CFPB Proposed Prepaid Accounts Changes

October 2017 – In a move that will certainly lead to concerns among “consumer-protection” groups and may see legislative activity in California, the federal Consumer Financial Protection Bureau (CFBP), has proposed new rules regarding Prepaid Accounts, which would unwind in part rules but into place during the Obama administration.

The current Prepaid Accounts Rule defines “prepaid financial products” to include traditional plastic payment cards as well as mobile and other electronic prepaid accounts that can store funds. The CFPB states the new Proposed Rule is intended to address, in part, issues that participants and stakeholders were unanticipated by commenters during the notice and comment period prior to regulatory adoption.

Among the proposed changes Regulation E (ETF Act) would be to: a) reduce efforts required of financial institutions to resolve errors or limit consumers’ liability on prepaid accounts that have not completed the institution’s consumer identification and verification process. Though, for accounts where the consumer’s identity is later verified, financial institutions would be required to resolve errors and limit the consumer’s liability regarding  disputed transactions occurring prior to verification. Would require initial disclosure by financial institutions that no error resolution exists for consumers where no verification process exists.

In addition, proposed changes to Regulation Z (TILA) would create a limited exception to the definition of “business partner” in the credit-related provisions to exclude, under certain conditions, business arrangements between prepaid account issuers and issuers of traditional credit cards from the tailored provisions of the Prepaid Accounts Rule applicable to hybrid prepaid-credit cards. The exclusion would apply only to traditional credit card accounts that are linked to a prepaid account.