The Consumer Financial Protection Bureau’s (CFPB) “Prepaid Rule,” originally introduced in October of 2016, went into effect on April 1, 2019. This Rule establishes consumer protections for certain prepaid financial products through amendments to both Regulation E and Regulation Z. “Prepaid accounts” warranting new protections include payroll card accounts, government benefit accounts, and certain accounts that are marketed or labeled as “prepaid” and redeemable at multiple, unaffiliated institutions or ATMs for goods and services. Accounts issued on a prepaid basis with a primary function of conducting transactions with multiple, unaffiliated merchants, at an ATM or through person- to-person transfers (excluding checking, share, and NOW accounts) are covered under the new Rule as well. However, the Rule carves out multiple exclusions to the aforementioned accounts, such as gift certificates and loyalty cards, which would be excluded from coverage.
Under the “Prepaid Rule,” financial institutions are required to provide consumers with certain disclosures before the consumer acquires a prepaid account. This requirement is applicable to prepaid accounts provided through retail locations, telephone services as well as electronic services. The Rule requires disclosures be “substantially similar” to the Model Forms and the content will generally include disclosure of fees, certain information related to linked overdraft credit features, specific information related to payroll card and government benefit accounts, and contact information for both the financial institution and the CFPB. Additionally, “prepaid accounts”will be subject to Regulation E’s initial disclosure, change- in-terms, periodic statement, receipts at electronic terminals, preauthorized EFTs, issuance of access device and compulsory use requirements. Furthermore, financial institutions are expected to apply Regulation E error resolution and liability limitations practices to prepaid accounts, whether or not the institution has completed its consumer identification and verification process.
Certain “prepaid accounts” are covered by Regulation Z, Subpart G – Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students. The new Rule extends certain existing provisions of Regulation Z to hybrid prepaid credit cards and covered separate credit features.
Finally, certain issuers are required to make submissions to the CFPB of prepaid account agreements that are offered, amended, and withdrawn. These issuers must also post and maintain a prepaid account agreement on its publicly available website and promptly provide a copy of a consumer’s prepaid account agreement upon request.