CFPB Moves Toward Prepaid Card Rules

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis.

The CFPB has issued an Advance Notice of Proposed Rulemaking as a first step in drafting regulations for general purpose reloadable cards, also referred to as prepaid cards. According to the bureau, the rules will be intended to ensure that consumers' funds are protected and that card fees and terms are clear. The ANPR applies to access methods beyond actual cards, such as cell phone applications, but not to payroll cards, non-reloadable cards, gift cards, cards linked to bank accounts or other similar access devices.

The bureau estimates that $57 billion was loaded onto prepaid cards in 2011 and that this will increase to $167 billion by 2014. Since cards often can receive direct deposits, be used to withdraw cash at automated teller machines and provide access to account information online, many consumers are using them as alternatives to checking accounts. The nation's second-largest card program manager said that by the end of 2011 nearly 42 percent of account holders had received direct deposits, compared to only 14 percent four years earlier. Despite this, prepaid cards do not currently have consumer protections comparable to those that apply to debit cards linked to bank accounts, the bureau said.

Topics for Possible Regulation

The ANPR, which considers possible amendments to Reg. E--Electronic Fund Transfers (12 CFR 1005), asks for information on four general areas:

• Applicability.--Which access devices should be considered prepaid cards to be covered by Reg. E, and which parts of Reg. E should apply to them?
• Disclosures.--What should be included to make fee disclosures effective, and when should the disclosures be given? How should consumers be told of the presence or absence of deposit insurance?
• Unauthorized transactions.--What consumer protections from unauthorized transactions are appropriate?
• Account features.--What consumer protections are appropriate in the case of prepaid card accounts that offer features such as overdraft protection, linked savings accounts or credit repair?

New Consumer Database

The CFPB also has created Ask CFPB: Prepaid Cards, which it describes as “a searchable online tool with easy-to-understand answers to more than 80 questions about prepaid cards.” Questions addressed include card fees and how to buy, use and reload prepaid cards. The database can be found on the bureau's website.