On May 23, the Consumer Financial Protection Bureau (CFPB or the Bureau) announced that it is seeking comment, data, and information from the public about general purpose reloadable prepaid cards (GPR cards).
"[General Purpose Reloadable] cards are a prepaid financial product that have been increasing in popularity and that some consumers now use in a manner similar to a debit card that is linked to a traditional checking account. The Bureau is particularly interested in learning more about this product, including its costs, benefits, and risks to consumers. The Bureau intends to issue a proposal to extend the Regulation E protections to GPR cards."
The CRPB also explained its reasoning behind the request: "Recently, the GPR card market has benefited from competition and economies of scale, leading many market participants to voluntarily provide some protections for consumers. The Bureau is gathering information about GPR cards, however, in order to ensure that consumers are protected regardless of the economic environment. Three factors in particular command greater attention to GPR cards: the growth of the market for GPR cards, consumer use, and the lack of comprehensive federal regulation."
The CFPB indicated the similarity between pre-paid open loop cards (closed loop cards are excluded from the proposal): "The Bureau has also observed some GPR cards marketed as a substitute for a checking account. While consumers may be using GPR cards as a substitute for checking accounts, GPR cards do not carry the same protections given to checking accounts and electronic transactions involving checking accounts under federal law…. Unlike some other “general-use prepaid cards” such as payroll cards, Regulation E generally does not apply to GPR cards. Many GPR card market participants offer contractual protections similar to those provided in Regulation E for payroll cards, though such provisions may vary, and are subject to unilateral change."
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) generally transferred the Federal Reserve Board’s rulemaking authority for Regulation E to the Bureau, effective July 21, 2011. Pursuant to the Dodd-Frank Act and the Electronic Fund Transfer Act, as amended, in December 2011 the Bureau republished Regulation E as an interim final rule, 12 CFR Part 1005.
In its proposal, the Bureau stated that, "Regulation E defines an ‘account’ as ‘a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes. 12 CFR 1005.2(b)(1).’" The Bureau noted that in 2006 the Federal Reserve Board, which then had jurisdiction over Regulation E, declined to expand the regulation’s reach, in the Board’s words, " ‘to cover additional cards used to deliver important household funds, such as emergency benefit payments, income tax refunds, or loan proceeds, as well as other cards marketed or used as deposit account substitutes.’" The Bureau also noted that after the 2009 passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009, "the definition of “account” in Regulation E remained unaltered."
The proposal requests comment on ten broad questions regarding GPR cards which fall into four categories: regulatory coverage of products by some or all of Regulation E, product fees and disclosures, product features, and other information on GPR cards. Comments will be due 60 days from the official publication of the proposal in the Federal Register.
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