Dear Board of Directors and Chief Executive Officer:
On October 5, 2016, the Consumer Financial Protection Bureau (CFPB) issued a final rule creating comprehensive federal consumer protections for prepaid financial products under Regulations E and Z, which implement the Electronic Fund Transfer Act and Truth in Lending Act, respectively. The final rule applies to:
- Traditional prepaid cards;
- Mobile wallets;
- Person-to-person payment products;
- Other electronic accounts that can store funds;
- Payroll cards;
- Student financial aid disbursement cards;
- Tax refund cards; and
- Certain federal, state, and local government benefit cards, such as those used to distribute social security benefits and unemployment insurance.
The final rule excludes from the definition of prepaid account: gift cards; gift certificates; cards redeemable only at a single retailer; accounts loaded only with funds from a health savings account, flexible spending arrangement, or transit or parking reimbursement arrangement; and accounts used to distribute qualified disaster relief payments. The final rule’s key provisions are summarized below.
Key Provisions to Regulation E
The key Regulation E provisions of the final rule are:
- Adds the term “prepaid account” to the definition of “account”;
- Provides that financial institutions as defined in Regulation E,2 such as credit unions, must provide a consumer with the following disclosures before the consumer acquires the prepaid account—
- A short form disclosure;
- Certain information, including the name of the prepaid account program and any fee for activating the prepaid account, disclosed in close proximity to the short form disclosure; and
- A long form disclosure;
- Requires credit unions to provide initial disclosures to consumers (the initial disclosure must include all of the information required to be disclosed in the pre-acquisition long form disclosure as discussed below);
- Requires credit unions to provide periodic statements or the periodic statement alternative;
- Requires issuers to submit to CFPB new and amended prepaid account agreements and notification of withdrawn agreements no later than 30 days after the issuer offers, amends, or ceases to offer the agreement; and
- Generally, requires compliance with Regulation E’s limited liability and error resolution requirements.3
The short form disclosure describes “static” fees, including ATM withdrawal fees, cash reload fees, customer service fees, inactivity fees, and additional types of fees that may be charged for the prepaid account program. The short form also provides other key information, including statements regarding registration and NCUA share insurance eligibility.
The long form disclosure must contain comprehensive fee information as well as other key information about the prepaid account. The long form must include: the name of the prepaid account program; information about all fees the credit union may impose in connection with the prepaid account; a statement regarding registration and NCUA share insurance; and a statement regarding linked overdraft credit features, among other information.
The final rule includes model forms for the short form disclosure (such as a model form for payroll card accounts, a model form for government benefit accounts, and several model forms for prepaid accounts generally) and a sample long form disclosure as an example of how credit unions might choose to structure this disclosure.
Key Overdraft Credit Provisions to Regulations E and Z
The final rule amends Regulations E and Z to regulate prepaid accounts that offer overdraft credit features. Specifically, the final rule generally covers under Regulation Z’s credit card rules any credit feature offered in conjunction with a prepaid account where the credit feature is offered by the prepaid account issuer, its affiliate, or its business partner, and credit can be accessed in the course of a transaction conducted with the prepaid card to obtain goods or services, obtain cash, or conduct person-to-person transfers. The final rule uses the term “hybrid prepaid-credit card” to refer to a prepaid card that can access both an overdraft credit feature that is subject to the Regulation Z credit card rules and the asset portion of a prepaid account.
Under the final rule, issuers must wait at least 30 days after the prepaid account is registered before soliciting a consumer to link a covered separate credit feature to a prepaid account, and must obtain consumer consent to link such a credit feature to the prepaid account. In addition, the final rule amends the compulsory use provision under Regulation E so that prepaid account issuers are prohibited from requiring consumers to set up preauthorized electronic fund transfers to repay credit extended through covered separate credit features.
Compliance with the prepaid rule will generally apply to prepaid accounts starting October 1, 2017. Prepaid account issuers must submit all their prepaid account agreements to CFPB starting October 1, 2018.
If you have any questions, please contact NCUA’s Office of Consumer Financial Protection and Access at 703.518.1140 or ComplianceMail@ncua.gov, your regional NCUA office, or your state supervisory authority.
CFPB has created a webpage with information and guidance on how to implement the final rule. The webpage includes links to documents summarizing key changes for payroll card accounts and government benefit accounts, a fact sheet highlighting the prepaid rule’s effective dates and related exceptions, and other applicable materials.
For purposes of Regulation E, a financial institution includes any person that directly or indirectly holds an account belonging to a consumer or that issues an access device and agrees with a consumer to provide electronic fund transfer services, unless the person is excluded from coverage by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203, 124 Stat. 1376). For government benefit accounts, a government agency is a financial institution if it directly or indirectly issues an access device for initiating electronic fund transfers from the government benefit account.
The error resolution procedures of Regulation Z may apply in certain situations, depending on the type of prepaid card and accessible features.