Four Years Later: Dodd-Frank Still Divides the House; Effects Being Felt by Prepaid (July 23, 2014)

The Dodd-Frank Wall Street Reform and Consumer Protection Act, the legislation born from the economic crisis a half-decade ago, turned 4 years old this week. The shockwaves from the law, which has significant impact on the prepaid industry, likely will be felt for years to come. A major, and hotly debated, part of the Dodd-Frank Act was the creation of the CFPB, whose doors opened for business three years ago last Monday.

In a House Financial Services Committee hearing today assessing the impact of Dodd-Frank, Republicans blasted the law, saying it has resulted in uncertainty and onerous compliance costs–especially among small financial institutions—and reduced the availability of useful financial services for consumers.

“The regulations that have resulted from the new mandates in Dodd-Frank do not provide more security for consumers,” said Sean Duffy (R.-Wisc.) “All they do is provide less choice for consumers and make it harder for small banks and credit unions to serve consumers … You don’t protect consumers by taking away choices.”

Across the aisle, Democrats noted Dodd-Frank’s accomplishments. Maxine Waters (D.-Calif.) argued that Dodd-Frank “has restored responsibility and accountability to our financial system.” She noted that the CFPB already has returned more than $4.6 billion to consumers who were subject to unfair and deceptive financial practices.

In prepared remarks, retired Massachusetts Rep. Barney Frank (D)—one of the main architects of the bill—responded to Republican criticisms that almost a quarter of Dodd-Frank’s nearly 400 rulemaking requirements have yet to even be proposed. “I share the frustration that many feel about the rate of progress in adopting regulations and implementing the financial reform bill, but … I have no doubt that a complete and appropriate set of rules will be in place in sufficient time.”

The bureau on several instances has taken action affecting how the prepaid industry does business, and the agency promises additional regulations are on the way:

Unclaimed property exemption: CFPB’s final preemption determination with respect to escheat laws in Maine and Tennessee in April 2013 meant that issuers must comply with both the state unclaimed property laws of Maine and Tennessee, requiring unclaimed gift card funds to be turned over to the state after two years of inactivity, and the federal law, requiring that a gift card must be usable for a full five years after issuance or date of last load, whichever is later.

Payroll card guidance: Last September, the bureau issued a bulletin to companies reminding them that employers cannot require their employees to receive wages on a payroll card.

Remittance rule: In Jan. 2012, the CFPB issued its final rule outlining remittance regulations as set by the Dodd-Frank Act. The rule was revised in May 2013 after complaints from industry participants who said the original regulations were confusing. Days ahead of the rule’s implementation, the CFPB posted on its Website procedures it would use in examining remittance providers.

Mobile banking inquiry: Last month, the CFPB announced it was seeking information on mobile financial services from the industry and consumers. In addition to considering possible consumer protections, the agency said it will look at how mobile financial services can assist unbanked and underbanked consumers.

Rules for general use prepaid cards: The prepaid industry continues to wait for the CFPB to release its rules for general use prepaid cards. After several delays, the CFPB says they will come later this summer. The agency says it expects to build on its May 2012 Advance Notice of Proposed Rulemaking. It is expected that disclosure rules for fees and other important information will be included.

Consumer Complaint Database proposal: Most recently, the CFPB wants to expand its database to enable consumers to provide a narrative with their complaints about financial services.