The Network Branded Prepaid Card Association (NBPCA) and NetSpend urged the CFPB to show restraint in its final rule and avoid imposing overly broad restrictions on prepaid accounts, which could destroy the market.
The NBPCA says the new CFPB rules will ultimately have the effect of limiting consumer access to popular features and functionality and potentially eliminate entire categories of prepaid cards from the market.
Furthermore, the imposition of unnecessary compliance burdens – when trying to fashion a one-size-fits-all rule – could ultimately limit consumer access to safe and reliable prepaid products and drive users to seek out riskier and less consumer-friendly alternatives.
TX-based NetSpend also chimed in saying the current proposed CFPB rule would negatively impact consumers by limiting their ability to obtain funds when they are most needed. The proposal includes complex, onerous, costly and difficult-to-understand requirements for prepaid card products that include treating overdraft as a line of credit.
The NBPCA suggests five commonsense solutions to the following areas of concern:
1.Definition of “Prepaid Account” Should be Limited to Primary Transaction Accounts: The NBPCA believes that the proposed rule should only cover prepaid products that consumers use as primary transaction accounts in cases where they would reasonably expect to receive similar protections to their debit cards attached to traditional checking accounts. The CFPB has expanded its definition of “Prepaid Accounts” well beyond this suggested focus to ensnare the more than 15 types of prepaid cards in market, many of which likely will not withstand the increased costs of compliance. The NBPCA has provided the CFPB with several examples of prepaid products that should be excluded from the definition of “Prepaid Account” and the coverage under the proposed rule.
2. Require Common Sense Pre-Acquisition Disclosures: The proposed rule requires prepaid card issuers to provide consumers with two fee disclosures (i.e., a short form disclosure and a comprehensive long form disclosure) before they acquire a prepaid card. When combined with the cardholder agreement, the consumer could potentially receive three similar, but not quite identical, fee disclosures. To enhance simplicity and the effectiveness of disclosures, the NBPCA strongly supports the requirement of a single, consumer-friendly, pre-acquisition disclosure that provides more flexibility than the overly prescriptive requirements in the proposed rule for the short form disclosure.
3. Continue to Allow Overdraft & Credit Features That Meet Growing Consumer Needs. The CFPB has included a new requirement that any prepaid card offering overdraft and credit features must comply with the requirements of Regulation Z. The NBPCA is concerned that imposing these new, onerous burdens and costs on overdraft products could lead to their elimination from the market at a time when there is a large consumer need as well as extremely high satisfaction ratings for the product. Consequently, the NBPCA has urged the CFPB to continue to allow discretionary overdrafts without subjecting these products to full Regulation Z coverage.
4. Fix Definition of “Finance Charge” To Avoid Ensnaring All Prepaid Accounts as Credit Cards under Regulation Z: The CFPB should clarify rules to clearly distinguish the difference between prepaid accounts offering true overdraft or credit features and prepaid accounts that do not offer credit. In the Proposed Rule, the CFPB has expanded the definitions of credit card account and finance charge under Regulation Z which could potentially classify all prepaid cards, even those that do not offer any credit or overdraft features, as credit cards due to “force pay” transactions. Because an issuer cannot stop a “force pay” transaction and the CFPB has expanded the definition of finance charge, any prepaid account has the potential to be classified as a credit card under the proposed rule.
5. Impose a Workable Effective Date. The NBPCA and its members have serious concerns about the proposed effective date of 9 months after publication of the final rule in the Federal Register. Based on the substantial operational and systems changes that will be required to implement the anticipated final rule, our members believe that between 18 and 24 months is a much more appropriate time frame to implement the required changes from a broad-sweeping new regulation.
NetSpend noted that since the proposed rule was unveiled in November, Americans from across the country have expressed anxiety around how they would manage daily, weekly, and monthly spending needs if the CFPB were to proceed with greatly limiting, if not eliminating, the availability of overdraft protection from prepaid card products. From concerns about ability to pay bills to paying for gas and groceries, thousands of Americans urged the CFPB to reconsider its position and the impact it would have on their lives.
The CFPB has not indicated when they will issue the final rule.
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