On June 15, 2017, the CFPB announced that it is proposing for public comment certain modifications to its prepaid rule. The rule, which was issued in final form in October 2016, limits consumers’ losses for lost and stolen prepaid cards, requires financial institutions to investigate errors, and includes enhanced disclosure provisions.
The final rule unexpectedly granted Regulation E error resolution rights to consumers holding unregistered prepaid accounts, a provision that was not part of the CFPB’s original proposal. Financial institutions criticized this aspect of the final rule, arguing that providing error resolution rights to holders of unregistered accounts would invite and open new avenues for fraud. Financial institutions also argued that it would be difficult, if not impossible, to investigate alleged errors if they have little to no information about the purchasing customer. As a result, financial institutions have claimed that, if the CFPB retains error resolution rights for unregistered prepaid accounts, they would no longer provide immediate access to funds on such accounts.
To address these concerns, the current proposal would require consumers to register their prepaid accounts to qualify for Regulation E error resolution rights, including the right to recoup funds for lost or stolen cards. Under the CFPB’s proposal, however, Regulation E error resolution rights would apply to registered accounts even if the card was lost or stolen before the consumer completed the registration process.