CFPB prepaid playbook awaits reviews

The Consumer Financial Protection Bureau recently rewrote the prepaid playbook and is actively soliciting reviews. The ambitious work-in-progress offers a sweeping set of guidelines, similar to those established for traditional credit and debit cards, designed to enforce fraud protection, fee transparency, standardized rules and improved account access.

Exponential growth

Prepaid is one of the fastest growing segments of consumer financial products in the United States. Total dollar value of general-purpose reloadable (GPR) prepaid cards has grown from under $1 billion in 2003 to nearly $65 billion in 2012. It s expected to reach nearly $100 billion in 2014.

The CFPB is calling for a broader definition of the expanding “prepaid universe” that includes plastic, virtual, mobile and emerging prepaid schemes. Prepaid products are consumer accounts typically funded by a consumer or third party. Consumers can use these products to make payments, store funds, get cash at ATMs, receive direct deposits and send funds to other consumers. Prepaid adoption has also grown beyond the payments industry, for example, in the government, healthcare and payroll services spheres.

No consumer left behind

The Network Branded Prepaid Card Association, based in Montvale, N.J., is a trade association for providers of prepaid cards that are branded with American Express Co., Discover Financial Services, MasterCard Worldwide, and Visa Inc. logos. The NBPCA advocates on behalf of its members through educational outreach, published research, and active involvement in community and government affairs. The six designated categories of network branded prepaid cards are GPR, payroll, incentive, healthcare, government disbursement and gift cards.

The NBPCA’s site, www.nbpca.org, includes letters to the CFPB and other government entities. One letter written by Rep. David Scott, D-Ga., to CFPB Director Richard Cordray in September 2014, applauds the CFPB's efforts to solicit feedback from the prepaid community while urging the bureau to make inclusive regulations that respect the needs of underbanked consumers.

“As the Bureau looks to enhance fee disclosures, extend deposit insurance, and bolster other consumer protections on these products, efforts that we fully support, regulators must be careful not to stifle innovation or limit features that consumers want and need,” Scott wrote. “New regulations on financial products should always be analyzed through the eyes of the consumers that use them.”

Scott cited the 68 million unbanked and underbanked adults in the United States for whom prepaid products represent an affordable alternative to the expensive cash economy. These consumers occasionally need “a bridge to make it to their next paycheck” and access to prepaid features that meet critical short-term spending needs such as buying groceries and gas, he said.

Shaping the oversight

New York City-based David True is Managing Director at Broadly Curious Advisors and President of NYPay, a payments industry networking organization. True noted that many consumers who use overdraft fees as a form of short-term credit believe that the rates they pay are worth the benefit. He encouraged prepaid professionals to review proposed changes to regulatory structure and participate in crafting the new legislation.

“Regulations are often a reaction to excesses by a small group of outliers whose actions are not representative of the majority of ethical, law-abiding prepaid professionals," True said. "The very fact that these [substandard] practices continue indicates that self-regulation isn’t working.” True suggested that instead of “reflexively rejecting additional oversight,” stakeholders in the prepaid value chain engage with the CFPB to ensure that the final draft of proposed oversights reflects the best interests of all parties and makes the business stronger for all.

Consumer bill of rights

In his closing comments to CFPB Director Richard Cordray, congressman Scott wrote that GPR cards are “bank-issued and account linked products that deserve parity with identically situated traditional checking accounts.” He strongly recommended preserving the features that consumers need to “confidently self bank,” features that the CFPB is also seeking to protect. These include:

1. Easy and free access to account information: Periodic statements and account information would be accessible online and free of charge to consumers.

2. Error resolution rights: Financial institutions would have a remediation process for consumers who encounter errors with their accounts.

3. Fraud and lost-card protection: Consumers would be protected against unauthorized, erroneous, or fraudulent withdrawals or purchases, including when registered cards are lost or stolen. Liability for consumers who promptly notify their financial institutions of lost or stolen cards would be limited to $50.

4. Know before you owe: Prepaid fees would be clearly documented and transparent, both in quick reference guides and expanded disclosures.

5. Publicly available card agreements: To facilitate comparison shopping, prepaid account agreements would be posted on issuer websites and on a public, CFPB-maintained website.

Details of the proposed disclosures are available at: files.consumerfinance.gov/f/201411_cfpb_prepaid-model-sample-disclosure-forms.pdf

Make your opinion count

The CFPB's mission is to help consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.

The bureau’s proposed prepaid rules and disclosures will be open for public comment for 90 days from their date of publication in the Federal Register. A copy of the proposed regulations, including information on how to submit comments, can be found on www.consumerfinance.gov/regulations/.

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