CFPB Prepaid Account Final Rule and Proposed Amendmentsbankersassurance.net/yahoo_site_admin/assets/docs/Final... · 2017-09-12 · Payroll card accounts currently subject to Regulation

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© 2016 Network Branded Prepaid Card Association © 2013 Network Branded Prepaid Card Association

CFPB Prepaid Account Final Rule and

Proposed Amendments

August 28, 2017

© 2016 Network Branded Prepaid Card Association

The views of the presenter(s) should not beattributed to their respective firm or organization.

The content of this presentation is designed toprovide practical information concerning the subjectmatter covered and is provided with theunderstanding that none of the presenter(s) arerendering legal advice or other professional services.

This presentation is for informational purposes onlyand is not a substitute for legal advice or yourprofessional judgment.

You should review applicable law in your jurisdictionand consult experienced counsel for legal advice. 2

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Educate ‐ Consumers, government, businesses, 3rd parties, and media

Advocate ‐ Leading practices for various categories of prepaid products

Protect ‐ Consumer choice for a fully featured, and competitive product set

Promote – Positive benefits of prepaid to all audiences and customers including consumers, government, businesses, 3rd parties and media

The NBPCA is a nonprofit trade association representing a diverse group of organizations that support network branded prepaid cards and other forms of prepaid access used by consumers, businesses, and governments. Members include prepaid access providers and sellers; financial institutions; card manufacturers; payment networks; processors; program managers; marketing and incentive companies; card distributors; and legal and media firms.

EDUCATE. ADVOCATE. PROTECT. PROMOTE.

Who We Are

What We Do

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WHY DO CUS SHOULD CAREABOUT THE PREPAID RULE?

• Prepaid Offers Opportunities for Credit Unions to:

Provide Services to Underserved Audiences

Supply Tools for Business Customers (Payroll, Incentives, Expense Management)

Participate in FinTech

• The Rule Will Affect a Variety of Payments Tools

4 | Prepaid Regulations

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PREPAID DEBIT CARD EXAMPLES

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PREPAID ACCOUNTS HELP BANK THE

UNBANKED AND UNDERBANKED

Key data from “2015 FDIC National Survey of Unbanked and Underbanked Households”

• Almost 67 million individuals in the U.S. are unbanked or underbanked (approx. 32% of US households)

• 60.8% of unbanked households cited “do not have enough money to keep in the account” as the main reason for using a prepaid card

• A majority of prepaid card users (51%) were from unbanked or underbanked households.

• Relatively few households (17.3%) that use prepaid cards obtained their card from a bank branch or a bank website.

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MILLENNIAL USE OF

PREPAID CARDS

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*Source: “Millennials with Money Revisited: Updates from the 2014 Consumer Payments Monitor,”Payments Card Center, Federal Reserve Bank of Philadelphia (December 2015) **Millennial (18‐32); Gen X (33‐48); Baby Boomer (49‐67); GG (68+)


THE FINAL RULE

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PREPAID CARDS ARE BANK ACCOUNTS

• On October 6, 2017, the CFPB published its Final Rule for Prepaid Accounts. “The Final Rule”). In short, the Final Rule extends Regulation E protections to prepaid accounts beyond general‐purpose reloadable prepaid cards. The final rule revises the definition of “account” under Regulation E to include “prepaid accounts,” and the final rule restructures the definition of prepaid account from the proposed rule to enumerate four categories of prepaid accounts:

a. Payroll card accounts currently subject to Regulation E;

b. Government benefit accounts currently subject to Regulation E

c. Accounts “marketed or labeled as ‘prepaid’” that are redeemable upon presentation at multiple unaffiliated merchants for goods or services or that are usable at ATMs; and

d. Accounts that are (1) issued on a prepaid basis or capable of being loaded with funds; (2) whose “primary function” is to conduct transactions with multiple unaffiliated merchants for goods or services or at ATMs, or to conduct P2P transfers; and (3) that are not otherwise accounts under Regulation E (i.e., checking, share draft or NOW accounts).

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LENGTH AND SIZE OF RULE

• The Final Rule is 1689 pages long. To put the length of the Final Rule in context, the Final Rule has 534,377 words, which is longer than Moby Dick (206,052 words), Anna Karenina (349,736), The Brothers Karamazov (364,153), Gone With the Wind (418,053) or the Lord of the Rings trilogy (455,125).

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DEFINITION OF

PREPAID ACCOUNT


DEFINITION OF PREPAID ACCOUNT

• “Prepaid Account”means:

1. Payroll Card Account

2. Government Benefit Account

3. Account that is marketed or labeled as “prepaid” andredeemable at multiple unaffiliated merchants for goods or services or useable at ATMs

4. An account that is:

i. Issued on a prepaid basis in a specified amount or capable of being loaded after issuance

ii. Primary function to conduct open loop, ATM, or P2P transactions

iii. Not a checking account, share draft account or NOW account

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WHAT PRODUCTS ARE COVERED?

Included Products

• General Purpose Reloadable cards

• Payroll Cards

• Govt. Benefit Cards (non‐needs tested)

• Non‐reloadable prepaid cards

• Mobile wallets (open loop) which store funds

• ATM‐only cards

• Bill payment accounts

• P‐2‐P and P‐2‐B remittance accounts

Excluded Products

• Checking accounts, share draft accounts, negotiable order of withdrawal accounts

• Qualified disaster relief cards

• Gift certificate, store gift card, LAP card, general‐use prepaid card marketed and labeled as a gift card

• Needs tested benefits administered by state or local agency

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SHORT FORM AND LONG FORM DISCLOSURES

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Short Form Disclosure –Static Fees

Top Line

• Periodic Fee

• Per Purchase Fee

• ATM Fee

• Cash Reload Fee

Bottom Line

• ATM Balance Inquiry Fee

• Customer Service Fee

• Inactivity Fee

• Static fees are the same under the Final Rule as under the Proposed Rule

• Even if a fee is not charged or a feature not present on a particular prepaid account, the fee must still be disclosed as either $0 or N/A


Final Rule –FDIC/NCUA Insurance

• The Final Rule requires a statement disclosing when a prepaid account program is eligible for FDIC or NCUA coverage and when it is not

• The insurance disclosure statement is now combined with the registration statement, directing the consumer to register the account for insurance and other account protections

• 5 scenarios outlined in the Final Rule (pages 446‐447)

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LONG FORM DISCLOSURE


PRE‐ACQUISITION DISCLOSURE EXCEPTIONS

Retail Store vs. Retail Location

• Post‐acquisition disclosure allowed when:

1. Prepaid account device is contained inside packaging material

2. Short form disclosure provided on packaging material

3. Short form disclosures contain info related to access to the long form disclosure via telephone and website

4. Long form disclosure provided after account is acquired

Telephone

• Post‐acquisition disclosure allowed when:

1. The financial institution communicates to the consumer, orally, before acquisition that the long form is available phone and web

2. The financial institution makes the long form available via telephone and website

3. Long form disclosure is provided after account is acquired

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LIMITATION ON LIABILITY / ERROR RESOLUTION


LIMITATION OF LIABILITY/ERROR RESOLUTION

• Liability limited to $50 (if consumer notifies bank within 2 business days) or capped at $500

• 60 day period for reporting unauthorized transaction commences when:

i. Consumer electronically accesses account

ii. Bank sends written history upon request

iii. Safe Harbor: 120 days after EFT occurs

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UNVERIFIED ACCOUNTS

• Limited liability and error resolution requirements extend to all prepaid accounts.

• No provisional crediting for unverified accounts (other than Payroll and Government Benefit). Examples of unverified accounts include:

Bank has not completed its registration process (with required registration disclosure)

Bank has completed registration process but can’t verify consumer (with required registration disclosure)

Bank has no registration process (no registration disclosure is required as it is inapplicable in this scenario)


MANNER OF PROVIDINGREQUIRED NOTICES

While the Final Rule permits banks to provide certain disclosures without E‐Sign consent, generally, banks must comply with the E‐Sign Act when electronically providing other written disclosures (including pre‐acquisition disclosures if the prepaid account is not acquired online or via a mobile device).

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PAYROLL CARDS


PAYROLL CARDS ‐ ACQUISITION

• A consumer acquires a prepaid account by purchasing, opening or choosing to be paid via a prepaid account

Example: A consumer learns that she can receive wages via a payroll card account, at which time the consumer is provided with a payroll card and the required disclosures. The consumer then chooses to receive wages via a payroll card account.

Contrast with consumer receiving disclosures at the end of the first pay period, after she receives payment on the payroll card.

CFPB notes that this clarification is intended to “take more careful account of current industry practices”

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FAILURE TO OPT‐IN / NON‐WAGE PAYMENTS

Failure to Opt‐In

Depending on facts and circumstances, it may be reasonable for a financial institution or other person to employ a reasonable default enrollment method if employee fails to select a method of payment

But, CFPB intends to monitor for compliance

May still be prohibited under state law

Non‐wage Payments

Does not include an account used solely to disburse incentive‐based payments (other than commissions)

Does not include an account that is used in isolated instances to which an employer typically does not make recurring wage payments


POSTING OF TERMS

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SUBMISSION OF AGREEMENTS

TO THE CFPB

• Issuers required to submit new and amended prepaid account agreements (or notification of withdrawn agreements) on a rolling basis no later than 30 days after the issuer offers, amends, or ceases to offer the agreement (this is a change from Proposed Rule, which required quarterly submissions of new and amended agreements)

De Minimis exception: Fewer than 3,000 open prepaid accounts

Product testing exception:

i. offered as part of a product test to a limited group of consumers for a limited period of time

ii. Is used for fewer than 3,000 open prepaid accounts

iii. Is not offered other than in connection with such a product test


CREDIT AND OVERDRAFT

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FORCE PAY TRANSACTIONS

• The Final Rule creates three exemptions from the definition of “hybrid prepaid‐credit card” as long a the prepaid card cannot

access credit from a covered separate credit feature:1. Issuer has policy and practice of declining to authorize transactions

where consumer has insufficient funds and does not charge credit related fees; or

2. Issuer has practice of declining to authorize transactions where consumer has insufficient funds except when the transaction will not overdraft the account by more than $10 (a “purchase cushion”) and does not charge credit related fees; or

3. Issuer has practice of declining to authorize transactions where consumer has insufficient funds except where incoming deposits to the account are pending and does not charge credit related fees

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INTENTIONAL OVERDRAFT – CONT’D

• Adds a new definition under Regulation Z for a “hybrid prepaid‐credit card”

• Defined as a “single device” that can be used to access a separate credit feature and:

1. Can be used to access the separate credit feature in the course of authorizing, settling, or otherwise completing transactions conducted with the card to obtain goods or services, to obtain cash, or to conduct P2P transfers

2. The separate credit feature is offered by the issuer, its affiliate, or its business partner

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INTENTIONAL OVERDRAFT –30‐DAY WAITING PERIOD

• Issuers must not do any of the following for the first 30 days after prepaid account has been registered:

1. Open a covered separate credit feature that could be accessible by the hybrid prepaid‐credit card

2. Make a solicitation or provide an application to open a covered separate credit feature that could be accessible by the hybrid prepaid‐credit card

3. Allow an existing credit feature that was opened prior to the consumer obtaining the prepaid account to become a covered separate credit feature accessible by the hybrid prepaid‐credit card

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IMPORTANT DATES

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EFFECTIVE DATE

• October 1, 2017

• Effective date of October 1, 2018 for submitting cardholder agreements to the Bureau

• Pursuant to Section 105(d) of TILA, any changes to certain Regulation Z disclosures can only become effective on Oct. 1st

• Financial institutions not required to “pull and replace” account packaging materials if initial disclosures are provided to consumers within 30 days of obtaining a consumer’s contact information


PREPAID ACCOUNT FINAL RULE

DELAYED EFFECTIVE DATE AND PROPOSEDAMENDMENTS

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CFPB PREPAID ACCOUNT FINAL RULE ‐ DELAYED

EFFECTIVE DATE AND PROPOSED AMENDMENTS

On April 24th the CFPB announced that it is officially delaying the general effective date of the Prepaid Accounts Final Rule from October 1, 2017 to April 1, 2018.

On June 15, 2017, the CFPB released, “Amendments to Rules Concerning Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z)” (“Proposed Amendments”).

The Proposed Amendments include issues that were raised by the NBPCA in our April 5, 2017 comment letter and/or our March 23, 2015 comment letter to the CFPB. The CFPB is proposing to make to the following changes to the Final Rule:

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CFPB PREPAID ACCOUNT FINAL RULEPROPOSED AMENDMENTS – CONT’D

a. Error Resolution and Limitation on Liability: The Bureau is proposing to amendthe Rule to provide that Regulation E’s error resolution and limited liabilityrequirements do not extend to prepaid accounts that have not successfullycompleted the financial institution’s consumer identification and verificationprocess. However, for accounts where the consumer’s identity is later verified,financial institutions would be required to resolve errors and limit liability withregard to disputed transactions that occurred prior to verification.

b. Credit Cards Linked to Prepaid Accounts: The Bureau is proposing to create alimited exception to the credit‐related provisions of the Prepaid Accounts Rule inRegulation Z for certain business arrangements between prepaid account issuersand credit card issuers that offer traditional credit card products. This exception isdesigned to address certain complications in applying the credit provisions of theFinal Rule to credit card accounts linked to digital wallets that can store fundswhere the credit card accounts are already subject to Regulation Z's open‐endcredit card rules in circumstances that appear to pose lower risks to consumers.

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LAP Card Exclusions from the Prepaid Accounts Rule. Loyalty, award, orpromotional gift cards applies both to such products as defined in § 1005.20(a)(4)as well as those that are: (i) issued on a prepaid basis primarily for personal,family, or household purposes to a consumer in connection with a loyalty, award,or promotional program; (ii) are redeemable upon presentation at one or moremerchants for goods or services, or usable at automated teller machines; and (iii)are not marketed to the general public.

Unsolicited Issuance: The Bureau is proposing changes to clarify how theprovisions regarding unsolicited issuance of access devices and the timing of pre‐acquisition disclosures would apply to prepaid products where a financialinstitution or third party making a disbursement via a prepaid account does notoffer any alternative means to receive the funds.

Pre‐acquisition Disclosures: The Bureau is proposing revisions that would allowfinancial institutions offering prepaid accounts that qualify for the retail locationexception to satisfy the requirement that they provide the long form disclosure

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after acquisition by allowing the long form disclosure to be deliveredelectronically without receiving E‐Sign consent if the long‐form is not providedinside the prepaid account packaging material and the financial institution is nototherwise mailing or delivering to the consumer written account‐relatedcommunications within 30 days of obtaining the consumer’s contact information.The Bureau further clarifies that if a financial institution provides pre‐acquisitiondisclosures in writing, and a consumer subsequently completes the acquisitionprocess online or by telephone, the financial institution need not provide thedisclosures again electronically or orally.

Short‐Form Fee Disclosure. The Bureau proposes adding flexibility for financialinstitutions disclosing additional fee types on the short form by allowing thefinancial institutions disclosing additional fee types with three or more feevariations to consolidate those variations into two categories and allow those twocategories to be disclosed on the short form.

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Submission of Prepaid Account Agreements: The Bureau is proposingchanges to the rules governing submission of prepaid account agreements,including the following:(i) allowing issuers to delay submitting a change in the names of other relevant parties to a prepaid

account agreement (such as employers for a payroll card agreement) until such time as the issuer is submitting other agreement changes to the Bureau; and

(ii) permitting short form and long form disclosures to be provided to the Bureau as separate addenda to the agreement, rather than integrated into the agreement.

Effective date: While the Bureau does not propose a further extension of theeffective date of the Rule, it did ask solicit comment on whether a further delayof the effective date would be necessary.

Safe harbor for early compliance: The Bureau is soliciting comment regarding whether there are any such conflicts between the final rule and current Federal Regulations, and, to the extent such conflicts exist, whether a specific provision addressing early compliance with the Rule would be necessary and appropriate.

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QUESTIONS??Brian Tate

Network Branded Prepaid Card [email protected](202) 329‐8938

Documents

CFPB Prepaid Account Final Rule and Proposed Amendmentsbankersassurance.net/yahoo_site_admin/assets/docs/Final... · 2017-09-12 · Payroll card accounts currently subject to Regulation