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FOS Blog

01 Dec

Considering Prepaid Cards?

Considering Prepaid Cards?

Are you considering the addition of prepaid cards to your products and services list? If so, here is what you will want to consider.

As prepaid product volumes increase, it has become one of the most rapidly growing financial products in the United States and is rising around the world. In November 2014, the Consumer Financial Protection Bureau (CFPB) proposed strong federal consumer protections for prepaid products. The proposal came after the CFPB realized that consumer protections were lacking in regard to prepaid accounts, as compared to credit cards and gift cards.  Within its spring 2015 Rulemaking agenda the CFBP noted it expects to issue a final rule regarding prepaid financial products in January 2016.

The rule will impose requirements for the protection of consumers similar to the protections consumers receive for checking accounts and credit cards and will cover general-purpose reloadable cards and other mobile and electronic prepaid accounts that have the ability to store funds. Types of prepaid products that are included consist of payroll cards, certain government benefits cards, child support, pension payments, student financial aid disbursement cards, tax-refund cards, and peer-to- peer payment products. As a result of the proposal, amendments to Regulation E (Electronic Funds Transfer Act) and Regulations Z (Truth in Lending Act) will be made. In addition, the CFPB will also require “Know Before You Owe” prepaid disclosures to be given to consumers before they acquire prepaid accounts. The disclosures will consist of two CFBP standardized forms, “Long Form” and “Short Form” and will disclose information related to specific fees, overdraft services and credit features, where to obtain disclosures, product registration, if product is not eligible for FDIC or NCUSIF Insurance, and the CFPB’s telephone number and link to CFPB website.

Under each Regulation the following will be imposed:

 Regulation E

  • Revision of “account” definition to include “prepaid account”
  • “Know Before You Owe” Prepaid Disclosures
  • Periodic Statement Provisions
  • Consumer Liability Limits for Unauthorized Transactions
  • Error Resolution Procedures
  • Revision to Compulsory Use Provision
  • Revisions for Government Benefit Accounts

Regulation Z

  • Revision of “credit card” and “finance charge” definitions to include prepaid account credit features
  • Prepaid Account Agreements to be posted to the public on the financial institutions website and to be submitted quarterly to the CFPB for posting on the CFPB’s website
  • 30 day period after prepaid account registration before a financial institution may solicit or open a credit plan
  • Overdraft and Credit Features
    • Ability-to-Repay Analysis
    • Fee Limitations
    • Monthly Billing Statements
    • 21 day period to repay debt before late fees can be charged
    • 45 day notice of interest rate increases
    • Separate means of debt repayment
  • Amendments to Unsolicited Issuances Rules