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CFPB sets protective prepaid services rules

Consistent with existing bank prepaid practices, experts say

CFPB sets protective prepaid services rules

The Consumer Financial Protection Bureau proposed rules intended to provide consumers, particularly the unbanked and underbanked, with clear disclosures and associated credit protections, related to prepaid products, either on plastic, online, or through mobile devices.

“Consumers are increasingly relying on prepaid products to make purchases and access funds, but they are not guaranteed the same protections or disclosures as traditional bank accounts,” says Richard Cordray, CFPB director. “Our proposal would close the loopholes in this market and ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment.” [Read Cordray’s prepared remarks at CFPB’s Prepaid Products Field Hearing

In a preliminary statement regarding the proposal, ABA’s Nessa Feddis, senior vice-president, says: “Many people choose prepaid products as a useful alternative to a traditional checking account. These rules formalize the protections that banks’ prepaid customers already enjoy.”

The Pew Charitable Trusts, which has advocated prepaid protections for several years, generally applauds CFPB’s proposal, but says it could go a bit further.

“Mandating full disclosures on card companies’ websites, but not at the point of sale, makes it hard for customers to comparison shop, because all the fees would not be listed on the outside of the card packaging,” says Susan Weinstock, director of Pew’s consumer banking project. [See “Pew Calls CFPB Draft Rules on Prepaid Cards an Important Step Forward”] 

“Though many prepaid companies already have opted to offer some of these basic, common-sense protections, it is important to ensure that they are not simply optional but instead are cemented as the standard for the industry and enshrined in law,” Cordray says as he describes the proposal.

Details of proposal

Elements of CFPB’s prepaid card proposal include:

Easy and free access to account information, through either periodic statements or freely accessible online.

Error resolution rights, requiring financial institutions to investigate reported errors and resolve them in a timely manner.

Fraud and lost-card protection, limiting consumer responsibilities for unauthorized transactions once the consumer provides prompt notification.

Standardized, easy-to-understand information upfront, highlighting key prepaid account information, common costs, and other information in a short form, and a long form provided or available online, containing all potential fees.

Publicly available card agreements posted on websites, to allow comparison shopping.

Associated credit policies and practices must include: ability to repay determination, monthly credit billing statements, a reasonable time to pay, limits on late fees, and limited fee and interest charges.

Also associated with potential credit services, to make them distinct from the prepaid account, companies must provide a 30-day waiting period and place a wall between prepaid funds and credit repayment.

“The disclosure requirements appear consistent with many of the banking industry’s recommendations, and the consumer protections regarding unauthorized transactions and billing disputes seem to reflect current best practices,” Feddis says.

CFPB will accept comments on the proposal for 90 days.

Read the proposed rule 

View model disclosures

John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected]

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