After more than four years, two field hearings, an Advanced Notice of Proposed Rulemaking and an 870-page Notice of Proposed Rulemaking, on Oct. 5 the CFPB finally released its highly anticipated Final Rule for regulating prepaid accounts.
The CFPB first released an embargoed copy of the 1,689-page Final Rule to select members of the media, including Paybefore, around noon Eastern Time on Oct. 4 and held a brief call between those media members and CFPB Director Richard Cordray that same day. The official release of the Final Rule occurred at midnight on Oct. 5. Later that day, the CFPB held an industry call to respond to questions regarding the Final Rule.
While the Final Rule did not include many material changes from the CFPB’s Proposed Rule, it did include a few notable changes, including the following:
- Definition of “Prepaid Account” – The CFPB reorganized the structure of the definition of prepaid account and added certain wording to the Final Rule designed to more cleanly differentiate products that are subject to the Final Rule from those that are subject to general Regulation E. In addition, the CFPB clarified the scope of the definition by adding a reference to the way the account is marketed or labeled, as well as to the account’s primary function. The Final Rule also contains several additional exclusions to the definition of prepaid account, including: (1) accounts loaded only with funds from a dependent care assistance program or a transit or parking reimbursement arrangement; (2) accounts that are directly or indirectly established through a third party and loaded only with qualified disaster relief payments; and (3) the P2P functionality of accounts established by or through the U.S. government whose primary function is to conduct closed-loop transactions on U.S. military installations or vessels, or similar government facilities.
- Transaction History – The Final Rule retains the new transaction history requirements. While the Final Rule reduces the amount of data that must be provided electronically to consumers from 18 months to 12 months, it requires financial institutions to make at least 24 months of written transaction history available to consumers upon request.
- Overdraft Transactions – The Final Rule still requires prepaid accounts with credit features to comply with Regulation Z and a new 30-day waiting period under Regulation E, but now exempts force-pay transactions.
- Extended Effective Date; Pull and Replace Requirements – The Final Rule has an Oct. 1, 2017 effective date for most requirements, but also provides that issuers are not required to pull and replace prepaid account packaging materials prepared in the normal course of business prior to the effective date as long as the issuer provides consumers with a notice of the change of terms within 30 days of obtaining the consumer’s contact information following registration. The Final Rule also contains an Oct. 1, 2018 effective date for the cardholder agreement submission requirements.
- Modified Disclosure Requirements – The Final Rule retains a requirement in the short form to disclose additional fees other than the seven static fees. However, there are several differences in the additional fee types (formerly referred to as “incidence-based fees”) that are required to be disclosed.
- Issuers are now required to disclose two fee types (not three) based on revenues generated from that fee type rather than the number of times in which a particular fee was charged.
- The additional fee types must be calculated every 24 months rather than every 12 months.
- There is a de minimis exception whereby additional fee types are not required to be disclosed on the short form if they equate to less than 5 percent of the total fees.