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Payments & FinTech Lawyer

CFPB delays the effective date of the final rules on prepaid accounts

The US Consumer Financial Protection Bureau (CFPB) issued its final rules on prepaid accounts (the Prepaid Rule) on 25 January 2018 amending Regulation E, which implements the Electronic Fund Transfer Act, and Regulation Z, which implements the Truth in Lending Act, which includes extending the effective date of the final rules by one year to 1 April 2019. The CFPB stated that it is sensitive to the concerns raised by industry commentators about needing more time to implement the rule, especially where they are making changes to packaging for prepaid cards sold in stores.

The one year delay is welcome, said Linda C. Odom, Partner at K&L Gates. The industry needs a significant amount of time between the Prepaid Rule becoming final and its effective date. It easily takes a year to develop and launch a prepaid card program, and almost that long to significantly modify an existing program, so having this additional time is crucial. With more time, the industry will be able to launch a whole new range of innovative prepaid card programs.

Through the issuance of the final rules the CFPB has finalised modifications to several aspects of the prepaid rule published in the Federal Register on 22 November 2016 and amended on 25 April 2017, including with respect to error resolution and limitations on liability for prepaid accounts where the financial institution has not successfully completed its consumer identification and verification process; and regarding the application of the rules credit-related provisions to digital wallets that are capable of storing funds.

The CFPB received comments from a cross-section of industry participants, many of which pushed for a further extension of the effective date so they would have time to review any changes to the Prepaid Rule and coordinate with internal and external parties to implement compliance plans and changes. We also understand that the CFPB recognised that the changes made in the error resolution requirements would require specific disclosures, explains Odom.

The CFPBs 2016 prepaid rule put in place requirements for treatment of funds on lost or stolen cards, error resolution and investigation, upfront fee disclosures, access to account information, and overdraft features if offered in conjunction with prepaid accounts, with the latest changes aimed amongst other things at providing greater flexibility for credit cards linked to digital wallets.

In finalizing the Prepaid Rule, the CFPB made a number of amendments to address industry comments, including those concerning the Rules application to certain business models and industry practices, which have largely been viewed favorably so far. The real measure of the industrys response to the new rules, however, will be demonstrated by the launch of new products taking advantage of the rules (e.g., hybrid cards), or the lack thereof, concludes Odom.

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