Proposed prepaid product protections: changes to Regs. E and Z

by: Jane Pannier

In an effort to defend prepaid product consumers, the Consumer Financial Protection Bureau is proposing what it sees as strong, new federal protections. The intent is to provide protections to consumers whether they are sending a payment, swiping a card, or scanning their smartphone. As comments are due 3/23/2015, let’s take a closer look at what the CFPB is proposing.

The centerpiece of the proposed rule is a new “Know Before You Owe” disclosure that would provide consumers with information about costs and risks before they purchase the prepaid product. In addition, the proposed rules would limit consumers’ losses when funds are stolen or cards are lost, require issuers to investigate and resolve errors, provide easy access to account information, and impose credit card protections if credit is offered in conjunction with the prepaid account. For financial institutions, this means an expansion of Reg. Z and Reg. E consumer protections to devices and products not previously covered by these regulations.

What’s a Prepaid Product?

It’s important to begin by looking at the scope of what the CFPB considers a prepaid product. Under the proposed changes, prepaid products include prepaid accounts that are cards, codes, or other devices capable of being loaded with funds by either the consumer or a third party; usable at unaffiliated merchants or for person-to-person transfers; and are not gift cards (or certain other related types of cards). This would include, for example, mobile prepaid accounts that can store funds, as well as payroll cards; certain federal, state, and local government benefit cards; student and financial aid disbursement cards; tax refund cards; and peer-to-peer products. In other words, prepaid products that can be used to make payments, store funds, withdraw cash at ATMs, receive direct deposits, and send funds to other consumers.

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