CFPB Amendments To Prepaid Account Rule


On January 25, 2018, the Consumer Financial Protection Bureau (CFPB) announced the adoption of amendments (Amendments) to its rules establishing disclosure requirements and other consumer protections for prepaid accounts (collectively, the "Prepaid Account Rule" or the "Rule").1 The Amendments clarify and revise certain provisions of the Prepaid Account Rule, which itself amends provisions of Regulation E—the implementing regulations of the Electronic Fund Transfer Act (EFTA)—and Regulation Z—the implementing regulations of the Truth in Lending Act (TILA). The Rule was finalized initially in October 2016, but its effective date was delayed by rulemaking in April 2017. Modifications to the Prepaid Account Rule were then proposed by the CFPB in June 2017.2 The Amendments were delayed further as a matter of CFPB policy during the agency's recent transition of leadership.3

As discussed in greater detail below, the Prepaid Account Rule will impose substantial compliance requirements on prepaid accounts and associated credit features; however, the Amendments extend the Rule's implementation period by a full year to April 1, 2019 and address several industry concerns identified during the rulemaking process.

Summary of the Amendments

According to the CFPB, the Amendments are focused on addressing specific provisions of the Prepaid Account Rule with which compliance was viewed by industry participants as difficult to achieve by the applicable effective date, as well as those provisions that presented potential unintended consequences.4 The Amendments are, in general, consistent with those proposed by the CFPB in June 2017 and address the following areas of the Prepaid Account Rule.

Error Resolution and Limited Liability

The adopting release states that the CFPB views the Prepaid Account Rule's error resolution and limited liability rights for consumers to be beneficial—even with respect to unverified prepaid accounts; however, in order to mitigate the potential for fraud losses and to address significant concerns raised by industry commenters, the Amendments create an exception from the error resolution and limited liability requirements of Regulation E for unverified prepaid accounts other than payroll card or government benefit accounts. The exception applies where a financial institution:5

Has not successfully completed the consumer identification and verification process, but has disclosed to the consumer the risks of not registering and verifying the account in a manner consistent with that prescribed through the applicable model form;6 Has completed the consumer identification and verification process and could not verify the identity of the consumer, but has made the above-described disclosure; or Does not have a consumer identification and verification process for the prepaid account program and has made the alternative consumer disclosure required under 12 C.F.R. §1005.18(d)(1)(ii), as amended.7 For accounts where a consumer's identity is later verified, a financial institution is not required to limit liability and resolve errors with respect to disputed transactions that occurred prior to the successful completion of the consumer identification and verification process for that account. The exception no longer applies, however, to any disputed transactions that occur after a consumer's identity is verified successfully.

Loyalty, Award, or Promotional Gift Cards

In an effort to avoid confusion regarding the exclusion from the Prepaid Account Rule for "loyalty, award, or promotional gift cards" that are also addressed by Regulation E's "Gift Card Rule," the Amendments revise the Rule's definition of "prepaid account," as well as the related official commentary, to clarify that if a card satisfies the first two prongs of the definition of...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT