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Volume XII, Number 334

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CFPB Officially Delays Effective Date of Prepaid Accounts Final Rule

After signaling earlier this year that it was considering delaying the effective date of the Prepaid Accounts under the Electronic Funds Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) final rule (Prepaid Accounts Rule), the Consumer Financial Protection Bureau (CFPB) has officially delayed the effective date of the Prepaid Accounts Rule for six months to April 1, 2018. This delay comes as the CFPB has been facing significant pressure from industry, the US Congress, and consumer groups to delay or (in the case of consumer groups) retain the original effective date of the rule.

A number of prepaid access industry participants had advocated for a delay in the effective date due to concerns about the ability to remove existing noncompliant packaging and disclosures from the marketplace and distribute compliant packaging and disclosures. Although the Prepaid Accounts Rule exempts noncompliant packaging that was produced in the normal course of business prior to the effective date of the rule, the industry indicated that it was concerned about the possible liability for noncompliant packaging remaining in the marketplace.

The CFPB also will revisit, through separate notice and comment, two other substantive issues:

  1. Applicability of the rule to the linking of credit cards to digital wallets
  2. Error resolution and limitations on liability for prepaid accounts that cannot be registered

Industry participants identified these and a number of other issues as presenting compliance challenges or uncertainty, or risking consumer confusion when implemented. The CFPB specifically has left open the possibility that it will consider other substantive changes to the Prepaid Accounts Rule but did not provide more detail on which issues might be subject to further consideration.

By delaying the Prepaid Accounts Rule’s effective date, the CFPB also may have avoided the entire rule being reversed under the Congressional Review Act—although the ability of Congress to include the Prepaid Accounts Rule in the group of Obama administration regulations that are overturned was questionable due to the upcoming May 9 deadline, competing congressional priorities, and concerns that overturning the rule could be construed as anti-consumer.

In the meantime, prepaid account card issuers and service providers should use the Prepaid Access Rule as insight into the CFPB’s thinking on sufficient disclosures and practices, as the delay does not prevent the CFPB from bringing enforcement actions for unfair, deceptive, or abusive acts or practices in connection with prepaid accounts under its broad UDAAP authority.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VII, Number 118
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About this Author

Melissa R.H Hall, Financial services attorney, Morgan Lewis
Of counsel

Melissa R. H. Hall represents US and overseas banks, nonbank financial services companies, investors in financial services, and technology companies in regulatory and corporate matters. She advises them on a wide range of state and federal financial regulatory laws and regulations. She provides counsel on financial regulatory compliance and enforcement, including state and federal licensing requirements, consumer financial products and compliance, payment systems, corporate and transactional matters, financial institution investment and acquisition, and the development...

202-739-5883
Nicholas Gess, Government and regulatory attorney, Morgan Lewis
Of Counsel

Nicholas M. Gess counsels on state and federal government enforcement and regulatory actions and their impact on business. He advises corporate clients on how to achieve results with governmental agencies and how to manage the risks of government action, particularly in the current environment where state enforcement authorities conduct parallel investigations with federal authorities such as the CFPB, DOJ, and FTC.

202-373-6218
Charles Horn, financial services attorney, Morgan Lewis
Partner

Charles M. Horn is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Horn focuses his practice on regulatory and transactional matters, primarily in the areas of banking and financial services. He works on behalf of domestic and global financial institutions of all sizes on regulatory, supervisory, enforcement and compliance matters before all major federal financial institutions regulatory agencies, and leading state financial regulatory agencies.

202-739-5951
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