must include a complete list of fees and other information about the product.
- The rule gives providers an alternative to the Regulation E periodic statement requirement if the provider makes available to the consumer: (1) the consumer’s account balance through a readily available telephone line; (2) a 12-month account transaction history electronically, such as through a Web site; and (3) a 24-month written account transaction history upon the consumer’s request.
- Beginning on October 1, 2018, the prepaid account agreements must be submitted to the CFPB, which will post them on its website.
Credit Protections: If a product has a feature that allows a consumer to access credit (including an overdraft feature), certain protections apply, derived mainly from the CARD Act, including:
- Providers must ensure that consumers have the ability to repay the debt before offering credit;
- Providers must give monthly billing statements to consumers;
- Providers must give consumers at least 21 days to repay their debt before charging a late fee, and any fee must be “reasonable and proportional” to the violation of account terms;
- For the first year the credit account is open, total fees for credit features cannot exceed 25% of the credit limit;
- Providers cannot raise the interest rate on an existing balance unless the consumer has missed back-to-back payments, and must give the consumer 45 days advance notice before raising the interest rate on new purchases.
- Providers must wait 30 days after a consumer registers the prepaid account before offering credit to the consumer; and
- Providers may not automatically take a credit repayment when the prepaid account is loaded with funds, and may not automatically take funds from the prepaid account to repay credit without consumer consent. Even if the consumer consents, providers cannot automatically take funds more than once per month.