On October 5, the Consumer Financial Protection Bureau released its final rule extending an array of new substantive restrictions, upfront and ongoing disclosure obligations, and government reporting requirements on prepaid cards and a range of electronic non-bank accounts, commonly referred to as “digital wallets.” The Final Rule takes effect on October 1, 2017, with certain provisions phased in over time. The reporting requirement for issuers is delayed until October 1, 2018.
The final rule covers far more than prepaid cards. The CFPB adopted a broad definition of a covered “prepaid account” that brings within its scope nearly any general-purpose stored-value payment mechanism that is not a bank account, as long as the card or mechanism (1) is redeemable with multiple, unaffiliated merchants for goods and services; (2) can be used at ATMs; or (3) can be used to conduct person-to-person transfers. Thus, mobile wallets, internet-based person-to-person payment accounts, payroll cards, and many other types of prepaid accounts are subject to the Final Rule. The CFPB emphasizes in the Final Rule that the definition is intentionally broad to ensure coverage of both existing and future payment technologies.
Exceptions from the rule are narrow. The few that the Final Rule expressly adopts appear designed to carve out products that either a consumer is unlikely to use as a substitute for a traditional bank account or are already sufficiently regulated as to present a low risk to consumers. Specifically, the regulation excludes gift cards, gift certificates and “closed-loop” store cards redeemable at a specific merchant, as well as cards associated with health savings accounts and flexible spending accounts and government need-based benefits.
The compliance burden will be substantial for all covered products. Unlike some other CFPB regulations where the compliance burden falls most heavily on companies engaged in riskier practices, all issuers of covered products face significant implementation tasks over the next year. Every covered product will be required to provide detailed disclosures both before and when a consumer opens a prepaid account, including both short-form and long-form disclosures that focus on advising consumers of the product’s fees and the consumer’s rights. In addition, regulated entities will be required to provide specific disclosures on the card, issue periodic statements or account summaries. Beginning in October 2018, companies will have to provide copies of all new and amended prepaid account agreements to the CFPB, and notification of withdrawal of agreements, within 30 days.