Feds finalize new rules for prepaid cards

Feds finalize new rules for prepaid cards
© Getty Images

Financial regulators finalized new rules Wednesday for prepaid cards. 

The rules, first announced in May 2012, aim to provide consumers using a reloadable card with the same protections as those using traditional debit cards.

Under the rules, companies are required to provide consumers with two easy-to-read fee disclosures — one short and one long — and post the prepaid account agreements they offer online. 

ADVERTISEMENT

Companies that offer consumers the ability to use credit when they lack the funds to pay for a transaction must make sure customers have the ability to repay the debt and provide regular statements. 

Though consumer groups called for an all-out ban on late fees, the Consumer Financial Protection Bureau will instead require companies to give consumers at least 21 days to repay the debt before charging any late fees, as previously proposed.

The 1,689-page rule, however, caps fees for credit features at 25 percent of the credit limit in the first year and forces companies to wait 30 days after a prepaid account is open before offering any credit. 

It also bars prepaid card companies from automatically seizing a credit repayment the next time a prepaid account is loaded with funds.

Industry groups asked CFPB to narrow its definition of prepaid accounts in the final rule to cover only general-purpose reloadable cards, reloadable accounts or cards that otherwise function as transaction account substitutes, but the agency said it believes other products warrant protection.

CFPB also denied the industry's request for 18 to 24 months to comply with the rule. The agency only delayed the effective date by three months from what was proposed. The rule will take now effect Oct. 1, 2017.  

Its requirement to submit prepaid account agreements to the bureau, however, was delayed until Oct. 1, 2018.

The bureau also eliminated its proposed requirement for companies to pull and replace all non-compliant prepaid account access devices and packaging materials after the effective date.

The Network Branded Prepaid Card Association (NBPCA) was quick to criticize the final rule and slam CFPB for ignoring its requests to narrow the definition of prepaid accounts and eliminate the long-form fee disclosure. 

“While we are still analyzing the lengthy final rule to determine its full impact, it is already clear that the CFPB has dismissed many of our serious concerns and moved forward with a rule that will harm the very consumers it aims to protect,” Brad Fauss, the group’s president and CEO, said.

“Instead of fostering financial innovation and inclusion, the CFPB’s rule will ultimately limit access to an essential mainstream consumer product that helps millions of Americans participate in the digital economy, affordably manage funds, and safely hold money.”

The rules come as the use of prepaid cards has skyrocketed in recent years. 

CFPB said the amount consumers put on general-purpose reloadable prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012 and is expected to nearly double to $112 billion by 2018.