NBPCA Highlights Continued Concerns with Prepaid Accounts Rule
April 10, 2017
WASHINGTON – April 10, 2017 – In a comment letter submitted on April 5, the Network Branded Prepaid Card Association (NBPCA) encouraged the Consumer Financial Protection Bureau (CFPB) to extend the implementation period for a full year and make additional changes to the final prepaid accounts rule in order to address provisions in the final rule that never appeared in the proposed rulemaking and are critical to ensuring consumer access to a full variety of prepaid cards available in the market today.
Since the rule’s release in October, the NBPCA has been working closely with the CFPB to highlight problems in the final rule, which if not corrected, will create significant implementation and compliance challenges and potentially reduce the availability of certain prepaid products. Ultimately, this will make it more difficult to ensure consumers have continued access to the financial services system and force them to rely on the more expensive cash-based economy.
“After spending months reviewing thousands of pages of new regulations, prepaid card providers still face unresolved challenges to implementing the final rule on prepaid accounts,” said Brad Fauss, president and CEO of NBPCA. “Extending the rule’s implementation date by six months is a good first step, but more needs to be done to avoid lapses in prepaid card availability and the subsequent harm that would have on the consumers who rely on these products. We urge the CFPB to do more to address industry concerns in order to achieve a reasonable regulatory framework that strikes the right balance between common sense consumer protections and industry needs, without curtailing access to a safe and affordable financial product.”
Within the letter, the NBPCA highlights the following areas of concern for the industry:
- Difficult Implementation Timeline: While the initial six-month delay will allow providers to implement processes to comply with the rule, there are still many logistical challenges—including likely having to pull and replace all cards on shelves—that require additional time to execute. Extending the rule’s implementation date by an additional six months, to October 1, 2018, would provide sufficient time to address these problems.
- Definition of “Prepaid Account” is Overly Broad: The definition of “prepaid account” is overly broad, imposing significant compliance costs for low value, non-reloadable prepaid cards and similar products. These products should be excluded from the final rule, as the same rationale applied by the CFPB to exclude gift cards from the rule would apply here. In describing the exclusion of gift cards from the final rule, the CFPB explains that “were it to impose provisions for access to account information and error resolution, and create limits on consumers’ liability for unauthorized EFTs, the cost structure of gift cards could change dramatically, since, unlike other types of prepaid products, many gift cards do not typically offer these protections.” Additionally, by subjecting non-reloadable prepaid products for to coverage under the rule, the CFPB risks eliminating from the market many low value prepaid products used as replacements for cash or checks, since the cost of compliance could exceed the products’ revenue. The CFPB should narrow its “prepaid account” definition to limit the types of non-reloadable prepaid products which are currently subject to the rule. If the CFPB is concerned about the extremely limited use of high-dollar non-reloadable cards, it would be best to set a dollar threshold over which coverage under the rule would apply.
- Unnecessary Long Form Acquisition Disclosures: In most instances, providers are able to or required to give pre-acquisition long-form disclosures to consumers electronically. However, once the consumer acquires the prepaid account, the final rule often requires providers to provide the long-form disclosure a second time, which will likely require a separate mailing. In most cases, this requirement is redundant and would result in unnecessary additional cost to providers.
- Eliminate or Increase Cost of Popular Card Features: The Regulation E and Z requirements on overdraft products will likely lead to their elimination from the marketplace at a time when income variability is increasing consumer demand for these types of products. Despite their similarities, the treatment of overdraft features on prepaid cards is very different from the regulatory treatment of the same features when offered in connection with a traditional checking account. The CFPB should treat prepaid card overdraft in the same manner as checking account overdraft to ensure consumers retain access to this valuable feature.
- May Lead to Increased Fraud Losses: The rule extends Regulation E protections and limits liability for unauthorized use and errors to all prepaid accounts, including cards/accounts that are unregistered and anonymous. Extending limitation of liability protections to unregistered cards could have the unintended consequence of opposite effect of its intended impact and actually increasing fraud since card issuers would be unable to verify claims of unauthorized use. Therefore, limitation of liability should be extended only to accounts which are registered.
Prepaid cards continue to be used by a diverse and growing sector of American consumers, as well as businesses and governments to distribute, manage and spend funds. Government agencies at the federal, state, and local levels have utilized prepaid cards to disburse $150 billion in benefits in 2015.
Due to their safety, affordability and reliability, prepaid accounts are especially critical to the nearly 67 million unbanked or underbanked Americans who don’t otherwise have access to the increasingly card-based economy. If access to prepaid accounts is limited, this population would be forced to rely on cash or riskier financial alternatives.
The complete comment letter is available here.
About the NBPCA
The Network Branded Prepaid Card Association (NBPCA) is a non-profit, inter-industry trade association that supports the growth and success of network branded prepaid cards and represents the common interests of the many players in this new and rapidly growing payments category. For additional information, visit www.NBPCA.org, or follow us on Twitter @NBPCA.