Note: We have revised the description of the terms of the settlement in our recent blog post on the Carribean Cruise Line TCPA matter. Click here to read the corrected post.

paperworkHaving trouble sleeping and need something to read? Lucky for you the Consumer Financial Protection Bureau (the Bureau) recently released its 1700+ page final rule for prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act. On the other hand, if you’d rather spend your wakeless nights watching playoff baseball, we’ve got you covered with a brief summary of the rule and some implications for the prepaid industry.

What are the types of prepaid accounts subject to the rule? The final rule defines prepaid accounts to encompass a diverse group of products, including traditional general-purpose reloadable cards; non-reloadable prepaid cards; payroll cards; student financial aid disbursement cards; tax refund cards; government benefit cards; mobile wallets; person-to-person payment products; and other electronic prepaid accounts that can store funds. The rule excludes from coverage gift cards and gift certificates; accounts used for savings or reimbursements related to certain health, dependent care, and transit or parking expenses; and certain limited government program accounts.

What are the rule’s requirements? The rule will require prepaid providers to include detailed “know before you owe” disclosures in packaging, provide easy and free access to account information, limit consumers’ losses when funds are stolen or cards lost, and follow rules designed for credit cards when offering credit in connection with a prepaid account. In addition, prepaid account issuers will be required to post their agreements on their websites and submit copies to the Bureau for posting on the Bureau’s website.

When does the rule go into effect? The rule goes into effect on October 1, 2017, except for the provisions related to posting agreements with the CFPB and online, which go into effect in October 2018.

What are some of the implications for industry? The Bureau’s rule represents a significant shift in the regulatory framework for prepaid products. For many providers of these popular products, addressing the new requirements will require significant investments in resources, new internal controls, and comprehensive compliance policies and procedures.

  • The rule will likely create significant compliance headaches for prepaid companies that will need to be addressed in policies and procedures.
  • Mobile and digital prepaid account providers will need to address how to make disclosures electronically.
  • The prepaid industry will need to work closely with banks, lenders, and other related industries to coordinate in developing compliant products and services.
  • The new regulations will likely require issuers to work with legal counsel to revise agreements to account for the new requirements.
  • Prepaid issuers with upcoming scheduled examinations should expect the Bureau to inquire about efforts to develop appropriate compliance procedures ahead of the rule’s effective date.

If you are craving a more detailed summary, please check out our advisory available here.