Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
@DTPayment News
Nearly two years and thousands of comments after issuing its draft regulation, the Consumer Financial Protection Bureau issued its long-awaited final prepaid card rule Wednesday.
The 1,689-page document, almost double the size of the draft rule the CFPB issued in November 2014, largely follows what the bureau said it planned to do in providing prepaid card holders with clear fee disclosures, easy access to their accounts, and error-resolution rights. But some observers are uneasy with the broad scope of the rule and its new regulations over digital wallets that hold monetary value.
The rule’s list of protections also afford consumers rights when their prepaid cards are fraudulently used when lost or stolen. Furthermore, providers must offer protections similar to federal rules for credit cards if consumers are allowed to make overdrafts on their prepaid accounts if they don’t have the funds to cover a transaction.
“Many consumers rely on prepaid cards to make purchases and access funds, but until now they were not guaranteed strong consumer protections under federal law,” CFPB Director Richard Cordray said in a statement. “This rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smart phone. And it backs up those protections with important new disclosures to let consumers know before they owe.”
Most provisions in the rule don’t take effect until October 2017, and a requirement for providers to submit cardholder agreements to the CFPB doesn’t kick in until October 2018. The CFPB announced back in 2012 that it planned to regulate prepaid cards.
Initial comment from prepaid card providers was cautious. “These rules provide certainty to the prepaid industry, and we look forward to continuing to offer products that meet the financial needs of consumers and businesses,” Chuck Harris, president of NetSpend, the prepaid card division of Columbus, Ga.-based processor Total System Services Inc. (TSYS), said in an emailed statement. “We will comment further once we complete our review of the rules.”
Green Dot Corp., one of the industry’s most prominent players, had no immediate comment when queried by Digital Transactions News.
Investors in publicly held prepaid card firms seemed unfazed by the rule. The stocks of Green Dot and Blackhawk Network Holdings Inc. rose 0.07% and 1.6%, respectively, in late-morning trading in a generally up market.
But close observers of the payments scene say trouble could lurk in the CFPB’s vast rule. Of particular initial concern to researcher Ben Jackson, director of the prepaid advisory service at Maynard, Mass.-based Mercator Advisory Group Inc., are the provisions governing digital wallets.
“I’m concerned there are companies out there that are going to get swept up under these rules and don’t even know it yet,” Jackson tells Digital Transactions News. “The definition [of prepaid] is broad. When people think prepaid, they’re thinking prepaid cards. This [rule covers] everything that can store funds for general shopping at multiple merchants.
As such, the rule might apply to providers as varied as online payments leader PayPal Holdings Inc., owner of the popular Venmo person-to-person payments service, and banks that use third-party P2P services, such as Popmoney from processor Fiserv Inc., or others.
“Everybody involved in bank P2P … may have new regs,” says Jackson. “It’s hard to tell. There are 1,600 pages here. The rule is so sprawling it’s hard to tell where it ends.” For the record, Jackson says he hasn’t yet had time to read the entire rule.
Adds consultant Eric Grover, principal of Minden, Nev.-based Intrepid Ventures, in an email to Digital Transactions News: “Subjecting digital wallets holding value to the same rules as prepaid accounts accessed by pieces of plastic, while logically coherent, assuredly will suppress payments innovation and value for consumers.”
The industry could be in for other surprises once it digests the rule’s specifics, according Grover. He notes that the CFPB, which was created by the Dodd-Frank Act of 2010, has powers many other regulatory agencies don’t.
“Yikes—1,689 pages! Even with a phalanx of lawyers no traditional or nontraditional prepaid operator can know that they’re compliant without the blessing of the CFPB, which has unbridled power, is hostile to the industry,” Grover says. “This isn’t the regulator enforcing law made by the people’s body, Congress. This is CFPB mandarins grabbing turf, making policy and micro-directing the prepaid industry.”
—With additional reporting by John Stewart
