ETA sets forth recommendations on prepaid rule

The Electronic Transactions Association went to bat for the prepaid sector this week as part of its ongoing advocacy on behalf of the payments industry. In response to the Consumer Financial Protection Bureau's June 2017 request for comments on proposed amendments to prepaid account rules under the Electronic Fund Transfer Act and the Truth in Lending Act, Regulations E and Z, respectively, the ETA sent a concise letter to the CFPB.

The association offered several recommendations to the bureau. Among them were to:

• Extend the effective date of the rule to April 1, 2019. (The effective date is currently April 1, 2018.)
• Permit incidental credit to be provided via negative balance on a prepaid account even when a covered separate account feature is connected to the prepaid account, because the considerable challenges resulting from the restriction on negative balances leaves in place a hurdle for innovation and cause of customer confusion.

In its letter, dated Aug., 14, 2017, the ETA also recommended the proposed exception apply in full to business arrangements and affiliate issuers so long as all of the conditions are met. This includes imposition of the 30-day waiting period for covered separate credit features.

Finalized but not finished

The prepaid rule in question was finalized in October 2016 and applies specific federal consumer protections to broad swaths of the prepaid market for the first time. It requires financial institutions to limit consumer losses, investigate and resolve errors, offer free and easy access to account information, and provide consumer protections.

"We know that effective implementation helps our rules deliver their intended value to consumers," said CFPB Director Richard Cordray in June. "Today's request for comment shows we are listening closely to feedback on our rules to decide whether certain adjustments will help to achieve that goal."

The CFPB noted that prepaid accounts are among the fastest growing consumer financial products in the United States, usually purchased at retail outlets or online. The amount consumers put on "general purpose reloadable" prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012. The total dollar value loaded onto these prepaid cards is expected to nearly double to $112 billion by 2018. Prepaid accounts may be loaded with funds by a consumer or by a third party, such as an employer. Consumers generally can use these accounts to make payments, store funds, withdraw cash at ATMs, receive direct deposits, or send money to others.

The amendments for which the CFPB seeks input pertain to adjusting error resolution requirements, providing more flexibility concerning credit cards linked to digital wallets, as well as making "minor adjustments and clarifications to aspects of the prepaid rule that prepaid companies have asked questions about or told the Bureau are presenting obstacles to implementation," the bureau stated.

The CFPB also released an updated version of its small entity compliance guide for the prepaid rule. That update reflects the recent effective date delay, and also includes clarifications on several other issues for which industry has raised questions or suggested might be unclear. The revised guide, which includes a summary of the updates, can be found at www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/prepaid-rule/

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