By: Katherine Romano Schnack, VP Legal, LSC
If you work at a credit union that sells prepaid cards, you (or a co-worker) very likely have had someone ask recently if you are ready for the CFPB’s Prepaid Rule. The Consumer Financial Protection Bureau’s Prepaid Accounts Rule goes into effect on April 1, 2019. The regulatory path to the final Prepaid Rule began back in 2014 and now the effective date is less than two months away. Here are some Frequently Asked Questions about the CFPB Prepaid Rule, so that you can answer any questions that come your way about how the Rule does—or does not—impact your credit union.
What is the Prepaid Rule?
The Prepaid Rule will amend Regulation E and Regulation Z to create federal regulatory requirements for general purpose reloadable prepaid cards that can be used at multiple, unaffiliated merchants (for example, a Visa-branded card that can be used anywhere that accepts Visa cards). It will also apply to prepaid payroll card accounts and government benefit card accounts.
Does the Prepaid Rule apply to all prepaid cards?
No. The Prepaid Rule does not apply to gift cards, as long as they are marketed and labeled as gift cards. Those still will be governed by Section 1005.20 of Reg E (the current “Gift Card Rule”). The Prepaid Rule also does not apply to health savings accounts or flexible spending accounts. Also, the Prepaid Rule does not apply to prepaid cards used primarily for a business or commercial purpose.
What does the Prepaid Rule require?
For general purpose reloadable cards, the new requirements include:
A new “Short Form” disclosure and “Long Form” disclosure. The requirements are very specific on everything from wording, to font size, to spacing. Check them out here).
Other requirements include:
• Disclosures on the card, including financial institution’s name, telephone number, and website
• Reg E Initial Disclosures—similar to those currently required by Reg E to be provided for ATM debit accounts
• Change-in-terms notices
• Periodic statements or a “periodic statement alternative” that allows cardholders to view their account transactions electronically for 12 months, or for 24 months if a written transaction history is requested
• Summary total of fees for prior calendar month and for calendar year to date
• Error resolution procedures and limitations on consumer liability for unauthorized transactions
• Receipts at electronic terminals for transactions over $15
• Publication of prepaid account agreements offered to the general public via website
• Submission of prepaid account agreements to the CFPB
The Prepaid Rule and CFPB guidance on these requirements totals thousands of pages, so this is only a snapshot of what the requirements entail.
Do these requirements apply to existing prepaid cardholders or just new cardholders after April 1st?
The new Short Form and Long Form disclosures do not have to be provided to existing cardholders, and the requirements on the card do not apply to existing cards (so no need to reissue cards). Also, credit unions may use existing card inventory with current packaging materials even after the April 1, 2019 effective date. The rest of the requirements listed above apply to existing prepaid cardholders.
What do credit unions need to do to comply with the Prepaid Rule?
If your credit union sells general purpose reloadable cards covered by the Prepaid Rule, then most of the requirements will be handled by your prepaid issuer and/or program manager if you use a third party issuer or manager. If you are a credit union who sells prepaid cards through LSC, we have been working hard to prepare for the Prepaid Rule for many months now. We will provide your credit union with the new Short Form and Long Form disclosures, and will handle the other requirements listed above. Your credit union will receive information soon about how to distribute the new forms and disclosures to members who purchase prepaid cards on or after April 1st.
Where can I read more about the Prepaid Rule?
Truth be told, this is not actually a Frequently Asked Question because no one has ever asked me this, but you can read the Rule and CFPB guidance on the CFPB website here.