On October 5, 2016, the Consumer Financial Protection Bureau (the "CFPB" or the "Bureau") released its long-awaited final rule on prepaid cards (the "Final Rule"). The 1689-page Final Rule will fundamentally change how consumers interact with certain prepaid cards and mobile wallets.
The Final Rule imposes a comprehensive regulatory regime that, for the first time, imposes broad consumer protections on large portions of the prepaid market. It does so by amending Regulation E, issued under the Electronic Fund Transfer Act ("EFTA"), and Regulation Z, issued under the Truth in Lending Act ("TILA") and the Credit Card Accountability Responsibility and Disclosure Act (the "CARD Act"). In addition, insofar as the CFPB treats certain overdraft features as an extension of credit, this may, for the first time, subject prepaid accounts with overdraft features to federal fair lending rules under the Equal Credit Opportunity Act and Regulation B.1 Companies offering products that fall under the Final Rule will have until October 1, 2017, to provide the required consumer protections.
Companies in the prepaid space face difficult decisions in light of the Final Rule. Most importantly, they will have to assess how costly the rules are not only with respect to internal operational costs, but also with respect to customer acquisition. For example, the Final Rule will likely impact various innovative mobile prepaid products, given that it will require additional steps to existing customer sign-up processes. As a result, there will be pressures to identify creative solutions and/or develop partnerships that will need to be implemented by October 2017.
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1 - As noted in Official Interpretation to 12 C.F.R. 1002.2(j), "Regulation B covers a wider range of credit transactions than Regulation Z. Under Regulation B, a transaction is credit if there is a right to defer payment of a debt—regardless of whether the credit is for personal or commercial purposes, the number of installments required for repayment, or whether the transaction is subject to a finance charge."
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