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Consumer Financial Protection Bureau Finalizes Much Anticipated Prepaid Account Rule

On October 5, the Consumer Financial Protection Bureau (“CFPB”) issued its much-anticipated Final Rule for prepaid accounts under the implementing regulations for the Electronic Fund Transfer Act (Regulation E) and the Truth In Lending Act (Regulation Z).  The Final Rule is effective on October 1, 2017 and governs “prepaid accounts” including:*

  • general purpose reloadable cards

  • mobile wallets and certain other electronic prepaid accounts

  • peer-to-peer payment products

  • student financial aid disbursement cards

  • tax refund cards

  • payroll cards

  • government benefit cards

The Final Rule’s definition of “prepaid accounts” excludes:*

  • gift cards and gift certificate

  • loyalty, award or promotional gift cards

  • certain health, dependent care, and transit or parking card programs

*As described in Reg E.   

Key aspects of the Final Rule include:

 Reg E Protections

“Reg E Lite” protections extended to “prepaid accounts.” Thus, financial institutions must provide consumers easy access to account information and must investigate and resolve erroneous charges.  Additionally, consumer liability for authorized charges will be limited in certain circumstances.

Reg Z Protections

Prepaid cards linked to credit products are subject to certain protections under Regulation Z and the Credit Card Accountability Responsibility and Disclosure Act.  Accordingly, prepaid card issuers must confirm that consumers can repay the debt before offering credit.  Consumers must receive periodic account statements, disclosures, and a reasonable time to repay the debt.  The Final Rule also sets certain limits on account fees and interest charges.

Disclosures 

In most instances, both short- and long-form disclosures must be given before consumers acquire a prepaid account.

Terms Posting/Submission     

As of October 1, 2017, issuers must post prepaid account agreements on their own websites.  Beginning October 1, 2018, certain prepaid account issuers must submit their agreements to the CFPB on a rolling basis.  The CFPB will post the agreements on its website.

Model Forms/Disclosures

The Final Rule includes model disclosures and forms.

Copyright 2019 K & L Gates

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About this Author

Eric A. Love, KL Gates, Capital Markets Compliance Lawyer, Treasury Legislation Attorney
Law Clerk

Eric A. Love is a member of K&L Gates’ Public Policy and Law Practice and is based in the Washington, D.C. office. Mr. Love focuses on federal legislative and regulatory policy issues related to financial services and capital markets, with a particular emphasis on securities and corporate governance. 

Prior to joining K&L Gates, Mr. Love served as a special assistant in the Office of Legislative Affairs at the U.S. Department of the Treasury. In this capacity, he worked to help advance Treasury’s legislative agenda on a broad portfolio...

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Linda C. Odom, KL Gates, data processing outsourcing lawyer, ecommerce matters attorney
Partner

Linda Odom concentrates her practice on representing technology companies and technology users in licensing, software development, data processing outsourcing, intellectual property and e-commerce matters and related litigation. On the corporate side of her practice, Ms. Odom focuses on technology agreements and compliance issues in the banking and payments industries.

Since negotiating the technology agreements for the world’s second Internet only bank in 1996, she regularly handles technology, service and customer agreements on behalf of a number of financial institutions and advises them on related regulatory issues. Ms. Odom has handled a myriad of complex national and global agreements for payments companies, banks, retailers, program managers and processors, including the representation of the program manager in one of the largest GPR card programs in the country. She is experienced in developing, implementing and supporting emerging payment, prepaid, credit and debit card programs and in addressing their regulatory and payment card network compliance issues.

She has helped numerous emerging and traditional payments companies and merchants structure their payments products and services to maximize revenue, minimize their regulatory footprint, and reduce fraud losses through various means including through the implementation of EMV. She helps a number of merchants with their payment card processor, acquiring bank and payment card network relationships. 

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Judith E. Rinearson, KL Gates, federal consumer protection lawyer, anti money laundering attorney
Partner

Judith Rinearson is a partner in the firm’s New York and London offices. Ms. Rinearson concentrates her practice in prepaid and emerging payment systems, electronic payments, crypto/virtual currencies, reward programs, ACH and check processing. She has more than 25 years of experience in the financial services industry, including 18 years at American Express’s General Counsel’s Office. Her expertise focuses particularly in the areas of emerging payments and compliance with state and federal consumer protection laws, anti-money laundering laws, state money transmitter...

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