NAFCU’s Comments to CFPB on Reloadable Prepaid Cards

July 19, 2012

Monica Jackson
Office of the Executive Secretary
Bureau of Consumer Financial Protection
1700 G St. NW
Washington, DC 20006

RE:  Docket No. CFPB–20120019

Dear Ms. Jackson:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I write to you regarding the Consumer Financial Protection Bureau’s (CFPB) advance notice of proposed rulemaking (ANPR) on general purpose, reloadable, prepaid cards (GPR cards).  NAFCU does not support any additional regulation in this area at this time and offers the following comments.

Regulatory Burden

NAFCU requests the CFPB to carefully consider the costs and benefits to consumers and to covered entities before promulgating new regulations at this point in time.  As the Bureau is aware the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) requires significant changes in the way lenders operate consumer lending programs, most particularly with respect to mortgage lending.  Additionally, financial institutions have had to make significant changes to their debit card program and are currently working through major changes to wire transfer services.  Given the substantial amount of time, energy and resources that will be required to comply with the numerous statutorily mandated provisions in the Dodd-Frank Act, the CFPB should attempt to minimize the regulatory burden on small financial institutions such as credit unions.  There are a finite number of resources to dedicate to compliance issues.  Accordingly, if the CFPB is intent on moving forward with new rules for GPR cards, at the very least, the Bureau should wait until the industry has had adequate time to comply with the several different rulemakings already statutorily required under the Dodd-Frank Act.

In a letter to Treasury Secretary Timothy Geithner, dated June 27, 2012, we urged the Financial Stability Oversight Council (FSOC) and its members, in accordance with the Dodd-Frank Act, to coordinate with each other before issuing regulations and called on the member agencies to conduct and publish for comment meaningful cost-benefit analysis of each regulation.  As a member of FSOC, and especially as the agency most prominently featured in the Dodd-Frank Act for prescribing the bulk of federal consumer protection regulations, we believe the CFPB should take particular care as it prescribes the array of regulations it is expected to in the months and years to come.  The agency should particularly take into account the significant impact that each regulation, and all applicable regulations in the aggregate, have on small institutions.

Unique Products

After analyzing the CFPB ANPR, NAFCU is concerned that the CFPB may treat GPR products in the same fashion that checking and savings accounts are currently treated.  On the surface, there are obvious similarities between GPR cards and debit cards; however, these products are functionally quite different.  The law, regulations, back room operations and internal processes and procedures for offering checking accounts and GPR cards are not identical, or even similar.    Accordingly, the Bureau should not try to pigeon-hole GPR cards into a regulatory and operational structure designed for checking and savings account products.
Disclosures

NAFCU also questions the utility of applying all of the current protections for gift cards to GPR cards.  Nonetheless, if the CFPB is intent on extending the protections currently available under Regulation E to GPR cards, the Bureau should implement a final rule similar to the existing rules for gift cards.

Linked Savings Accounts

The CFPB asked about the feasibility of providing some sort of linked savings account to a GPR card.  As a preliminary matter, NAFCU cautions against any regulatory efforts to require institutions to offer any sort of linked savings account with a GPR card.  Such a measure might have the unintended consequence of driving providers from the market.  Smaller institutions will particularly have difficulties implements such requirement and consequently driven from the market.  While such a feature may be suitable for some consumers, it is worth noting that many consumers use GPR cards because they do not want, or feel they do not need, a checking or savings account.  Institutions should be free to establish these sort of linked accounts according to their business judgment.  Credit unions generally encourage their members to establish traditional checking and savings accounts.  Thus a linked savings account and GPR card simply would not be a particularly useful or widely used product for credit unions.  Opening up a standard checking and savings account is likely more cost effective for depository institutions and simpler and easier for consumers.  To the extent the Bureau is interested in encouraging more consumers to open checking and savings accounts, its efforts may be better directed towards education and outreach efforts, rather than new regulations.

Additional Concerns
 
Finally, GPR cards do not have typical inventory replacement cycles that would reduce the regulatory burden associated with the Bureau’s potential plans to expand the protections of Regulation E.  NAFCU recommends that the Bureau provide a significant period of time between publishing a final rule and an effective date, in order to provide institutions time to exhaust existing card stock.  A short effective date is unnecessary and, unlike the gift card protections, is not required by statute.  Further, the costs to industry of discarding otherwise useable card stock would be potentially quite large.  For example, in 2010 when the Federal Reserve Board (the Board) promulgated the new rules for gift cards, it acknowledged several significant costs industry would incur as a consequence of the short time frame between approval of the rule, in April, and the effective date, in August.  75 Fed. Reg. 16,580, 16,608-09 (April 1, 2010).  However, in that case, the Board determined that the statute did not permit the Board flexibility in establishing a later effective date.  Importantly, the CFPB does not have such statutory constraints.  The same issues the Board cited would arise if the CFPB extends existing protections to GPR cards.  Accordingly, the CFPB, if it moves forward, should establish an effective date far enough in the future to ensure institutions can exhaust their existing card stock.

NAFCU appreciates the opportunity to share our thoughts regarding this matter.  If you have any questions or concerns, please feel free to contact me.

Sincerely,

Dillon Shea
Regulatory Affairs Counsel
Consumer Financial Protection Bureau

---