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On October 5, 2016, the Consumer Financial Protection Bureau (CFPB) issued its final rule (Final Rule) to extend certain consumer protection provisions of Regulation E and Regulation Z, which implement provisions of the Electronic Fund Transfer Act (EFTA) and the Truth in Lending Act (TILA), respectively. Building on the CFPB’s November 2014 proposed rulemaking and the CFPB’s Study of Prepaid Account Agreements, the Final Rule is expected to alter consumer financial protection laws related to prepaid cards and mobile wallets.
1. What Does the Final Rule Seek to do?
The Final Rule expands the range of products covered by Regulation E, introduces new disclosure requirements, extends consumer liability protections to prepaid accounts and creates new requirements for accounts with overdraft or credit features. The Final Rule also provides consumers using prepaid cards and mobile wallets with enhanced protections similar to those available for credit card and debit card users. For example, the Final Rule applies various credit card requirements under the CARD Act to prepaid accounts with overdraft and credit features.
The Final Rule will impact traditional prepaid cards, general purpose reloadable and non-reloadable plastic prepaid cards, electronic accounts holding prepaid value, certain digital and mobile wallets, and financial institutions issuing prepaid accounts. Financial institutions are required to limit consumers’ losses when funds are lost or stolen, investigate and resolve errors, and readily provide consumers with access to account information, including information regarding the costs and risks before opening an account.
2. What are the Basic Requirements of the Final Rule?
The Final Rule establishes the following basic consumer protection requirements in connection with prepaid accounts:
3. What Prepaid Accounts Are Affected by the Final Rule?
Under the Final Rule, the definition of “prepaid account” includes a range of prepaid products, such as:
4. What and Who Are Outside the Scope of the Final Rule?
The Final Rule excludes checking accounts, share draft accounts, negotiable order of withdrawal (NOW) accounts, and certain other accounts for third-party benefits, such as flexible spending arrangements, dependent care, health savings accounts, transit or parking expenses, and third-party disaster relief accounts. The Final Rule also excludes virtual currency products and services, and closed-loop gift cards, or those cards used only in specific stores or in connection with specified customer loyalty programs.
5. When Will the Final Rule Become Effective?
The effective date for most requirements is October 1, 2017. Companies offering products affected by the Final Rule will have until October 1, 2017, to comply with the requirements of the Final Rule; however, disclosure requirements will not apply to required disclosures for those prepaid cards produced, manufactured, or printed before October 1, 2017.
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