CFPB Finalizes Rule on Prepaid Cards


10/5/2016 12:30:00 PM

The rule includes increased consumer protections for prepaid cards and requires card providers to disclose fee information to consumers and to provide copies of their product agreements to the CFPB, among other things.

News

The Consumer Financial Protection Bureau finalized a new rule to create comprehensive consumer protections for prepaid accounts on Wednesday.

The rule applies to traditional prepaid cards, general purpose reloadable cards, mobile wallets, person-to-person payment products and other electronic prepaid accounts that store funds, according to a news release from the CFPB. The CFPB's final rule also applies to prepaid accounts including payroll cards, student financial aid disbursement cards, tax refund cards and some government benefit cards like unemployment insurance and child support.

“The new rule requires financial institutions to limit consumers' losses when funds are stolen or cards are lost, investigate and resolve errors, and give consumers free and easy access to account information,” according to the news release. “Prepaid companies must now generally offer protections similar to those for credit cards if consumers are allowed to use credit on their accounts to pay for transactions that they lack the money to cover.”

The protections for consumers under the Electronic Fund Transfer Act, according to the news release, include:

  • Free and easy access to account information. “Financial institutions must make certain account information available for free by telephone, online, and in writing upon request, unless they provide periodic statements. Unlike checking account customers, prepaid consumers typically do not receive periodic statements by mail. The rule ensures that consumers have access to their account balances, their transaction history, and the fees they've been charged.”
  • Error resolution rights. “Financial institutions must cooperate with consumers who find unauthorized or fraudulent charges, or other errors, on their accounts to investigate and resolve these incidents in a timely way, and where appropriate, restore missing funds. If the financial institution cannot do so within a certain period of time, it will generally be required to provisionally credit the disputed amount to the consumer while it finishes its investigation.”
  • Protections for lost cards and unauthorized transactions. “The new rule protects consumers against withdrawals, purchases, or other unauthorized transactions if their prepaid cards are lost or stolen. The rule limits consumers' liability for unauthorized charges and creates a timely way for them to get their money back. As long as the consumer promptly notifies their financial institution, the consumer's responsibility for unauthorized charges will be limited to $50.”

The CFPB also finalized “Know Before You Owe” prepaid account disclosures that provide consumers information on card fees and other critical details. These new disclosure forms provide clear information on what fees apply to specific prepaid accounts, according to the CFPB. The forms are similar to those used for mortgages and student financial aid plans.

Prepaid account providers are also required to post prepaid account agreements offered to the general public on their website. Outside of a few exceptions, those providers must submit those agreements to the CFPB. The bureau will post the agreements on a public website as well at a later date, according to the news release.

The final rule also includes protections to cover prepaid credit products that provide consumers with the option of spending more money than what is deposited in a prepaid account.These credit protections include a requirement for card issuers to determine consumers  have the ability to pay before issuing credit; to provide monthly billing statements with information on fees, the balance owed and information about repaying debt; to offer a reasonable amount of time to pay and limit late fees; and to limit fee and interest charges, according to the news release.

The final prepaid card rule is available on the CFPB's website. The rule will generally become effective Oct. 1, 2017; however, the portion of the rule requiring card agreements to be submitted to the CFPB will not become effective until Oct. 1, 2018.

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