CFPB Proposes New Rules Regulating Prepaid Financial Products

On December 23, the Consumer Financial Protection Bureau issued a proposed rule amending Regulation E, 12 C.F.R. §§ 205.1 et seq. - which implements the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693 et seq. - and Regulation Z, 12 C.F.R. §§ 226.1 et seq. - which implements the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. - to create comprehensive consumer protections for prepaid financial products. Noting that prepaid products are among the fastest growing types of payment instruments in the country, the Bureau claims that, with certain limited exceptions, these products have not been subject to existing consumer regulatory regimes that mandate consumer disclosures, error resolution, and protection from unauthorized transfers.

With regard to Regulation E, the CFPB proposes an entirely new definition of "prepaid account" to bring certain prepaid products within the protection of the regulation's ambit. Under the amended definition, Regulation E would generally cover prepaid products that are cards, codes, or other devices capable of being loaded with funds and usable at unaffiliated merchants or for person-to-person transfers (and are not gift cards or certain other types of limited purpose cards). The CFPB's proposal would also modify Regulation E in certain key respects, including:

Requiring financial institutions to make certain fee-related disclosures available to consumers before the latter agree to acquire a prepaid account; Extending to all prepaid accounts existing Regulation E requirements concerning the provision of transaction information that presently apply to payroll card accounts, federal government benefit accounts, and non-needs tested state and local benefit accounts; Adopting error resolution and limited liability provisions specific to prepaid accounts; Requiring prepaid account issuers to provide the CFPB with information about the terms and conditions for prepaid accounts, which would then be posted online; Prohibiting issuers from requiring consumers to set up preauthorized electronic funds transfers...