Viewpoint: Regulatory Uncertainty Continues with Delays in Final Prepaid Accounts Rule
By Brad Fauss, NBPCA
Since the CFPB announced its intention to regulate prepaid accounts more than four years ago with its May 2012 release of an Advanced Notice of Proposed Rulemaking, prepaid providers eagerly have been awaiting the clarity and certainty that a final rule will provide. The lengthy rulemaking process has expanded from an initial plan to regulate only one type of prepaid card, general purpose reloadable cards, to a nearly 870-page proposed rule encompassing virtually all types of prepaid accounts, and now another delay until summer 2016 for a final rule that originally was expected in December 2015. The Network Branded Prepaid Card Association (NBPCA) supports a deliberate approach by the CFPB, which allows as much feedback as possible from consumers and the industry to be incorporated into the final rule, but we’re all ready for the final rule to be released.
Throughout the process, the prepaid industry has been working diligently to provide the CFPB with the information needed to complete a sensible, workable rule that will protect consumers and also safeguard access to this important financial tool. In fact, the NBPCA provided the bureau with a 94-page comment letter and has also met with the CFPB on multiple occasions to discuss the proposed rule.
However, until the rule is finalized, providers are left with uncertainty regarding what changes and requirements ultimately will be included in the final rule. As a result, despite the industry’s support for standardized disclosures, card providers have been unable to implement those changes until the full details of those disclosure requirements are known.
The Skinny on Fees
|“Recent media reports that prepaid cards have ‘hidden fees’ simply because card packaging doesn’t follow the format contained in the proposed rule are misleading and misinformed. Of course, the industry is waiting for the final rule before making standardized disclosure changes, because only then will we know the full extent of the regulations and how to fully comply.”|
The NBPCA and its members have been on record for years strongly supporting and encouraging clear, simple and conspicuous disclosure of all terms and conditions that apply to prepaid accounts. The NBPCA believes that consumers should have access to information prior to purchase to enable them to make informed decisions and meaningful comparisons of prepaid account products.
Prepaid card products typically provide fee disclosures in a variety of locations including on the outside of card packaging, inside the terms and conditions that accompany the card, and on Websites that describe the card features and functionality. The CFPB’s proposed rule includes new, prescriptive requirements for short-form disclosures that must appear on the outside of prepaid card packaging. The CFPB’s proposed format for disclosures are so specific that they include varying font sizes, and font color requirements as well as a required link to a CFPB Webpage that doesn’t yet exist (www.cfpb.gov/prepaids). With such a level of specificity and the strong likelihood that there will be changes in the final rule, the industry cannot design and implement new card packaging until it receives the certainty of a final rule.
Recent media reports that prepaid cards have “hidden fees” simply because card packaging doesn’t follow the format contained in the proposed rule are misleading and misinformed. Of course, the industry is waiting for the final rule before making standardized disclosure changes, because only then will we know the full extent of the regulations and how to fully comply. It’s also worth noting that prepaid cards continue to be at or near the bottom of the list of products consumers complain about to the CFPB—accounting for roughly 0.05 percent of total complaints. And of those very few prepaid complaints—roughly 300 complaints (or 7 percent)—are about fees.
According to Mercator Advisory Group estimates, there were more than 500 million open-loop prepaid cards sold in 2015. It is therefore reasonable to assume there are currently millions of prepaid cards on store shelves or sitting in inventory that will need to be replaced to conform to the CFPB’s proposed short-form disclosure requirements.
Replacing the millions of unsold prepaid cards in stores and in inventory obviously will be both a significant undertaking and substantial cost burden to prepaid providers. Complicating matters is the strong likelihood that the disclosure requirements appearing in the final rule will differ from the requirements in the proposed rule, given that more than 35,000 comments have been submitted to the CFPB. Therefore, the industry remains in a holding pattern with respect to designing and producing any new fee disclosures on prepaid card packaging sold at retail or risk implementing new disclosures that could soon be out of compliance with the CFPB’s final prepaid account rule.
The NBPCA is strongly in favor of ensuring consumers have all the tools necessary to make informed purchasing decisions. As an industry, we will continue to work with the CFPB in any way we can to reach clarity and consensus on the final rule for prepaid accounts so that we can move forward with new tools that will help customers identify the right card for them and understand how best to use it to meet their financial needs.
Brad Fauss is president and CEO of the Network Branded Prepaid Card Association (NBPCA), a nonprofit trade organization committed to responsibly advancing the success of the prepaid card industry. He can be reached at [email protected].
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.