Three Implications Card Issuers Must Consider ahead of CFPB Prepaid Changes
By Render Dahiya, Arroweye
The Consumer Financial Protection Bureau (CFPB) four-year deliberation about prepaid came to a screeching halt on October 5, when they finally asserted new prepaid regulations. Not only did the CFPB deliver a wealth of regulatory changes to prepaid industry players, it also cracked down by making the new rules take effect on Oct. 1, 2017, less than 260 days away.
What are the new prepaid rules? In simple terms, the new CFPB rules amend Regulations E and Z by extending consumer protections, greatly modifies disclosure requirements, demands periodic statements and requires prepaid agreements to be accessible online. Here is a deeper dive into the new CFPB provisions:
- Regulation E amended to include “prepaid account.” The Prepaid Rule adds the term “prepaid account” to the definition of “account” in Regulation E, which now includes payroll cards and government benefit accounts as well as other accounts that are marketed as prepaid and can be used to transact at multiple unaffiliated locations, including ATMs and P2P transactions, but not including gift cards and need-based government programs.
The new prepaid rule extends Regulation E’s limited liability and error resolution requirements to all prepaid accounts. Once a prepaid account has been verified, the financial institution generally must provisionally credit a consumer’s account for a minimum of $50 less than the alleged error amount if it takes longer than ten days to investigate and determine whether an error occurred.
- Regulation Z may apply. If card issuers offer credit features within a prepaid account, it must adhere to Regulation Z too.
- A bazillion disclosures updates. Card issuers must provide consumers with several disclosures, including: short form disclosure, certain information disclosed in close proximity to the short form disclosure and a long form disclosure.
The prepaid rule requires financial institutions to make certain disclosures on the access device for the prepaid account, such as a card. If the financial institution does not provide a physical access device for the prepaid account, it must include these disclosures on the website, mobile application, or other entry point the consumer uses to electronically access the prepaid account.
- Delivery of periodic statements. Card issuers are required to provide periodic statements for prepaid accounts or an alternative that provides consumers access to account balance information via phone, electronic transaction history and written account transaction histories upon request.
Card issuers must realize three major implications and make the necessary changes to get ahead of the CFPB crackdown in just ten short months.
Flexibility is a must in a dynamic prepaid regulatory market. More than ever, card issuers need access to the most flexible card technology that allows them to stay ahead of the ever-changing prepaid regulatory environment. Due to the disclosure requirements put forth in the new CFPB prepaid rules, many card issuers will be dealing with hefty card and card carrier inventory that has become obsolete and must be destroyed and reproduced. Card issuers need to understand the true cost of a traditional card model and move towards a more flexible solution, such as digital, on-demand card production. On-demand card production allows changes to card packages at any time, with only a few days’ notice. And, because there is zero inventory, card issuers never see sunk costs for outdated inventory that must be destroyed due to regulatory updates.
Lean on prepaid experts. With new prepaid rules that extend Regulation E’s limited liability and error resolution and requires delivery of periodic statements, card issuers must lean on prepaid experts to ascertain and implement the rules correctly and on time. Understanding the requirements to plan and implement the new rules is no small feat and should be left in the hands of experts. With the likelihood of more regulatory change ahead, card issuers might even consider outsourcing prepaid altogether to program managers who specialize in the market.
Reissuing cards is marketing opportunity. The prepaid rule requires prepaid businesses to make certain disclosures on the access device for the prepaid account, which is in most cases a prepaid card. Issuers must understand the cost implications of reissuing cards and ensure they simultaneously take an advantage of marketing opportunities. First, by leveraging on-demand card production, card issuers can easily make changes to card program without incurring set up fees for each program. And by integrating variable data with on-demand card production, prepaid businesses can finally capitalize on these existing assets – aka “big data”– to dynamically incorporate customer’s preferences, credit history, geography or spending habits into individual cards, carriers and offers — creating true targeted and personalized campaigns that connect with customers at a one-to-one level. In doing so, marketing spend becomes streamlined and targeted, and success rates go up.
Card issuers alike have ten short months to plan and implement the new CFPB rules. For card issuers looking to control costs and maintain more flexibility, now is the time to investigate on-demand card production and lean on the experts to ensure you meet the October 1, 2017 deadline.
Render Dahiya is CEO of Arroweye Solutions, the only patented on-demand provider of credit, debit, prepaid and gift cards.
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