Settle Into the Easy Chair To Read the CFPB’s 870 Pages of Prepaid Card Rules

If you want to print out the Consumer Financial Protection Bureau’s proposed prepaid card regulations, think again. They run 870 pages in PDF form, so you’ll need almost two reams of paper and plenty of ink.

The regulations unveiled Thursday would require so-called “Know Before You Owe” disclosures and aim to improve consumers’ access to account information. They also would create error-resolution procedures and provide protections when cards are lost or used fraudulently, according to the CFPB, a creation of the 2010 Dodd-Frank Act. The CFPB also plans to strictly control credit products linked to prepaid card accounts.

The CFPB says its plan is to bring to prepaid cards, which often are used by people few or no traditional banking relationships, a number of federal consumer-protection regulations that currently apply to conventional debit and credit cards, but not specifically to prepaid cards.

“Many of these prepaid consumers are living paycheck to paycheck, and are engaged in a constant battle to make ends meet,” CFPB Director Richard Cordray said in his prepared remarks for a field hearing Thursday in Wilmington, Del. “They are some of the most economically vulnerable among us, and most of them have no idea that the prepaid cards they choose to purchase are largely unregulated at the federal level and carry few if any protections under federal consumer financial law.”

Others, however, question the contention that the prepaid card market is a financial Wild West. “There’s this whole underlying implication that prepaid is under-regulated or not regulated, but that’s just not the case,” says industry researcher Ben Jackson, director of the Prepaid Advisory Service at Maynard, Mass.-based Mercator Advisory Group Inc.

For example, Jackson says many prepaid card providers added various protections and features a few years ago when the U.S. Treasury Department’s Financial Management Service demanded that they do so before the FMS would allow federal benefits and other distributions, including Social Security, payroll funds, student-loan funds and tax refunds, to be deposited into general-purpose reloadable prepaid card accounts.

Even if more regulations are desirable, Jackson wonders why the CFPB needs 870 pages to explain them. Even well-meaning prepaid card issuers and program managers could get tripped up over an obscure provision, he says. Jackson notes that the Federal Reserve Board’s 2011 rule implementing the Durbin Amendment’s debit card regulations in Dodd-Frank took less than half as many pages, 307.

“A lot of providers are going to look at this and kind of shrug, saying, ‘We already do a lot of this,’ but … the devil is in the details, to use a cliché,” he says.

The rules go into fine detail. One provision tells issuers that the URL of the Web site they list on a short-form disclosure (see below) for cardholders to find more information be not more than 22 characters in length, and be “meaningfully named” using real words or phrases associated with a prepaid account. “They’re really getting into the minutia here,” says Jackson.

Several prepaid card providers contacted Thursday morning by Digital Transactions News for comment on the CFPB’s proposals did not respond by mid-afternoon.

The CFPB plans to publish its proposed rules in the Federal Register shortly, which will then trigger a 90-day comment period. The rules would cover not just plastic prepaid cards, but also prepaid accounts accessed through mobile devices or other electronic means.

Many of the CFPB’s proposals would extend the scope of the Electronic Fund Transfer Act’s Regulation E, which applies to demand-deposit accounts and debit cards, and the Truth In Lending Act’s Regulation Z, which applies to credit cards, to prepaid cards. Below are some of the major provisions of Thursday’s proposal, according to a CFPB news release:

• Issuers would be required to send free periodic statements to prepaid card holders or provide Internet access to account information.

• Providers must implement error-resolution processes. If an alleged error could not be resolved within a specified period, the disputed amount would be temporarily credited to the consumer during the issuer’s investigation.

• Consumers’ losses would be limited when registered prepaid cards are lost or stolen. As long as the cardholder notified the issuer in a timely manner of a lost or stolen card, her responsibility for unauthorized charges would not exceed $50.

• “Know Before You Owe” provisions would require issuers to provide two forms. A short one on packing materials would summarize a prepaid account’s key features and fees in a standardized, plain-language format. The longer one would include all of the information in the short one, in addition to any other potential fees connected to the account.

• To facilitate comparison shopping, issuers would be required to post their account agreements online.

• A considerable amount of the regulation deals with credit options that are offered on some prepaid cards. Issuers would be required to assess the cardholder’s ability to repay the loan, send monthly statements like the ones credit card holders receive, and wait at least 21 days before imposing late fees. Total fees could not exceed 25% of the credit limit, and issuers could not automatically take credit repayment when a prepaid account is next reloaded with funds.

The full text of the proposed regulations can be accessed here.