Summary:16-RA-07 Prepaid accounts under Regs E and Z (Dec. 2016)

NASCUS Legislative and Regulatory Affairs
December 2016


Prepaid Accounts under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z)

The NCUA issued Regulatory Alert 16-RA-07, which summarizes the CFPB’s final prepaid accounts rule that was issued in October 2016.   The rule creates comprehensive federal consumer protections for prepaid financial products under Regulations E and Z, which implement the Electronic Fund Transfer Act and Truth in Lending Act.  The Regulatory Alert can be accessed here.

The final rule applies to the following:

  • Traditional prepaid cards;
  • Mobile wallets;
  • Person to person payment products;
  • Other electronic accounts that can store funds;
  • Payroll cards;
  • Student financial aid disbursement cards;
  • Tax refund cards; and
  • Certain federal, state, and local government benefit cards, such as those used to distribute social security benefits and unemployment insurance.

The following are excluded from the final rule’s definition of “prepaid account”

  • Gift cards;
  • Gift certificates;
  • Cards redeemable only at a single retailer;
  • Accounts loaded only with funds from a health savings account;
  • Flexible spending arrangement;
  • Transit or parking reimbursement arrangement; and
  • Accounts used to distribute qualified disaster relief payments.

Final rule provisions that provide consumer protections under Regulation E

  • Adds the term “prepaid account” to the rule’s definition of “account”
  • Requires entities defined as “financial institutions” under Regulation E (including credit unions) must provide a consumer with certain disclosures before the consumer acquires the prepaid account.
    • Short form disclosure
    • Long form disclosure
    • Certain additional disclosed information
  • Requires institutions to provide periodic statements or periodic statement alternatives
  • Requires institutions to comply with Regulation E’s limited liability and error resolution requirements
  • Requires issuers to submit to CFPB new and amended prepaid account agreements and notification of withdrawn agreements no later than 30 days after the issuer offers, amends or ceases to offer the agreement.

Final rule provisions that provide consumer protections under Regulation E and Z

The final rule also amends Regulations E and Z to regulate prepaid account that offer overdraft credit features.

  • Specifically, the final rule covers under Regulation Z’s credit card rules any credit feature offered in connection with a prepaid account where the credit feature is offered by a prepaid account issuer, its affiliate or it business partner and credit can be accessed in the course of a transaction conducted with the prepaid card to obtain goods/services, obtain cash or conduct person to person transfers.
  • Issuers must wait at least 30 days after the prepaid account is registered before soliciting a consumer to link a covered separate credit feature to a prepaid account and must obtain consumer consent to link such a credit feature to the prepaid account.

Effective dates

Institutions are required to comply with the prepaid rule starting October 1, 2017.  Prepaid account issuers are required to submit their prepaid account agreement to the CFPB starting October 1, 2018.