Viewpoint: CFPB Issues Prepaid Account Study
By Alan S. Kaplinsky, Ballard Spahr Stillman & Friedman LLP*
Simultaneously with the release of its 870-page prepaid account proposal last week, the CFPB issued a “Study of Prepaid Account Agreements.”
To conduct the study, the CFPB identified 325 publicly available account agreements for prepaid products that appeared to meet the proposal’s definition of the term “prepaid account.” The CFPB looked at agreements for general purpose reloadable (GPR) prepaid cards, including GPR cards marketed for specific purposes (such as travel or receipt of tax refunds) or specific users (such as teenagers or students), payroll cards, cards used for the distribution of certain government benefits and prepaid programs specifically used for P2P transfers. The CFPB did not look at agreements for gift cards and other prepaid programs that would not be covered by its proposal.
In the proposal’s background information, the CFPB states that while it “collected a large number of agreements [for the study], it cautions that this collection is neither comprehensive nor complete.” It further states that “there does not currently exist any comprehensive listing of prepaid card issuers, program managers, or programs against which the bureau could compare the completeness of its analysis.”
The study analyzes provisions in the agreements reviewed by the CFPB that dealt with error resolution (including provisional credit), liability limits, access to account information, overdraft and treatment of negative balances and declined transaction fees, deposit insurance, and fee disclosure. The study contains the CFPB’s findings and observations about what information these provisions did or did not contain and related statistics. It is interesting that while a significant portion of the CFPB’s proposal deals with prepaid accounts with overdraft and credit features, 96.62 percent of all of the agreements reviewed by the CFPB offered no formal opt-in overdraft service, and 77.54 percent of all such agreements imposed no fees for negative balances. (The CFPB did not count an agreement as one imposing no such fees if it did not contain information about negative balance fees. Agreements without such fee information comprised 12.92 percent of all agreements reviewed by the CFPB.)
The CFPB also found that 77.85 percent of the agreements it reviewed contained error resolution provisions (including provisional credit) that substantially tracked Regulation E requirements. In the proposal’s background information, the CFPB acknowledges that it found “a significant majority of [prepaid] products are already substantially in compliance with existing Regulation E provisions.” Ironically, the CFPB uses this finding to dismiss objections about the regulatory burdens its proposal imposes, stating “objections about the burden of including various types of products within the ambit of this proposed rule are largely negated by” this finding.
*Copyright © Ballard Spahr LLP. Reprinted with permission. Content is general information only, not legal advice or legal opinion based on any specific facts or circumstances.
Alan Kaplinsky is a partner at Ballard Spahr, where he leads the firm’s 100+ attorney consumer financial services group. His practice is devoted exclusively to counseling financial institutions on bank regulatory and transactional matters, especially matters involving the CFPB. Alan is included in the 2006-2014 editions of Chambers USA: America’s Leading Lawyers for Business in the area of financial services regulation. He may be reached at KAPLINSKY@BALLARDSPAHR.COM.
