Battle lines harden in debate over prepaid card rules

The Consumer Financial Protection Bureau officially rolled back the effective date on new regulations targeting prepaid debit cards so it can review and tweak the rules. That hasn’t mollified detractors in Congress, who continue to push for repeal of the comprehensive rules. Nor does it set well with consumer groups, some of which are crying foul and mounting an aggressive campaign against congressional efforts to repeal the prepaid card rule.

The CFPB adopted sweeping rules in 2016 that put prepaid debit cards on an equal regulatory footing with credit cards and traditional debit cards with an Oct. 1, 2017 effective date. Among other things, the rules call for clear disclosures detailing fees and other requirements, would limit cardholder liability when lost or stolen prepaid cards are promptly reported, and would require card issuers to perform credit assessments before offering cardholders overdraft protection services.

Earlier this year the consumer watchdog agency proposed moving the effective date to April 1, 2018, in response to industry requests for more time to prepare, and on April 20, the CFPB made the extension official. “We continue to believe that a six-month delay – when added to the nearly 12 months previously provided for in the prepaid accounts rule – allows sufficient time for industry to implement the rule,” Kris Andreassen, Senior Counsel at the CFPB, wrote in a blog post about the extension.

Andreassen wrote that the bureau will use the additional time to “revisit at least two substantive issues” raised by the industry. Those issues – which relate to the linking of credit cards to digital wallets that also are capable of storing funds, and special circumstances involving error resolution processes – will be addressed in an upcoming request for comment and rulemaking process.

“We are continuing to evaluate other concerns raised by industry and other stakeholders and may address a limited number of other topics in the proposal as well,” Andreassen said. She also left open the possibility that the effective date would be moved out further if substantive changes result from the new comment period.

Showdown looms in Washington

Meanwhile, a showdown looms in Congress as some lawmakers attempt to scuttle the rule through a seldom-used legislative process that allows Congress to override pending federal regulations with majority votes in both the House and Senate. But the clock is running; congressional rules dictate that any such votes need to be cast by early May.

Senator David Perdue, R-Ga., who has called the CFPB “a rogue agency,” has been leading efforts to kill the prepaid card rule. “From its initial stages, this rule was shortsighted and so sweeping that it would have stifled innovation in a growing marketplace millions of consumers rely on,” Perdue said in a statement issued in March. “Ultimately, the CFPB should scrap this rule altogether and I will continue working to protect consumers.

But some states and consumer groups aren’t buying Perdue’s assertions. In April, the attorneys general of 18 states and the District of Columbia sent letters to leaders of both the House and Senate urging the pending proposals to gut the CRPB rule be rejected. “[A]s the chief consumer law enforcement agencies in our states, we urge you to oppose [pending legislative resolutions to override the rule] so that our citizens will be protected from unfair, deceptive and abusive practices by some actors in the prepaid card industry,” the letters stated.

And at least one pro-consumer group, Allied Progress, accused Sen. Perdue of pushing for repeal of the pending CFPB rule because of past campaign donations from Georgia-based TSYS and its prepaid card unit NetSpend. NetSpend has been vocal in its opposition to the CFPB’s prepaid rule and, in particular, provisions that subject prepaid card overdraft features to federal consumer credit laws. The Electronic Transactions Association also opposes the rule. However, Green Dot Corp., a leading prepaid card company that supports retailing giant Wal-Mart Stores Inc.’s MoneyCard prepaid debit card, said it favors the CFPB’s pending rule.

With the deadline looming for Congress to overturn the prepaid card rule, Allied Progress procured a six-figure television ad buy aimed at getting voters to urge their lawmakers to oppose a legislative override of the CFPB’s prepaid card rule. The ad campaign, titled House of Cards, slated ads to run in Alaska, Main, Nevada and Washington, D.C.

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