The Consumer Financial Protection Bureau has amended its not-yet-effective rule on prepaid accounts to meet industry implementation concerns. The rule, which now will take effect April 1, 2019, is intended to give prepaid account customers protections that are similar to those given to checking account and credit card account users (see Banking and Finance Law Daily Oct. 5, 2016). The amendmentstake effect April 1, 2019, which also is the new effective date of the rule.
The prepaid rule was adopted to implement parts of the Electronic Fund Transfer Act, the Truth in Lending Act, and their implementing regulations. It covers:
- access to account information;
- error resolution procedures;
- consumer liability limits for unauthorized transactions;
- underwriting requirements, including ability-to-repay analyses;
- periodic statements; and
- disclosure requirements.
According to the CFPB, companies that offer prepaid accounts believed that the original Oct. 1, 2017, mandatory compliance date did not give them enough time to come into compliance with the rule, which was adopted Nov. 22, 2016. As a result, the effective date was delayed until April 1, 2018. The amendments now are extending that deadline by an additional year.
In addition to the delayed effective date, there are three substantive amendments.
Unfinished verification. The first substantive amendment addresses error resolution and limited liability provisions that apply to most prepaid accounts if the issuer has not yet been able to complete its consumer identification and verification process. If the account later is verified, the issuer is not required to limit the consumer’s liability or resolve errors related to disputed transactions that occurred before verification.
If the account program does not include a verification process, the account issuer either must explain its error resolution process and its consumer liability limits in its initial disclosures, or it must explain that there are no such protections. The institution must comply with whatever process it discloses.
Prepaid accounts and credit accounts. The second amendment creates a limited exception to the credit-related provisions of the rule that apply to business arrangements between companies that issue prepaid account issuers and those that issue traditional credit cards. The exception applies only to credit card accounts that are linked to prepaid accounts of the sort known as digital wallets.
Under this exception, the linked credit card account will receive the Reg. Z—Truth in Lending (12 CFR Part 1026) protections that generally apply to open-end credit card accounts, but the tailored provisions in the prepaid accounts rule that apply to hybrid prepaid-credit cards will not apply. This is intended to address complications in applying the credit provisions of the rule to credit card accounts that are linked to digital wallets that can store funds if the credit card accounts are already subject to the open-end credit card rules.
Negative balances. The amendments also expand the situations in which negative balances may exist on linked prepaid accounts. Currently, negative balances generally are banned, but an exception permits them if:
- he prepaid card cannot access credit from a covered separate credit feature accessible by a hybrid prepaid-credit card;
- the prepaid account issuer has a general policy and practice of declining transactions that will result in a negative balance; and
- the prepaid account issuer does not generally charge credit-related fees.
The amendment broadens the exception to permit a negative balance even if a covered separate credit feature offered by a business partner is attached to the prepaid account as long as the other conditions are satisfied.
Clarifying amendments. In addition, the amendments include provisions that clarify the treatment of loyalty, award, or promotional gift cards; the unsolicited issuance of access devices and the timing of pre-acquisition disclosures when a consumer has no other way to gain access to the funds; pre-acquisition disclosures that are covered by the "retail location" exception; the requirement for pre-acquisition disclosures in a language other than English; and the submission to the Bureau of changes to prepaid account agreements.
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