CFPB proposes changes to prepaid accounts rule | KPMG | US

CFPB proposes changes to prepaid accounts rule

CFPB proposes changes to prepaid accounts rule

The Consumer Financial Protection Bureau (CFPB or Bureau) has proposed changes to its Prepaid Accounts Rule that would amend provisions of that rule related to i) error resolution and limitations on liability, ii) the application of credit protections to digital wallets, and iii) certain other clarifications and adjustments (Proposed Rule).

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The Consumer Financial Protection Bureau (CFPB or Bureau) has proposed changes to its Prepaid Accounts Rule that would amend provisions of that rule related to i) error resolution and limitations on liability, ii) the application of credit protections to digital wallets, and iii) certain other clarifications and adjustments (Proposed Rule).

The CFPB’s Prepaid Accounts Rule was published on October 5, 2016. It amended Regulation E, which implements the Electronic Fund Transfer Act, and Regulation Z, which implements the Truth in Lending Act, to extend consumer protections—including access to account information, error resolution rights, and protections for lost cards and unauthorized transactions—to prepaid financial products. The 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 Proposed Rule is intended to address, in part, issues that participants and stakeholders engaged in offering or providing prepaid account products or services raised concerning implementation of the Prepaid Accounts Rule but were unanticipated by commenters during the notice and comment period.
 

Error resolution and limitations on liability

The CFPB is proposing to revise Regulation E to provide that financial institutions would not be required to resolve errors or limit consumers’ liability on prepaid accounts that have not completed the financial institution’s consumer identification and verification process. However, for accounts where the consumer’s identity is later verified, financial institutions (as defined by Regulation E) would be required to resolve errors and limit the consumer’s liability with regard to disputed transactions that occurred prior to verification, consistent with the general timing limitations in the Prepaid Accounts Rule.


For accounts in prepaid card programs without a verification process, the Proposed Rule would require financial institutions to disclose in their initial disclosures that no error resolution program exists or provide an explanation of their error resolution process and any limitations on consumer liability for disputed transfers.
 

Protections for digital wallets

The CFPB’s proposed amendment would create a limited exception to the definition of “business partner” in the credit-related provisions of Regulation Z 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. The conditions would include requirements that a) customers provide written authorization to allow the prepaid card to access credit from the credit card account in the course of a transaction, and b) the parties do not vary certain terms and conditions based on whether the two accounts are linked. Under the exception, the linked credit card account would continue to receive protections provided by Regulation Z that are generally applicable to open-end consumer credit card plan accounts.

Clarifications and adjustments

Clarifications and adjustments included in the Proposed Rule would:

  • Clarify that loyalty, award, or promotional gift cards are excluded from the Prepaid Accounts Rule
  • Clarify how the provisions regarding unsolicited issuance of access devices and the timing of preacquisition disclosures would apply to prepaid products in cases in which a financial institution or third party making a disbursement does not offer any alternative means to receive the funds other than a prepaid account
  • Provide additional clarity and flexibility for various aspects of the preacquisition disclosure requirements
  • Change rules governing the submission of prepaid account agreements to the Bureau.
     

Effective date

In April 2017, the CFPB issued a final rule delaying the general effective date of the Prepaid Accounts Rule from October 1, 2017 to April 1, 2018. The CFPB has proposed an April 1, 2018 effective date for the Proposed Rule to coincide with the amended effective date of the Prepaid Accounts Rule. The Bureau, however, also sought comment on whether further delaying the effective date of the Prepaid Accounts Rule (and the Proposed Rule) would be “necessary and appropriate” given the adjustments in the Proposed Rule. The comment period closed August 14, 2017

Conclusion

KPMG issued a Regulatory Point of View paper on the CFPB’s Prepaid Accounts Rule in January 2017. The Point of View highlighted challenges that issuers of prepaid financial products might face as they begin to operationalize the new rules, including issues related to new disclosures, account access, complaints management, and related systems and technology platform requirements. We have attached the paper for reference and encourage you to contact any of the named KPMG professionals with questions you might have related to prepaid financial products and the new rule.

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