Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
@DTPaymentNews
Like a heavy Thanksgiving meal, the 1,689 pages of new prepaid account regulations from the federal Consumer Financial Protection Bureau are going to take a while to digest. The rules cover everything from fee disclosures to overdrafts, and, predictably, they are is drawing praise from consumer groups and generating worries in the prepaid card industry—but not from everyone in it.
Pasadena, Calif.-based prepaid card program manager and issuer Green Dot Corp., whose chief executive Steve Streit claims to have founded the prepaid card, Wednesday afternoon issued a largely supportive statement about the rule.
“Green Dot embraces the new rule as recognition that the industry we started more than 15 years ago continues to serve an increasingly significant role in the everyday financial lives of a growing number of American families,” Streit said in the statement. “We fully support the CFPB’s mission to ensure fairness, integrity and consumer protections for all participants in the financial system.”
Green Dot already does many of the things the CFPB will be mandating most prepaid card providers to do when the rule takes effect in a year, according to Streit.
“For many years, Green Dot has voluntarily provided full checking account-style consumer protections for its customers and has never charged overdraft or penalty fees on Green Dot Bank’s prepaid and checking products,” he said. “It’s gratifying to know that prepaid can now move to a level playing field that can better serve consumers while allowing the entire industry to move past the period of regulatory uncertainty.”
The CFPB said the rule will extend to prepaid accounts the protections checking account holders already receive under the Electronic Fund Transfer Act, including free and easy account access, error-resolution rights, and protections for lost cards and unauthorized transactions on them. The agency first proposed prepaid card regulations in 2012 and issued a draft rule in 2014.
The final rule also will require prepaid card providers to produce two forms, one short and one long, with key disclosures about their products, and make their cardholder agreements publicly available. And for prepaid accounts that offer overdrafts, the rule adds credit card protections found in the federal Truth in Lending Act and the Credit Card Accountability Responsibility and Disclosure (CARD) Act.
“Millions of Americans rely on prepaid cards every day to pay their bills and manage their finances,” Christina Tetreault, staff attorney for Consumers Union, the non-profit affiliated with Consumer Reports magazine, said in a statement. “But not all prepaid cards are created equal and consumers have lacked the legal safeguards they deserve to protect their money. Now consumers will be able to compare cards more easily to find the most affordable option and have the peace of mind that their money will be safe if their card is lost or stolen.”
While the disclosures and error-resolution procedures seem at first glance to be straightforward, some observers say knowing the full implications of what’s in the nearly 1,700 pages of the sweeping rule will take time. Besides actual cards, the rule applies to digital wallets that hold funds, which at least one analyst says could extend the CFPB’s reach to any number of non-bank providers as well as banks that offer person-to-person payments.
For now, however, payments-industry analyst Lawrence Berlin, a vice president at Chicago-based First Analysis Securities Corp., sees the rule as having little detrimental effect on two publicly held prepaid card companies, Green Dot and Pleasanton, Calif.-based Blackhawk Network Holdings Inc., nor on the big NetSpend prepaid division of processor Total System Services Inc. (TSYS). Blackhawk specializes in gift cards, which Berlin says lie largely outside the scope of the CFPB’s rule. “So it should have absolutely no effect on Blackhawk,” he says.
Blackhawk’s shares closed up 1.6% Wednesday from their Tuesday close, while Green Dot’s fell 0.17% after trading most of the day in slightly positive territory. TSYS’s shares rose 3%.
