[Federal Register Volume 79, Number 246 (Tuesday, December 23, 2014)]
[Proposed Rules]
[Pages 77102-77335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27286]



[[Page 77101]]

Vol. 79

Tuesday,

No. 246

December 23, 2014

Part II





Bureau of Consumer Financial Protection





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12 CFR Parts 1005 and 1026





Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) 
and the Truth in Lending Act (Regulation Z); Proposed Rule

Federal Register / Vol. 79 , No. 246 / Tuesday, December 23, 2014 / 
Proposed Rules

[[Page 77102]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Parts 1005 and 1026

[Docket No. CFPB-2014-0031]
RIN 3170-AA22


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

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
proposing to amend Regulation E, which implements the Electronic Fund 
Transfer Act (EFTA); Regulation Z, which implements the Truth in 
Lending Act (TILA); and the official interpretations to the 
regulations. The proposal would create comprehensive consumer 
protections for prepaid financial products. The proposal would 
expressly bring such products within the ambit of Regulation E as 
prepaid accounts and create new provisions specific to such accounts. 
The proposal would generally cover those prepaid accounts that are 
cards, codes, or other devices capable of being loaded with funds and 
usable at unaffiliated merchants or for person-to-person transfers, and 
are not gift cards (or certain other related types of cards). The 
proposal would modify Regulation E to establish disclosure requirements 
specific to prepaid accounts that would require financial institutions 
to provide certain disclosures to consumers prior to and after the 
acquisition of a prepaid account. The proposal would also include an 
option for an alternative to Regulation E's periodic statement 
requirement that would permit prepaid product providers to make 
available to consumers certain methods for access to account 
information in lieu of sending periodic statements. Additionally, the 
proposal would apply Regulation E's limited liability and error 
resolution provisions to prepaid accounts, with certain modifications, 
including applying these provisions after account registration. 
Moreover, the proposal would require prepaid account issuers to provide 
the Bureau with terms and conditions for prepaid accounts, which it 
would post on a Web site maintained by the Bureau. Relatedly, issuers 
would also be required to post the terms and conditions on their own 
Web sites or make them available upon request. Finally, the proposal 
would also contain amendments to Regulations Z and E to regulate 
prepaid accounts with overdraft services or credit features. Among 
other things, prepaid cards that access overdraft services or credit 
features for a fee would generally be credit cards subject to 
Regulation Z and its credit card rules. Moreover, the proposal would 
require that consumers consent to overdraft services or credit features 
and give them at least 21 days to repay the debt incurred in connection 
with using such services or features. Further, Regulation E would be 
amended to include disclosures about overdraft services or credit 
features that could be linked to prepaid accounts. The compulsory use 
provision under Regulation E would also be amended so that prepaid 
account issuers would be prohibited from requiring consumers to set up 
preauthorized electronic fund transfers to repay credit extended 
through an overdraft service or credit feature.

DATES: Comments must be received on or before March 23, 2015.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2014-
0031 or RIN 3170-AA22, by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include Docket 
No. CFPB-2014-0031 and/or RIN 3170-AA22 in the subject line of the 
email.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 
20552.
     Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1275 First 
Street NE., Washington, DC 20002.
    Instructions: All submissions should include the agency name and 
docket number or Regulatory Information Number (RIN) for this 
rulemaking. Because paper mail in the Washington, DC area and at the 
Bureau is subject to delay, commenters are encouraged to submit 
comments electronically. In general, all comments received will be 
posted without change to http://www.regulations.gov. In addition, 
comments will be available for public inspection and copying at 1275 
First Street NE., Washington, DC 20002, on official business days 
between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an 
appointment to inspect the documents by telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or social 
security numbers, should not be included. Comments generally will not 
be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Kristine Andreassen, Morgan Harper, 
and Jane Raso, Counsels; Krista Ayoub, Joseph Baressi, and Eric 
Goldberg, Senior Counsels, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

    The Bureau of Consumer Financial Protection (Bureau) is issuing 
this notice to propose comprehensive consumer protections for prepaid 
financial products (or prepaid products). Such products are among the 
fastest growing types of payment instruments in the United States. 
However, with certain limited exceptions, prepaid products have not 
been subject to the existing Federal consumer regulatory regimes that 
provide consumer disclosures, error resolution and protection from 
unauthorized transfers. See generally 12 CFR part 1005.
    The Bureau is proposing to establish a new definition of ``prepaid 
account'' within Regulation E and adopt comprehensive consumer 
protection rules for such accounts. The proposal would extend 
Regulation E protections to prepaid products that are cards, codes, or 
other devices capable of being loaded with funds, not otherwise 
accounts under Regulation E and redeemable upon presentation at 
multiple, unaffiliated merchants for goods or services, or usable at 
either automated teller machines or for person-to-person (P2P) 
transfers; and are not gift cards (or certain other types of limited 
purpose cards), by bringing these products under the proposed 
definition of ``prepaid account.''
    The Bureau is also proposing to modify Regulation E, as it would 
pertain to prepaid accounts, in several key respects. First, the Bureau 
proposes to require financial institutions to make certain disclosures 
available to consumers before a consumer agrees to acquire a prepaid 
account. These disclosures would take two forms, whether provided in 
oral, written, or electronic form. The first would be a short form 
highlighting key fees that the Bureau believes are most important for 
consumers to know about prior to acquisition. The second would be a 
long form that would set forth all of the prepaid account's fees and 
the conditions under which those fees could be imposed. When certain

[[Page 77103]]

conditions are met, the proposed rule would provide an exception for 
financial institutions that offer prepaid cards for sale over the phone 
or in retail stores that would allow such institutions to provide 
consumers with access to the long form disclosure by telephone or 
internet, but otherwise not make the long form available until a 
consumer has acquired the prepaid account. To facilitate compliance, 
the Bureau is additionally proposing model forms and sample forms. The 
use of the model forms would establish a safe harbor for compliance 
with the short form disclosure requirement. The Bureau is also 
proposing revisions to existing Regulation E model forms and model 
clauses to provide model language.
    In addition, with certain modifications, the Bureau is proposing to 
extend to all prepaid accounts the existing Regulation E requirements 
regarding the provision of transaction information to accountholders 
that currently apply to payroll card accounts, Federal government 
benefit accounts, and non-needs tested State and local government 
benefit accounts. These provisions would allow financial institutions 
to either provide periodic statements or, alternatively, make available 
to the consumer: (1) The account balance, through a readily-available 
telephone line; (2) an electronic history of account transactions that 
covers at least 18 months; and (3) a written history of account 
transactions that covers at least 18 months upon request. For all 
prepaid accounts, the Bureau proposes to require financial institutions 
to disclose monthly and annual summary totals of all fees imposed on a 
prepaid account, as well as the total amount of all deposits to and 
debits from a prepaid account when providing a periodic statement or 
electronic or written account history.
    Further, the Bureau is proposing to modify Regulation E to adopt 
error resolution and limited liability provisions specific to prepaid 
accounts. Currently, Regulation E limits consumers' liability for 
unauthorized transfers, provided that the consumer gives timely notice 
to the financial institution, and requires financial institutions to 
resolve certain errors in covered accounts. The Bureau proposes to 
extend this regime to prepaid accounts, with modification to the timing 
requirements for reporting unauthorized transfers and errors when a 
financial institution follows the periodic statement alternative 
described above. The Bureau is also proposing not to apply the limited 
liability and error resolution requirements of Regulation E to 
unregistered prepaid accounts. Moreover, the proposed rule would 
include provisions that would require prepaid account issuers to post 
prepaid account agreements on the issuers' Web sites (or make them 
available upon request in limited circumstances) and to submit those 
agreements to the Bureau for posting on a Web site maintained by the 
Bureau.
    The Bureau is also proposing to revise various other provisions in 
subparts A and B of Regulation E. With respect to subpart A, the 
proposed amendments include a revision that would provide that, similar 
to payroll card accounts, a consumer cannot be required to establish an 
account for receipt of government benefit. Additionally, the Bureau 
proposes to revise official interpretations to Regulation E to 
incorporate a preemption determination the Bureau made regarding 
certain State laws related to unclaimed gift cards. With respect to 
subpart B, which applies to remittance transfers, the Bureau proposes a 
conforming change to the official interpretations.

Overdraft Services and Credit Features

    The Bureau is also proposing to modify Regulations Z and E to 
address the treatment of overdraft services and other credit features 
offered in connection with prepaid accounts.
    Regulation Z. The Bureau is proposing changes to Regulation Z so 
that prepaid account issuers that offer overdraft services or other 
credit features in connection with such accounts and charge a fee for 
the service (such as interest, transaction fees, annual fees, or other 
participation fees) generally would be subject to Regulation Z's credit 
card rules and disclosure requirements for open-end (not home-secured) 
consumer credit plans. In addition, the Bureau proposes to revise 
Regulation Z so that its credit card rules would apply to separate 
lines of credit linked to prepaid accounts. The proposal would also 
require an issuer to obtain a consumer's consent before adding 
overdraft services and credit features to a prepaid account and would 
prohibit the issuer from adding such features until at least 30 
calendar days after a consumer registers the prepaid account. Moreover, 
the proposal would amend Regulation Z as it pertains to credit on 
prepaid accounts to provide that a consumer would receive a periodic 
statement not more often than once per month and then have at least 21 
days to repay the debt the consumer incurred in connection with using 
the overdraft service or credit feature. The proposal would also 
prevent an issuer from requiring, as terms of the credit feature, that 
it could immediately take incoming payments to a prepaid account, such 
as cash loads or direct deposits, to repay and replenish the credit 
line.
    Regulation E. The Bureau is proposing to revise Regulation E to 
include disclosures about overdraft services or credit features that 
could be linked to prepaid accounts in the short and long form 
disclosures. The Bureau is also proposing to provide that the 
compulsory use provision would apply to overdraft services or other 
credit features linked to prepaid accounts. As proposed, prepaid 
account issuers would be prohibited from requiring consumers to set up 
preauthorized electronic fund transfers to repay credit extended 
through an overdraft service or credit feature. Lastly, the Bureau 
proposes to amend Regulation E to restrict issuers from applying to a 
consumer's prepaid account different terms and conditions such as 
charging different fees for accessing funds in a prepaid account, 
depending on whether the consumer elects to link the prepaid account to 
an overdraft service or credit feature.

Effective Date

    The Bureau proposes that with certain exceptions, the effective 
date for the requirements set forth in a final rule would be nine 
months after the final rule is published in the Federal Register. The 
exception proposed herein is that for a period of 12 months after the 
final rule is published in the Federal Register, financial institutions 
would be permitted to continue selling prepaid accounts that do not 
comply with the final rule's pre-acquisition disclosure requirements, 
if the account and its packaging material were printed prior to the 
proposed effective date.

II. Background

A. Prepaid Financial Products

    As noted above, prepaid products--in various forms--are among the 
fastest growing types of payment instruments in the United States. A 
2013 study by the Board of Governors of the Federal Reserve System (the 
Board) reported that compared with noncash payments such as credit, 
debit, automated clearing house (ACH), and check, prepaid card payments 
increased at the fastest rate from 2009 to 2012.\1\ Among other

[[Page 77104]]

things, the report found that the number of prepaid card payments 
reached 9.2 billion transactions in 2012 (up from 5.9 billion in 
2009).\2\
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    \1\ Fed. Reserve Sys., The 2013 Federal Reserve Payments Study, 
Recent and Long-Term Payment Trends in the United States: 2003-2012, 
Detailed Report and Updated Data Release (2014), available at 
https://.frbservices.org/files/communications/pdf/general/
2013_fed_res_paymt_study_detailed_rpt.pdf.
    \2\ Id. at 37.
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    There is significant variation among prepaid products. For example, 
some prepaid products are ``reloadable,'' meaning that a consumer or 
other authorized party can add funds to the account after the account 
is issued, while others are not. Additionally, some prepaid products, 
such as certain gift cards, are ``closed-loop,'' meaning that a 
consumer can only use the product at a specific merchant or group of 
merchants. Regulation E currently regulates closed-loop gift cards and 
similar products. See Sec.  1005.20. Other prepaid products are ``open-
loop.'' Like gift cards, these products are used to store funds. 
However, unlike closed-loop prepaid products, they can be used on 
payment and automated teller machine (ATM) networks.\3\
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    \3\ Payment networks include Visa, MasterCard, American Express, 
and Discover; ATM networks include NYCE, PULSE, STAR and Cirrus.
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    Consumers may acquire prepaid products in a variety of ways. 
Prepaid products may be sold directly to consumers in retail locations, 
over the telephone, or online. They may also be provided at no charge 
through an entity that uses the prepaid product to distribute funds to 
a recipient, such as an employer that distributes wages to an employee 
on a payroll card. Further, as discussed in greater detail below, 
prepaid products may not be tied to a physical card or device, and 
instead may be accessible and usable online or at a physical location 
through a mobile device such as a smartphone.
    Typically, consumers may not spend more than the total amount of 
funds loaded onto a prepaid product, although some products permit 
consumers to access additional funds for a fee in a manner similar to 
overdraft services or credit features offered with checking accounts. 
As discussed below, a ``general purpose reloadable'' (GPR) card is one 
type of reloadable, open-loop prepaid product. Others include prepaid 
products onto which third parties distribute funds, also as discussed 
in greater detail below. These include payroll cards and cards for the 
disbursement of student loan proceeds or insurance proceeds, and cards 
used to disburse Federal and non-needs based State and local government 
benefits.\4\
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    \4\ As described in more detail below, payroll card accounts and 
cards used to distribute certain government benefit payments are 
currently regulated by Regulation E.
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GPR Cards
    A GPR card is one of the most common and widely-available forms of 
open-loop, reloadable prepaid products. A financial institution 
generally issues a GPR card for an amount paid to load the card by a 
consumer less the purchase price of the card, if any. A GPR card can be 
reloaded by the consumer, meaning that once the card is registered, the 
consumer can add funds to the card. Based on the Bureau's research, it 
understands that currently, the top five GPR card programs (as measured 
by load volume) identified by the Aite Group have maximum load amounts 
generally ranging from approximately $2,500 to $15,000, with some 
exceptions made for large tax refunds. The prevalence of GPR cards has 
grown rapidly. According to projections by the Mercator Advisory Group, 
the amount loaded onto GPR cards grew from less than $1 billion in 2003 
to nearly $65 billion in 2012. This makes GPR cards among the fastest-
growing forms of prepaid products over that decade, growing from less 
than 8 percent of prepaid load to over 36 percent during that same 
period. The growth rate has continued. According to Mercator's 
projections, the total dollar value loaded onto GPR cards is expected 
to continue to grow to over $98 billion in 2014.\5\
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    \5\ Mercator Advisory Grp., Eleventh Annual U.S. Prepaid Cards 
Market Forecasts, 2014-2017 at 13 (Nov. 2014).
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    Virtual GPR cards. As noted above, prepaid products may not be tied 
to a physical card or device, and instead may be accessible and usable 
online or at a physical location through a mobile device such as a 
smartphone. The Bureau understands that the use of GPR prepaid products 
not linked to a physical card or device to store and transfer funds via 
the internet, text, or mobile phone application is growing. To use 
these ``virtual GPR cards'' (``virtual'' because these accounts are not 
linked to a physical card or device), consumers may receive account 
information such as the account number that they can then use to make 
purchases.
GPR Card Functionality
    As noted above, consumers generally purchase GPR cards at retail 
locations, over the telephone, or online. When buying a GPR card at a 
retail location, consumers typically pay an upfront purchase fee. 
Program managers may waive this fee for GPR cards that consumers 
purchase online. A newly-purchased GPR card is usually loaded by the 
retailer at the time of purchase with funds provided by the consumer. 
However, in order to take advantage of all of the GPR card's features, 
consumers are often required to contact the GPR card's program manager 
and register the card, or at least to activate it. Indeed, the Bureau 
understands that it is common that unless a consumer registers the 
consumer's newly-purchased GPR card, the consumer only has a 
``temporary card,'' because program managers do not send a ``permanent 
card'' embossed with the consumer's name until the consumer registers 
the card. Further, the Bureau understands that unless a GPR card is 
registered, there is typically a cap on the amount of funds a consumer 
can load onto the card and restrictions on the consumer's use of the 
card (e.g., the consumer might not be able to use the card at ATMs or 
reload funds onto the card).
    Registration typically requires the consumer to provide specific 
identifying information (i.e., full name, domestic residential address, 
date of birth, and a Social Security Number or Taxpayer Identification 
Number, or, in some instances, another government-issued identification 
number). The information is used by the program manager or issuing bank 
to verify the consumer's identity. If the consumer's identity cannot be 
verified, the card is not considered registered. As noted above, 
customers with unregistered GPR cards are generally able to spend their 
initial load but will not be able to reload the card or use it at an 
ATM. Activation may require a consumer to provide less identifying 
information than registration.
    GPR cards can generally be reloaded through direct deposit of 
wages, pensions, or government benefits; a cash purchase of a reload 
product; direct cash reload; transfer from another prepaid product or a 
deposit account; or deposit of a check at a participating check-cashing 
outlet or via remote deposit capture.\6\ Consumers can typically obtain 
cash from their prepaid products via ATM withdrawals, bank teller 
transactions, or by electing to obtain cash back on a personal 
identification number (PIN) transaction at a merchant. Additionally, 
consumers can typically make purchases with their GPR cards wherever 
the payment network brand appearing on the card is accepted. A number 
of programs also offer an online bill pay function, which sometimes has 
a fee associated with it. Consumers can typically obtain updates

[[Page 77105]]

regarding their GPR card's account balance (and, for some programs, 
recent transaction activity) via toll-free telephone calls, text 
messages, email alerts, the card program's Web site, or written account 
histories. Some GPR card providers charge consumers to speak to a 
customer service agent or to receive a written copy of their account 
history. Consumers may incur fees to obtain balance information at an 
ATM.
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    \6\ The Bureau understands that in limited circumstances, a 
consumer can reload a GPR card via paper check.
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    In fact, the Bureau understands that GPR cards can vary 
substantially with respect to the fees and charges assessed to 
consumers, both in terms of their total volume as well as in the number 
and type of fees assessed. Based on its review of the 2012 FRB 
Philadelphia Study, the Bureau believes average cardholder costs for 
GPR and payroll cards range from approximately $7.00 to $11.00 per 
month, depending on the type and distribution channel of the 
account.\7\ In a 2014 paper, the Pew Charitable Trusts estimated that 
the median consumer using one of the 66 major GPR cards it examined 
would be charged approximately $10.00 to $30.00 every month for use of 
the cards, on average, depending on the consumer's understanding of the 
card's fee structure and ability to alter behavior to avoid fees.\8\ 
The 2012 FRB Philadelphia Study also found that in terms of total 
value, maintenance and ATM withdrawal fees are among the most 
significant fees incurred by users of open-loop prepaid products.\9\
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    \7\ Stephanie Wilshusen et al., Fed. Reserve Bank of Phila., 
Consumers' Use of Prepaid Cards: A Transaction-Based Analysis, at 39 
(2012) (2012 FRB Philadelphia Study), available at http://www.philadelphiafed.org/consumer-credit-and-payments/payment-cards-center/publications/discussion-papers/2012/D-2012-August-Prepaid.pdf. The authors of the report noted that the report's 
primary focus is on GPR cards and payroll cards, which will be 
discussed in greater detail below.
    \8\ The Pew Charitable Trusts, Consumers Continue to Load Up on 
Prepaid Cards, at 39 (Feb. 2014) (2014 Pew Study), available at 
http://www.pewtrusts.org/en/research-and-analysis/reports/2014/02/06/consumers-continue-to-load-up-on-prepaid-cards.
    \9\ 2012 FRB Philadelphia Study, at 6.
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Consumers' Use of GPR Cards
    The 2012 FRB Philadelphia Study found that most of the prepaid 
products in its study are used for both cash withdrawals and purchases 
of goods and services. In particular, it found that depending on the 
product, cash withdrawals account for about one-third to one-half of 
the value taken off the product. The study also reported that it 
believed that prepaid cards are used primarily to purchase nondurable 
goods and noted that many of the products studied are also used to pay 
bills.\10\
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    \10\ Id.
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    Further, as discussed in greater detail below, both the type of 
consumers who use GPR cards and the reasons for which they use them 
vary. Although it has been reported that the majority of users of open-
loop prepaid products have had checking accounts at some point and that 
most users also have experience using credit cards,\11\ it also has 
been observed that for some consumers, the lack of access to checking 
accounts and other types of more established financial products and 
services such as credit cards appear to be the key driver of their use 
of GPR cards.\12\ The 2014 Pew Survey found that 58 percent of 
consumers that use prepaid products are currently without checking 
accounts, but indicated they want to have a checking account in the 
future.\13\ The survey also found that 26 percent of prepaid product 
users without checking accounts indicated that they use prepaid 
products because, among other reasons, they would not be approved for a 
checking account.\14\
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    \11\ The Pew Charitable Trusts, Why Americans Use Prepaid Cards: 
A Survey of Cardholders' Motivations and Views, at 7 (Feb. 2014) 
(2014 Pew Survey). It appears that the prepaid products discussed in 
the report included GPR cards, payroll cards, and government benefit 
cards. The study excluded closed-loop prepaid products.
    \12\ 2014 Pew Survey, at 7-8, 11.
    \13\ Id. at 10-11.
    \14\ Id. at 14.
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    When consumers open a checking or savings account, they must 
satisfy the depository institution or credit union's customer 
identification program (CIP) obligations, which is part of the 
institution's Bank Secrecy Act (BSA) and anti-money laundering 
compliance program.\15\ In addition, banks and credit unions generally 
review information about prospective customers obtained from 
specialized reporting agencies that can reveal prior history of 
involuntary account closure, unsatisfied balances, and other issues 
with prior checking account use.
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    \15\ See e.g., Federal Financial Institutions Examination 
Council Bank Secrecy Act/Anti-Money Laundering InfoBase, http://www.ffiec.gov/bsa_aml_infobase/pages_manual/olm_011.htm.
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    Customer identification and verification procedures (other than 
those related to credit or similar inquiries) are largely identical 
between checking and GPR accounts. First, the customer identification 
and verification requirements for providers and sellers of prepaid 
access issued by the Financial Crimes Enforcement Network (FinCEN), a 
bureau of the U.S. Treasury Department (Treasury), are largely similar 
to the CIP requirements for depository institutions and credit unions. 
Second, the Bureau understands that for most prepaid products, the 
issuer (i.e., the depository institution or credit union providing 
access to the networks and holding the funds) sets the minimum 
standards for the CIP.\16\ However, there are differences. The primary 
difference is usually with respect to the method of customer 
verification. Checking and savings accounts are more frequently opened 
in person at a financial institution's branch location (and thus use 
``documentary'' forms of identification, such as a driver's license or 
passport, to verify identity). Prepaid products, however, even those 
purchased at retail locations, are usually registered via telephone or 
online (and thus use ``non-documentary'' forms of verification such as 
using information obtained from consumer reporting agencies).
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    \16\ Mercator Advisory Grp., Customer Identification Programs in 
Prepaid: Best Practices, at 2 (July 2013).
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    When consumers apply for credit cards, a card issuer will generally 
rely on a rigorous process to determine whether an applicant is an 
appropriate credit risk. In contrast, most GPR cards do not contain 
similar requirements. The 2014 Pew Survey found that 33 percent of 
monthly users of open-loop prepaid products have never had a credit 
card.\17\ GPR cards may also be more accessible to consumers than debit 
cards that require the cardholder to have opened a traditional 
transactional account such as a checking account as a prerequisite. The 
2014 Pew Survey found that 41 percent of monthly users of open-loop 
prepaid products currently do not have a checking account.\18\ 
Similarly, a 2013 survey by the Federal Deposit Insurance Commission 
(FDIC) found that of those people whom it surveyed, approximately 33 
percent of those who reported using a prepaid card in the 30 days prior 
to being surveyed were unbanked.\19\ Additionally, debit card issuers 
may evaluate potential customers for credit risk more closely than 
prepaid card issuers. The Bureau understands that debit card issuers 
often provide faster fund availability than prepaid card issuers and 
thus may bear

[[Page 77106]]

greater depositor credit risk such as the risk that a deposited check 
never clears.
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    \17\ See 2014 Pew Survey, at 7. The Bureau recognizes that this 
figure may include consumers that have never tried opening a credit 
card account, as well as those that tried to open a credit card 
account, but had their application denied.
    \18\ Id.
    \19\ See also Fed. Deposit Ins. Corp., Appendix to 2013 FDIC 
National Survey of Unbanked and Underbanked Households (Oct. 2014) 
(2013 FDIC Survey), at 46, available at https://www.fdic.gov/householdsurvey/report.pdf.
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    The 2013 FDIC Survey also suggests that unbanked and underbanked 
consumers are more likely than the general population to use open-loop 
prepaid products such as GPR cards. It found that there are 
approximately 30 million unbanked and underbanked households in the 
United States.\20\ It also found that these households tend to be 
disproportionate users of GPR cards and payroll cards. It observed that 
19.7 percent of underbanked and 27.1 percent of unbanked households, as 
well as 33 percent of previously banked households, reported having 
used such cards (compared with 12 percent reported use in the entire 
population).\21\ The FDIC also found that while usage among all 
households remained relatively stable since 2009, the proportion of 
unbanked households that had used a prepaid card increased from 12.2 
percent in 2009 to 17.8 percent in 2011 and 27.1% in 2013.\22\ In 
addition to the lack of access to traditional financial products and 
services as a shared characteristic of some of the consumers that use 
GPR cards, the FDIC study shows that prepaid card users were more 
likely than the general population to be young, single mothers, 
disabled, or have sub-$50,000 incomes, and less likely to be 
homeowners, white, have college degrees, or be employed.\23\
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    \20\ 2013 FDIC Survey, at 4.
    \21\ 2013 FDIC Survey, at 35-36.
    \22\ 2013 FDIC Survey, at 29.
    \23\ 2013 FDIC Survey appendix, at 46-47.
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    Further, the 2014 Pew Survey noted that the desire to avoid fee-
based overdraft services associated with checking accounts appear to 
motivate some consumers to choose open-loop prepaid products over 
checking accounts. Indeed, the survey concluded that 41 percent of 
users have closed or lost a checking account due to overdraft fees.\24\ 
Checking accounts can become costly. For instance, Bureau staff has 
determined that the median checking account overdraft fee charged as of 
July 2014 among the largest fifty U.S. depository institutions ranked 
by consumer checking balances is $35 per item.\25\ By contrast, except 
for a few exceptions discussed below, GPR cards are generally not 
offered with an overdraft service nor other credit features.\26\ 
Moreover, GPR card providers that offer such services or features 
charge lower fees than the fees depository institutions or credit 
unions charge for checking account overdraft.\27\ Thus, for consumers 
who do not want to, or cannot open a checking account, the Bureau 
believes that a GPR card could be a viable substitute. Indeed, the 
Bureau observes that many GPR cards are advertised as a ``safe'' or 
``secure'' alternative to a checking account.\28\
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    \24\ 2014 Pew Survey, at 8; see also id. at 13-14 (explaining 
that 46 percent of respondents indicated that one of the major 
reasons they use prepaid cards is to ``Avoid overdraft fees;'' 51 
percent of respondents said one of their major reasons is ``Helping 
you not spend more money than you actually have'').
    \25\ Nearly all depository institutions the Bureau considered 
assess overdraft fees on a per-item basis. Among those that do, both 
the median and modal lowest-tier overdraft fee is $35. Some 
depository institutions have higher overdraft fees that apply after 
a certain number of overdraft occurrences. However, the Bureau's 
analysis considers only the lowest-tier fees a consumer would 
encounter if de minimis or other policies do not preclude a fee. For 
depository institutions that charge different amounts in different 
regions, Bureau staff considered pricing for the region where the 
depository institution is headquartered.
    \26\ See, e.g., 2014 Pew Study, at 4, 9-10.
    \27\ Id.
    \28\ See, e.g., NBCPA Web site, What are Prepaid Cards, http://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx 
(``[With prepaid cards] . . . [avoid] the risk of over-spending or 
overdraft, thus avoiding the interest, fees and potential negative 
credit score implications of traditional credit cards. [For 
parents], prepaid cards [help] maintain control over [children's 
spending].'')
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    Consumers with access to traditional financial products and 
services use GPR cards as well.\29\ The Bureau understands that one of 
the ways in which many consumers use such cards is for a limited 
purpose such as while traveling or making online purchases, because 
they may believe that using prepaid cards is safer than using cash, a 
credit card, or a debit card in those situations.\30\ These consumers 
may not ever register and reload the card. Instead, they may let the 
card become dormant or discard it after spending down the initial 
balance, and then purchase another GPR card at a later date if new 
needs arise. The Bureau understands that another popular way in which 
consumers use GPR cards is as a budgeting tool. For example, a family 
might budget a fixed amount each month for dining out and put that 
money on a GPR card, or parents may provide a GPR card to a child at 
college to control the child's spending.
---------------------------------------------------------------------------

    \29\ 2014 Pew Survey, at 7 (59 percent of prepaid card users 
also have a checking account.)
    \30\ See, e.g., 2014 Pew Survey, at 1, 13.
---------------------------------------------------------------------------

    Further, based on the Bureau's market research and analysis, the 
Bureau believes that additional consumers will continue to adopt GPR 
cards. It also believes that consumers that currently use GPR cards may 
increasingly find that they no longer want to have traditional 
financial products and services such as a checking account or a credit 
card in addition to their GPR card. The Bureau notes that GPR card 
functionality has been expanding. For example, some GPR card programs 
have started to offer checking account-like features such as check-
writing using pre-authorized checks, the ability to send direct 
deposits via an ACH to the GPR card, and, in some limited cases, the 
ability of third parties to debit and credit the GPR card account via 
ACH (e.g., crediting the card account through direct deposit). 
Additionally, many GPR card programs have offered consumers ways to 
access their account online, including through mobile devices such as 
smartphones. For example, oftentimes consumers can use mobile phone 
applications to closely monitor their GPR card transactions, balances, 
and fees; to load funds to their GPR cards; and to transfer funds 
between accounts. Lastly, like credit and debit cards, GPR cards 
provide access to payment networks. Consumers may find this to be an 
important feature of GPR cards in that some merchants may only accept 
payment through a card that provides access to one of these networks.
Marketing and Sale of GPR Cards
    In recent years, the GPR card segment has grown increasingly 
competitive, which has resulted in a decrease in prices, coupled with 
an increase in transparency for many products.\31\ Nevertheless, GPR 
card providers market the cards in ways that may negatively affect 
consumers' ability to make meaningful comparisons.\32\ Card packaging 
is often limited in size. Because many of them are designed to be sold 
in retail stores, the card package, also known as a J-hook package, is 
no larger than 4 inches by 5.25 inches.\33\ Thus, card packages have 
limited space in which to explain their product and disclose key 
features. It has also been reported that fee information for prepaid 
products is sometimes hard to find and difficult to understand, thus 
making comparison shopping challenging.\34\

[[Page 77107]]

However, the Bureau believes that consumers benefit from comparison 
shopping. For example, the 2012 FRB Philadelphia Study found that total 
cardholder costs vary by the type of open-loop prepaid product. \35\
---------------------------------------------------------------------------

    \31\ See, e.g., Fed. Reserve Bank of St. Louis, Cards, Cards and 
More Cards: The Evolution to Prepaid Cards, Inside the Vault, Fall 
2011, at 1, 2, available at http://www.stlouisfed.org/publications/itv/articles/?id=2168 (``Competition among prepaid card issuers and 
increased volume have helped lower card fees and simplify card 
terms''); 2014 Pew Study, at 2 (``[O]ur research finds that the 
providers are competing for business by lowering some fees and are 
facing pressure from new entrants in the market'').
    \32\ 2014 Pew Survey, at 5, 6.
    \33\ A j-hook is a looped hook used by retailers to hang prepaid 
cards (and other products). Retailers often sell prepaid cards on j-
hooks in a standalone display rack at the end of an aisle in a 
store.
    \34\ See, e.g., Consumer Reports, Prepaid Cards: How They Rate 
on Value, Convenience, Safety and Fee Accessibility and Clarity, 
(July 2013), at 24, available at http://www.consumerfinance.gov/blog/prepaid-cards-help-design-a-new-disclosure/.
    \35\ 2012 FRB Study, at 6, 39, 72; Fumiko Hayashi & Emily Cuddy, 
General Purpose Reloadable Prepaid Cards: Penetration, Use, Fees and 
Fraud Risks, at 33-35 (Fed. Reserve Bank of Kansas City, Working 
Paper No. RWP 14-01, 2014) (Kansas City Fed Study), available at 
https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf.
---------------------------------------------------------------------------

    In addition to the size limitations to GPR card packaging related 
to the fact that many GPR cards are sold through the retail channel on 
J-hooks, certain aspects of purchasing GPR cards in retail settings may 
pose additional issues. For instance, some retail locations may only 
offer one or a handful of products. Retailers may not always have a 
broad selection of GPR cards that consumers can compare while in a 
particular store, because prepaid card providers can establish 
exclusive marketing arrangements that may prevent competitors' cards 
from being sold in the same store.\36\ The Bureau acknowledges that the 
lack of choice is not necessarily unique to GPR cards sold in certain 
retail locations. For example, any one bank or credit union may only 
offer a limited range of transactional accounts. Further, in some 
stores, prepaid products including GPR cards may be displayed behind a 
register, requiring a consumer to ask to see each product packaging 
individually. The Bureau believes that this process likely makes 
comparison-shopping more time-consuming, even when choice among 
products exists. Lastly, in a retail setting, GPR cards may be 
displayed near closed-loop prepaid products such as gift cards. This 
could contribute to consumer confusion. For the above reasons, the 
Bureau believes that a consumer looking to comparison shop among 
different GPR cards in a retail setting may incur high search costs.
---------------------------------------------------------------------------

    \36\ For example, earlier this year Blackhawk Network Holdings, 
Inc. extended its exclusive distribution arrangement with Safeway 
Inc. through 2019. See Press Release, Blackhawk Network, Safeway and 
Blackhawk extend exclusive prepaid card distribution agreement 
through 2019 (Mar. 7, 2014), available at http://.com/blackhawk-
comments-on-parent-company-safeways-spin-off-announcement/.
---------------------------------------------------------------------------

    Additionally, in a retail setting, consumers desiring to purchase 
GPR cards may only allot limited time to consider their purchases. The 
Bureau believes that consumers often purchase a GPR card while 
purchasing groceries and convenience items, and may not take the time 
to fully review and comprehend the terms of the card that they are 
acquiring. Moreover, the selling of GPR cards in convenience and other 
retail stores that do not otherwise sell financial products (as opposed 
to, for example, at a bank) may not be conducive to helping a consumer 
understand the terms and conditions of the GPR card or that the 
consumer may be starting a long-term financial relationship that could 
entail significant expense for the consumers. For example, the Bureau 
believes that a salesperson at a convenience store where a GPR card is 
sold may not be able to provide adequate information to a consumer 
about the product. In contrast, the Bureau expects that an employee at 
a bank or credit union would be better informed.
    Further, once a consumer can review the full terms and conditions 
of a GPR card, the consumer has typically already purchased the card 
and loaded funds onto it, making returns difficult or impossible due to 
the inability of the retail store to refund the cash loaded onto a 
prepaid product including a GPR card. During outreach, several prepaid 
product providers have informed the Bureau that they provide refunds 
related to the purchase of a prepaid card, but the Bureau believes that 
few consumers realize that this is an option. The Bureau acknowledges 
that consumers who determine they do not want to establish a long term 
relationship with the GPR prepaid card they purchased may also end the 
relationship more easily (as compared to closing a checking or credit 
card account). Such consumers could spend down the funds initially 
loaded onto the card and then discard it. However, the Bureau believes 
that the consumer could still incur fees such as monthly maintenance 
fees for using the GPR card.
Structure of Typical GPR Card Programs
    GPR card products are generally provided by combinations of 
entities working together rather than by a single, vertically-
integrated entity operating all aspects of the program. In fact, the 
Bureau understands that the typical GPR card supply chain involves more 
parties than the supply chains for traditional checking or savings 
accounts or for credit cards. Although a consumer may only interact 
with a single entity or limited number of entities involved in the 
supply chain such as those entities whose logos are displayed on the 
GPR card or its packaging, the Bureau believes that the fact that many 
different entities can be involved in the supply chain could expose 
consumers as well as the entities themselves to greater risks such as 
potential losses resulting from the insolvency or malfeasance of other 
entities involved in the supply chain, when compared to the risks 
associated with a traditional checking or savings account. The Bureau 
discussed the various entities that may be involved in a typical GPR 
card program below.
    Entities involved in a typical GPR card program. First, entities 
known in the industry as program managers may design, manage, market, 
and generally operate GPR card programs. Program managers may include 
depository institutions and credit unions, but are typically non-
depository entities. Program managers typically establish or negotiate 
a GPR card program's terms and conditions, market the card, assume most 
of the financial risks associated with the program, and reap the bulk 
of the revenue from the program.\37\ The program manager is also, in 
most cases, the primary consumer-facing party in connection with a GPR 
card, because it is typically the program manager's brand on the card 
as well as its packaging.\38\ While a handful of program managers 
appear to have had a large majority of the market share as recently as 
2012, the Bureau notes that the GPR card industry is fast-changing. 
Indeed, it appears that new entrants--both start-ups and established 
financial institutions--have led to both increased competition and 
growth in the market over just the last few years.\39\
---------------------------------------------------------------------------

    \37\ See Kansas City Fed Study, at 6.
    \38\ See Aite Grp. LLC, Prepaid Debit Card Realities: Cardholder 
Demographics and Revenue Models, at 17 (Nov. 2013).
    \39\ Id.
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    Program managers typically contract with various third-party 
service providers for various tasks. One of the most important entities 
involved in GPR card program is the prepaid card issuer, which is 
typically either a depository institution or credit union. Virtually 
all GPR cards must be issued by depository institutions or credit 
unions that are authorized by the retail electronic payment card 
networks. Issuers may manage the accounts that hold funds loaded onto 
the cards. Some depository institutions and credit unions are actively 
involved in the GPR cards they issue by serving as both issuer and 
program manager for their own programs. Other depository institutions 
may only act as an issuer and provide sponsorship into specific payment 
networks, but may work closely with the entity that is the program 
manager for a specific GPR card program to design, market and 
administer the

[[Page 77108]]

program. In sum, the particular services that issuers provide and their 
degree of involvement in any GPR card program may vary.\40\ The Bureau 
understands that variations can be due to the extent to which the 
program manager performs particular services by itself, as well as due 
to the particular features of a specific GPR card program.
---------------------------------------------------------------------------

    \40\ In some cases, a white label model is used whereby banks 
and credit unions rely upon another institution to issue prepaid 
accounts, which may be branded with the bank or credit union's name. 
There are a handful of such programs through which banks and credit 
unions, including some that are small, offer prepaid accounts 
(typically as a convenience to their customers or members).
---------------------------------------------------------------------------

    To produce, market and sell GPR cards, program managers work with, 
as applicable, manufacturers and distributors. The Bureau understands 
that distributors arrange for GPR cards to be sold through various 
channels including through retailers, money transfer agents, tax 
preparers, check cashers, and payday lenders. Further, in many cases, 
the Bureau understands that third-party processors may provide many of 
the back-office processing functions associated with initial account 
opening (including those related to transitioning from temporary to 
permanent cards), transaction processing, and account reporting. 
Lastly, the payment networks themselves also establish and enforce 
their own rules and security standards related to payment cards 
generally and prepaid products such as GPR cards specifically. The 
networks also facilitate card acceptance, routing, processing, and 
settling of transactions between merchants and card issuers.
    How funds are held. In contrast to a traditional checking or 
savings account, prepaid products including GPR cards are unique in 
that the underlying funds are typically held in a pooled account at a 
depository institution or credit union. This means that rather than 
establish individual accounts for each cardholder, a program manager 
may establish a single account at a depository institution or credit 
union in its own name, but typically title the account to indicate that 
it is held for the benefit of each individual underlying cardholder. 
The Bureau understands that the program manager, sometimes in 
conjunction with the issuing depository institution or credit union or 
the depository institution or credit union holding the funds, will 
typically establish policies and procedures and put in place systems to 
demarcate each cardholder's funds within the pooled account. As 
discussed in detail below, these pooled accounts may qualify for, as 
applicable, FDIC pass-through deposit insurance or National Credit 
Union Administration's (NCUA) Share Insurance Fund (NCUSIF) pass-
through share insurance. Whether the accounts in fact qualify depends 
on how the account is structured and whether certain other conditions 
are met. Also discussed in greater detail below, both the FDIC and NCUA 
have special rules, regarding how pool accounts may qualify for, as 
applicable, FDIC or NCUSIF pass-through insurance.
    Revenue generation. The Bureau understands that GPR cards typically 
generate revenue through an up-front purchase price paid by the 
consumer, the assessment of various monthly maintenance and 
transactional fees, and interchange fees collected from merchants by 
the payment networks. The 2012 FRB Philadelphia Study found that 
``while not as important as cardholder fees, interchange revenues (fees 
paid by a merchant or acquiring bank for the purpose of compensating an 
issuer for its involvement in an electronic prepaid, debit, or credit 
card transaction) account for more than one-fifth of the issuer 
revenues in the general-purpose programs and almost half of revenues in 
the payroll programs.'' \41\ Revenue is shared among some or all of the 
entities involved in the GPR card supply chain, although as also 
discussed above, program managers generally reap the bulk of the 
revenue from GPR card programs. Further, the Bureau notes that 
publicly-available details of how revenue is distributed and expenses 
are accounted for are sparse. Additionally, the Bureau believes that 
the distribution of revenue and the sharing of expenses among the 
entities involved the GPR card supply chain likely vary across 
programs.
---------------------------------------------------------------------------

    \41\ 2012 FRB Philadelphia Study, at 6.
---------------------------------------------------------------------------

Prepaid Products Loaded by Third Parties
    The Bureau understands that consumers also receive network-branded 
open-loop prepaid products from third parties that disburse funds to 
consumers by loading the funds onto such accounts. Previously, funds 
may have been distributed to the consumer via paper check, direct 
deposit into a traditional checking or saving account, or cash. Payroll 
cards are the most common example of prepaid products used by third 
parties to distribute funds to consumers. In 2013, over five million 
payroll cards were issued, and $30.6 billion was loaded onto them.\42\ 
The Bureau understands that an employer may establish payroll cards for 
its employees, directly or indirectly, for the express purpose of 
delivering on an ongoing basis, recurring payments of an employee's 
wages, salary, or other compensation, and an employee may choose having 
his compensation distributed via a payroll card over other options for 
receiving compensation.
---------------------------------------------------------------------------

    \42\ Mercator Advisory Grp., Eleventh Annual U.S. Prepaid Cards 
Market Forecasts, 2014-2017, at 32 (Nov. 2014).
---------------------------------------------------------------------------

    If an employee chooses a payroll card, the Bureau understands that 
the employer will provide the employee with a network-branded prepaid 
card that accesses a subaccount assigned to the individual employee. 
Moreover, on each payday, the employer will transfer the employee's 
compensation to the payroll card account, instead of providing the 
employee with a paper check or making a direct deposit of funds to the 
employee's checking or savings account. The employee can use the 
payroll card to withdraw funds at an ATM or over-the-counter via a bank 
teller. The employee can also use the payroll card to make purchases 
online and at physical retail locations. An employee may even be able 
to obtain cash back at the point-of-sale (POS). Some payroll cards may 
offer features such as convenience checks and electronic bill payment. 
The Bureau understands that employers market payroll cards as an 
effective means for employees who may lack a traditional banking 
relationship to receive wages. Indeed, the Bureau believe that payroll 
cards may provide some consumers a more suitable, cheaper, and safer 
method of receiving their wages, as compared to other methods, such as 
receiving a check and going to a check-cashing store, if the consumer 
does not have a checking account.
    Within the last ten years, however, there have been increasing 
concerns raised about payroll cards, with specific focus on potentially 
harmful fees and practices associated with payroll cards. As explained 
in greater detail below, the Board extended a modified form of 
Regulation E coverage to payroll cards in 2006, but did not extend 
these rules to GPR cards and other prepaid products. Among the relevant 
provisions of Regulation E that apply to payroll cards is the provision 
on compulsory use. Pursuant to this provision, no financial institution 
or other person can mandate that a consumer receive an electronic fund 
transfer into an account at a particular institution as a condition of 
employment. 12 CFR 1005.10(e)(2).
    The Bureau issued a guidance bulletin in September 2013 to clarify 
the application of Sec.  1005.10(e)(2) to payroll

[[Page 77109]]

card accounts.\43\ The bulletin reminded employers that they cannot 
require their employees to receive wages on a payroll card. It also 
explained some of the Regulation E protections that apply to payroll 
card accounts, such as those pertaining to fee disclosure, access to 
account history, limited liability for unauthorized use, and error 
resolution rights. Since the Bureau issued the bulletin, it understands 
that certain industry stakeholders have worked to develop industry 
standards incorporating and building upon the guidance given in it.\44\ 
Nevertheless, the Bureau believes that concerns persist as to whether 
and how employers and financial institutions are complying with the 
compulsory use provision and other provisions of Regulation E, as well 
as related State laws applicable to the distribution of wages.\45\ For 
example, employees may not always be aware of the ways in which they 
may receive their wages, because States may have differing and evolving 
requirements.\46\
---------------------------------------------------------------------------

    \43\ CFPB Bulletin 2013-10, Payroll Card Accounts (Regulation E) 
(Sept. 12, 2013), available at http://.consumerfinance.gov/f/
201309_cfpb_payroll-card-bulletin.pdf.
    \44\ See, e.g., Press Release, MasterCard MasterCard Introduces 
Payroll Card Standards (Dec. 13, 2013), available at http://newsroom.mastercard.com/press-releases/mastercard-introduces-payroll-card-standards/.
    \45\ See, e.g., N.Y. State Attorney Gen., Labor Bureau, The 
Impact of Payroll Cards on Low-Wage Workers, available at http://www.ag.ny.gov/pdfs/Pinched%20by%20Plastic.pdf.
    \46\ See, e.g., http://paycard.americanpayroll.org/compliance-regulations (listing the various State regulations that apply to 
payroll cards).
---------------------------------------------------------------------------

    The Bureau additionally believes that payroll card accounts raise 
disclosure issues beyond those addressed by its payroll card accounts 
guidance bulletin, discussed above. Employers may offer a payroll card 
account when an employee starts employment, and the issue of how the 
employee is to be paid is likely to be one among the many and varied 
human resource issues confronting the employee during orientation. An 
employee may be provided with a stack of forms to complete and may not 
have the time or opportunity to review them. It is also possible that 
the employee may be unaware that receiving wages via a payroll card 
account is optional, particularly if the employer does not present the 
options clearly. These forms the employee may receive from the employer 
may not always include all of the relevant information regarding the 
terms and conditions of the payroll card account, such as fees 
associated with the card and how cardholders can withdraw funds on the 
card. Separately, some have raised concerns about the extent to which 
payroll card providers share program revenue with employers and, if so, 
whether that revenue sharing has negative consequences for cardholders.
    Payroll cards are just one type of network-branded open-loop 
prepaid products consumers may receive from third parties that disburse 
funds to consumers by loading the funds onto such accounts. For 
example, institutions of higher education may partner with certain 
entities to disburse student financial aid proceeds into network-
branded open-loop prepaid products endorsed by those institutions. See 
34 CFR 668.164(c)(2) (setting forth that certain Federal student aid 
payments disbursed via ``an account that underlies a stored-value 
card'' is considered a direct payment to a student or parent). Like 
with payroll card accounts, some have raised concerns about revenue 
sharing in connection with prepaid cards provided to students.
    A 2014 Government Accountability Office (GAO) report found that of 
the U.S. colleges and universities participating in Federal student aid 
programs for the 2011-2012 school year that had agreements with 
financial firms to provide debit and prepaid card services for 
students, approximately 80 percent of such agreements were for debit 
cards, with the remainder for prepaid cards.\47\ The report also stated 
that more than 80 percent of the schools identified in the report with 
card agreements indicated that students could use their cards to 
receive financial aid and other funds from the school.\48\ Further, the 
report found instances where certain third-party providers involved in 
college card programs work with a bank partner.\49\
---------------------------------------------------------------------------

    \47\ U.S. Gov't Accountability Office, GAO-14-91, College Debit 
Cards Actions Needed to Address ATM Access, Student Choice and 
Transparency, at 8 (Feb. 2014) (GAO 2014 College Card Report), 
available at http://www.gao.gov/assets/670/660919.pdf.
    \48\ GAO 2014 College Card Report, at 9.
    \49\ Id. at 15.
---------------------------------------------------------------------------

    Among other things, the GAO noted concerns about the fees on 
student debit and prepaid cards, as well as the lack of ATM access and 
the lack of the schools' neutrality toward the card programs.\50\ It 
found instances in which schools appeared to encourage students to 
enroll in the school's specific prepaid card program, rather than 
present neutral information about disbursement options for financial 
aid.\51\ Relatedly, the Department of Education is in the process of a 
negotiated rulemaking regarding the use of third-party entities to 
disburse Federal student aid, including those that may distribute funds 
via prepaid products.\52\
---------------------------------------------------------------------------

    \50\ U.S. Gov't Accountability Office, GAO Highlights: 
Highlights of GAO-14-91, a Report to the Chairman, Committee on 
Health, Education, Labor, and Pension, U.S. Senate (Feb. 2014), 
available at http://www.gao.gov/assets/670/660920.pdf.
    \51\ Id.
    \52\ 78 FR 69612 (Nov. 20, 2013).
---------------------------------------------------------------------------

    Further, the Bureau understands that prepaid cards are also used by 
some insurance providers to pay certain insurance claims such as claims 
related to a property or casualty loss.\53\ During outreach, some 
insurance providers informed the Bureau that, where permitted by State 
law, it is faster and more economical to provide workers compensation 
payments on prepaid cards relative to mailing paper checks. 
Additionally, after a natural disaster, the disbursement of funds from 
insurance claims onto prepaid cards may allow funds to be delivered to 
consumers that may be unable to use or access traditional checking or 
savings accounts.
---------------------------------------------------------------------------

    \53\ Mercator Advisory Grp., Tenth Annual U.S. Prepaid Cards 
Market Forecasts, 2013-2016, at 42-43 (Oct. 2013).
---------------------------------------------------------------------------

    Similarly, taxpayers may direct tax refunds onto prepaid cards 
provided by tax preparers or government entities. These prepaid cards 
are typically open-loop cards. Other disbursements onto prepaid cards 
include disbursement of mass transit or other commuting-related funds, 
which are typically onto restricted closed loop cards. However, the 
Bureau understands that new transit payment models are emerging, and 
these models tend to involve open-loop prepaid cards.\54\ Aid 
distributed by relief organizations or government agencies in response 
to natural disasters is usually loaded onto open-loop cards. In some of 
these cases, the cards may be reloaded by the entity that initially 
disbursed funds onto the card.
---------------------------------------------------------------------------

    \54\ See e.g., https://www.ventrachicago.com/ (The city of 
Chicago's mass transit card has reloadable open-loop features). See 
also http://www.septa.org/key/ (The city of Philadelphia announced 
that its mass transit card will also have reloadable open-loop 
features).
---------------------------------------------------------------------------

    Finally, government entities also distribute various funds onto 
prepaid products. In addition to distributing tax refunds onto such 
products, the Federal government and various State governments may use 
prepaid products to distribute government benefits such as Social 
Security Payments,\55\ unemployment insurance benefits,\56\

[[Page 77110]]

child support payments, and other types of disbursements including 
needs-tested benefits. Needs-tested benefits include funds related to 
Temporary Assistance for Needy Families (TANF), Special Supplemental 
Nutrition Program for Women, Infants and Children (WIC) and the 
Supplemental Nutrition Assistance Program (SNAP). State and local 
government programs for distributing needs-tested benefits are 
typically referred to as electronic benefit (EBT) programs. Most States 
offer a choice between at least direct deposit to a traditional 
checking or savings account or a prepaid product for the receipt of 
unemployment insurance benefits. However, the Bureau understands that 
several States require the distribution of such benefits onto prepaid 
products.\57\ With respect to other government benefits, as noted below 
in the discussion of relevant law, Regulation E does not apply to EBT 
programs.\58\ In addition, Treasury's Bureau of the Fiscal Service, on 
behalf of the United States military, provides both closed-loop and 
open-loop prepaid cards for use by servicemembers and contractors in 
the various branches of the armed forces.\59\ The features of and fees 
charged in connection with these cards may vary.
---------------------------------------------------------------------------

    \55\ Treasury has established the Direct Express program for the 
distribution of government benefits such as Social Security 
payments.
    \56\ See e.g., Nat'l Consumer Law Ctr., 2013 Survey of 
Unemployment Compensation Prepaid Cards, at 7 (Jan. 2013), available 
at http://www.nclc.org/issues/unemployment-compensation-prepaid-cards.html (noting that 42 States offer some form of prepaid card 
for distribution of employment compensation payments).
    \57\ Id. at 1.
    \58\ See EFTA section 904(d)(2)(B); Regulation E Sec.  
1005.15(a)(2).
    \59\ See, e.g., Navy Cash/Marine Cash, http://fms.treas.gov/navycash/index.html and Eagle Cash, http://fms.treas.gov/eaglecash/index.html. As discussed further below, the Navy Cash and Marine 
Cash products may have multiple ``purses'' such that one ``purse'' 
can only be used at a limited number of linked merchants (such as 
various places on a Naval vessel) while the other ``purse'' can be 
linked to a payment card network that provides global acceptance to 
unaffiliated merchants.
---------------------------------------------------------------------------

    The Bureau believes that as a general matter, prepaid products 
loaded by third parties present some of the same consumer protection 
issues as GPR cards such as the lack of clear disclosures about fees 
and other important terms and conditions, and the lack of opportunity 
for consumers to compare and evaluate different products before 
acceptance. Consumers may use these products as their primary 
transaction account, particularly when the product is loaded with all 
of the consumer's incoming funds (e.g., wages, unemployment benefits, 
student loan proceeds, etc.). In accepting the product, a consumer may 
not fully grasp all of its fees and terms and how those fees and terms 
might impact the consumer over time. In addition and as previously 
noted, consumers may be offered these products in situations that make 
comparison shopping difficult. However, the Bureau believes that many 
prepaid accounts with funds loaded by third parties may present 
distinct set of issues as well. The Bureau understands many types of 
these accounts are distributed to very specific segments of consumers 
such as college-age students or very low-income consumers, and 
accordingly, there may be distinct consumer protection issues 
associated with these prepaid products.
Digital Wallets
    In recent years, there has been increasing industry interest in 
developing ``digital wallets'' and ``mobile wallets.'' A consumer may 
keep cash, debit and credit cards, GPR cards, and gift cards in a 
physical wallet or purse. Digital wallets have been marketed as a 
viable alternative to a physical wallet, because a number of digital 
wallets currently available can store one or more of the consumer's 
payment credentials electronically.\60\ For example, a digital wallet 
may allow a consumer to store the consumer's bank account, debit card, 
credit card, and/or prepaid card credentials in the wallet, which may 
be accessed by the consumer through a Web site. Digital wallets that a 
consumer could access using a mobile device such as a smartphone have 
been described as mobile wallets.\61\ Further, some, but not all, 
digital wallets currently available to consumers allow a consumer to 
store funds in it directly or by funding a prepaid product, and draw 
down the stored funds.\62\
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    \60\ Aite Grp. LLC, Money Goes Mobile, (May 2014), available at 
http://www.aitegroup.com/report/money-goes-mobile.
    \61\ Id.
    \62\ See e.g., http://www.google.com/wallet/index.html (last 
accessed on Oct. 28, 2014) (``The Wallet Balance is the money in 
your Google Wallet . . . [money will be stored in the wallet]. [Use] 
your Wallet Balance to send money to friends [and shop], or transfer 
money to your bank account. You can also add money to your Wallet 
Balance . . . from a credit card, debit card or linked bank 
account.''); see also, https://www.serve.com/ (last accessed on Oct. 
28, 2014) (``Use the American Express Serve Mobile App to check your 
balance and recent transactions, pay bills on the go, add checks, 
and send money to family or friends who have a Serve Account. 
Download the American Express Serve Mobile App for iOS or 
Android.'').
---------------------------------------------------------------------------

    Digital wallets have been marketed as allowing consumers to 
electronically transmit funds in multiple settings. Currently, digital 
wallets can be used by a consumer for online purchases,\63\ payments at 
brick-and-mortar retailers through, for example, contactless 
communication at the point of sale,\64\ as well as person-to-business 
(i.e. bill pay) and P2P transfers.\65\ The Bureau understands that 
there may be significant variations in how funds are held in digital 
wallets and how payments are processed by digital wallets and that 
payment processing by digital wallets is evolving quickly. For 
instance, some digital wallets provide methods for accessing the ACH 
system to make a payment. In this case, a consumer might use a digital 
wallet to pay for an online purchase, and the digital wallet 
facilitates the transfer of funds from the consumer's checking account 
to fund the transaction. In other cases, the consumer's funds are first 
transferred to the digital wallet either by the consumer or by the 
digital wallet provider, and then transferred to ultimate payee. For 
example, it may be possible for a consumer to maintain a positive 
balance in the wallet through transfers from sources such as a bank 
account, a credit, debit, or prepaid card, or a P2P transfer. The 
consumer's digital wallet balance may be held in the name of the 
digital wallet provider in a pooled account that is not further divided 
into subaccounts that are held in the name of any individual consumer.
---------------------------------------------------------------------------

    \63\ See e.g., Visa Checkout Terms of Service, https://secure.checkout.visa.com/pages/terms?country=US&locale=en (last 
accessed on Oct. 28, 2014).
    \64\ See e.g., Google Wallet Terms of Service, https://wallet.google.com/termsOfService?type=BUYER&gl=US (last accessed on 
Oct. 28, 2014).
    \65\ See e.g., Boost Mobile Wallet Terms of Service, (https://boostmobile.wipit.me/legal/terms.aspx (last accessed on Oct. 28, 
2014).
---------------------------------------------------------------------------

    A mobile wallet may act as a pass-through that enables consumers to 
pay for goods at a store using payment credentials for other accounts, 
such as credentials for a consumer's credit card, debit, or prepaid 
card that the consumer has stored on the mobile wallet. For example, a 
consumer could use a mobile wallet on a smartphone to select the 
consumer's debit card to fund a payment for a good or service, and then 
use near field communication to tap the phone at a point-of-sale 
terminal to pay. The Bureau expects that variations of digital wallets 
will continue to grow and observes that the methods described herein 
are a few of the funding options available in the current market.
Credit Features, Overdraft Programs & Prepaid Products
    As currently offered and marketed, most prepaid products do not 
allow consumers to spend more money than is loaded onto the product. 
Although there are a few exceptions, most providers of prepaid products 
do not currently offer overdraft services,\66\ a linked line of

[[Page 77111]]

credit,\67\ access to a deposit advance product \68\ or other method of 
accessing credit in connection with a prepaid product.\69\ Instead, 
prepaid products, including many GPR cards, are actively marketed as 
``safe'' alternatives to checking accounts with opt-in overdraft 
services, credit cards, or other credit options.\70\
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    \66\ As discussed further below, overdraft services evolved from 
ad hoc, discretionary programs in which financial institutions would 
sometimes cover particular transactions that would otherwise 
overdraw an account as a courtesy to the consumer rather than return 
the transaction and subject the consumer to a non-sufficient-funds 
(NSF) fee, merchant fees, and other negative consequences from 
bounced checks. Overdraft services fees are imposed on a per 
transaction basis, and the financial institution takes the balance 
owed as soon as additional funds are deposited into the account. 
Further, as explained below, the Board exempted overdraft services 
from regulation under TILA and Regulation Z, as long as they are 
provided pursuant to an agreement that does not obligate the 
financial institution to cover any particular transaction. In 
addition, these programs are not typically subject to traditional 
underwriting processes used for other credit products. Under 
Regulation E, financial institutions must obtain an opt-in by the 
consumer before imposing overdraft fees on ATM and one-time point of 
sale transactions by debit card. See Regulation E, Sec.  1005.17(b).
    \67\ A linked line of credit is a separate line of credit that a 
financial institution ``links'' to a deposit account or prepaid 
product to draw funds automatically where transaction made using 
funds from the account or product would otherwise take the balance 
on the account or product negative. Such a credit feature is 
generally subject to interest rates, traditional credit 
underwriting, and the Truth in Lending Act and Regulation Z. 
Similarly, some financial institutions offer consumers an option to 
link their credit card to a deposit account to provide automatic 
``pulls'' to cover transactions that would otherwise exceed the 
balance in the account.
    \68\ A deposit advance product (DAP) is a small-dollar, short-
term loan or line of credit that a financial institution makes 
available to a customer whose deposit account reflects recurring 
direct deposits. The customer obtains a loan, which is to be repaid 
from the proceeds of the next direct deposit. DAPs typically do not 
assess interest and are fee-based products. Repayments are typically 
collected from ensuing deposits, often in advance of the customer's 
other bills. (See CFPB Whitepaper on Payday and Deposit Advance 
Products: Initial Data Findings, Apr. 30, 2013, see also OCC and 
FDIC Final Guidance on Supervisory Concerns and Expectations 
Regarding Deposit Advance Products, 78 FR 70552, 70624 (Nov. 26, 
2013). Publication of the Bureau's White Paper and the guidance 
issued by the FDIC and OCC has caused many financial institutions to 
reevaluate their DAP programs.
    \69\ For example, a financial institution could offer a product 
whereby consumers with a credit account access that account and 
``push'' the credit into their prepaid accounts where it can be 
spent.
    \70\ See, e.g., NBCPA, What are Prepaid Cards?, http://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx 
(last visited Oct. 28, 2014) (``For many Americans, prepaid cards 
serve as a tool with which to more effectively budget their 
spending. With a prepaid card, consumers avoid the risk of over-
spending or overdraft, thus avoiding the interest, fees and 
potential negative credit score implications of traditional credit 
cards. And for parents, prepaid cards provide tools to maintain 
control over their teens' or college students' spending.''); see 
also Examining Issues in the Prepaid Card Market: Hearing before the 
Subcomm. On Fin. Inst. and Consumer Prot., S. Comm. on Banking, 
Housing and Urban Affairs, 112th Cong. 2 (2012) (Remarks of Dan 
Henry, Chief Executive Officer, NetSpend Holdings, Inc.) (``Our 
customers are typically working Americans who want control. . . 
.'').
---------------------------------------------------------------------------

    As the Bureau observed above, it appears that a desire to avoid 
fee-based overdraft services motivates a sizeable portion of consumers 
to choose prepaid products, such as GPR cards, over checking 
accounts.\71\ Further, a slight majority of consumers that participated 
in the 2014 Pew Survey stated that one of the major reasons that they 
use prepaid products is that they help those consumers control their 
spending.\72\ Similarly, the Bureau's own focus groups also found that 
many consumers choose prepaid products because they help them control 
their spending.\73\ Unlike deposit accounts with an overdraft feature 
or linked lines of credit, credit cards, and other credit products, 
consumers that use prepaid products without credit features (i.e., most 
prepaid consumers) cannot spend funds that have not been loaded into 
the account.
---------------------------------------------------------------------------

    \71\ 2014 Pew Survey, at 14 ex.12 (noting that the top two 
reasons consumers claim to use prepaid cards related to avoiding 
credit card debt (67 percent) and helping them not spend more money 
than they actually have (66 percent).
    \72\ 2014 Pew Survey, at 13-14.
    \73\ ICF Report, at 5.
---------------------------------------------------------------------------

    It also appears that many consumers specifically seek to acquire 
prepaid products that do not offer overdraft services or credit 
features because they have had negative experiences with credit 
products, including checking accounts with overdraft features or want 
to avoid fees related to such products. For example, the 2014 Pew 
Survey found that many prepaid consumers previously had a checking 
account and either lost that account (due to failure to repay 
overdrafts or related issues) or gave up the checking account due to 
overdraft or bounced check fees.\74\ Relatedly, prepaid products are 
often used by consumers who cannot obtain a checking account due to bad 
credit or other issues.\75\ GPR cards--which are sometimes marketed as 
involving ``no credit check''--provide consumers with access to 
electronic payment networks, the ability to make online purchases, and 
increased security and convenience over alternatives such as cash.\76\ 
Prepaid consumers often are unable to open credit card accounts and 
cannot get a traditional checking account with a debit card due to 
negative reports with credit reporting agencies focusing on checking-
account related credit issues.
---------------------------------------------------------------------------

    \74\ 2014 Pew Survey, at 7-8 (noting both that ``Most prepaid 
card users who have had a checking account in the past have paid 
associated overdraft fees for debit card usage'' and that ``Among 
those prepaid card users who have ever had a bank account, 41 
percent of them say they have closed or lost a checking account 
because of overdraft or bounced check fees'').
    \75\ Id. at 8 (noting that one-third of prepaid consumers who 
have ever had a checking account say they have closed a bank 
checking account themselves because of overdraft or bounced check 
fees and 21 percent who say they have had a financial institution 
close their account because of overdraft or bounced check fees).
    \76\ See ICF Report, at 5; 2014 Pew Survey, at 14 ex.12 (noting 
that 72 percent of prepaid consumers say that a reason they have a 
prepaid card is to make purchases online and other places that do 
not accept cash).
---------------------------------------------------------------------------

    Apart from consumers' reasons for favoring prepaid products, 
regulatory factors may also have discouraged prepaid product providers 
from offering overdraft services or credit features in connection with 
their products. The Bureau understands that some prepaid product 
issuers have received guidance from their prudential regulators that 
has deterred those financial institutions from allowing prepaid 
products they issue to offer overdraft services or credit features. 
Relatedly, the Bureau believes that a 2011 Office of Thrift Supervision 
enforcement action regarding a linked deposit advance feature may also 
have had a chilling effect on the growth of DAPs.\77\ Finally, while a 
number of industry commenters to the Bureau's Advance Notice of 
Proposed Rulemaking (Prepaid ANPR) expressed interest in offering 
overdraft services or credit features in connection with prepaid 
products, some industry commenters also expressed their reluctance to 
proceed until there is greater certainty as to whether this rulemaking 
would alter the permissible bounds of such a program.
---------------------------------------------------------------------------

    \77\ See In the Matter of MetaBank, Office of Thrift 
Supervision, Order No. CN 11-25 (July 15, 2011), available at http://www.occ.gov/static/ots/enforcement/97744.pdf.
---------------------------------------------------------------------------

    The Bureau understands that the only credit features being offered 
on prepaid accounts currently are structured as overdraft services.\78\ 
To date, overdraft services on prepaid accounts have been generally 
structured similar to overdraft services offered by financial 
institutions on checking accounts, but in some ways, are more consumer-
friendly. For example, the programs charge a per-transaction fee each 
time the consumer incurs an overdraft (e.g., one program

[[Page 77112]]

charges $15) although the fee tends to be lower than fees typically 
charged for checking accounts (median fee as of July 2014 is $35).\79\ 
In addition, issuers of certain prepaid products with overdraft 
services will waive the overdraft fee if the consumer repays the 
overdraft quickly (e.g., within 24 hours) or if the overdraft is only 
for a nominal amount (e.g., $5 or $10). Further, these terms and 
conditions also limit the number of overdrafts that will be permitted 
in a given month and the amount by which the account balance can go 
negative, and contain ``cooling off'' periods after a consumer has 
incurred more than a certain number of overdrafts. During the cooling 
off period, the consumer is typically prohibited from using the 
overdraft service.
---------------------------------------------------------------------------

    \78\ See CFSI Prepaid Industry Scorecard (noting that only two 
in a survey of 18 GPR programs representing 25% of the market 
currently offers an opt-in overdraft service); CFPB Overdraft 
Whitepaper, at 14 (summarizing data showing that most banks and 
credit unions offer opt-in overdraft programs). Apart from actual 
overdraft programs, some prepaid programs, according to their terms 
and conditions, reserve the right to impose a fee for a negative 
balance on a prepaid account. (These programs' agreements typically 
state that the cardholder is not permitted to spend beyond the 
balance in the prepaid account, but if circumstances were to occur 
that cause the balance to go negative, a fee will or may be imposed. 
Some agreements state that repeated attempts to spend beyond the 
card balance will or may result in the prepaid account being 
closed). Roughly 10 percent of reviewed agreements noted such a 
charge.
    \79\ Bureau staff determined the median figure for checking 
account overdraft fees through an analysis of the overdraft fees 
charged by the largest 50 U.S. banks ranked by consumer checking 
balances.
---------------------------------------------------------------------------

    With respect to the issue of fees, revenue from overdraft services 
does not appear to have significantly influenced the pricing structure 
of prepaid products in the same way that overdraft services have 
influenced traditional checking accounts. Indeed, as discussed above, 
overdraft services offered in connection with prepaid products are 
relatively rare, and fees are relatively modest compared to similar 
fees associated with checking account overdraft programs. As discussed 
in greater detail in the section-by-section analysis below, as a result 
of several regulatory exemptions discussed below, the Bureau believes 
that checking account overdraft programs have evolved from courtesy 
programs under which financial institutions would decide on a manual, 
ad hoc basis to cover particular transactions and help consumers avoid 
negative consequences to automated programs that are the source of as 
much as two-thirds of financial institutions' deposit account 
revenue.\80\ As a result, depository institutions and credit unions 
have developed checking accounts to have low (or sometimes no) up-front 
costs, to add services such as online bill pay (including not only 
electronic payments through the ACH network but also manual generation 
of checks authorized through the bank or credit union's on-line bill 
pay portal) at no additional cost, and to rely on ``back end'' fees 
such as per-transaction overdraft fees and NSF fees to maintain 
profitability. While some prepaid products may also have low or no 
upfront fees associated with them, the Bureau believes that this is 
largely due to the fact that as a general matter, fixed costs for 
prepaid products are substantially lower than similar costs for many 
checking accounts.\81\ Moreover, financial institutions that issue 
prepaid accounts typically do not earn their revenue from ``back-end'' 
overdraft fees or NSF fees. Instead, they earn revenue from other types 
of fees, such as ATM fees, and interchange fees collected from use of a 
prepaid account on a payment network.\82\
---------------------------------------------------------------------------

    \80\ According to information supplied to the Bureau as part of 
its large bank overdraft study and reported in its Overdraft White 
Paper, overdraft and NSF-related fees from consumer checking 
accounts constituted 61 percent of consumer and 37 percent of total 
deposit account service charges earned by study banks in 2011. If 
aggregate study bank fee revenue ratios could be extrapolated to all 
FDIC-insured institutions, this would imply the banking industry 
earned roughly $12.6 billion in consumer NSF and overdraft fees in 
2011. See CFPB Overdraft White Paper, at 14-15.
    \81\ See Cathy Corby Parker, Is ``What's Old New Again'' for 
Financial Institutions in Prepaid? (Aug. 2012), available at https://www.aba.com/Tools/Offers/Documents/What's%20Old%20Is%20New%20Again%20White%20Paper.pdf.
    \82\ For example, in 2013 one major program manager derived 
approximately 32 percent of its operating revenue from cash-reload 
fees and 30 percent from interchange fees. See Green Dot Corp., 2013 
Annual Report, at 30 (2014) available at http://phx.corporate-ir.net/phoenix.zhtml?c=235286&p=irol-reportsAnnual.
---------------------------------------------------------------------------

    As discussed in greater detail below, certain prepaid products, 
such as payroll card accounts and prepaid accounts that receive Federal 
payments, must comply with Regulation E's overdraft provisions. 
However, because many prepaid products are not now currently subject to 
Regulation E, they may not be required to comply with its provisions 
specific to overdraft services. Nonetheless, the Bureau understands 
that program managers of prepaid products with overdraft services or 
credit features have structured their products to comply with 
Regulation E's rules regarding overdraft services. Specifically, the 
Bureau understands that overdraft programs on GPR cards and payroll 
card accounts typically provide a disclosure similar to Model Form A-9 
in appendix A to Regulation E.\83\ This model form contains disclosures 
that require a consumer to opt-in to the overdraft service before a 
financial institution may charge the consumer a fee for a point-of-sale 
debit or ATM transaction that results in an overdraft of a consumer's 
account.\84\
---------------------------------------------------------------------------

    \83\ The Bureau understands that prepaid product providers that 
offer overdraft services typically do so with respect to both their 
GPR cards and payroll card accounts, to the extent they offer both 
products.
    \84\ The Bureau found in its Study of Prepaid Account Agreements 
that some programs' agreements state that while they do not offer 
formal overdraft services, they will impose negative balance or 
other similar fees for transactions that may take an account 
negative despite generally not permitting such activity. See Study 
of Prepaid Account Agreements, at 24-25. The Bureau does not believe 
such fees are typically charged.
---------------------------------------------------------------------------

    The Bureau understands that prepaid products that are associated 
with overdraft services or credit features generally offer such 
services only to those consumers that meet specified criteria, such as 
evidence of recurring deposits over a certain dollar amount. These 
recurring deposits presumably allow the financial institution to have 
some confidence that there will be incoming funds of adequate amounts 
to repay the debt. Further, the Bureau understands that the terms and 
conditions of prepaid product overdraft programs typically require that 
the next deposit of funds into the prepaid product--through either 
recurring deposits or cash reloads--be used to repay the overdraft, or 
they will claim such funds for the purpose of repaying the overdraft.

B. Existing Regulation of Prepaid Products

    There are several Federal regulatory regimes, including those 
regarding consumer protection; receipt of Federal payments; 
interchange; and international money laundering, terrorist financing, 
and other financial crimes that apply to some or all types of prepaid 
products. In addition to EFTA, its implementing regulation, Regulation 
E, and related guidance, other relevant regulations include Treasury's 
Financial Management Service's rule on the receipt of Federal payments 
on prepaid cards; \85\ the Board's Regulation II on debit card 
interchange and routing (12 CFR part 235); and FinCEN's prepaid access 
rule.\86\
---------------------------------------------------------------------------

    \85\ 75 FR 80335 (Dec. 22, 2010).
    \86\ 76 FR 45403 (July 29, 2011).
---------------------------------------------------------------------------

    Prudential regulators have also issued guidance about the 
application of their regulations to prepaid products, program managers, 
and financial institutions that issue prepaid products. For example, 
the FDIC has issued guidance regarding pass-through deposit insurance 
for prepaid accounts.\87\ The Office of the Comptroller of the Currency 
(OCC) has published a guidance bulletin to provide guidance to national 
banks for assessing and managing the risks associated with prepaid 
access programs.\88\ However, as

[[Page 77113]]

discussed below, the Bureau believes that there are gaps in the 
existing Federal regulatory regimes that cause certain prepaid products 
not to receive full consumer protections, in particular under 
Regulation E. In addition to Federal regulations that apply to prepaid 
products, the Bureau also discusses below some State consumer 
protection laws and other regulations specific to prepaid products.
---------------------------------------------------------------------------

    \87\ FDIC General Counsel Opinion No. 8, Insurability of Funds 
Underlying Stored Value Cards and Other Nontraditional Access 
Mechanisms, 73 FR 67155, 67157 (Nov. 13, 2008) (FDIC 2008 General 
Counsel Opinion).
    \88\ Office of the Comptroller of Currency, OCC Bulletin 2011-
27, Prepaid Access Programs, Risk Management Guidance and Sound 
Practices (June 28, 2011), available at http://www.occ.gov/news-issuances/bulletins/2011/bulletin-2011-27.html.
---------------------------------------------------------------------------

1. The Electronic Fund Transfer Act and Related Provisions in 
Regulation E Core Provisions of EFTA and Regulation E
    Congress enacted EFTA in 1978 with the purpose of ``provid[ing] a 
basic framework establishing the rights, liabilities, and 
responsibilities of participants in electronic fund transfer systems.'' 
However, EFTA's primary objective is ``the provision of individual 
consumer rights.'' \89\ Congress also empowered the Board to promulgate 
regulations implementing EFTA. EFTA section 904(a). With the adoption 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act), authority to implement most of EFTA transferred to the 
Bureau.\90\ See Dodd-Frank Act sections 1061(b) and 1084; 12 U.S.C. 
5581(b); 15 U.S.C. 1693a et seq.
---------------------------------------------------------------------------

    \89\ See Public Law 95-630; 92 Stat. 3728 (1978).
    \90\ Public Law 111-203, section 1084, 124 Stat. 2081 (2010) 
(codified at 12 U.S.C. 1693).
---------------------------------------------------------------------------

    The regulations first promulgated by the Board to implement EFTA 
now reside in subpart A of Regulation E, 12 CFR part 1005.\91\ These 
rules provide a broad suite of protections to consumers who make 
electronic fund transfers (EFTs). An EFT is any transfer of funds 
initiated through an electronic terminal, telephone, computer, or 
magnetic tape for the purpose of ordering, instructing, or authorizing 
a financial institution to debit or credit a consumer's account. Sec.  
1005.3(b)(1). Regulation E also provides protections for accounts from 
which consumers can make EFTs. In its initial rulemaking to implement 
EFTA, the Board developed a broad definition of ``account,'' which 
closely mirrored the definition of ``account'' in EFTA.\92\ The 
definition provides that, subject to certain specific exceptions, an 
account is a demand deposit (checking), savings, or other consumer 
asset account (other than an occasional or incidental credit balance in 
a credit plan) held directly or indirectly by a financial institution 
and established primarily for personal, family, or household purposes. 
Sec.  1005.2(b)(1).
---------------------------------------------------------------------------

    \91\ These provisions were originally adopted as 12 CFR part 205 
but, upon transfer of authority in the Dodd-Frank Act to implement 
Regulation E to the Bureau were renumbered as 12 CFR part 1005. 76 
FR 81020 (Dec. 27, 2011). Unless otherwise noted, historical 
provisions noted described as residing in 12 CFR part 1005 
originally were contained in 12 CFR part 205.
    \92\ 44 FR 18468, 18480 (Mar. 28, 1979).
---------------------------------------------------------------------------

    For covered accounts, Regulation E mandates that consumers receive 
certain initial disclosures, in writing and in a form that the consumer 
can keep. Sec.  1005.4(a)(1). As applicable, the initial disclosures 
must include, among other things, disclosures regarding a consumer's 
liability for unauthorized EFTs, an error resolution notice, contact 
information for the financial institution providing the account, the 
types of transfers a consumer may make and any limitations on the 
frequency and dollar amount of transfers, and the fees associated with 
making EFTs. See generally Sec.  1005.7(b). Regulation E also sets 
forth substantive provisions on error resolution and impose limits on a 
consumer's liability for unauthorized EFTs. See Sec. Sec.  1005.6 and 
1005.11. Moreover, Regulation E contains, among other things, 
provisions specific to periodic statements that generally must be 
provided in writing (Sec.  1005.9(b)), the issuance of access devices 
(Sec.  1005.5),\93\ preauthorized EFTs and compulsory use (Sec.  
1005.10), requirements for overdraft services (Sec.  1005.17), and ATM 
disclosures (Sec.  1005.16).
---------------------------------------------------------------------------

    \93\ An access device is a card, code, or other means of access 
to a consumer's account, or any combination thereof, that may be 
used by the consumer to initiate EFTs. Sec.  1005.2(a)(1).
---------------------------------------------------------------------------

    As discussed above, the Dodd-Frank Act transferred authority to 
implement most of EFTA from the Board to the Bureau. Since assuming the 
transferred authority, the Bureau has amended Regulation E in two 
substantive respects. First, as discussed in more detail in the 
section-by-section analysis below, the Bureau added consumer 
protections to Regulation E for certain international fund transfers. 
12 CFR 1005.30 et seq. Additionally, the Bureau amended Regulation E 
with respect to certain rules pertaining to ATM fee notices.\94\ 
However, before authority transferred from the Board to the Bureau, the 
Board had revised Regulation E on multiple occasions to add, among 
other things, protections for products used for the electronic 
distribution of government benefits, payroll card accounts, gift cards, 
and gift certificates. The Board's amendments to Regulation E to expand 
coverage to these additional account types are discussed below.
---------------------------------------------------------------------------

    \94\ 78 FR 18221 (Mar. 26, 2013).
---------------------------------------------------------------------------

Amendments to Regulation E Regarding Additional Account Types
    In 1994, the Board amended Regulation E to extend Regulation E's 
protections to accounts used for the electronic distribution of 
government benefits in what was then 12 CFR 205.15 (1994 EBT Rule).\95\ 
After the Board finalized the 1994 EBT Rule, Congress limited the 
application of EFTA and Regulation E with respect to State and local 
electronic benefit transfer programs to only those programs that are 
``non-needs tested,'' when it enacted the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996, a comprehensive welfare 
reform law.\96\
---------------------------------------------------------------------------

    \95\ 59 FR 10678 (Mar. 7, 1994).
    \96\ Public Law 104-193, 110 Stat. 2105 (1996).
---------------------------------------------------------------------------

    The enactment of the statute necessitated a change to the 1994 EBT 
Rule to exempt needs-tested government benefit programs established or 
administered under State or local law (e.g., benefits such as those 
provided under SNAP and the Aid to Families with Dependent Children 
program). As the Board explained at the time, the revision to EFTA was 
``enacted by the Congress at the urging of State officials, who 
expressed concern about the costs of compliance with EFTA and 
Regulation E. In particular, the States believed that EFTA provisions 
limiting a recipient's liability for unauthorized transfers could raise 
serious budgetary problems at the [S]tate level.'' \97\ As a result, 
the Board ultimately adopted a rule exempting EBT programs established 
or administered by State or local government agencies from Regulation 
E. However, all accounts used to distribute benefits for Federally-
administered programs (including Federal needs-tested programs) and 
non-needs tested State and local government benefit programs, such as 
employment-related ones, remained covered by Regulation E.\98\
---------------------------------------------------------------------------

    \97\ 62 FR 3242, 3243 (Jan. 22, 1997).
    \98\ 62 FR 43467 (Aug. 14, 1997).
---------------------------------------------------------------------------

    When the Board resumed rulemaking after enactment of the welfare 
reform legislation, it also took notice that prepaid cards (at the time 
referred to as stored-value cards) were beginning to be used by more 
consumers. The Board sought comment on whether to adopt rules specific 
to prepaid financial products (other than government benefit accounts) 
pursuant to its authority under EFTA (1996 Stored-Value Proposal).\99\ 
The Board explained that the facts, as it understood them, supported a 
determination to include stored-value accounts as accounts under 
Regulation E. Among the provisions considered in the 1996 Stored-Value 
Proposal, the Board proposed to extend Regulation E's error resolution

[[Page 77114]]

provisions to stored-value accounts and provide a periodic statement 
alternative for such accounts similar to what was adopted for 
government benefit cards in the 1994 EBT Rule. In the proposal, the 
Board noted pending legislation in Congress that would address stored-
value cards. H.R. 2520, 104th Cong., Sec.  443; S. 650, 104th Cong., 
Sec.  601 (1995).
---------------------------------------------------------------------------

    \99\ 61 FR 19696 (May 2, 1996).
---------------------------------------------------------------------------

    Ultimately, Congress directed the Board to conduct a study to 
evaluate whether provisions of EFTA could be applied to stored-value 
products without adversely affecting the cost, development, and 
operation of such products.\100\ The Board concluded in a March 1997 
report that:
---------------------------------------------------------------------------

    \100\ Public Law 104-208, 110 Stat. 3009 (1996).

    [G]iven the limited experience [at that time] with electronic 
stored-value products to date, it is difficult to predict whether 
the benefits to consumers from any particular Regulation E provision 
would outweigh the corresponding costs of compliance. . . . [F]ull 
application of Regulation E would likely impose substantial 
operating and opportunity costs of compliance. Partial application 
of Regulation E would be less burdensome than full application but, 
depending on the details, could still impose significant operating 
and opportunity costs for some electronic stored-value 
---------------------------------------------------------------------------
products.\101\

    \101\ Bd. of Governors of the Fed. Reserve Sys., Report to 
Congress on the Application of the Electronic Fund Transfer Act to 
Electronic Stored-Value Products, at 75 (Mar. 1997), available at 
http://www.Federalreserve.gov/boarddocs/rptcongress/efta_rpt.pdf. 
Notably, the products examined by the Board in this report differ 
from most prepaid products in use today.
---------------------------------------------------------------------------

    The Board ultimately did not finalize the 1996 Stored-Value 
Proposal. In the report, it concluded that the market was evolving 
rapidly and was not yet ripe for regulation.\102\
---------------------------------------------------------------------------

    \102\ Id.
---------------------------------------------------------------------------

    The Board next considered changes to Regulation E with respect to 
prepaid products in 2004, when it proposed amendments to Regulation E 
to extend it to payroll card accounts established by an employer for 
providing an employee's compensation on a regular basis.\103\ The Board 
concluded that extending a modified form of Regulation E protections 
was warranted for payroll card accounts because they are often used as 
account substitutes. However, as discussed in greater detail below, yet 
again, the Board decided not to extend such protections to other 
prepaid products such as general-use prepaid cards, because it 
concluded that consumers used such cards in many different ways.
---------------------------------------------------------------------------

    \103\ 69 FR 55996 (Sept. 17, 2004).
---------------------------------------------------------------------------

    In its final rule, the Board included payroll card accounts within 
the definition of account in Sec.  1005.2(b) (Payroll Card Rule).\104\ 
The Board also established provisions in Regulation E specific to 
payroll card accounts that modified certain Regulation E provisions as 
the Board deemed appropriate. As noted above, Regulation E generally 
requires financial institutions to provide periodic statements in 
writing. See Sec.  1005.9(b). The Board allowed providers of payroll 
card accounts to avoid this requirement, if the institution makes 
available to the consumer: (1) The account balance, through a readily 
available telephone line; (2) an electronic history of account 
transactions that covers at least 60 days (including all the 
information required in periodic statements by Sec.  1005.9(b)); and 
(3) a written history of account transactions that is provided promptly 
in response to an oral or written request and that covers at least 60 
days (including all the information required in periodic statements by 
Sec.  1005.9(b)). See Sec.  1005.18(b). Related provisions in Sec.  
1005.18(c) modify other requirements of Regulation E with respect to 
payroll card accounts. They include modification related to the 
requirements for initial disclosures, annual error resolution notices 
(otherwise required by Sec.  1005.8(b)), and error resolution and 
limitations on liability, in recognition of the modified periodic 
statement requirement.
---------------------------------------------------------------------------

    \104\ 71 FR 51437, 51438 (Aug. 30, 2006).
---------------------------------------------------------------------------

    As noted above, in adopting the Payroll Card Rule, the Board 
considered whether also to include GPR cards within Regulation E. The 
Board ultimately concluded that, as of 2006, it was premature to do so. 
In its view of the marketplace at that time, the Board noted that 
consumers did not often use other prepaid products such as general-use 
prepaid cards in the same way that they used payroll card accounts. The 
Board stated that ``[F]or payroll card accounts that are established 
through an employer, there is a greater likelihood [than for general-
use prepaid cards] that the account will serve as a consumer's 
principal transaction account and hold significant funds for an 
extended period of time.'' \105\
---------------------------------------------------------------------------

    \105\ 71 FR 51437, 51441 (Aug 30, 2006).
---------------------------------------------------------------------------

    Similarly, in an earlier interim final rule that established that 
payroll card accounts are covered accounts under Regulation E, the 
Board expressed its belief that to the extent that consumers use 
general-use prepaid cards like gift cards, ``consumers would derive 
little benefit from receiving full Regulation E protections for a card 
that may only be used on a limited, short-term basis and which may hold 
minimal funds, while the costs of providing Regulation E initial 
disclosures, periodic statements, and error resolution rights would be 
quite significant for the issuer.'' \106\ It also noted that GPR cards 
are ``generally designed to make one-time or a limited number of 
payments to consumers and are not intended to be used on a long-term 
basis.'' \107\
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    \106\ 71 FR 1473, 1475 (Jan. 10, 2006).
    \107\ Id.
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    In 2009, Congress enacted the Credit Card Accountability 
Responsibility and Disclosure Act of 2009 (Credit CARD Act).\108\ Among 
other provisions, the Credit CARD Act instructed the Board to 
promulgate new rules regarding expiration dates and dormancy or 
inactivity fees for gift cards, gift certificates, and certain types of 
general-use prepaid cards that are marketed or labeled as gift cards. 
The statute generally excluded general-use prepaid cards that are 
reloadable and not marketed or labeled as a gift card or gift 
certificate. Credit CARD Act section 401; EFTA section 915. In 2010, 
the Board issued the resulting implementing regulations, set forth in 
Sec.  1005.20 of current Regulation E (Gift Card Rule).\109\
---------------------------------------------------------------------------

    \108\ Public Law 111-24, 123 Stat. 1734 (2009).
    \109\ 75 FR 16580 (Apr. 1, 2010).
---------------------------------------------------------------------------

    Following the Credit CARD Act, the Gift Card Rule only covers 
certain general-use prepaid cards. Under the rule, covered general-use 
prepaid cards are those that are non-reloadable cards or that are 
reloadable and marketed or sold as a gift card. See Sec.  1005.20(a)(3) 
(definition of a ``general-use prepaid card''). Moreover, like the 
statute, the Gift Card Rule excludes those general-use prepaid cards 
that are reloadable and not marketed or labeled as a gift card or gift 
certificate. Sec.  1005.20(b)(2). For covered prepaid products, the 
Gift Card Rule requires the disclosure of certain fees and restricts a 
person's ability to impose dormancy, inactivity, or service fees for 
certain prepaid products, primarily gift cards. Sec.  1005.20(d) and 
(f). Additionally, among other things, the Gift Card Rule generally 
prohibits the sale or issuance of covered prepaid products that have an 
expiration date of less than five years. Sec.  1005.20(e). In adopting 
the Gift Card Rule, the Board did not apply the majority of Regulation 
E's protections, including provisions regarding periodic statements, 
liability for unauthorized transactions, and error resolution to 
covered prepaid products. However, Congress explicitly gave the Board 
the authority to do so. Credit CARD Act section 401; EFTA section 
915(d)(1).

[[Page 77115]]

2. FMS Regulations of the Treasury Department
    The Treasury Financial Management Service (FMS), now part of 
Treasury's Bureau of the Fiscal Service, manages all Federal payments. 
In 2010, it promulgated an interim final rule that permitted delivery 
of Federal payment to prepaid cards (the FMS Rule).\110\ Among other 
things, the FMS Rule provides that for a prepaid card to be eligible to 
receive Federal payments, the card account must be held at an insured 
financial institution. Additionally, the card account must be set up to 
meet the requirements for FDIC or NCUSIF pass-through deposit or share 
insurance, as discussed in greater detail below. Additionally, the card 
account must not have an attached line of credit or loan feature that 
triggers automatic repayment from the card account. Moreover, the card 
account issuer must comply with all of the requirements, and provide 
the cardholder with all of the consumer protections, that apply to 
payroll card accounts under Regulation E. 31 CFR 210(b)(5)(i).
---------------------------------------------------------------------------

    \110\ 75 FR 80335 (Dec. 22, 2010). Prior to the effective date 
of the FMS Rule, prepaid cards (other than those issued under FMS-
established programs) were not eligible to receive Federal payments.
---------------------------------------------------------------------------

    Based on Bureau outreach including discussions with industry 
participants, comment letters received in response to the Prepaid 
ANPR,\111\ as well as a review of numerous prepaid products' terms and 
conditions, discussed in more detail below, the Bureau believes that 
many providers currently comply with the FMS Rule for all of their 
prepaid products, including those not receiving Federal payments. The 
Bureau further believes that to comply with the FMS Rule, many prepaid 
product providers had to adjust their systems and programs.\112\ For 
example, to the extent that a provider did not maintain procedures for 
resolving errors with respect to the prepaid products it offered (or 
maintained procedures different from what Regulation E requires), the 
provider had to either adjust its processes to provide these 
protections or ensure that their prepaid products do not receive 
Federal payments.
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    \111\ 77 FR 30923 (May 24, 2012).
    \112\ In issuing the FMS Rule, Treasury noted that it:
    [B]elieves that a number of prepaid cards already provide most, 
though not necessarily all, of the payroll card protections to 
cardholders. It is our expectation that some issuers of existing 
prepaid cards will choose to modify the terms and conditions of the 
card accounts to include all of the payroll card protections to 
cardholders, so that their cards will be eligible to receive Federal 
payments. We also anticipate that as new prepaid card programs are 
developed, issuers seeking to make the cards available to Federal 
payment recipients will structure their cards to incorporate 
Regulation E's payroll card protections.
    75 FR 80335, 80338 (Dec. 22, 2010).
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3. Pass-Through Deposit Insurance
    The FDIC, among other things, protects funds placed by depositors 
in insured depository institutions. FDIC insurance protects deposit 
accounts, including checking and savings accounts, money market deposit 
accounts and certificates of deposit against loss up to $250,000 per 
depositor, per insured depository institution, within each account 
ownership category (e.g., for individual owners, co-owners, trust 
beneficiaries, and the like).\113\ The NCUSIF plays a similar role for 
insured credit unions.\114\
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    \113\ See, e.g., http://www.fdic.gov/deposit/deposits/dis/.
    \114\ See, e.g., http://www.ncua.gov/DataApps/Pages/SI-NCUA.aspx.
---------------------------------------------------------------------------

    As noted above, the Bureau understands that funds loaded onto 
prepaid products are typically held in pooled accounts at depository 
institutions or credit unions. Both the FDIC and NCUA have special 
rules, discussed below, regarding how such accounts may qualify for, as 
applicable, FDIC or NCUSIF pass-through insurance. The Bureau believes 
that provided these requirements are met, most prepaid products are 
eligible for FDIC (or NCUSIF) pass-through deposit (or share) 
insurance.
    With respect to the FDIC's rules for determining the ownership of 
deposits placed at insured depository institutions by agents or 
custodians of the true holder of the funds, its 2008 General Counsel 
Opinion No. 8 provides that FDIC's deposit insurance coverage will 
``pass through'' the custodian to the underlying individual owners of 
the deposits in the event of failure of an insured depository 
institution, provided that three specific criteria are met. Those 
criteria are as follows. First, the account records of the insured 
depository institution must disclose the existence of the agency or 
custodial relationship. This requirement can be satisfied by opening 
the account under a title such as the following: ``ABC Company as 
Custodian for Cardholders.'' Second, the records of the insured 
depository institution or records maintained by the custodian or other 
party must disclose the identities of the actual owners and the amount 
owned by each such owner. Third, the funds in the account actually must 
be owned (under the agreements among the parties or applicable law) by 
the purported owners and not by the custodian (or other party).\115\
---------------------------------------------------------------------------

    \115\ FDIC General Counsel Opinion No. 8, Insurability of Funds 
Underlying Stored Value Cards and Other Nontraditional Access 
Mechanisms, 73 FR 67155, 67157 (Nov. 13, 2008), internal citations 
omitted.
---------------------------------------------------------------------------

    The NCUA's regulations similarly state that:

    [I]f the account records of an insured credit union disclose the 
existence of a relationship which may provide a basis for additional 
insurance, the details of the relationship and the interest of other 
parties in the account must be ascertainable either from the records 
of the credit union or the records of the member maintained in good 
faith and in the regular course of business.

12 CFR 745.2(c)(2). NCUA regulations governing share insurance for 
specific types of accounts provide additional details. For example, 
provisions governing retirement and other employee benefit plan 
accounts specifically address pass-through insurance, stating that 
``[a]ny shares of an employee benefit plan in an insured credit union 
shall be insured on a `pass-through' basis, in the amount of up to the 
[Standard Maximum Share Insurance Amount] for the non-contingent 
interest of each plan participant, in accordance with Sec.  745.2 of 
this part.'' 12 CFR 745.9-2(a); see also, e.g., 12 CFR 745.3, 745.4, 
745.5, 745.8, 745.9-1.
4. Interchange and the Board's Regulation II
    Section 1075 of the Dodd-Frank Act added new section 920 to EFTA 
regarding debit card interchange and amended EFTA section 904(a) to 
give the Board sole authority to prescribe rules to carry out the 
purposes of section 920.\116\ It contains several provisions related to 
debit cards and electronic debit transactions. EFTA section 920(a)(2) 
requires that the amount of any interchange fee that an issuer of debit 
cards receives or charges with respect to an electronic debit 
transaction be reasonable and proportional to the cost incurred by the 
issuer with respect to the transaction. It directs the Board to 
establish standards for assessing whether the amount of any interchange 
fee is reasonable and

[[Page 77116]]

proportional to the cost incurred by the issuer. However, as discussed 
below, there are a few exemptions from the limitation on interchange 
fees that an issuer may receive from or charge to a merchant.
---------------------------------------------------------------------------

    \116\ The amendment is known as ``The Durbin Amendment,'' after 
U.S. Senator Richard Durbin of Illinois, who was the amendment's 
chief sponsor. See, e.g., David Morrison, Durbin Amendment Lawsuit 
Unresolved as 2013 Winds Down, Credit Union Times Magazine, Dec. 18, 
2013, available at http://www.cutimes.com/2013/12/18/durbin-amendment-lawsuit-unresolved-as-2013-winds; see also Zhu Wang, Debit 
Card Interchange Fee Regulation: Some Assessments and 
Considerations, 98 Econ. Q. 159 (2012) available at https://www.richmondfed.org/publications/research/economic_quarterly/2012/q3/pdf/wang.pdf.
---------------------------------------------------------------------------

    EFTA section 920(c) sets forth definitions that apply solely for 
the purposes of EFTA section 920. Section 920(c)(5) defines an 
electronic debit transaction as ``a transaction in which a person uses 
a debit card.'' Additionally, section 920(c)(2) defines debit card to 
include ``a general-use prepaid card, as that term is defined in 
section 915(a)(2)(A),'' which is the Credit CARD Act's definition of 
general-use prepaid card. Accordingly, interchange transaction fees for 
transactions made with general-use prepaid cards (as defined under the 
Credit CARD Act) would be subject to the debit card interchange fee 
restrictions set forth in EFTA section 920(a).
    As noted above, EFTA section 920(a) provides certain exemptions 
from the interchange fee limitations for certain cards. Section 
920(a)(7)(A) provides exemptions from the fee restrictions for general-
use prepaid (and debit) cards provided to a consumer pursuant to 
government-administered payment programs and for certain general 
purpose reloadable prepaid cards. In addition, there is a blanket 
exemption from the interchange fee limitations for cards of issuers 
with total assets of less than $10 billion. EFTA section 920(a)(6). 
Thus, interchange fees for transactions made with these prepaid cards 
meeting the criteria for the statutory exemptions are generally not 
subject to the fee restrictions of EFTA section 920(a). However, EFTA 
section 920(a)(7)(B) provides that after July 21, 2012, interchange 
fees for transactions made with prepaid cards that receive the 
exemption set forth in EFTA section 920(a)(7)(A) are nonetheless 
limited by the Act's interchange fee restrictions if certain fees such 
as an overdraft fee may be charged with respect to the card. The 
exemption for interchange fees of cards of issuers with total assets 
below $10 billion is not subject to section 920(a)(7)(B). In July 2011, 
the Board promulgated Regulation II (12 CFR part 235) to implement EFTA 
section 920. The provisions regarding debit card interchange fee 
restrictions became effective as of October 1 of that year.\117\
---------------------------------------------------------------------------

    \117\ 76 FR 43394 (July 20, 2011); 76 FR 43478 (July 20, 2011); 
amended by 77 FR 46258 (Aug. 3, 2012).
---------------------------------------------------------------------------

5. FinCEN Rules
    FinCEN also regulates prepaid products pursuant to its mission, 
which it describes as to safeguard the financial system from illicit 
use and combat money laundering and promote national security through 
the collection, analysis, and dissemination of financial intelligence 
and strategic use of financial authorities. As noted above, it has 
issued regulations to regulate certain prepaid products. In 2011, 
pursuant to a mandate under the Credit CARD Act, FinCEN published a 
final rule to amend BSA regulations applicable to money services 
businesses with respect to stored value or ``prepaid access'' (FinCEN's 
Prepaid Access Rule).\118\ Subject to certain specific exemptions, a 
``prepaid program'' is defined as an ``arrangement under which one or 
more persons acting together provide(s) prepaid access.'' 31 CFR 
1010.100(ff)(4)(iii). The term ``prepaid access'' is defined as 
``access to funds or the value of funds that have been paid in advance 
and can be retrieved or transferred at some point in the future through 
an electronic device or vehicle, such as a card, code, electronic 
serial number, mobile identification number, or personal 
identification.'' 31 CFR 1010.100(ww).
---------------------------------------------------------------------------

    \118\ 76 FR 45403 (July 29, 2011).
---------------------------------------------------------------------------

    FinCEN's Prepaid Access Rule established a comprehensive approach 
toward regulating prepaid access. Among other things, the Rule requires 
each provider or seller of prepaid access to: (1) File suspicious 
activity reports; (2) collect and retain certain customer and 
transactional information; and (3) maintain an anti-money laundering 
program. These BSA requirements are similar to those that apply to 
other categories of money services businesses.\119\
---------------------------------------------------------------------------

    \119\ 76 FR 45403, 45419 (July 29, 2011).
---------------------------------------------------------------------------

6. State Laws
    Many States have passed consumer protection laws or other rules to 
regulate prepaid products in general, and in particular, certain types 
of prepaid products such as government benefits cards. Illinois is an 
example of a State that has issued regulations applicable to prepaid 
products in general. In 2013, Illinois imposed pre-acquisition, on-card 
and at-the-time-of-purchase disclosure requirements on ``general-use 
reloadable prepaid cards.'' \120\ IL SB 1829 (2013), Public Act 098-
0545, codified at 205 Ill. Comp. Stat. 616/10 and 616/46. California is 
an example of a State that has enacted laws on specific types of 
prepaid products. In 2013, California enacted a law that extended 
protections similar to the FMS Rule to prepaid products receiving 
unemployment benefits and basic-needs benefits from the State of 
California. CA A 1820 (2013), ch. 557, codified at Cal. Unemp. Ins. 
Code Sec.  1339.1 and Cal. Welf. & Inst. Code Sec.  11006.2. In 2014, 
California enacted another law extending similar protections to cards 
used for distribution of child support payments. CA A 2252 (2014), ch. 
180, codified at Cal. Fam. Code Sec.  17325.
---------------------------------------------------------------------------

    \120\ The Illinois law defines ``general use reloadable card'' 
as:
    [A] card, code, or other access device that is: (1) Issued on a 
prepaid basis primarily for personal, family, or household purposes 
to a consumer in a specified amount in exchange for payment; (2) 
issued under an agreement containing terms and conditions that 
permit funds to be added to the card, code, or other device after 
the initial purchase or issuance, including a temporary non-
reloadable card issued solely in connection with a general use 
reloadable card, code, or other device; and (3) not marketed or 
labeled as a gift card or gift certificate; and (4) redeemable upon 
presentation at multiple, unaffiliated merchants for goods or 
services or usable at automated teller machines.
    205 ILCS 616/10.
---------------------------------------------------------------------------

    Further, the Bureau understands that many States have money 
transmitter laws that may apply to prepaid product providers. The laws 
vary by State but generally require companies to be licensed and to 
post a surety bond to cover accountholder losses, if the providers 
become insolvent. Most States further require that the companies hold 
high-grade investments to back the money in customer accounts. However, 
the Bureau also understands that States vary in the amount of their 
oversight of companies licensed under the money transmitter laws, and 
many may not have streamlined processes to pay out funds in the event a 
prepaid product provider were to file for bankruptcy protection.\121\
---------------------------------------------------------------------------

    \121\ See, e.g., Pew Charitable Trusts, Imperfect Protection--
Using Money Transmitter Laws to Insure Prepaid Cards (Mar. 2013).
---------------------------------------------------------------------------

C. Existing Regulation of Credit Products and Overdraft Services 
Offered in Connection With Transaction Accounts

    In this rulemaking, the Bureau has considered whether and to what 
extent it should regulate credit features offered in connection with 
prepaid accounts. In approaching this question, the Bureau is conscious 
of the regulatory framework that has developed, including for credit 
products subject to Regulation Z and overdraft services on traditional 
deposit accounts that are exempt from Regulation Z but subject to 
certain parts of Regulation E. On several occasions, Federal regulators 
have addressed deposit account overdraft services in various 
rulemakings including those conducted pursuant to Regulations E and Z 
as well as in public guidance documents. The relevant actions are 
discussed below.

[[Page 77117]]

1. Open-End (Not Home-Secured) Credit Products Under the Truth in 
Lending Act and the Electronic Fund Transfer Act
    Credit products are generally subject to the Truth in Lending Act 
and Regulation Z, although the application of specific provisions of 
the statute and regulation depends on the attributes of the particular 
credit product. In 1968, Congress enacted TILA to promote the informed 
use of consumer credit by requiring disclosures about its terms and 
cost and to provide standardized disclosures. Congress has revised TILA 
several times and its purpose now is to ``assure a meaningful 
disclosure of credit terms so that the consumer will be able to compare 
more readily the various credit terms available to him and avoid the 
uninformed use of credit, and to protect the consumer against 
inaccurate and unfair credit billing and credit card practices.'' 15 
U.S.C. 1601(a). TILA thus defined credit broadly to mean the right 
granted by a creditor to a debtor to defer payment of debt or incur 
debt and defer its payment. 15 U.S.C. 1602(f).\122\
---------------------------------------------------------------------------

    \122\ The term creditor in Regulation Z generally means a person 
who regularly extends consumer credit that is subject to a finance 
charge or is payable by written agreement in more than four 
installments (not including a down payment), and to whom the 
obligation is initially payable, either on the face of the note or 
contract, or by agreement when there is no note or contract. See 
Sec.  1026.2(a)(17)(i).
---------------------------------------------------------------------------

    Congress has amended TILA on several occasions to provide consumers 
of certain types of credit products with additional protections. The 
Fair Credit Billing Act (FCBA),\123\ enacted in 1974, added a number of 
substantive protections for consumers who use open-end credit \124\ or 
use credit cards subject to TILA. Public Law 93-495 (Oct. 28, 1974). 
For example, the FCBA increased rights and remedies for consumers who 
assert billing errors and required a minimum 14-day grace period for 
payments for creditors that offer a grace period, prompt re-crediting 
of refunds, and refunds of credit balances. Credit cards are also 
subject to these requirements,\125\ but also to a broad range of 
additional protections. Regulation Z defines the term ``credit card'' 
to mean any card, plate, or other single credit device that may be used 
from time to time to obtain credit. See Sec.  1026.2(a)(15)(i). A 
charge card is a credit card on an account for which no periodic rate 
is used to compute a finance charge. See Sec.  1026.2(a)(15)(iii). 
Cognizant that many financial institutions issue credit cards to 
cardholders with whom they also have a deposit account relationship, 
Congress in the FCBA also restricted the right of such institutions 
from taking funds out of a deposit account to satisfy their credit card 
claims.\126\ In 1988, Congress amended TILA through the Fair Credit and 
Charge Card Disclosure Act. These revisions required issuers of credit 
cards and charge cards to provide certain disclosures at the time of 
application and solicitation.
---------------------------------------------------------------------------

    \123\ Public Law 93-495, 88 Stat. 1511 (1974).
    \124\ As discussed in greater detail in the section-by-section 
analysis of Sec.  1026.2(a)(20), open-end credit exists where there 
is a plan in which the creditor reasonably contemplates repeated 
transactions; the creditor may impose a finance charge from time to 
time on an outstanding unpaid balance; and the amount of credit that 
may be extended to the consumer during the term of the plan (up to 
any limit set by the creditor) is generally made available (even if 
not disclosed) to the extent that any outstanding balance is repaid. 
Sec.  1026.2(a)(20). Closed-end credit is credit that does not meet 
the definition of open-end credit. Sec.  1026.2(a)(10).
    \125\ Indeed, credit cards are subject to specialized and 
heightened disclosure requirements in advertisements, at the time of 
account opening, periodically for each billing cycle (i.e., periodic 
statements), and when certain terms of the account change. In 
addition, for credit card accounts disclosures generally are 
required on or with applications or solicitations. Among the 
required disclosures for credit cards on or with an application or 
solicitation is a tabular disclosure setting forth seven different 
disclosures. Sec.  1026.60. This ``Schumer box'' must be similar to 
model forms in Regulation Z appendix G-10 and must set forth certain 
fees, interest rates, transaction charges, and other required 
charges.
    \126\ See Gardner v. Montgomery County Teachers Fed. Credit 
Union, 864 F.Supp.2d (D. Md. 2012) (providing an overview of the 
FCBA's no offset provision).
---------------------------------------------------------------------------

    In 2009, Congress enhanced protections for credit cards in the 
Credit CARD Act, which it enacted to ``establish fair and transparent 
practices related to the extension of credit'' in the credit card 
market.\127\ The Credit CARD Act regulates both the underwriting and 
pricing of credit card accounts. Specifically, it prohibits credit card 
issuers from extending credit without assessing the consumer's ability 
to pay and imposes special rules regarding the extension of credit to 
persons under the age of 21 and to college students. The Credit CARD 
Act also restricts the fees that an issuer can charge during the first 
year after an account is opened, and limits the instances and the 
amount of such fees in which issuers can charge ``back-end'' penalty 
fees when a consumer makes a late payment or exceeds his or her credit 
limit. The CARD Act also restricts the circumstances under which 
issuers can increase interest rates on credit cards and establishes 
procedures for doing so. The Board generally implemented these 
provisions in subpart G of Regulation Z. Thus, while all open-end (not 
home-secured) credit plans receive some of TILA's protections, 
generally only open-end (not home-secured) credit plans that are 
accessed by credit cards receive the additional protections of the 
Credit CARD Act.
---------------------------------------------------------------------------

    \127\ Public Law 111-24, 123 Stat. 1734 (2009).
---------------------------------------------------------------------------

    Although EFTA does not generally focus on credit issues, Congress 
provided one important protection in that statute as well. Known as the 
compulsory use provision, it provides that no person may ``condition 
the extension of credit to a consumer on such consumer's repayment by 
means of preauthorized electronic fund transfers.'' EFTA section 
913(1).\128\ (A preauthorized electronic fund transfer is an electronic 
fund transfer authorized in advance to recur at substantially regular 
intervals, such as a recurring direct deposit or ACH debit.) Where 
applicable, the compulsory use provision thus prevents a creditor from 
requiring a particular form of payment, such as a recurring ACH debit 
to another account, as a form of repayment of the credit. This provides 
consumers with the ability to control how and when they repay credit 
and does not allow a creditor to insist on a particular form of 
repayment. Thus, as implemented in Regulations Z and E, some of these 
protections are broadly applicable to credit generally while others are 
specific to particular credit products. For example, open-end lines of 
credit that consumers can link to a deposit account to pull funds when 
the account has insufficient funds are subject to certain disclosure 
requirements under Regulation Z, certain provisions of the FCBA, and 
the compulsory use provision under Regulation E (although compulsory 
use exempts overdraft lines of credit).
---------------------------------------------------------------------------

    \128\ As implemented in Regulation E, Sec.  1005.10(e)(1), this 
provision contains an exception for overdraft credit plans: ``No 
financial institution or other person may condition an extension of 
credit to a consumer on the consumer's repayment by preauthorized 
electronic fund transfers, except for credit extended under an 
overdraft credit plan or extended to maintain a specified minimum 
balance in the consumer's account.''
---------------------------------------------------------------------------

2. Federal Regulatory Treatment of Deposit Account Overdraft Services
    A separate regulatory regime has evolved over the years with regard 
to treatment of overdraft services, which started as courtesy programs 
under which financial institutions would decide on a manual, ad hoc 
basis to cover particular transactions for which a consumer lacked 
funds in their deposit account rather than to return the transactions 
and subject consumers to a

[[Page 77118]]

not-sufficient-funds (NSF) fee, merchant fees, and other negative 
consequences from bounced checks. Although Congress did not exempt 
overdraft services or similar programs offered in connection with 
deposit accounts from TILA, the Board in issuing Regulation Z in 1969 
carved financial institutions' ``bounce-protection'' programs out of 
the new regulation.\129\ See, e.g., Sec.  1026.4(c)(3) (excluding 
charges imposed by a financial institution for paying items that 
overdraw an account from the definition of ``finance charge,'' unless 
the payment of such items and the imposition of the charge were 
previously agreed upon in writing); Sec.  1026.4(b)(2).\130\ The Board 
distinguished between ``bounce protection programs'' where there is no 
written agreement to pay items that overdraw the account, and more 
formal, line-of-credit overdraft programs where there is a written 
agreement to pay overdrafts. Because financial institutions reserved 
discretion to pay particular overdrafts and exercised that discretion 
on an ad hoc basis, the Board exempted informal bounce protection 
programs but subjected overdraft lines of credit to Regulation Z when 
the creditor imposes a finance charge or the line of credit is accessed 
by a debit card.\131\
---------------------------------------------------------------------------

    \129\ 34 FR 2002 (Feb. 11, 1969).
    \130\ Section 1026.4(b)(2) provides that any charge imposed on a 
checking or other transaction account is an example of a finance 
charge only to the extent that the charge exceeds the charge for a 
similar account without a credit feature.
    \131\ Later in the 1970s, the Board added provisions in 
Regulation Z specifically addressing credit cards. 40 FR 43200 
(Sept. 19, 1975). The Board subsequently carved debit cards, where 
there is no agreement to extend credit, out of the definition of 
credit card. 46 FR 50288, 50293 (Oct. 9, 1981).
---------------------------------------------------------------------------

    The Board revisited the exception of bounce protection programs 
from Regulation Z in 1981, in a rulemaking in which the Board 
implemented the Truth in Lending Simplification and Reform Act.\132\ In 
the related proposal, the Board considered adjusting its overdraft 
exemption to apply only to ``inadvertent'' overdrafts because, the 
Board stated, a charge imposed for honoring an instrument under any 
agreement between the institution and the consumer is a charge imposed 
for a credit extension and thus fits the general definition of a 
finance charge, regardless of whether the charge and the honoring of 
the check are reflected in a written agreement.\133\ Ultimately, 
however, the Board made only a ``few minor editorial changes'' to the 
exception in Sec.  1026.4(c)(3) from the definition of finance charge 
that applied to fees for paying items that overdraw an account where 
there is no written agreement to pay, concluding that it would exclude 
from Regulation Z ``overdraft charges from the [definition of] finance 
charge unless there is an agreement in writing to pay items and impose 
a charge.'' \134\
---------------------------------------------------------------------------

    \132\ Public Law 96-221, sec. 601, 94 Stat. 132; 45 FR 80648 
(Dec. 5, 1980).
    \133\ Id. at 80657.
    \134\ 46 FR 20848, 20855 (Apr. 7, 1981).
---------------------------------------------------------------------------

    The Board also took up the status of bounce protection programs in 
the early 1980s in connection with the enactment of EFTA. As noted 
above, EFTA's compulsory use provision generally prohibits financial 
institutions or other persons from conditioning the extension of credit 
on a consumer's repayment by means of preauthorized electronic fund 
transfers. The Board, however, exercised its EFTA section 904(c) 
exception authority to create an exception to the compulsory use 
provision for credit extended under an overdraft credit plan or 
extended to maintain a specified minimum balance in the consumer's 
account. See Sec.  1005.10(e)(1). In adopting this exception, the Board 
aligned Regulation E with its approach to overdraft in Regulation Z--it 
exempted overdraft services from rules otherwise applicable to credit 
products. The Board stated that ``overdraft protection is a service 
that financial institutions have been providing to consumers at little 
or no extra cost beyond the cost of the protected account.'' \135\
---------------------------------------------------------------------------

    \135\ 46 FR 2972, 2973 (Jan. 13, 1981).
---------------------------------------------------------------------------

    Overdraft services in the 1990s began to evolve away from the 
historical model of bounce protection programs in a number of ways. One 
major industry change was a shift away from manual ad hoc decision-
making by financial institution employees to a system involving heavy 
reliance on automated programs to process transactions and to make 
overdraft decisions. A second was to impose higher overdraft fees. In 
addition, broader changes in payment transaction types also increased 
the impacts of these other changes on overdraft services. In 
particular, debit card use expanded dramatically, and financial 
institutions began extending overdraft services to debit card 
transactions. In the 1990s, many institutions expanded transactional 
capabilities by replacing consumers' ATM-only cards with debit cards 
that consumers could use to make electronic payments to merchants and 
service providers directly from their checking accounts using the major 
payment networks (and thus most merchants could accept them).\136\ As a 
result, debit card transaction volumes grew quickly as payment networks 
that enable these transactions broadened. Acceptance by grocery stores, 
gas stations, fast food restaurants, and other retailers helped to 
drive the popularity of debit card payments across regional and global 
ATM networks (accessed by using a PIN). By the late 1990s, ``signature 
debit'' transaction volumes became the most common type of debit card 
transaction.\137\ These debit cards offered acceptance at all merchants 
that honored payments from the major payment networks, such as internet 
retailers.\138\
---------------------------------------------------------------------------

    \136\ See R. Borzekowski et al., Consumers' Use of Debit Cards: 
Patterns, Preferences, and Price Response, at 2 (Apr. 2006) 
available at http://www.federalreserve.gov/pubs/feds/2006/200616/200616pap.pdf (noting that, as of 2006, ``Annual debit card 
transactions at the point of sale have been growing at over twenty 
percent per year since 1996 and now exceed credit card 
transactions.''). By 2006, debit card payment transaction volumes in 
the United States had exceeded both check and credit card payments, 
and from 2006 to 2011, the total volume of U.S. consumer debit card 
transactions nearly doubled.
    \137\ Fumiko Hayashi, Fed. Reserve Bank of Kansas City, The New 
Debit Card Regulations: Initial Effects on Networks and Banks, Econ. 
Rev., 4th quarter 2012, at 83 chart 2. With respect to ``signature 
debit'' transactions, a consumer does not use a PIN but instead 
typically signs a copy of a transaction receipt provided by the 
merchant in order to affirm the consumer's identity. For further 
information on the difference between signature-based and PIN-based 
card transactions, see, for example, the preamble of the Board's 
proposed rule to implement the Durbin amendment, 75 FR 81722, 81723 
(Dec. 28, 2010).
    \138\ See generally CFPB Overdraft White Paper, at 11-17 
(explaining growth of debit card transactions from consumers' 
deposit accounts) available at http://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf.
---------------------------------------------------------------------------

    As a result of these operational changes, overdraft services became 
a significant source of revenue for banks and credit unions as the 
volume of transactions involving checking accounts increased due 
primarily to the growth of debit cards.\139\ Before debit card use 
grew, overdraft fees on check and ATM transactions formed a greater 
portion of deposit account overdrafts. Debit card transactions 
presented consumers with markedly more opportunities to incur an 
overdraft fee when making a purchase because of increased acceptance 
and use of debit cards for relatively small transactions (e.g., fast 
food and grocery stores).\140\ Over time, revenue from overdraft 
increased and began to influence significantly the overall cost 
structure for many deposit accounts, as providers began relying heavily 
on back-end pricing while eliminating or reducing front-end pricing 
(i.e., free checking accounts) as discussed above.\141\
---------------------------------------------------------------------------

    \139\ CFPB Overdraft White Paper, at 16.
    \140\ See CFPB Overdraft White Paper, at 11-12.
    \141\ See id., at 16-17.

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[[Page 77119]]

    As a result of the growth of debit card transactions and the 
changing landscape of deposit account overdraft services, Federal 
banking regulators expressed increasing concern about consumer 
protection issues and began a series of issuances and rulemakings. 
First, in September 2001, the Office of the Comptroller of the Currency 
(OCC) released an interpretive letter expressing concern about 
overdraft protection services.\142\ The letter noted that overdraft 
services are extensions of credit but that related fees may not be 
finance charges under Regulation Z. In declining to issue a ``comfort 
letter'' regarding an unnamed overdraft service, the OCC called 
attention to a number of troubling practices, including inadequate 
disclosure to consumers of the risk of harm from overdraft services and 
failure to properly help consumers who were using overdraft services as 
``a means of meeting regular obligations'' to find more economical 
forms of credit.\143\
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    \142\ Office of the Comptroller of Currency, Interpretive Letter 
No. 914, 3rd Party Program, (Aug. 3, 2001) available at http://www.occ.gov/static/interpretations-and-precedents/sep01/int914.pdf.
    \143\ OCC Interpretive Letter No. 914.
---------------------------------------------------------------------------

    The Board also signaled concern with overdraft services in a number 
of rulemaking actions. In a 2002 proposal to amend Regulation Z with 
regard to the status of certain credit card-related fees and other 
issues, the Board noted that some overdraft services may not be all 
that different from overdraft lines of credit and requested comment on 
whether and how Regulation Z should be applied to banks' bounce-
protection services, in light of the Regulation's exclusion of such 
services but inclusion of lines-of-credit where a finance charge is 
imposed or is accessed by a debit card.\144\ The Board did not modify 
the Regulation Z exemptions when it issued final rules in 2003,\145\ 
but proposed revisions to Regulation DD (which implements the Truth in 
Savings Act) and its commentary in 2004 to address concerns about the 
uniformity and adequacy of institutions' disclosure of overdraft fees 
generally and to address concerns about advertised automated overdraft 
services in particular.\146\ The Board specifically noted that it was 
not proposing to cover overdraft services under TILA and Regulation Z, 
but that further consideration of the need for such coverage would be 
appropriate if consumer protection concerns about these overdraft 
services were to persist in the future.\147\ When the Board finalized 
the Regulation DD proposal in 2005, it noted that it declined at that 
time to extend Regulation Z to overdraft services. In doing so, it 
noted that industry commenters were concerned about the cost of 
imposing Regulation Z requirements on deposit accounts and about the 
compliance burden of providing an APR calculated based on overdraft 
fees without corresponding benefits to consumers in better 
understanding the costs of credit. The Board also noted that some 
members of its Consumer Advisory Council believed that overdraft 
services are the functional equivalent of a traditional overdraft line 
of credit and thus should be subject to Regulation Z, but that 
financial institutions' historical practice of paying occasional 
overdrafts on an ad hoc basis should not be covered by Regulation Z. 
While not specifically addressing these concerns, the Board emphasized 
that its decision not to apply Regulation Z did not preclude future 
consideration regarding whether it was appropriate to extend Regulation 
Z to overdraft services.\148\
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    \144\ 67 FR 72618, 72620 (Dec. 6, 2002).
    \145\ The March 2003 final rule preamble stated that ``[t]he 
Board's staff is continuing to gather information on these services, 
which are not addressed in the final rule.'' 68 FR 16185 (Apr. 3, 
2003).
    \146\ 69 FR 31760 (June 7, 2004).
    \147\ Id. at 31761.
    \148\ 70 FR 29582, 29584-85 (May 24, 2005). In this 2005 
rulemaking, the Board revised Regulation DD to address concerns 
about the uniformity and adequacy of information provided to 
consumers when they overdraw their deposit accounts. Among other 
things, the final rule required institutions that promote the 
payment of overdrafts in an advertisement to disclose on periodic 
statements, total fees imposed for paying overdrafts and total fees 
imposed for returning items unpaid on periodic statements, both for 
the statement period and the calendar year to date, and to include 
certain other disclosures in advertisements of overdraft services. 
Ultimately, in 2009, the Board expanded this provision to all 
institutions not just those that promote the payments of overdrafts. 
See 74 FR 5584 (Jan. 29, 2009).
---------------------------------------------------------------------------

    In February 2005 (prior to the Board having finalized the 
Regulation DD changes discussed above), the Federal banking agencies 
also issued joint guidance on overdraft programs in response to the 
increased availability and customer use of overdraft services (Joint 
Guidance).\149\ The purpose of the Joint Guidance was to assist insured 
depository institutions in the responsible disclosure and 
administration of overdraft protection services. It grew out of concern 
that
---------------------------------------------------------------------------

    \149\ 70 FR 9127 (Feb. 24, 2005) (Joint Guidance) available at 
http://www.gpo.gov/fdsys/pkg/FR-2005-02-24/pdf/05-3499.pdf. See also 
Office of Thrift Supervision Guidance on Overdraft Protection 
Programs, 70 FR 8428 (Feb. 18, 2005).

    [D]isclosure, and implementation of some overdraft protection 
programs, intended essentially as short-term credit facilities, are 
of concern [to the Federal banking agencies]. For example, some 
institutions have promoted this credit service in a manner that 
leads consumers to believe that it is a line of credit by informing 
consumers that their account includes an overdraft protection limit 
of a specified dollar amount without clearly disclosing the terms 
and conditions of the service, including how fees reduce overdraft 
protection dollar limits, and how the service differs from a line of 
credit.\150\
---------------------------------------------------------------------------

    \150\ 70 FR 9127, 9129 (Feb. 24, 2005).

    The Joint Guidance stated that ``the existing regulatory exceptions 
[i.e., exceptions in Regulation Z such that the Regulation does not 
apply] were created for the occasional payment of overdrafts, and as 
such could be reevaluated by the Board in the future, if necessary. 
Were the Board to address these issues more specifically, it would do 
so separately under its clear [TILA] authority.'' \151\ The Joint 
Guidance went on to state that ``[w]hen overdrafts are paid, credit is 
extended. Overdraft protection programs may expose an institution to 
more credit risk (e.g., higher delinquencies and losses) than overdraft 
lines of credit and other traditional overdraft protection options to 
the extent these programs lack individual account underwriting.'' \152\ 
This guidance remains in effect.
---------------------------------------------------------------------------

    \151\ Id. at 9128.
    \152\ Id.
---------------------------------------------------------------------------

    In the late 2000s as controversy regarding overdraft services 
continued to mount despite the increase in regulatory activity, Federal 
agencies began exploring various additional measures with regard to 
overdraft, including whether to require that consumers affirmatively 
opt in before being charged for overdraft services. First, in May 2008, 
the Board along with the National Credit Union Administration and the 
former Office of Thrift Supervision proposed to exercise their 
authority under section 5 of the Federal Trade Commission Act (FTC Act) 
\153\ to prohibit institutions from assessing any fees on a consumer's 
account in connection with an overdraft service, unless the consumer 
was given notice and the right to opt out of the service, and the 
consumer did not opt out.\154\ At the same time, the Board issued a 
proposal under Regulation DD to expand disclosure requirements and 
revise periodic statement requirements to provide aggregate totals for 
overdraft fees and for returned item fees for the periodic statement 
period and year-to-date.\155\ The Board finalized portions of

[[Page 77120]]

the Regulation DD proposal in January 2009.\156\ In addition, although 
the three agencies did not finalize their FTC Act proposal, the Board 
ultimately adopted a similar opt-in requirement for ATM and point of 
sale transactions under Regulation E in late 2009.
---------------------------------------------------------------------------

    \153\ Section 5 of the FTC Act prohibits ``unfair or deceptive 
acts or practices in or affecting commerce.'' 15 U.S.C. 45. See also 
Federal Deposit Ins. Act section 8 (extending to the Board authority 
to take appropriate action when unfair or deceptive acts or 
practices are discovered). 12 U.S.C. 1818.
    \154\ 73 FR 28904 (May 19, 2008).
    \155\ 73 FR 28730 (May 19, 2008).
    \156\ 74 FR 5584 (Jan. 29, 2009). Specifically, this rule 
required, among other things, all depository institutions to 
disclose aggregate overdraft fees on periodic statements, and not 
solely institutions that promote the payment of overdrafts.
---------------------------------------------------------------------------

    The overdraft opt-in rule in Regulation E applies to all accounts 
covered by Regulation E, including payroll card accounts. In addressing 
overdraft services for the first time as a feature of deposit accounts 
in Regulation E,\157\ the Board concluded that the opt-in rule carried 
out ``the express purposes of EFTA by: (a) Establishing notice 
requirements to help consumers better understand the cost of overdraft 
services for certain EFTs; and (b) providing consumers with a choice as 
to whether they want overdraft services for ATM and one-time debit card 
transactions in light of the costs associated with those services.'' 
\158\ Not surprisingly, the rule did not expressly discuss GPR cards, 
which as noted above, the Board had not subjected to Regulation E 
coverage.\159\
---------------------------------------------------------------------------

    \157\ 74 FR 59033 (Nov. 17, 2009).
    \158\ Id. at 59037.
    \159\ Id. at 59040.
---------------------------------------------------------------------------

    Following the adoption of the Board's overdraft opt-in-rule, the 
FDIC expanded on the previously-issued Joint Guidance when it issued a 
Financial Institution Letter that reaffirmed its existing supervisory 
expectations with respect to overdraft payment programs generally and 
provided specific guidance with respect to automated overdraft payment 
programs.\160\ In 2011, the OCC proposed similar guidance regarding 
automatic overdraft programs and deposit advance products. This 
guidance, if finalized, would have clarified the OCC's application of 
principles of safe and sound banking practices in connection with 
deposit-related consumer credit products such as automated overdraft 
services and direct deposit advance programs.\161\ The OCC withdrew 
this proposed guidance in 2013.\162\
---------------------------------------------------------------------------

    \160\ Fed. Deposit Ins. Corp., Fin. Inst. Letter FIL-81-2010, 
Overdraft Payment Programs and Consumer Protection Final Overdraft 
Payment Supervisory Guidance, (Nov. 24, 2010) (FDIC Overdraft 
Payment Supervisory Guidance), available at https://www.fdic.gov/news/news/financial/2010/fil10081.html.
    \161\ 76 FR 33409 (June 8, 2011).
    \162\ 78 FR 25353 (Apr. 30, 2013).
---------------------------------------------------------------------------

    Since the Bureau assumed authority from the Board for implementing 
most of EFTA in 2011, it has taken a number of steps--including 
research, analysis, and solicitation of comment--to assess the impact 
and efficacy of the Board's 2009 overdraft opt-in rule as it pertains 
to deposit accounts. In early 2012, the Bureau issued a Request For 
Information (RFI) that sought input from the public on a number of 
overdraft topics, including: Lower cost alternatives to overdraft 
protection programs, consumer alerts and information provided regarding 
balances and overdraft triggers, the impact of changes to Regulations 
DD and E and overdraft opt-in rates, the impact of changes in financial 
institutions' operating policies, the economics of overdraft programs, 
and the long-term impact on consumers.\163\ In response, the Bureau 
received over 1000 comments. This RFI did not request information 
specific to prepaid products, and few commenters specifically addressed 
prepaid products. The Bureau has also undertaken significant research 
into overdraft services that has resulted, to date, in the release of a 
white paper of initial data findings in June 2013 and a data point in 
July 2014.\164\
---------------------------------------------------------------------------

    \163\ 77 FR 12031 (Feb. 28, 2012).
    \164\ CFPB Overdraft White Paper, available at http://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf.; CFPB Overdraft Data Point, available at  http://www.consumerfinance.gov/reports/data-point-checking-account-overdraft/.
---------------------------------------------------------------------------

    The Bureau has previously indicated that it is considering whether 
rules governing overdraft and related services in connection with 
deposit accounts are warranted, and, if so, what types of rules would 
be appropriate. A possible rulemaking might include new or revised 
disclosures or address specific acts or practices.\165\
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    \165\ See http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201404&RIN=3170-AA42.
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3. Other Relevant Federal Regulatory Activity
    In addition to the two general regulatory regimes governing credit 
products generally and overdraft services as outlined above, two 
Federal initiatives have specifically addressed the possibility of 
credit features being offered in connection with prepaid products. 
First, the Treasury FMS Rule (described above), adopted in late 
December 2011, only permits Federal payments to be deposited onto a 
prepaid product if the product is not attached to a line of credit or 
loan agreement under which repayment from the account is triggered upon 
delivery of the Federal payments, among other conditions. See 31 CFR 
210.5(b)(5)(i)(C). The Supplementary Information to that Interim Final 
Rule indicates that the goal of this requirement is to prevent payday 
lending and other arrangements in which a financial institution or 
creditor ``advances'' funds to a cardholder's account, and then repays 
itself for the advance and any related fees by taking some or all of 
the cardholder's next deposit.\166\ The Treasury FMS Rule does not, 
however, directly address the permissibility of overdraft services.
---------------------------------------------------------------------------

    \166\ 75 FR 80335 (Dec. 22, 2010).
---------------------------------------------------------------------------

    Second, as is discussed above in the broader regulatory overview, 
the Board's Regulation II implementing provisions of the Dodd-Frank Act 
generally caps interchange fees that may be imposed on debit cards. 
However, Regulation II provides exemptions from the fee restrictions 
for certain GPR cards; as a result, interchange fees for transactions 
made with these prepaid cards are generally not subject to the fee 
restrictions of EFTA section 920(a). 12 CFR 235.5(d)(1). However, EFTA, 
as amended by the Dodd-Frank Act, carves out of this exemption 
interchange fees for transactions made with these prepaid cards if, 
with respect to the card, an overdraft fee may be charged. EFTA and 
Regulation E provide a separate, blanket exemption for cards or issuers 
with assets of less than $10 billion, so these cards are not subject to 
the fee restrictions even if overdraft fees may be charged on the 
account.
    Separately, the Department of Defense (the Department) recently 
proposed amendments to its regulation (32 CFR part 232) that implements 
the Military Lending Act (MLA), 10 U.S.C. 987, et se.\167\ Under the 
MLA, a creditor generally may not apply a military annual percentage 
rate (MAPR) greater than 36 percent in connection with an extension of 
consumer credit to a military service member or dependent. 10 U.S.C. 
987(b). The Department's proposal would modify its regulation to expand 
the scope of coverage to which the regulation applies to a broad range 
of open-end and closed end credit products, but would exclude overdraft 
services that are exempted from Regulation Z as discussed above.\168\ 
For open-end (not home secured) credit card accounts, any credit-
related charge that is a finance charge under Regulation Z (as well as 
certain other charges) would be included in calculating the MAPR \169\ 
for a particular billing cycle and the MAPR for that billing cycle 
could not

[[Page 77121]]

exceed 36 percent.\170\ For such credit card accounts, the Department's 
proposal, however, provides that a card issuer does not have to include 
in the calculation of the MAPR any charge that is a bona fide fee and 
that is reasonable and customary for that type of fee.\171\
---------------------------------------------------------------------------

    \167\ 79 FR 58602 (Sept. 29, 2014).
    \168\ 79 FR 58602 at 58616.
    \169\ 79 FR 58602 at 58610.
    \170\ 79 FR 58602 at 58619.
    \171\ 79 FR 58602 at 58638. See proposed Sec.  232.4(d) of the 
Department's proposal. The exclusion from the MAPR calculation for 
bona fide fees does not apply to periodic rates. It also does not 
apply to any credit insurance premium, including charges for single 
premium credit insurance, fees for debt cancellation or debt 
suspension agreements, or to any fees for credit related ancillary 
products sold in connection with and either at or before 
consummation of the credit transaction or upon account opening, 
because those charges are expressly included in the definition of 
``interest'' in the applicable statute (10 U.S.C. 987(i)(3)) and 
therefore must be included in the MAPR calculation.
---------------------------------------------------------------------------

D. The Bureau's May 2012 Advance Notice of Proposed Rulemaking

    As noted above, the Bureau issued the Prepaid ANPR, which posed a 
series of questions for public comment about how the Bureau might 
consider regulating GPR cards. The Bureau sought input on the following 
topics: (1) The disclosure of fees and terms; (2) if consumers should 
be informed whether their funds are protected by FDIC pass-through 
deposit insurance; (3) unauthorized transactions and the costs and 
benefits of requiring card issuers to provide limited liability 
protection from unauthorized transactions similar to those protections 
available for other accounts under Regulation E; and (4) other product 
features including credit features in general and overdraft services in 
particular, linked savings accounts, and credit repair or credit 
building features such as features that claim to offer consumers the 
opportunity to improve or build credit).
    The Bureau received over 220 comments from a variety of 
commenters.\172\ Industry commenters, including depository institutions 
and credit unions, prepaid program managers, payment networks and 
industry trade associations, submitted the majority of comments. The 
Bureau also received comment letters from consumer and other interest 
groups, as well as several individual consumers. In preparing this 
notice, the Bureau has evaluated the comments received in response to 
the Prepaid ANPR and has engaged in additional analysis of prepaid 
products and consumer behavior. As discussed in greater detail in the 
section-by-section analysis below, the proposal covers a variety of 
prepaid products including GPR cards. The Bureau notes that covered 
account types have different characteristics.
---------------------------------------------------------------------------

    \172\ The comments can be reviewed at http://www.regulations.gov/#!documentDetail;D=CFPB-2012-0019-0001.
---------------------------------------------------------------------------

E. Other Payments-Related Bureau Actions

    In June 2014, the Bureau issued a Request for Information regarding 
the opportunities and challenges associated with the use of mobile 
financial products and services (Mobile RFI).\173\ As part of the 
Mobile RFI, the Bureau is exploring how mobile technologies are 
impacting economically vulnerable consumers with limited access to 
traditional banking systems. The Mobile RFI asked questions on a number 
of topics, including access for economically vulnerable consumers and 
the ways that mobile technologies could expand access to financial 
services, the use of mobile technologies for real-time money 
management, the types of customer service or technical assistance that 
are available to consumers when they use mobile products, and privacy 
and data security issues. The comment period on the Mobile RFI ended on 
September 10, 2014. The Bureau received approximately 48 comments, 
which it is in the process of reviewing.
---------------------------------------------------------------------------

    \173\ 79 FR 33731 (June 12, 2014).
---------------------------------------------------------------------------

    In July 2014, the Bureau began accepting consumer complaints about 
prepaid products.\174\ In addition to prepaid cards, consumers may also 
submit complaints about payroll cards, government benefit cards, gift 
cards, and mobile wallets.\175\ In August 2014, the Bureau issued a 
consumer advisory on virtual currencies that discussed the risks to 
consumers posed by such currencies.\176\ At the same time, the Bureau 
also began accepting consumer complaints regarding virtual 
currencies.\177\
---------------------------------------------------------------------------

    \174\ Press Release, CFPB Begins Accepting Consumer Complaints 
on Prepaid Cards and Additional Nonbank Products, available at 
http://www.consumerfinance.gov/newsroom/cfpb-begins-accepting-consumer-complaints-on-prepaid-cards-and-additional-nonbank-products./.
    \175\ See http://www.consumerfinance.gov/complaint/#credit-card.
    \176\ CFPB Consumer Advisory, Risks to Consumers Posed by 
Virtual Currencies (Aug. 2014), available at http://files.consumerfinance.gov/f/201408_cfpb_consumer-advisory_virtual-currencies.pdf.
    \177\ See http://www.consumerfinance.gov/complaint/#money-transfer.
---------------------------------------------------------------------------

    The section-by-section analysis below discusses in greater detail 
the potential application of this proposed rule to certain mobile 
financial products and services. The Bureau also recognizes that the 
proposed rule may have potential application to virtual currency and 
related products and services. As a general matter, however, the 
Bureau's analysis of mobile financial products and services, as well as 
and virtual currencies and related products and services, including the 
applicability of existing regulations and this proposed regulation to 
such products and services, is ongoing.

III. Overview of Outreach and Related Industry and Consumer Research

    The Bureau conducted extensive and significant additional outreach 
and research since it issued the Prepaid ANPR as part of its efforts to 
study and evaluate prepaid products. In addition to reviewing the 
comments received, the Bureau has engaged in a variety of outreach and 
other research efforts to understand better how consumers use prepaid 
products and where problems might exist or potentially develop. These 
efforts include meetings with industry, consumer groups, and non-
partisan research and advocacy organizations, market research and 
monitoring, and related efforts. Relatedly, the Bureau has collected 
information from industry participants pursuant to section 1022(c)(4) 
of the Dodd-Frank Act, which allows the Bureau to gather information 
from time to time regarding the organization, business conduct, 
markets, and activities of covered persons and service providers to aid 
its market monitoring efforts.
    Further, as discussed in greater detail below, the Bureau conducted 
qualitative testing of prototype disclosure forms with consumers who 
use prepaid cards and reviewed numerous prepaid products' terms and 
conditions. The Bureau sought to determine current industry practices 
in a number of areas to inform its understanding of the potential costs 
and benefits of extending various Regulation E provisions to prepaid 
accounts. As described in greater detail below, Bureau staff conducted 
a study of publicly-available account agreements for prepaid products 
that appear to meet the Bureau's proposed definition of the term 
``prepaid account.''

A. Focus Groups and Consumer Testing

    As noted above, in formulating this notice, the Bureau engaged a 
third-party vendor, ICF International (ICF), to coordinate qualitative 
consumer testing consisting of informal focus groups and one-on-one 
interviews. The Bureau sought to gain insight about how and why 
consumers use prepaid cards (including GPR and payroll cards), as well 
as to see how they interact with prototype forms developed by the 
Bureau. Under direction from the Bureau, ICF facilitated four focus 
groups in December 2013 to gather in-depth

[[Page 77122]]

information about how consumer shop for prepaid cards and factors they 
consider when acquiring such products. Each focus group lasted 
approximately ninety minutes, included eight to ten participants, and 
was held in Bethesda, Maryland. In early 2014, ICF facilitated three 
rounds of one-on-one interviews, each lasting approximately 60 to 75 
minutes, in Baltimore, Maryland; Los Angeles, California; and Kansas 
City, Missouri. Each round included nine or ten participants. In 
conjunction with the release of this notice, the Bureau is making 
available a report prepared by ICF regarding the focus groups and 
consumer testing (ICF Report).\178\ The testing and focus groups were 
conducted in accordance with OMB Control Number 3170-0022.
---------------------------------------------------------------------------

    \178\ For a detailed discussion of the Bureau's consumer 
testing, see ICF Report, available at http://files.consumerfinance.gov/f/201411_cfpb_summary-findings-design-testing-prepaid-card-disclosures.pdf.
---------------------------------------------------------------------------

    A total of sixty-nine consumers representing a range of ages, 
races, and education levels participated in the focus groups and 
individual interviews.\179\ Specifically, 40 consumers participated in 
the focus groups, and 29 consumers participated in the interviews. All 
testing was conducted in English, but both the focus groups and 
individual interviews included native speakers of languages other than 
English. All participants self-identified as having used a prepaid card 
in the previous six months (for focus group participants) or 12 months 
(for interview participants).\180\ Several participants had payroll 
cards in addition to or in lieu of GPR cards.
---------------------------------------------------------------------------

    \179\ For a detailed discussion of the methodology used in the 
consumer testing, including participant selection, see ICF Report, 
at 2-4.
    \180\ Based on oral responses, it appeared that perhaps one out 
of the forty focus group participants may have only used a gift card 
and not a GPR or payroll card. See ICF Report, at 4.
---------------------------------------------------------------------------

    Participants reported that they used prepaid cards for a variety of 
reasons. While some participants reported using, as applicable, a GPR 
card or payroll card, in lieu of a deposit account, others reported 
that they also had a deposit account and used their prepaid cards only 
occasionally. Still others specifically mentioned using their cards 
primarily for online purchases. These participants expressed the belief 
that prepaid cards addressed some of their privacy and security 
concerns, in that cards could remain anonymous and cardholders could 
not lose more funds than what they loaded onto the card. Some 
participants, particularly those that did not have deposit accounts, 
described prior bad experiences with banks in general and overdraft 
fees on checking accounts in particular, in explaining why they chose 
to use a prepaid card.
    Focus group findings highlights. Few focus group participants 
reported doing any formal comparison shopping before purchasing a 
prepaid card in a retail store. Further, while some participants who 
had purchased their cards online reported doing more research about 
different cards' terms and conditions pre-purchase, they, too, rarely 
engaged in systematic comparison shopping. Most participants reported 
that they were very aware of the fees associated with their current 
prepaid card, but few reported understanding all of the fees when they 
purchased their prepaid cards. Instead, most reported learning about a 
card's fees post-acquisition after unknowingly incurring certain fees 
and seeing that the fees were deducted from their card balance. When 
asked about which fees were most important to them, almost all 
participants cited one of the following fees: (1) Monthly maintenance 
fees; (2) per purchase fees; (3) ATM withdrawal fees; and (4) cash 
reload fees. ICF also asked participants to share their thoughts about 
how easily they could understand the information included in on-package 
disclosures from two existing prepaid cards (brand names redacted). 
Comprehension varied. Many participants overlooked any asterisks 
included on these disclosures to explain how fees may be assessed or 
how fees differ from what was disclosed. Participants were also 
confused about whether the disclosures provided a comprehensive 
overview of all potential fees.
    Based on the observations from and information gathered in focus 
groups and the Bureau's outreach more generally, the Bureau and ICF 
developed several prototype disclosure forms to test with participants 
in the individual interview segment of the consumer testing. The Bureau 
and ICF focused mainly on designing and testing ``short form'' 
disclosures that would highlight key information about a hypothetical 
prepaid product in a format that would be easy to understand, yet small 
enough to fit on existing packaging material used to market prepaid 
products on J-hooks in retail stores.\181\ The Bureau and ICF developed 
short form prototypes that would accommodate prepaid products that have 
a single service plan and prototypes for products that have multiple 
service plans. A ``long form'' prototype form that included all of the 
hypothetical prepaid product's fees was also developed.
---------------------------------------------------------------------------

    \181\ The Bureau notes, however, that under the proposal, the 
short form would be disclosed in all acquisition scenarios, not just 
retail stores. See section-by-section analysis of Sec.  1005.18(b), 
below.
---------------------------------------------------------------------------

    Individual interviews findings highlights. ICF asked participants 
questions to assess how well they were able to comprehend the fees and 
other information included on prototype forms. In some cases, ICF asked 
participants to engage in shopping exercises to compare fee information 
printed on different prototype forms. After each round of testing, ICF 
analyzed and briefed the Bureau on the results of testing. The Bureau 
used this feedback to make changes, as necessary, to the form design 
for the following round of testing.
    In the first round of testing, the Bureau focused on testing a 
variety of prototype short form disclosures. Specifically, the Bureau 
tested short forms that: (1) Included a ``top-line'' of four fees 
displayed more prominently than the other fees; (2) grouped similar 
fees by category; or (3) listed fees without including either the top-
line or categories. Generally, participants were able to understand the 
basic fee information presented in all of the prototype disclosure 
forms. However, many participants expressed a desire for a form that is 
both easy to read and that prominently displays the most important fee 
information. These participants also expressed that they felt that 
prototype forms that included a ``top line'' disclosure of certain fees 
accomplished these objectives.
    Another design issue on which the Bureau and ICF focused was 
whether and how to develop a form that might not include all of a 
prepaid product's fees and full explanations of the conditions under 
which those fees could be imposed. In other words, the Bureau used 
testing to determine how to best present a subset of key information 
about a prepaid product in the short form disclosure, while effectively 
indicating to consumers that additional information not included on the 
form was also available. The first round's prototype forms included 
multiple asterisks to indicate additional information was available for 
fees that could vary in amount. Many participants, however, did not 
notice the text associated with the asterisks or struggled to 
accurately identify which symbol was associated with which fee.
    In an attempt to improve comprehension, the Bureau introduced forms 
in the second round of testing that only included a single symbol and 
explanatory sentence to indicate all of the fees that might vary on the 
form. This modification appeared to increase the frequency with which 
participants

[[Page 77123]]

noticed the language associated with the symbol, and thus, the 
frequency which participants noticed that fees could vary also 
increased. In the third round of testing, in addition to reviewing 
additional short form prototypes, participants engaged in a shopping 
exercise with a prototype long form disclosure to compare the relative 
utility of the short form and long form disclosures.
    Before the second round of testing, the Bureau also posted a blog 
on its Web site that included two of the prototype short form designs 
used during the second round of testing in Los Angeles.\182\ The Bureau 
invited the public to provide impressions of the prototypes and suggest 
how the Bureau could improve their design and submit their feedback 
through comments directly on the blog, by sending an email, or through 
posting a message to the Bureau via social media. The Bureau received 
over 80 comments from industry, consumer advocacy groups and individual 
consumers, in addition to email submissions and other correspondence. 
These comments informed the Bureau's form design process for the third 
round of testing as well as the model forms.
---------------------------------------------------------------------------

    \182\ Eric Goldberg, Prepaid cards: Help design a new 
disclosure, CFPB Blog Post, (Mar.18, 2014), http://www.consumerfinance.gov/blog/prepaid-cards-help-design-a-new-disclosure/.
---------------------------------------------------------------------------

B. Study of Prepaid Product Features

    In order to better understand existing compliance with Regulation E 
and other features and protections currently offered by prepaid 
products, the Bureau conducted a study of publicly-available account 
agreements for prepaid products that appear to meet the Bureau's 
proposed definition of the term ``prepaid account'' (Study of Prepaid 
Account Agreements).\183\ Specifically, the Bureau sought to determine 
current industry practices in a number of areas to inform its 
understanding of the potential costs and benefits of extending various 
Regulation E provisions to prepaid accounts. Bureau staff examined 
certain key provisions in the account agreements of prepaid cards and 
other similar prepaid programs currently available to consumers and 
compared those terms against one another and, for some provisions, 
against the protections presently provided by Regulation E for payroll 
card accounts and cards used for the distribution of certain government 
benefits \184\ (and, by virtue the FMS Rule, to other prepaid cards 
receiving Federal payments as well).
---------------------------------------------------------------------------

    \183\ Available at http://files.consumerfinance.gov/f/201411_cfpb_study-of-prepaid-account-agreements.pdf.
    \184\ See existing Sec. Sec.  1005.18 and 1005.15, respectively.
---------------------------------------------------------------------------

    The Study of Prepaid Account Agreements covers 325 publicly-
available account agreements for prepaid programs that, the Bureau 
believes, could be subject to the definition of prepaid account set 
forth in this proposal.\185\ The analysis includes agreements for GPR 
card programs (including GPR cards marketed for specific purposes, such 
as travel or receipt of tax refunds, or for specific users, such as 
teenagers or students), as well as payroll cards, cards used for the 
distribution of certain government benefits, and similar card programs 
were included. Agreements for prepaid programs specifically used for 
P2P transfers that appeared to be encompassed by the proposed 
definition of prepaid account were also included. Gift, incentive and 
rebate card programs, health spending account and flexible spending 
account programs, and needs-tested State and local government benefit 
card programs were not included in the analysis, as the Bureau is 
proposing to exclude such products from this proposed rulemaking. While 
the Bureau collected a large number of agreements, it cautions that 
this collection is neither comprehensive or nor complete. The Bureau 
only included programs for which agreements were readily available 
online. In addition, there does not currently exist any comprehensive 
listing of prepaid card issuers, program managers, or programs against 
which the Bureau could compare the completeness of its analysis.
---------------------------------------------------------------------------

    \185\ The Bureau does not intend for a program's inclusion in or 
exclusion from the Study of Prepaid Account Agreements to be a 
determination as to whether this proposed rule would or would not 
apply to that prepaid account program.
---------------------------------------------------------------------------

    The Study of Prepaid Account Agreements examines key provisions 
regarding error resolution protections (including provisional credit); 
limited liability protections; access to account information; overdraft 
and treatment of negative balances and declined transaction fees; FDIC 
(or NCUSIF) pass-through deposit (or share) insurance; and general 
disclosure of fees. Where relevant, results of the analysis are 
discussed in the section-by-section analysis below. The Study of 
Prepaid Account Agreements is being published concurrently with this 
notice. It explains how Bureau staff identified publicly available 
prepaid account agreements online for inclusion in the analysis. It 
also discusses the Bureau's methodology, key assumptions, observations, 
and findings for each category of review. The Bureau cautions that its 
analysis is, in many ways, subjective and thus is not intended to be 
relied upon as an assessment of any legal issue including whether a 
prepaid program actually complies with Regulation E's existing 
provisions governing payroll card accounts or cards used for the 
distribution of certain government benefits, the FMS Rule, or this 
proposed rule.

IV. Legal Authority

A. Electronic Fund Transfer Act

    EFTA section 902 establishes that the purpose of the statute is to 
provide a basic framework establishing the rights, liabilities, and 
responsibilities of participants in electronic fund and remittance 
transfer systems but that its primary objective is the provision of 
individual consumer rights. Among other things, EFTA contains 
provisions regarding disclosures made at the time a consumer contracts 
for an electronic fund transfer service (EFTA section 905(a)), notices 
of certain changes to account terms or conditions (EFTA section 
905(b)), provision of written documentation to consumers regarding 
electronic fund transfers (EFTA section 906), error resolution (EFTA 
section 908), consumers' and financial institutions' liability for 
unauthorized electronic fund transfers (EFTA sections 909 and 910), and 
compulsory use of electronic fund transfers (EFTA section 913). With 
respect to disclosures provided prior to opening an account, EFTA 
section 905(a) states that the terms and conditions of electronic fund 
transfers involving a consumer's account shall be disclosed at the time 
the consumer contracts for an electronic fund transfer service, in 
accordance with regulations of the Bureau. It also establishes that the 
Bureau shall issue model clauses for optional use by financial 
institutions to facilitate compliance with the disclosure requirements 
of EFTA section 905 and to aid consumers in understanding the rights 
and responsibilities of participants in electronic fund transfers by 
utilizing readily understandable language. As discussed in more detail 
below, proposed revisions to Sec.  1005.18(b) (pre-acquisition 
disclosure requirements) are proposed pursuant to the Bureau's 
disclosure authority under EFTA section 905, and its adjustments and 
exceptions authority under EFTA section 904.
    As amended by the Dodd-Frank Act, EFTA section 904(a) authorizes 
the Bureau to prescribe regulations

[[Page 77124]]

necessary to carry out the purposes of EFTA. As noted above, the 
express purposes of EFTA, are to establish ``the rights, liabilities, 
and responsibilities of participants in electronic fund and remittance 
transfer systems'' and to provide ``individual consumer rights.'' EFTA 
section 902(b). EFTA section 904(c) further provides that regulations 
prescribed by the Bureau may contain such classifications, 
differentiations, or other provisions, and may provide for such 
adjustments or exceptions, for any class of electronic fund transfers 
or remittance transfers that the Bureau deems necessary or proper to 
effectuate the purposes of EFTA, to prevent circumvention or evasion, 
or to facilitate compliance. The Senate Report accompanying EFTA noted 
that regulations are ``essential to the act's effectiveness'' and 
``[permit] the [Bureau] to modify the act's requirements to suit the 
characteristics of individual EFT services. Moreover, since no one can 
foresee EFT developments in the future, regulations would keep pace 
with new services and assure that the act's basic protections continue 
to apply.'' \186\ For reasons discussed in this notice, the Bureau is 
proposing amendments to Regulation E with respect to prepaid accounts 
that may offer an overdraft service or credit feature pursuant to the 
Bureau's authority under, as applicable, sections 904(a) and (c).
---------------------------------------------------------------------------

    \186\ See S. Rept. No. 95-1273, at 26 (Oct. 4, 1978).
---------------------------------------------------------------------------

B. Section 1022 of the Dodd-Frank Act

    Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to 
prescribe rules ``as may be necessary or appropriate to enable the 
Bureau to administer and carry out the purposes and objectives of the 
Federal consumer financial laws, and to prevent evasions thereof.'' 
Among other statutes, title X of the Dodd-Frank Act, EFTA, and TILA are 
Federal consumer financial laws.\187\ Accordingly, in adopting this 
final rule, the Bureau is exercising its authority under Dodd-Frank Act 
section 1022(b) to prescribe rules under EFTA, TILA, and title X that 
carry out the purposes and objectives and prevent evasion of those 
laws. Section 1022(b)(2) of the Dodd-Frank Act prescribes certain 
standards for rulemaking that the Bureau must follow in exercising its 
authority under section 1022(b)(1). See Section 1022(b) Analysis below 
for a discussion of the Bureau's standards for rulemaking under Dodd-
Frank Act section 1022(b)(2).
---------------------------------------------------------------------------

    \187\ Dodd-Frank Act section 1002(14) (defining ``Federal 
consumer financial law'' to include the ``enumerated consumer laws'' 
and the provisions of title X of the Dodd-Frank Act); Dodd-Frank Act 
section 1002(12) (defining ``enumerated consumer laws'' to include 
TILA and EFTA).
---------------------------------------------------------------------------

    Dodd-Frank Act section 1022(c)(1) provides that, to support its 
rulemaking and other functions, the Bureau shall monitor for risks to 
consumers in the offering or provision of consumer financial products 
or services, including developments in markets for such products or 
services. The Bureau may make public such information obtained by the 
Bureau under this section as is in the public interest. Dodd-Frank Act 
section 1022(c)(3). Moreover, section 1022(c)(4) provides that, in 
conducting such monitoring or assessments, the Bureau shall have the 
authority to gather information from time to time regarding the 
organization, business conduct, markets, and activities of covered 
persons and service providers. Proposed Sec.  1005.19 is proposed 
pursuant to the Bureau's authority under Dodd-Frank sections 1022(c) 
and 1032(a), as well as its authority under EFTA sections 904 and 905. 
As discussed in the section-by-section analysis below, proposed Sec.  
1005.19 would mandate the collection of and posting by the Bureau of 
prepaid account terms and conditions and posting on a Bureau-maintained 
Web site. It would also require that financial institutions disclose 
such terms and conditions.

C. Section 1032 of the Dodd-Frank Act

    Section 1032(a) of the Dodd-Frank Act provides that the Bureau 
``may prescribe rules to ensure that the features of any consumer 
financial product or service, both initially and over the term of the 
product or service, are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.'' The authority granted to the Bureau in 
section 1032(a) is broad, and empowers the Bureau to prescribe rules 
regarding the disclosure of the ``features'' of consumer financial 
products and services generally. Accordingly, the Bureau may prescribe 
disclosure requirements in rules regarding particular features even if 
other Federal consumer financial laws do not specifically require 
disclosure of such features.
    Dodd-Frank Act section 1032(c) provides that, in prescribing rules 
pursuant to section 1032, the Bureau ``shall consider available 
evidence about consumer awareness, understanding of, and responses to 
disclosures or communications about the risks, costs, and benefits of 
consumer financial products or services.'' Accordingly, in developing 
the proposed rule under Dodd-Frank Act section 1032(a), the Bureau has 
considered available studies, reports, and other evidence about 
consumer awareness, understanding of, and responses to disclosures or 
communications about the risks, costs, and benefits of consumer 
financial products or services. Moreover, the Bureau has considered the 
evidence developed through its consumer testing of the model forms as 
discussed above and in the ICF Report.
    In addition, Dodd-Frank Act section 1032(b)(1) provides that ``any 
final rule prescribed by the Bureau under [section 1032] requiring 
disclosures may include a model form that may be used at the option of 
the covered person for provision of the required disclosures.'' Any 
model form issued pursuant to that authority shall contain a clear and 
conspicuous disclosure that, at a minimum, uses plain language that is 
comprehensible to consumers, contains a clear format and design, such 
as an easily readable type font, and succinctly explains the 
information that must be communicated to the consumer. Dodd-Frank Act 
section 1032(b)(2). As discussed in more detail below, certain portions 
of the proposed rule are proposed pursuant to the Bureau's disclosure 
authority under Dodd-Frank section 1032(a).

D. The Truth in Lending Act

    As discussed above, TILA is a Federal consumer financial law. In 
adopting TILA, Congress explained that:

    [E]conomic stabilization would be enhanced and the competition 
among the various financial institutions and other firms engaged in 
the extension of consumer credit would be strengthened by the 
informed use of credit. The informed use of credit results from an 
awareness of the cost thereof by consumers. It is the purpose of 
this subchapter to assure a meaningful disclosure of credit terms so 
that the consumer will be able to compare more readily the various 
credit terms available to him and avoid the uninformed use of 
credit, and to protect the consumer against inaccurate and unfair 
credit billing and credit card practices.\188\

    \188\ TILA section 102(a); 15 U.S.C. 1601(a).

TILA and Regulation Z define credit broadly as the right granted by a 
creditor to a debtor to defer payment of debt or to incur debt and 
defer its payment. TILA section 103(f); 15 U.S.C. 1602(f); 12 CFR 
1026.2(a)(14); 15 U.S.C. 1602(f). TILA and Regulation Z set forth 
disclosure and other requirements that apply to creditors. Different 
rules apply to creditors depending on whether they are extending 
``open-end credit'' or ``closed-end credit.'' Under the statute and 
Regulation Z, open-end credit exists

[[Page 77125]]

where there is a plan in which the creditor reasonably contemplates 
repeated transactions; the creditor may impose a finance charge from 
time to time on an outstanding unpaid balance; and the amount of credit 
that may be extended to the consumer during the term of the plan (up to 
any limit set by the creditor) is generally made available to the 
extent that any outstanding balance is repaid. Sec.  1026.2(a)(20). 
Typically, closed-end credit is credit that does not meet the 
definition of open-end credit. Sec.  1026.2(a)(10).
    The term ``creditor'' generally means a person who regularly 
extends consumer credit that is subject to a finance charge or is 
payable by written agreement in more than four installments (not 
including a down payment), and to whom the obligation is initially 
payable, either on the face of the note or contract, or by agreement 
when there is no note or contract. See TILA section 103(g); 15 U.S.C. 
1602(g); 12 CFR 1026.2(a)(17)(i). TILA defines finance charge broadly 
as the sum of all charges, payable directly or indirectly by the person 
to whom the credit is extended, and imposed directly or indirectly by 
the creditor as an incident to the extension of credit. TILA section 
106(a); 12 U.S.C. 1605(a); see 12 CFR 1026.4.
    The term ``creditor'' also includes a card issuer, which is a 
person or it's agent that issues credit cards, when that person extends 
credit accessed by the credit card. See Sec.  1026.2(a)(17)(iii) and 
(iv); TILA section 103(g); 15 U.S.C. 1602(g). Regulation Z defines the 
term ``credit card'' to mean any card, plate, or other single credit 
device that may be used from time to time to obtain credit. See Sec.  
1026.2(a)(15). A charge card is a credit card on an account for which 
no periodic rate is used to compute a finance charge. See Sec.  
1026.2(a)(15)(iii). In addition to being creditors under TILA and 
Regulation Z, card issuers also generally must comply with the credit 
card rules set forth in the FCBA and in the Credit CARD Act (if the 
card accesses an open-end credit plan), as implemented in Regulation Z 
subparts B and G. See generally Sec. Sec.  1026.5(b)(2)(ii), .7(b)(11), 
.12 and .51-.60.
    TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 
105(a), 15 U.S.C. 1604(a), directs the Bureau to prescribe regulations 
to carry out the purposes of TILA, and provides that such regulations 
may contain additional requirements, classifications, differentiations, 
or other provisions, and may provide for such adjustments and 
exceptions for all or any class of transactions, that the Bureau judges 
are necessary or proper to effectuate the purposes of TILA, to prevent 
circumvention or evasion thereof, or to facilitate compliance. As 
discussed above, pursuant to TILA section 102(a), a purpose of TILA is 
``to assure a meaningful disclosure of credit terms so that the 
consumer will be able to compare more readily the various credit terms 
available to him and avoid the uninformed use of credit.'' Moreover, 
this stated purpose is tied to Congress' finding that ``economic 
stabilization would be enhanced and the competition among the various 
financial institutions and other firms engaged in the extension of 
consumer credit would be strengthened by the informed use of 
credit[.]'' TILA section 102(a). Thus, strengthened competition among 
financial institutions is a goal of TILA, achieved through the 
effectuation of TILA's purposes.
    Historically, TILA section 105(a) has served as a broad source of 
authority for rules that promote the informed use of credit through 
required disclosures and substantive regulation of certain practices. 
However, Dodd-Frank Act section 1100A clarified the Bureau's section 
105(a) authority by amending that section to provide express authority 
to prescribe regulations that contain ``additional requirements'' that 
the Bureau finds are necessary or proper to effectuate the purposes of 
TILA, to prevent circumvention or evasion thereof, or to facilitate 
compliance. This amendment clarified the authority to exercise TILA 
section 105(a) to prescribe requirements beyond those specifically 
listed in the statute that meet the standards outlined in section 
105(a). Accordingly, as amended by the Dodd-Frank Act, TILA section 
105(a) authority to make adjustments and exceptions to the requirements 
of TILA applies to all transactions subject to TILA, except with 
respect to the provisions of TILA section 129 that apply to the high-
cost mortgages referred to in TILA section 103(bb), 15 U.S.C. 1602(bb).
    For the reasons discussed in this notice, the Bureau is proposing 
amendments to Regulation Z with respect to certain prepaid accounts 
that are associated with overdraft services or credit features to carry 
out TILA's purposes and is proposing such additional requirements, 
adjustments, and exceptions as, in the Bureau's judgment, are necessary 
and proper to carry out the purposes of TILA, prevent circumvention or 
evasion thereof, or to facilitate compliance. In developing these 
aspects of the proposal pursuant to its authority under TILA section 
105(a), the Bureau has considered the purposes of TILA, including 
ensuring meaningful disclosures, facilitating consumers' ability to 
compare credit terms, and helping consumers avoid the uninformed use of 
credit, and the findings of TILA, including strengthening competition 
among financial institutions and promoting economic stabilization.

V. Section-by-Section Analysis of the Proposed Rule

Regulation E
Subpart A--General
Section 1005.2 Definitions
2(b) Account
    Section 1005.2(b)(1) defines an ``account'' for purposes of 
Regulation E as a demand deposit (checking), savings, or other consumer 
asset account (other than an occasional or incidental credit balance in 
a credit plan) held directly or indirectly by a financial institution 
and established primarily for personal, family, or household purposes. 
As discussed above, the Board in 2006 added a definition for ``payroll 
card account'' to the definition of account in Regulation E. Under the 
current regulation, a payroll card account is an account that is 
directly or indirectly established through an employer and to which 
electronic fund transfers of the consumer's wages, salary, or other 
employee compensation (such as commissions), are made on a recurring 
basis, whether the account is operated or managed by the employer, a 
third-party payroll processor, a depository institution or any other 
person. Sec.  1005.2(b)(2). EFTA and Regulation E currently apply to 
payroll card accounts, except as provided in existing Sec.  1005.18. 
Similar exceptions and other provisions specific to accounts used for 
the distribution of government benefits are in existing Sec.  1005.15. 
Gift cards, although not included in the Sec.  1005.2(b) definition of 
account, are addressed in Sec.  1005.20.
    The Board, in adopting rules to include payroll card accounts 
within the ambit of Regulation E, explicitly acknowledged that 
Regulation E did not, at that time, cover general spending cards to 
which a consumer might transfer by direct deposit some portion of the 
consumer's wages.\189\ As a result, some regulators, the prepaid 
industry, and others have thus interpreted Regulation E not to apply to 
various types of prepaid products that are not payroll card accounts, 
accounts used for

[[Page 77126]]

the distribution of government benefits, or gift cards.\190\
---------------------------------------------------------------------------

    \189\ 71 FR 51437, 51441 (Aug. 30, 2006).
    \190\ See, e.g., FMS Rule, 75 FR 80335, 80337 (Dec. 22, 2010). 
However, as evidenced by the Study of Prepaid Account Agreements, 
many prepaid providers have, for a variety of reasons, elected to 
apply some or all of Regulation E's provisions (as modified by the 
Payroll Card Rule) to their non-payroll prepaid products generally.
---------------------------------------------------------------------------

    After the Bureau assumed authority for implementing most of EFTA 
pursuant to the transfer of certain authorities from the Board to the 
Bureau under the Dodd-Frank Act, it analyzed whether other types of 
prepaid products, in addition to payroll card accounts, certain 
government benefit accounts, and gift cards, could or should be 
expressly included within Regulation E. In the Prepaid ANPR, the Bureau 
explained that in the six years that had elapsed since the Board issued 
the Payroll Card Rule, the prepaid card market had changed markedly. 
Beyond just industry growth, consumers also have increasingly used 
prepaid products the same way other consumers use traditional demand 
deposit accounts. Further, as general use prepaid cards become a more 
accepted and well-known alternative financial product, the difference 
between prepaid and traditional deposit accounts begins to blur. Thus, 
the Bureau sought comment in the Prepaid ANPR on how the Bureau should 
define GPR cards in the context of Regulation E and whether certain 
prepaid products should not be included in this definition, such as 
cards that may serve a limited purpose (e.g., university cards or 
health spending cards).\191\
---------------------------------------------------------------------------

    \191\ 77 FR 30923, 30925 (May 23, 2012).
---------------------------------------------------------------------------

    In the first instance, most commenters to the Prepaid ANPR 
(industry, consumer advocacy groups, and others) did not object to 
bringing prepaid products within the ambit of Regulation E, at least at 
some broad level. While there were some concerns from industry and 
others, which are discussed further below, about exactly which types of 
prepaid products the Bureau might subject to Regulation E, most 
commenters favored inclusion of GPR cards, with some reservations about 
specific provisions of the rule. Among other reasons, several trade 
associations noted that insofar as many GPR card issuers and program 
managers already voluntarily comply with Regulation E, the Bureau 
should formalize GPR cards' inclusion in Regulation E as a means of 
standardizing protections for consumers.
    Most comments focused on the types of prepaid products the Bureau 
should include in this rulemaking and the scope of any resulting rules. 
Many industry commenters urged the Bureau to focus its rulemaking only 
on those products that consumers can or do use in the same ways as 
traditional demand deposit accounts. Many commenters contrasted such 
products, which include GPR cards (which do not have limits on where 
and how consumers can use the product), with those that are issued with 
restrictions on use. Commenters suggested, for example, that the Bureau 
exclude Health Savings Account cards because they cannot be used in the 
place of a traditional demand deposit account due to limitations on 
their use. Similarly, industry commenters also suggested that the 
Bureau exclude limited-use transit cards, university cards, and mall 
cards. Some industry commenters also urged the Bureau to exclude 
certain corporate-related cards, such as those used for expense 
reimbursement or for distribution of health or transit benefits. Within 
this vein, industry commenters also suggested that the Bureau exclude 
cards used to disburse insurance payments because, one commenter 
argued, they are not part of the class of consumer asset accounts 
intended to be regulated under Regulation E. Another industry commenter 
argued that cards that are not reloadable by the consumer or that are 
corporate-funded typically serve a limited audience for a limited use 
and therefore should not be covered by the proposed rule. Further, 
these commenters warned that if such cards were covered by the 
definition of prepaid accounts, the cost of adding Regulation E 
protections could cause issuers of those cards to discontinue offering 
them.
    In addition, industry commenters disagreed over whether the Bureau 
should limit its proposed rule to products represented by physical 
cards or whether it should also include other types of prepaid products 
such as those that are entirely online (and might use a barcode or QR 
code displayed on a mobile device such as a smartphone or other online 
means to interact with a payment network). One prepaid card distributor 
commenter urged the Bureau to include these non-card products because 
such products may have the same features as physical cards. However, 
commenters urged the Bureau to distinguish between digital wallets that 
simply store payment credentials for other accounts or cards and those 
non-card products that in fact store funds themselves. To the extent 
that the credentials loaded into a digital wallet are for other 
accounts are protected by Regulations E or Z, commenters argued that 
those products should provide consumers with sufficient protections 
without direct regulation of the wallets themselves. With the exception 
of these few topics, however, industry commenters generally discussed 
how Regulation E's substantive requirements should be tailored to 
prepaid products rather than what products should be defined as prepaid 
accounts in the first instance. These comments are discussed in detail 
below.
    Consumer group commenters generally did not favor restrictions on 
any definition the Bureau might propose; they instead favored inclusion 
of limited purpose products such as university cards, health spending 
cards, and other similar products. They argued that the Bureau should 
include in its proposed definition all products that act like debit 
cards and that are currently not covered by Regulation E, as well as 
certain reloadable gift cards. Like many industry commenters, consumer 
groups urged the Bureau to apply Regulation E to those prepaid products 
that consumers can use as transaction account substitutes because, in 
part, consumers do not know that debit cards may have protections that 
prepaid products lack. The consumer groups diverged from industry 
commenters, however, by largely urging the Bureau not to modify the 
substantive requirements of Regulation E in applying them to prepaid 
products. These differences are discussed in detail below.
    In addition to reviewing the comments it received on the Prepaid 
ANPR, the Bureau has conducted significant outreach to aid its 
understanding of the scope and diversity of the prepaid product 
marketplace. In particular, the Bureau has spoken with prepaid card 
program managers, issuers, distributors, processors, and other parties 
involved in various aspects of the prepaid card industry, as well as 
government agencies and non-profits that are involved in administering 
prepaid card programs. This outreach has included providers of prepaid 
products that are not sold to consumers, such as prepaid cards used to 
distribute financial aid to students and insurance payouts to 
consumers. The Bureau understands (based on its outreach efforts as 
well as its Study of Prepaid Account Agreements) that many providers of 
prepaid products voluntarily comply with most or all of Regulation E, 
as it applies to payroll card accounts. As discussed in detail below, 
the Bureau believes that objections about the burden of including 
various types of products within the ambit of this proposed rule are 
largely negated by the

[[Page 77127]]

fact that a significant majority of these products are already 
substantially in compliance with existing Regulation E provisions.
    In developing this proposal, the Bureau first considered the 
applicability of EFTA to prepaid products. EFTA, among other things, 
governs transactions that involve an electronic fund transfer to or 
from a consumer's account. It defines an account to be ``a demand 
deposit, savings deposit, or other asset account . . . as described in 
regulations of the Bureau, established primarily for personal, family, 
or household purposes. . . .'' EFTA section 903(2), 15 U.S.C. 1693a(2). 
Insofar as the statute defines account broadly to include any other 
asset account and for the other reasons discussed below, the Bureau 
believes it is reasonable to interpret ``account'' in EFTA to include 
prepaid accounts. Thus, it proposes to include prepaid accounts 
expressly within Regulation E's definition of account. To clarify the 
scope of the proposed rule and to modify Regulation E to reflect the 
characteristics of prepaid accounts, the Bureau proposes to modify the 
definition of ``account'' under Sec.  1005.2(b) to create a specific 
sub-definition for prepaid account.
    The Bureau believes that proposing to apply Regulation E to prepaid 
accounts is appropriate for several reasons. As noted above and by many 
commenters, prepaid products are more frequently being used today by 
consumers as transaction account substitutes. In particular, GPR cards 
(including those sold at retail locations and online) are increasingly 
being used by consumers as a substitute for a checking account, credit 
card, or both. The Bureau also understands that consumers use other 
types of prepaid products as transaction account substitutes as well. 
For example, students may receive financial aid disbursements onto 
prepaid cards that the students then use as their primary transaction 
vehicle during the school term. Insurers may pay out insurance claims 
for property or casualty losses or workers' compensation claims onto 
prepaid cards. Consumers, in turn, may use this card as their primary 
transaction vehicle until the funds are depleted.
    The Bureau recognizes that not all consumers use prepaid products 
as transaction account substitutes and that not all types of prepaid 
products lend themselves to use as transaction account substitutes. 
Nevertheless, the Bureau believes that the features of non-GPR card 
prepaid products as well as the ways consumers can and do use those 
products warrant their inclusion as prepaid accounts for several 
reasons. First, inclusion aligns appropriately with the purposes of 
EFTA. The legislative history of EFTA indicates that Congress' primary 
goal was to protect consumers using electronic fund transfer services. 
Although, at the time, providers of electronic payment services argued 
that enactment of EFTA was premature and that the electronic payment 
market should be allowed to develop further on its own, Congress 
believed that establishing a framework of rights and duties for all 
parties would benefit both consumers and providers.\192\ Likewise, the 
Bureau believes that now it is appropriate to establish such a 
framework for prepaid accounts, because doing so would benefit both 
consumers and providers. In addition, were it to finalize this 
proposal, the Bureau believes that consumers will be better able to 
assess the risks of using prepaid products. Indeed, the Bureau is 
concerned that because prepaid cards can be so similar to credit and 
debit cards (which are protected under Regulations Z and E), consumers 
may not realize that their prepaid cards lack the same benefits and 
protections as those other cards. This proposal, if finalized, would 
serve to make these protections more consistent and eliminate a 
regulatory gap.
---------------------------------------------------------------------------

    \192\ See S. Rept. No. 95-915, at 2-3 (1978) and H.R. Rept. No. 
95-1315, at 2-4 (1978).
---------------------------------------------------------------------------

    Second, the Bureau believes that the Board's reasoning in 2006 for 
excluding GPR cards from the Payroll Card Rule is now, eight years 
later, no longer applicable. At the time, the Board concluded that it 
was premature to cover other prepaid cards under Regulation E because, 
in its view of the marketplace at that time, consumers did not often 
use prepaid cards in the same way that they used payroll cards; the 
Board noted, ``for payroll card accounts that are established through 
an employer, there is a greater likelihood [than for GPR cards] that 
the account will serve as a consumer's principal transaction account 
and hold significant funds for an extended period of time.'' \193\ The 
Board also noted that, in its opinion, to the extent that consumers use 
GPR cards like gift cards, ``consumers would derive little benefit from 
receiving full Regulation E protections for a card that may only be 
used on a limited, short-term basis and which may hold minimal funds, 
while the costs of providing Regulation E initial disclosures, periodic 
statements, and error resolution rights would be quite significant for 
the issuer.'' \194\
---------------------------------------------------------------------------

    \193\ 71 FR 51441 (Aug. 30, 2006).
    \194\ 71 FR 1473, 1475 (Jan. 10, 2006) (also noting that GPR 
cards are ``generally designed to make one-time or a limited number 
of payments to consumers and are not intended to be used on a long-
term basis'').
---------------------------------------------------------------------------

    Third, consumers' use of prepaid products has evolved significantly 
since 2006. Although some consumers may continue to treat GPR cards and 
other prepaid products as if they were gift cards, many do not. Many 
consumers now use other types of prepaid products in the same ways and 
to fill the same needs as they did payroll card accounts in 2006. 
Consumers can and do have wages and/or benefits loaded onto prepaid 
cards through direct deposit and thus may load substantial sums onto 
their cards.\195\ Consumers use prepaid cards for a variety of 
purposes, including making purchases, paying bills, and receiving 
payments.\196\ For those consumers without other transaction accounts, 
they may depend entirely on their prepaid cards to meet their payment 
account needs.\197\ As a result, the Bureau believes that such products 
should be considered consumer asset accounts subject to EFTA and 
Regulation E. The Bureau notes that while not all prepaid products can 
or will be used as transaction account substitutes, the proposed 
prepaid account definition discussed below appropriately includes a 
variety of prepaid product types that the Bureau believes warrant 
protection under Regulation E. The Bureau is concerned that to try to 
carve out very specific types of products that are, or can be, used for 
short-term limited purposes is complicated and could result in consumer 
confusion as to what protections might apply to otherwise 
indistinguishable products.
---------------------------------------------------------------------------

    \195\ See, e.g., Fed. Deposit Ins. Corp, Appendix to 2013 FDIC 
National Survey of Unbanked and Underbanked Households (Oct. 2014) 
(2013 FDIC Survey), at 55, available at https://www.fdic.gov/householdsurvey/2013report.pdf (finding that for households that 
reloaded prepaid debit cards in the last 12 months, 17.7 percent of 
all households and 27.7 percent of unbanked households did so via 
direct deposit of a paycheck).
    \196\ See, e.g., id. at 48 (finding that for all households that 
used prepaid debit cards in the last 12 months, 44.5 percent did so 
to pay for everyday purchases or to pay bills and 19.4 percent did 
so to receive payments).
    \197\ See, e.g., id. (finding that finding that for unbanked 
households that used prepaid debit cards in the last 12 months, 65 
percent did so to pay for everyday purchases or to pay bills and 
41.8 percent did so to receive payments).
---------------------------------------------------------------------------

    As the Bureau's consumer testing and industry studies have shown, 
many consumers are using prepaid accounts in the same ways as they use 
other types of accounts, such as debit and credit card accounts. Even 
if not all consumers

[[Page 77128]]

use their prepaid accounts in this way, consumers may not realize that, 
in many ways, their prepaid accounts may provide fewer protections than 
substitute products (and, in fact, may expect their prepaid cards to be 
safer).\198\ Further, to the extent the Board determined that consumers 
in 2006 did not use prepaid accounts in a way that warranted regulatory 
protections, the Bureau believes that those conditions no longer exist. 
As discussed in detail below, the Bureau is proposing to bring a broad 
range of prepaid products within the ambit of Regulation E and also is 
proposing to modify certain substantive provisions of Regulation E as 
appropriate for different types of prepaid accounts.
---------------------------------------------------------------------------

    \198\ See, e.g., ICF Report, at 10 (noting that ``When asked 
what would happen if there were a fraudulent or inaccurate charge on 
their prepaid account, most participants believed that their prepaid 
card provider would credit the funds to their account. This belief 
seemed to be based almost exclusively on prior experiences with 
prepaid card providers and other financial institutions, rather than 
an understanding of any legal protections that may or may not 
exist.'')
---------------------------------------------------------------------------

    In crafting the proposed definition of prepaid account, the Bureau 
has focused on prepaid product attributes and consumer use cases. While 
consumers are increasingly using prepaid accounts as transaction 
account substitutes, the Bureau does realize, as discussed above, that 
not all consumers will use prepaid accounts in that way and that many 
continue to maintain checking and other deposit accounts while also 
using prepaid accounts. The Bureau also acknowledges that certain 
accounts subject to the proposed definition (e.g., products usable only 
for person-to-person transfers and products that cannot be reloaded) 
cannot be used as transaction account substitutes. Nevertheless, 
because the Bureau believes that consumer protections are best 
understood when they apply evenly across like products, the Bureau is 
proposing a definition that would focus on attributes relating to how 
prepaid accounts are issued and used, instead of how or where they are 
loaded (and by whom). The Bureau believes it appropriate to cast a wide 
net in including products within the proposed definition of prepaid 
account even if, as discussed further below, it may also be appropriate 
to adjust certain provisions in Regulation E depending on a particular 
product's features and how it can be used.
    The proposed definition of prepaid account is discussed below. It 
is followed by a discussion of the modifications and limitations the 
Bureau is proposing for that definition. Finally, the new requirements 
and modifications the Bureau is proposing to Regulation E for prepaid 
accounts are discussed.
2(b)(2) Bona Fide Trust Account
    The current definition of account in Regulation E includes an 
exception for bona fide trust accounts. See existing Sec.  
1005.2(b)(3). To accommodate the proposed definition for the term 
prepaid account and a proposed adjustment to the definition of payroll 
card account, the Bureau proposes to renumber the exception for bona 
fide trust accounts as Sec.  1005.2(b)(2) without any substantive 
changes to the exception. Note that to accommodate this proposed 
change, the Bureau does not need to renumber existing comments 2(b)(2)-
1 and -2 because those comments are currently misnumbered in the 
Official Interpretations to Regulation E.
2(b)(3) Prepaid Account
Overview
    In determining to propose revisions to Regulation E's definition of 
account to include prepaid accounts, the Bureau considered which types 
of prepaid products should be covered by its proposed definition. As 
discussed below, the Bureau proposes to add new Sec.  1005.2(b)(3) to 
set forth this proposed definition.
2(b)(3)(i)
    Proposed Sec.  1005.2(b)(3)(i) would define the term prepaid 
account as a card, code, or other device, that is not otherwise an 
account under Sec.  1005.2(b)(1), that is established primarily for 
personal, family, or household purposes, and that satisfies three 
additional criteria as laid out in proposed Sec.  1005.2(b)(3)(i)(A) 
through (C), discussed below.
    The Bureau's proposed definition of prepaid account is based on the 
formulation for the definition of general-use prepaid card in the Gift 
Card Rule (Sec.  1005.20). As the Board noted when it adopted the Gift 
Card Rule, that definition of general-use prepaid card largely tracks 
the language of the Credit CARD Act as codified in EFTA Section 
915(a)(2)(A).\199\ The Bureau examined other similar definitions, such 
as those used in FinCEN's Prepaid Access Rule or in the Board's 
Regulation II, but believes that its proposed approach aligns, as 
explained in detail below, best with the types of prepaid products the 
proposed definition is intended to cover and with the purposes of EFTA 
and Regulation E. The Bureau believes that its proposed definition 
closely calibrates to the products that it intends to cover as well as 
provides greater consistency within Regulation E.
---------------------------------------------------------------------------

    \199\ See 75 FR 16580, 16588 (Apr. 1, 2010). Congress also used 
this definition of prepaid card in the Dodd-Frank Act provisions 
governing debit card interchange and routing requirements. Dodd-
Frank Act section 1075, EFTA section 920(a)(7)(A)(ii), 15 U.S.C. 
1693o-2(a)(7)(A)(ii).
---------------------------------------------------------------------------

    Proposed comment 2(b)(3)(i)-1 would clarify that for purposes of 
subpart A to Regulation E, except for Sec.  1005.17 (requirements for 
overdraft services), the term ``debit card'' also includes a prepaid 
card.
    The first part of the proposed definition--an account established 
primarily for personal, family, or household purposes--mirrors a 
portion of the existing definition of account. See Sec. Sec.  
1005.2(b)(1). Proposed comment 2(b)(3)(i)-2 would explain that proposed 
Sec.  1005.2(b)(3) applies only to cards, codes, or other devices that 
are acquired by or provided to a consumer primarily for personal, 
family, or household purposes. For further commentary interpreting this 
phrase, proposed comment 2(b)(3)(i)-2 would refer to existing comments 
20(a)-4 and -5.
2(b)(3)(i)(A)
    Proposed Sec.  1005.2(b)(3)(i)(A) would define a prepaid account as 
either issued on a prepaid basis to a consumer in a specified amount or 
not issued on a prepaid basis but capable of being loaded with funds 
thereafter.
    This portion of the proposed definition expands upon the phrase 
``issued on a prepaid basis'' used in the Gift Card Rule's definition 
of general-use prepaid card in Sec.  1005.20(a)(3).\200\ However, the 
Bureau seeks to ensure that accounts that are not loaded at acquisition 
are nonetheless eligible to be prepaid accounts. Unlike gift cards, 
which are typically loaded with value at purchase, other types of 
prepaid products may be issued before a consumer or third party loads 
value onto it (e.g., payroll card accounts). The Bureau believes that 
the Gift Card Rule's limitation is unnecessary and inappropriate with 
respect to its definition for prepaid accounts. Thus, because the 
Bureau believes that prepaid products should be subject to the same 
protections regardless of the timing of loading, the proposed 
definition also includes a prepaid product that is ``not issued on a 
prepaid

[[Page 77129]]

basis but capable of being loaded with funds thereafter.''
---------------------------------------------------------------------------

    \200\ Section 1005.20(a)(3) defines the term general use prepaid 
card as ``a card, code, or other device that is: (i) Issued on a 
prepaid basis primarily for personal, family, or household purposes 
to a consumer in a specified amount, whether or not that amount may 
be increased or reloaded, in exchange for payment; and (ii) 
Redeemable upon presentation at multiple, unaffiliated merchants for 
goods or services, or usable at automated teller machines.''
---------------------------------------------------------------------------

    The Bureau is also proposing this approach in part because it is 
concerned that prepaid providers could restructure existing products to 
avoid coverage by the proposed rule if they were to separate account 
acquisition from initial funding. For example, a GPR card provider 
could create a card product that did not require an initial load at the 
time of purchase or a university could give a card to a student prior 
to the disbursement of financial aid and, without the proposed 
additional language, could be outside the proposed rule. The Bureau 
believes that by making the scope of the proposed definition broad it 
will limit attempts to evade the proposed consumer protections for 
prepaid accounts. In addition, the Bureau believes that this proposed 
provision would ensure that consumers who use prepaid accounts receive 
the protections in this proposed rule--particularly the pre-acquisition 
disclosures regarding fees and other key terms--prior to and upon 
establishment of the account.
    Proposed comment 2(b)(3)(i)-3 would clarify that to be ``issued on 
a prepaid basis,'' a prepaid account must be loaded with funds when it 
is first provided to the consumer for use. For example, if a consumer 
purchases a prepaid account and provides funds that are loaded onto a 
card at the time of purchase, the prepaid account is issued on a 
prepaid basis. A prepaid account offered for sale in a retail store is 
not issued on a prepaid basis until purchased by the consumer.
    Proposed comment 2(b)(3)(i)-4 would clarify what types of accounts 
would satisfy the portion of the proposed prepaid account definition 
regarding an account that is not issued on a prepaid basis but is 
capable of being loaded with funds thereafter. Specifically, proposed 
comment 2(b)(3)(i)-4 would explain that a prepaid account that is not 
issued on a prepaid basis but is capable of being loaded with funds 
thereafter includes a prepaid card issued to a consumer with a zero 
balance to which funds may be loaded by the consumer or a third party 
subsequent to issuance. This does not include a product that can never 
store funds, such as digital wallet that only holds payment credentials 
for other accounts.
    Proposed comment 2(b)(3)(i)-5 would clarify that to satisfy 
proposed Sec.  1005.2(b)(3)(i)(A), a prepaid account must either be 
issued on a prepaid basis or be capable of being loaded with funds. 
This means that the prepaid account must be capable of holding funds, 
rather than merely acting as a pass-through vehicle. For example, if a 
product is only capable of storing a consumer's payment credentials for 
other accounts but is incapable of having funds stored on it, such a 
product would not be a prepaid account. However, if a product allows a 
consumer to transfer funds, which can be stored before the consumer 
designates a destination for the funds, the product would satisfy 
proposed Sec.  1005.2(b)(3)(i)(A).
    With these examples, the Bureau seeks to make clear that it does 
not intend to extend the proposed definition of prepaid account to a 
product that can never store funds. To the extent that a digital 
wallet, for example, merely stores payment credentials (e.g., a 
consumer's bank account or payment card information), rather than 
storing the funds themselves, the digital wallet would not be 
considered a prepaid account under the proposed rule. If, however, a 
digital wallet allows a consumer to store funds in it directly, then 
the digital wallet would be a prepaid account if the other criteria of 
the proposed definition are also met.
    The Bureau proposes not to limit its definition to prepaid accounts 
that are reloadable, as explained in proposed comment 2(b)(3)(i)-6, 
which would provide that prepaid accounts need not be reloadable by the 
consumer or a third party. Some industry commenters to the Prepaid ANPR 
urged the Bureau to limit this proposed rule to those products that can 
be reloaded by a consumer. One of these commenters urged exclusion for 
cards issued pursuant to a special arrangement (such as insurance 
cards), arguing that such cards are quite different than GPR cards 
since they are not reloadable by the consumer. These commenters did not 
cite specific evidence to provide a basis for such a rationale. On the 
other hand, some industry commenters and several consumer group 
commenters suggested a more expansive rule based on how the consumer 
expects to use the card, rather than on how it may be loaded with 
funds.
    The Bureau believes that it would be inappropriate to exclude a 
product from the definition of prepaid account based on whether it can 
be reloaded or who can (or cannot) load funds into the account. First, 
products that may limit consumers from loading funds include payroll 
card accounts, which are already subject to Regulation E. Other 
products reloadable only by a third party also may hold funds which 
similarly represent a meaningful portion of a consumer's available 
income. This may be true, for example, for students receiving financial 
aid disbursements or a consumer receiving worker's compensation 
payments. The Bureau believes that, like consumers relying on payroll 
card accounts, which the Board previously acknowledged should be 
protected by Regulation E,\201\ consumers may use these products as 
transaction account substitutes even when consumers cannot reload the 
cards themselves, and thus such products should be similarly protected.
---------------------------------------------------------------------------

    \201\ See 71 FR 51437, 51441 (Aug. 30, 2006).
---------------------------------------------------------------------------

    Second, the Bureau does not believe that non-reloadable prepaid 
products should have fewer protections than reloadable products. While 
it is true that consumers may not generally use non-reloadable products 
as transaction account substitutes given that the funds will eventually 
be spent down in their entirety, the Bureau believes that extending 
protections to all broadly usable prepaid accounts is beneficial to 
consumers. As noted, consumers may not realize the differences between 
protections available for traditional debit cards and prepaid cards and 
even less so between different types of prepaid products. Providers' 
marketing strategies could exacerbate these concerns. To the extent 
prepaid accounts are marketed as being ``safer'' than other products, 
consumers are less likely to understand technical and legal differences 
in regulatory coverage.
    Third, if the Bureau excluded non-reloadable cards from the 
definition of prepaid account, a provider intent on evading Regulation 
E could issue non-reloadable cards repeatedly to the same consumer 
instead of reloading a covered reloadable card. Including non-
reloadable products (that otherwise meet the relevant criteria) in the 
proposed definition of prepaid account would eliminate this 
possibility.
    Nevertheless, the Bureau seeks comment on the scope of this part of 
the proposed definition, including as to specific types of prepaid 
products that should be included or excluded from coverage, as well as 
the rationale for inclusion or exclusion. In particular, the Bureau 
seeks comment on whether the definition as proposed could have the 
unintended consequence of including products that do not warrant 
protection by the Bureau as well as any additional concerns regarding 
products covered by the proposed definition. The Bureau requests that 
commenters specifically identify the reasons why inclusion of 
particular products in the definition of prepaid account would be 
burdensome to providers or not beneficial to consumers, including 
relevant data to support claims where available and appropriate.

[[Page 77130]]

    The Bureau's proposed definition does not focus on particular 
products based on how they are distributed--such as GPR cards sold at 
retail locations or payroll card accounts distributed by employers--but 
instead focuses on the characteristics of a product--such as whether it 
can store funds and how it can be used by a consumer. An alternative 
approach would have been to list specific types of products. The Bureau 
is not proposing such an approach because it believes that it is 
difficult to craft such a list that would remain accurate as products 
evolve and that such a list would create opportunities for evasion. 
Finally, the Bureau also requests comment on whether it should adopt 
specific exceptions to the proposed definition.
2(b)(3)(i)(B)
    The next part of the proposed definition of prepaid account 
addresses how such products must be able to be used to be considered a 
prepaid account. As the Board noted in adopting the Gift Card Rule, a 
key difference between a general-use prepaid card and a store gift card 
is where the card can be used.\202\ While store gift cards and gift 
certificates can be used at only a single merchant or an affiliated 
group of merchants (see Sec.  1005.20(a)(1)(ii) and (2)(ii)), a 
general-use prepaid card is defined, in part, as redeemable upon 
presentation at multiple, unaffiliated merchants for goods or services, 
or usable at automated teller machines (Sec.  1005.20(a)(3)(ii)). In 
response to the Prepaid ANPR, commenters largely urged that the Bureau 
maintain this distinction. As noted above, some industry commenters 
also urged the Bureau to exclude from the proposed rule those products 
that are issued with restrictions on how or where they can be used, 
such as health savings account cards and certain transit cards.
---------------------------------------------------------------------------

    \202\ See 75 FR 16580, 16588 (Apr. 1, 2010).
---------------------------------------------------------------------------

    The Bureau is proposing to add Sec.  1005.2(b)(3)(i)(B), which 
would state that to qualify as a prepaid account, the card, code or 
other device must be redeemable upon presentation at multiple, 
unaffiliated merchants for goods or services, usable at automated 
teller machines, or usable for person-to-person transfers. Proposed 
comment 2(b)(3)(i)-7 would refer to existing comments 20(a)(3)-1 and -2 
from the Gift Card Rule for guidance regarding the meaning of the 
phrase multiple, unaffiliated merchants.\203\
---------------------------------------------------------------------------

    \203\ The Gift Card Rule explains that a card, code, or other 
device is redeemable upon presentation at multiple, unaffiliated 
merchants if, for example, such merchants agree to honor the card, 
code, or device if it bears the mark, logo, or brand of a payment 
network, pursuant to the rules of the payment network. See comment 
20(a)(3)-1.
---------------------------------------------------------------------------

    The Bureau believes it is appropriate to limit the definition of 
prepaid account to those products that consumers can use at multiple 
unaffiliated merchants for goods or services, at ATMs, or for P2P 
transfers. First, a core feature of a conventional debit card is that 
it is usable at multiple, unaffiliated merchants and at ATMs. Insofar 
as a purpose of this rulemaking is to provide comparable coverage for 
products with comparable functionality--in this case traditional debit 
cards and prepaid cards--it is appropriate to structure the proposed 
definition in a way that products with similar features have the 
protections afforded by Regulation E. Additionally, insofar as the 
Bureau understands that consumers expect to have equivalent protections 
on prepaid accounts that they do on accounts linked to debit cards, it 
is appropriate to include in the definition of prepaid account those 
products that have attributes similar to debit cards.
    In other words, a prepaid account would be one that is accepted 
widely at unaffiliated merchants, rather than only a single merchant or 
specific group of merchants, such as those located on a college campus 
or within a mall or defined shopping area. The Bureau believes that 
products usable at a single merchant (e.g., a merchant's gift card) do 
not warrant equivalent protections at this time. The Bureau believes it 
is appropriate to exclude closed loop gift cards from this rulemaking 
because of how they differ from other prepaid products and traditional 
debit cards. Not only can closed loop gift cards not be used in lieu of 
more traditional banking products, but they also cannot be used for P2P 
transfers or in any other way other than transacting with a merchant on 
the closed loop. As a result, consumers are less likely to load funds 
needed for day-to-day use or to load a substantial amount of funds onto 
such a card. Thus, the Bureau does not believe it appropriate to 
provide those products with the same protections at this time. While 
consumers may mistakenly assume that protections that apply to debit 
cards also apply to general-use prepaid cards, they are unlikely to be 
similarly confused with respect to closed loop gift cards. Indeed, 
consumers often do not register gift cards and are frequently 
instructed to treat them like cash.\204\ However, as merchants and 
others increasingly move to accepting card-based payments for their 
products and services, prepaid accounts have become more viable 
substitutes for more traditional financial products and services.
---------------------------------------------------------------------------

    \204\ See, e.g., Dan Rutherford, Giving or receiving gift cards? 
Know the terms and avoid surprises, CFPB Blog Post (Dec. 21, 2012), 
http://www.consumerfinance.gov/blog/giving-or-receiving-gift-cards-know-the-terms-and-avoid-surprises/.
---------------------------------------------------------------------------

    Prepaid products are also growing in popularity as a vehicle for 
consumers to transmit payments to each other or to businesses. The 
Bureau has identified an increasing number of products that allow 
consumers to make P2P or P2B payments without using a third-party 
branded payment network. These services may not always have wide 
merchant acceptance, but they do allow consumers to send money to other 
consumers and businesses. While some P2P transfer products may also be 
usable at an ATM or redeemable at multiple, unaffiliated merchants, 
some are not. However, unlike many limited-use prepaid products that 
have acceptance limited to a restricted location (such as on a college 
campus or in a mall), P2P products do not have such a limitation. 
Indeed, insofar as a P2P product may be accepted by anyone that 
contracts with the P2P provider, the model is not very different from a 
card association that contracts with unaffiliated merchants. Further, 
insofar as consumers may use these products to pay anyone with funds 
stored in the account, the Bureau believes that they should be included 
in the proposed definition of prepaid account.
    The Bureau recognizes, however, that a product that is solely 
usable for storing funds and P2P transfers is different from other 
types of prepaid accounts, such as GPR cards. The Bureau believes that 
there is benefit to consumers in harmonizing those protections with 
those currently offered (and, if the proposal is finalized, that will 
be offered) by other types of prepaid accounts. Thus, the Bureau 
proposes to add new comment 2(b)(3)(i)-8 to further explain when 
accounts capable of P2P transfers are prepaid accounts. Specifically, 
the comment would explain that a prepaid account capable of person-to-
person transfers is an account that allows a consumer to send funds to 
another consumer or business. An account may qualify as a prepaid 
account if it permits person-to-person transfers even if it is neither 
redeemable upon presentation at multiple, unaffiliated merchants for 
goods or services, nor usable at ATMs. A transaction involving a store 
gift card would not be a person-to-person transfer if it could only be 
used to make payments to the merchant or affiliated group of merchants 
on whose behalf the card was issued.

[[Page 77131]]

    The Bureau seeks comment on this portion of its proposed definition 
of prepaid account. In particular, the Bureau solicits comment on P2P 
payment products and whether they warrant inclusion in this rule. Note, 
of course, that a P2P payment product must satisfy the other 
requirements of the proposed rule to be a prepaid account, including 
that the product be capable of storing funds. The Bureau also seeks 
comment on whether there are specific types of products that offer P2P 
services that the Bureau should specifically exempt, such as those that 
are provided or established by an employer primarily for use at an 
affiliated group of merchants even if those products can be used to 
make occasional or incidental transfers to other employees, or for P2P 
products that are not available to the general public.
2(b)(3)(i)(C)
    Regulation E's gift card provisions cover some prepaid products 
that also could fall within the proposed definition of prepaid account 
as described above. In particular, Sec.  1005.20 contains provisions 
applicable to gift certificates, store gift cards, and general-use 
prepaid cards.\205\ For those products marketed and sold as gift cards 
(and that meet certain other qualifications), the Gift Card Rule 
requires certain disclosures, limits the imposition of certain fees, 
and contains other restrictions. The Gift Card Rule is distinct from 
the rest of subpart A of Regulation E, however, and does not provide 
consumers who use gift cards with the other substantive protections of 
Regulation E, such as limited liability and error resolution 
protections, or periodic statements. The Gift Card Rule expressly 
excludes those general-use prepaid cards that are reloadable and not 
marketed or labeled as gift cards or gift certificates, while including 
general-use prepaid cards that are not reloadable as well as those that 
are marketed or labeled as gift cards or gift certificates. See Sec.  
1005.20(b)(2).
---------------------------------------------------------------------------

    \205\ The Gift Card Rule defines a general-use prepaid card as 
``a card, code, or other device that is: (i) Issued on a prepaid 
basis primarily for personal, family, or household purposes to a 
consumer in a specified amount, whether or not that amount may be 
increased or reloaded, in exchange for payment; and (ii) Redeemable 
upon presentation at multiple, unaffiliated merchants for goods or 
services, or usable at automated teller machines.'' Sec.  
1005.20(a)(3).
---------------------------------------------------------------------------

    In response to the Prepaid ANPR, the Bureau received numerous 
industry comments urging it to exclude gift cards from this proposed 
rule. In their letters, these commenters argued that the protections 
for gift cards in the Gift Card Rule more appropriately match how such 
products are used. As one commenter noted, a consumer is unlikely to 
replace a traditional deposit account with a gift card that can only be 
used at a single merchant. Other commenters noted that many provisions 
of Regulation E would not be easily applied to most gift cards. For 
example, to the extent that this proposed rule might apply error 
resolution provisions to gift cards, such a rule might be difficult to 
apply because gift card holders often do not register the cards, thus 
potentially making it difficult for providers to determine when 
unauthorized transactions occur. Similarly, providing access to 
transactional account history to gift cardholders could also be 
difficult and impractical.
    Commenters were also concerned that it would be overly burdensome 
if prepaid products were subject both to the requirements of this 
proposed rule and the Gift Card Rule. To the extent they expressed an 
opinion, consumer group commenters largely agreed that existing 
protections for gift cards were sufficient, although one consumer group 
commenter urged the Bureau to include network branded open loop 
reloadable gift cards loaded with at least $500, because when a card is 
loaded with $500 the risk of harm from loss is higher.
    The Bureau is proposing to add Sec.  1005.2(b)(3)(i)(C), which 
would provide that a prepaid account is not a gift certificate as 
defined in Sec.  1005.20(a)(1) and (b); a store gift card as defined in 
Sec.  1005.20(a)(2) and (b); a loyalty, award, or promotional gift card 
as defined in Sec.  1005.20(a)(4) and (b); or a general-use prepaid 
card as defined in Sec.  1005.20(a)(3) and (b) that is both marketed 
and labeled as a gift card or gift certificate.
    The Bureau notes that the exemption in the Gift Card Rule for 
general-use prepaid cards applies to products that are reloadable and 
not marketed or labeled as gift cards or gift certificates. See Sec.  
1005.20(b)(2). The Bureau is proposing to exclude from the definition 
of prepaid account only such general-use prepaid products that are both 
marketed and labeled as gift cards or gift certificates, as the Bureau 
is concerned that some products it intends to include may be 
inadvertently excluded due to occasional or incidental marketing 
activities. Comment 2(b)(3)(i)-9 would explain this distinction. For 
example, comment 20(b)(2)-2 describes, in part, a network-branded 
general purpose reloadable card that is principally advertised as a 
less-costly alternative to a bank account but is promoted in a 
television, radio, newspaper, or internet advertisement, or on signage 
as ``the perfect gift'' during the holiday season. For purposes of the 
Gift Card Rule, such a product would be considered marketed as a gift 
card or gift certificate because of this occasional holiday marketing 
activity. For purposes of proposed Sec.  1005.2(b)(3)(i)(C), however, 
such a product would not be considered to be both marketed and labeled 
as a gift card or gift certificate and thus would be covered by the 
definition of prepaid account.
    Generally speaking, the Bureau believes that having to apply both 
the existing gift card regulatory requirements and the proposed prepaid 
account requirements could adversely impact the gift card market, 
although the Bureau recognizes that some of the concerns it has 
regarding prepaid accounts can also be applied to gift cards. The 
Bureau acknowledges that if the requirements of this proposed rule were 
applied to gift cards at this time, it is possible that those 
requirements, in the context of the typical gift card, could confuse 
consumers and disrupt many gift cards' cost structures. For example, 
the Gift Card Rule already specifies disclosure with respect to key 
fees that are typically imposed in connection with gift cards. See 
Sec.  1005.20(c)(3). In addition and as noted previously, the Bureau 
believes that consumers may be more aware that gift cards have fewer 
protections than other products and thus treat gift cards 
accordingly.\206\ Because most gift cards are not reloadable, not 
usable at ATMs, and/or not open loop, consumers are less likely to use 
gift cards as transaction account substitutes. Were the Bureau to 
impose provisions for access to account information and error 
resolution, and create limits on liability for unauthorized EFTs, the 
Bureau is concerned that the cost structure of gift cards could change 
dramatically; unlike other types of prepaid products (which, as the 
Bureau's Study of Prepaid Account Agreements indicates, already are 
frequently in compliance with many existing provisions of Regulation 
E), gift cards do not typically offer these protections. In addition, 
while issuers of GPR cards typically encourage consumers to register 
their cards (so that the cards can become reloadable), the same 
motivations do not exist for open-loop gift cards. The Bureau 
nevertheless seeks comment on whether it would be

[[Page 77132]]

appropriate to impose the provisions in this proposal on some or all 
types of gift cards, the nature of consumer harm with respect to gift 
cards, and whether the Bureau's understanding of gift cards as 
discussed herein is accurate.
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    \206\ See, e.g., Fed. Trade Comm'n, Consumer Information: Gift 
Cards (Feb. 2011), https://www.consumer.ftc.gov//0182-gift-cards 
(Web page providing consumers with general information on buying and 
using gift cards).
---------------------------------------------------------------------------

    The Bureau understands that there are certain non-reloadable 
products covered by the Gift Card Rule that providers do not market or 
sell as gift cards (and instead may be marketed more like prepaid 
accounts) and that may be used more broadly, and these cards would be 
covered by both the Gift Card Rule and this proposal. In addition, 
these products are typically network branded and thus appear similar to 
other types of covered prepaid accounts. For example, the Bureau 
understands providers are increasingly looking to market non-reloadable 
prepaid products to consumers as a means of conducting specific 
transactions (e.g., paying a single utility bill or making a purchase 
online). Despite the fact that these may be marketed as a single-use 
(as opposed to reloadable) prepaid card, the fact that these products 
are not marketed or labeled as gift cards, and are network branded and 
usable at any merchant that accepts the network brand may imply to 
consumers that these products are the same as the reloadable version of 
the product and thus warrant the same protections. The Bureau seeks 
comments on whether and, if so, how compliance with both this proposed 
rule and the Gift Card Rule would impose unique burdens on financial 
institutions offering such cards. The Bureau also seeks comment on 
whether the provisions of the Gift Card Rule alone are sufficient to 
protect those consumers that use non-reloadable general-use prepaid 
cards not marketed or sold as gift cards or gift certificates or 
whether consumers of such products would benefit from the proposed 
rule's protections. Finally, the Bureau seeks comment on whether there 
are any other types of products not discussed herein to which the Gift 
Card Rule applies and which might also be affected by this proposal.
2(b)(3)(ii)
    As discussed above, Regulation E currently contains provisions 
specific to payroll card accounts and specifically defines such 
accounts. See Sec.  1005.2(b)(2). Insofar as the Bureau is generally 
proposing to adapt existing payroll card account rules to prepaid 
accounts in Sec.  1005.18, which currently addresses only payroll card 
accounts, the term payroll card account would be largely subsumed 
within the larger definition of prepaid account. Nevertheless, the 
Bureau believes that because there are certain provisions of Regulation 
E that would remain specific to payroll card accounts, it is 
appropriate to propose to maintain the term payroll card account as a 
standalone sub-definition of prepaid account. Specifically, the Bureau 
proposes that Sec.  1005.2(b)(3)(ii) provide that the term ``prepaid 
account'' includes a ``payroll card account'' and would otherwise 
restate the existing payroll card account definition. In addition, the 
Bureau proposes to renumber existing comment 2(b)-2, which concerns 
certain employment-related cards not covered as payroll card accounts, 
as comment new 2(b)(3)(ii)-1. In addition, the Bureau proposes to add 
to new comment 2(b)(3)(ii)-1 an explanation that the existing examples 
given of cards would not be payroll card accounts (i.e., cards used 
solely to disburse incentive-based payments, such as bonuses, 
disbursements unrelated to compensation, and cards used in isolated 
instances to which an employer typically does not make recurring 
payments, such as when providing final payments or in emergency 
situations where other payment methods are unavailable), such cards 
could constitute prepaid accounts generally, provided the other 
conditions of the proposed definition of that term in Sec.  
1005.2(b)(3) are satisfied. Similar to existing comment 2(b)-2, 
proposed comment 2(b)(3)(ii)-1 would also state that, in addition, all 
transactions involving the transfer of funds to or from a payroll card 
account or prepaid account are covered by the regulation, even if a 
particular transaction involves payment of a bonus, other incentive-
based payment, or reimbursement, or the transaction does not represent 
a transfer of wages, salary, or other employee compensation.
    The Bureau seeks comment on this portion of its proposed definition 
of prepaid account.
2(b)(3)(iii)
    As discussed above, Regulation E currently contains provisions in 
Sec.  1005.15 that are specifically applicable to an account 
established by a government agency for distributing government benefits 
to a consumer electronically. While such accounts are currently defined 
only in existing Sec.  1005.15(a)(2), the Bureau believes that given 
the other modifications to Regulation E proposed herein, it is 
appropriate to explicitly add such accounts used for the distribution 
of government benefits as a stand-alone sub-definition of prepaid 
account as well. Specifically, the Bureau is proposing that Sec.  
1005.2(b)(3)(iii) state that the term prepaid account includes a 
government benefit account, as defined in existing Sec.  1005.15(a)(2). 
The Bureau seeks comment on this portion of its proposed definition of 
prepaid account.
2(b)(3)(iv)
    Proposed Sec.  1005.2(b)(3)(iv) would address prepaid products 
established in connection with certain health care and employee benefit 
programs. Specifically, the proposed provision would state that the 
term prepaid account does not include a health savings account, 
flexible spending account, medical savings accounts, or a health 
reimbursement arrangement. Proposed comment 2(b)(3)(iv)-1 would define 
these terms by referencing existing provisions in the Internal Revenue 
Code. Specifically, the Bureau is proposing that ``health savings 
account'' means a health savings account as defined in 26 U.S.C. 
223(d); ``flexible spending account'' means a cafeteria plan which 
provides health benefits or a health flexible spending arrangement 
pursuant to 26 U.S.C. 125; ``medical savings account'' means an Archer 
MSA as defined in 26 U.S.C. 220(d); and ``health reimbursement 
arrangement'' means a health reimbursement arrangement which is treated 
as employer-provided coverage under an accident or health plan for 
purposes of 26 U.S.C. 106.
    The Bureau believes that while these health care and employee 
benefit accounts may, in some ways, be similar to other types of 
prepaid accounts, coverage under Regulation E is not necessary at this 
time. These products typically come with limits on the amount of funds 
that can be loaded on to them, the methods for loading, and numerous 
restrictions on where, when, and how those funds can be spent. These 
products can rarely be used to withdraw cash or to send money to 
another person or make payment to any merchant of the consumer's 
choosing (such as can be done with a P2P product or a GPR card). 
Instead, health insurers or employers (or their service providers) 
typically issue these products in connection with a consumer's 
healthcare or employee benefits plan and are governed by the terms of 
that plan and related regulations.\207\ For example, health savings 
accounts and medical savings accounts can typically only be used to pay 
for qualified medical expenses. Nevertheless, the

[[Page 77133]]

Bureau seeks comment on whether these or other types of health care and 
employee benefit accounts should be included within the definition of 
prepaid account in light of the important role they play for consumers.
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    \207\ See, e.g., Internal Revenue Serv., Publication 969, Health 
Savings Accounts and Other Tax-Favored Health Plans (Jan. 22, 2014), 
available at http://www.irs.gov/pub/irs-pdf/p969.pdf.
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Scope of Proposed Definition and Application to Virtual Wallets and 
Virtual Currency Products
    The Bureau seeks comment on the scope of its proposed definition 
for the term prepaid account. In particular and as noted above, the 
Bureau is aware of an increasing number of mobile financial products, 
each with different features, capabilities, and consumer protections. 
Determining how this proposed rule might apply to those products may be 
difficult in light of the quick evolution of these products and their 
features. Although the Bureau anticipates that this proposal, if 
effective today, would apply to relatively few mobile banking products 
(see, e.g., proposed comments 2(b)(3)(i)-4 and 2(b)(3)(i)-5), it seeks 
comment on whether it has appropriately predicted the scope of products 
this rule would apply to and whether there are products it excludes 
that should be included or vice versa.
    With respect to mobile financial products and services, the Bureau 
anticipates that this proposed rule would apply to certain mobile 
wallets. The Bureau also recognizes that the proposed rule may have 
potential application to virtual currency and related products and 
services. As a general matter, however, the Bureau's analysis of mobile 
financial products and services, as well as and virtual currencies and 
related products and services, including the applicability of existing 
regulations and this proposed regulation to such products and services, 
is ongoing. The proposed rule does not specifically resolve these 
issues.

Section 1005.10 Preauthorized Transfers

10(e) Compulsory Use
10(e)(1) Credit
    In the discussion of the Bureau's proposed changes to Regulation Z, 
below, the Bureau explains in detail its approach to regulation of 
overdraft services and credit features on prepaid accounts. (That 
discussion provides an overall explanation of the Bureau's proposed 
approach to overdraft services and other credit features in connection 
with prepaid accounts in this rulemaking, including with respect to 
proposed changes to Regulation E, the details of which are set forth 
below.) As part of that approach, the Bureau is proposing to revise the 
compulsory use provision of Regulation E, Sec.  1005.10(e)(1), to make 
clear that it applies to credit features offered on prepaid accounts.
    EFTA's compulsory use provision, EFTA section 913(1), prohibits any 
person from conditioning the extension of credit to a consumer on the 
consumer's repayment by means of preauthorized electronic fund 
transfers. As implemented in Regulation E, Sec.  1005.10(e)(1) 
currently states that ``[n]o financial institution or other person may 
condition an extension of credit to a consumer on the consumer's 
repayment by preauthorized electronic fund transfers, except for credit 
extended under an overdraft credit plan or extended to maintain a 
specified minimum balance in the consumer's account.'' The term 
``credit'' is defined in Sec.  1005.2(f) to mean the right granted by a 
financial institution to a consumer to defer payment of debt, incur 
debt and defer its payment, or purchase property or services and defer 
payment therefor. The term ``preauthorized electronic fund transfer'' 
is defined in Sec.  1005.2(k) to mean an electronic fund transfer 
authorized in advance to recur at substantially regular intervals. See 
EFTA section 903(10).
    Congress enacted the compulsory use provision to prevent financial 
institutions that are creditors from mandating repayment of credit by 
future preauthorized electronic fund transfers. Were the compulsory use 
provision not to exist, creditors could access consumers' available 
funds at the same institution via direct transfers, or at other 
institutions via recurring ACH transfers, to repay the debt. By doing 
so, consumers could lose access to these funds and lose the ability to 
prioritize repayment of debits, as a creditor could compel the consumer 
to grant the creditor preauthorized transfer access to a consumer's 
asset account as a condition for agreeing to provide credit to that 
consumer.
    As is discussed below, the Bureau proposes certain modifications to 
the compulsory use provision. In particular, the Bureau proposes not to 
extend the provision's exception for overdraft credit plans to such 
plans offered on prepaid accounts. As discussed in more detail in the 
section-by-section analysis of Regulation Z proposed Sec.  1026.12(d), 
the Bureau believes that applying Sec.  1005.10(e)(1), with the 
proposed changes discussed below, along with proposed changes to the 
timing requirement for a periodic statement in Regulation Z Sec.  
1026.5(b)(2)(ii), and the prohibition on offsets in Regulation Z Sec.  
1026.12(d), would together allow consumers to retain control over the 
funds in their prepaid accounts even when a credit card feature becomes 
associated with that account.
    By not extending the exception for overdraft credit plans in the 
current Regulation E compulsory use provision--and consistent with the 
statutory compulsory use provision (EFTA section 913(1))--creditors 
would be required to offer prepaid account consumers a means to repay 
their outstanding credit balances other than by automatic repayment 
(such as by means of a transfer of funds from the asset account to the 
credit account that the consumer initiates on the prepaid account's 
online banking Web site). With the proposed changes to the Regulation Z 
periodic statement requirement--consistent with TILA section 163--
creditors would be required to adopt reasonable procedures designed to 
ensure that periodic statements are mailed or delivered at least 21 
days prior to the payment due date disclosed on the periodic statement 
and the due date disclosed must be the same day of the month for each 
billing cycle. And, with the proposed changes to the Regulation Z no-
offset provision--consistent with TILA section 169--card issuers would 
be permitted to move funds automatically from the prepaid account held 
by the card issuer to the credit card account held by the card issuer 
to pay some or all of the credit card debt no more frequently than once 
per month, such as on the payment due date (pursuant to the consumer's 
signed, written agreement that the issuer may do so).
Overdraft Credit Plans
    In adopting what is now Sec.  1005.10(e)(1) in 1981 to implement 
EFTA section 913(1), the Board used its EFTA exception authority to 
exclude overdraft credit plans from the general compulsory use rule of 
EFTA section 913(1).\208\ Comment 10(e)(1)-2 further explains that a 
financial institution may require the automatic repayment of an 
overdraft credit plan.
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    \208\ See 46 FR 2972, 2973 (Jan. 13, 1981) (``After careful 
consideration of the issues raised, the Board is adopting the 
amendment as proposed. The Board believes that it has the legal 
authority to adopt this exception [for overdraft lines of credit] 
under section 904(c) of the act, which expressly authorizes the 
Board to provide adjustments and exceptions for any class of 
electronic fund transfer that in the Board's judgment are necessary 
or proper to carry out the purposes of the act or to facilitate 
compliance.''). Further, the bases for Bureau's proposal not to 
extend this exception to prepaid accounts is discussed below in the 
Overview of the Bureau's Regulation Z proposal.
---------------------------------------------------------------------------

    The Bureau proposes to provide that the compulsory use provision's 
general

[[Page 77134]]

prohibition against conditioning the extension of credit to a consumer 
on the consumer's repayment by means of preauthorized electronic fund 
transfers would apply to credit plans, including overdraft credit 
plans, that are credit card accounts under Regulation Z accessed by 
prepaid cards that are credit cards under proposed Regulation Z Sec.  
1026.2(a)(15)(i) or accessed by an account number that is a credit card 
under Regulation Z where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor, discussed in further detail below. Regulation Z proposed 
comment 2(a)(15)-2.i.F would provide that the term ``credit card'' in 
Sec.  1026.2(a)(15)(i) includes a prepaid card (including a prepaid 
card that is solely an account number) that is a single device that may 
be used from time to time to access a credit plan, except if that 
prepaid card only accesses credit that is not subject to any finance 
charge as defined in Sec.  1026.4 or any fee described in Regulation Z 
Sec.  1026.4(c) such as an applicable fee to apply for credit or a late 
payment fee and is not payable by written agreement in more than four 
installments. Regulation Z proposed comment 2(a)(15)-2.i.G, discussed 
below, would provide that the term ``credit card'' in Sec.  
1026.2(a)(15)(i) also includes an account number that is not a prepaid 
card that may be used from time to time to access a credit plan that 
allows deposits directly into particular prepaid accounts specified by 
the creditor but does not allow the consumer to deposit directly 
extensions of credit from the plan into asset accounts other than 
particular prepaid accounts specified by the creditor. (Such an account 
number is referred to in the proposal as an ``account number where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor.'') See also 
Regulation Z proposed Sec.  1026.2(a)(15)(vii).
    The proposal would revise Sec.  1005.10(e)(1) to provide that the 
exception for credit extended under an overdraft credit plan or 
extended to maintain a specified minimum balance in the consumer's 
account does not apply to credit extended under a credit plan that is a 
credit card account accessed by an access device for a prepaid account 
where the access device is a credit card under Regulation Z or accessed 
by an account number that is a credit card where extensions of credit 
are permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor.
    Proposed comment 10(e)(1)-3 would provide guidance on how the 
prohibition in Sec.  1005.10(e)(1) applies to credit extended under a 
credit plan that is a credit card account accessed by prepaid cards or 
account numbers that are credit cards under Regulation Z as discussed 
above. Proposed comment 10(e)(1)-3 would explain that under Sec.  
1005.10(e)(1), creditors must not require by electronic means on a 
preauthorized, recurring basis repayment of credit extended under a 
credit plan that is a credit card account accessed by an access device 
for a prepaid account where the access device is a credit card under 
Regulation Z (Sec.  1026.2(a)(15)(i)). In addition, proposed comment 
10(e)(1)-3 would provide that Sec.  1005.10(e)(1) also would prevent 
creditors from requiring by electronic means on a preauthorized, 
recurring basis repayment of credit extended under a credit plan that 
is a credit card account accessed by an account number that is a credit 
card under Regulation Z (Sec.  1026.2(a)(15)(i)) where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor. Proposed comment 10(e)(1)-3 
would also provide that the prohibition in Sec.  1005.10(e)(1) would 
apply to any credit extended under a credit card plan as described 
above, including credit arising from transactions not using the credit 
card itself but taking place under plans that involve credit cards. For 
example, if the consumer writes a check that accesses a credit card 
plan as discussed above, the resulting credit would be subject to the 
prohibition in Sec.  1005.10(e)(1) since it is incurred through a 
credit card plan, even though the consumer did not use an associated 
credit card.
    Additionally, proposed comment 10(e)(1)-3 would cross-reference 
Regulation Z Sec.  1026.2(a)(15)(i), comment 2(a)(15)-2.i.F to explain 
that a prepaid card is not a credit card under Regulation Z if the 
access device only accesses credit that is not subject to any finance 
charge as defined in Regulation Z Sec.  1026.4 or any fee described in 
Regulation Z Sec.  1026.4(c) and is not payable by written agreement in 
more than four installments. Thus, the prohibition in Sec.  
1005.10(e)(1) would not apply to credit extended under an overdraft 
credit plan that is not a credit card account. An overdraft credit plan 
would not be a credit card account if it is accessed only by a prepaid 
card that only accesses credit that is not subject to any finance 
charge as defined in Regulation Z Sec.  1026.4 or any fee described in 
Regulation Z Sec.  1026.4(c) and is not payable by written agreement in 
more than four installments.
    Proposed comment 10(e)(1)-3.i would explain the connection between 
the prohibition in proposed Sec.  1005.10(e)(1) on the compulsory use 
of preauthorized electronic fund transfers to repay credit extended 
under a credit plan accessed by prepaid cards that are credit cards and 
account numbers linked to prepaid accounts that are credit cards under 
Regulation Z Sec.  1026.2(a)(15)(i) and comment 2(a)(15)-2.i.F and .G, 
and the prohibition on offsets by credit card issuers in proposed Sec.  
1026.12(d). Under Regulation Z Sec.  1026.12(d)(1), a card issuer may 
not take any action, either before or after termination of credit card 
privileges, to offset a cardholder's indebtedness arising from a 
consumer credit transaction under the relevant credit card plan against 
funds of the cardholder held on deposit with the card issuer. Under 
proposed Regulation Z Sec.  1026.12(d)(3), with respect to credit card 
accounts that are accessed by prepaid cards or by account numbers where 
extensions of credit are permitted to be deposited directly only in 
particular prepaid accounts specified by the creditor, a card issuer 
generally would not be prohibited under Sec.  1026.12(d) from 
periodically deducting all or part of the cardholder's credit card debt 
from a deposit account (such as a prepaid account) held with the card 
issuer (subject to the limitations of Regulation Z Sec.  1026.13(d)(1)) 
under a plan that is authorized in writing by the cardholder, so long 
as the creditor does not deduct all or part of the cardholder's credit 
card debt from the deposit account (such as a prepaid account) more 
frequently than once per calendar month, pursuant to such a plan. A 
card issuer for such credit card accounts would be prohibited under 
Sec.  1026.12(d) from automatically deducting all or part of the 
cardholder's credit card debt from a deposit account (such as a prepaid 
account) held with the card issuer more frequently than once per 
calendar month, such as on a daily or weekly basis, or whenever 
deposits are made to the deposit account. Under proposed Regulation Z 
Sec.  1026.12(d)(3), with respect to credit card accounts that are 
accessed by prepaid cards or by account numbers where extensions of 
credit are permitted to be deposited directly only in particular 
prepaid accounts specified by the creditor, electronic fund transfers 
pursuant to a plan described in Sec.  1026.12(d)(3) would be 
``preauthorized electronic fund transfers'' under Sec.  1005.2(k) 
because such electronic fund transfers would be authorized in

[[Page 77135]]

advance to recur periodically (but could not recur more frequently than 
once per calendar month). Proposed comment 10(e)(1)-3.i thus would 
explain that Sec.  1005.10(e)(1) further restricts the card issuer from 
requiring payment from a deposit account (including a prepaid account) 
of credit card balances by electronic means on a preauthorized, 
recurring basis where the credit card account is accessed by an access 
device for a prepaid account, or is accessed by an account number that 
is a credit card under Regulation Z where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor.
    Consistent with the statutory text and purposes of EFTA, the Bureau 
proposes not to extend the exception for overdraft credit plans 
currently in Sec.  1005.10(e)(1) to credit plans that are credit card 
accounts under Regulation Z accessed by prepaid cards or accessed by an 
account number that is a credit card where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor. The purposes of EFTA are to 
establish the rights, liabilities, and responsibilities of consumers 
participating in EFT systems and to provide individual consumer rights. 
See EFTA section 902(b). Further, EFTA's legislative history states 
that EFTA compulsory use provision is ``designed to assure that EFT 
develops in an atmosphere of free choice for the consumer.'' \209\ The 
Bureau believes its proposal not to extend the Regulation's existing 
exception for overdraft credit plans to prepaid accounts should ensure 
that consumers have choice when deciding whether and how to link their 
prepaid accounts to credit accounts and have control over the funds in 
their prepaid accounts if and when such a link is established.
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    \209\ See Senate Report No. 95-915 at 16.
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    As is discussed in greater detail below in the discussion of 
Regulation Z, the Bureau also believes that not extending the exception 
for overdraft credit plans to prepaid accounts is consistent with the 
purposes of and provisions in TILA (TILA section 169) and Regulation Z 
(Sec.  1026.12(d)) that prohibit offsets by credit card issuers and 
will protect consumers' right to exercise control over the funds 
deposited into their prepaid accounts. In particular, the Bureau 
believes that the proposed revisions to Sec.  1005.10(e)(1) are 
necessary to prevent results that are contrary to these offset 
provisions. The Bureau is concerned that, with respect to credit card 
accounts that are accessed by prepaid cards or by account numbers where 
extensions of credit are permitted to be deposited directly only in 
particular prepaid accounts specified by the creditor, some card 
issuers may attempt to avoid the TILA offset prohibition by requiring 
that all or part of the cardholder's credit card debt be automatically 
deducted from the prepaid account to help ensure that the debt is 
repaid (similar to how overdraft services function today). For example, 
the Bureau believes that without the proposed changes to the compulsory 
use provision, financial institutions might require that prepaid 
account consumers set up automated payment plans to repay the overdraft 
credit advances and set the payment due date for each overdraft advance 
to align with the expected date of subsequent deposits to the prepaid 
account. The Bureau believes that this type of payment arrangement 
could undermine the purposes of the offset and periodic statement 
provisions in Regulation Z.
    To the extent that the Board justified its original treatment of 
overdraft credit plans as providing benefits to consumers from 
automatic payment, the Bureau notes that under the proposal consumers 
would still be allowed to choose automatic payment for credit card 
accounts linked to prepaid accounts (as discussed above) if they find 
it beneficial to do so. The Bureau also believes that certain credit 
card rules in Regulation Z that would apply under the proposal to 
credit card accounts linked to prepaid accounts (as discussed above) 
would help consumers avoid late payments and excessive late fees with 
respect to overdraft plans. For example, under the Regulation Z 
proposal, card issuers would be required, under proposed Sec.  
1026.5(b)(2)(ii)(A)(1), to adopt reasonable procedures to ensure that 
Regulation Z periodic statements for credit card accounts linked to 
prepaid account (as discussed above) are mailed or delivered at least 
21 days prior to the payment due date disclosed on the periodic 
statement and the due date disclosed must be the same day of the month 
for each billing cycle. The Bureau believes this will help ensure that 
consumers have sufficient time after receiving periodic statements for 
the credit card accounts linked to prepaid accounts (as discussed 
above) to make payment on their credit card accounts. Also, under the 
Regulation Z proposal, card issuers of credit card accounts linked to 
prepaid accounts (as discussed above) would be limited in the 
circumstances in which they could increase interest rates for late 
payments and would be limited in the amount of late fees they could 
charge to consumers who pay late. See Regulation Z Sec. Sec.  
1026.52(b) and 1026.55.
    This proposal does not address overdraft plans accessed by access 
devices that do not access prepaid accounts and does not amend the 
compulsory use provision as it applies to those other products.
Technical Revisions
    Consistent with proposed Sec.  1005.10(e)(1), comment 10(e)(1)-2 
related to the exception for overdraft credit plans would be amended to 
explain that this exception does not apply to credit extended under a 
credit plan that is accessed by an access device for a prepaid account 
where the access device is a credit card under Regulation Z, Sec.  
1026.2(a)(15)(i), or is accessed by an account number that is a credit 
card under Regulation Z where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor. In addition, the proposal would move existing guidance in 
comment 10(e)(1)-1 related to when financial institutions may provide 
incentives to consumers to agree to automatic repayment plans to a new 
comment 10(e)(1)-4; no substantive changes are intended.
10(e)(2) Employment or Government Benefit
    EFTA section 913(2), as implemented by Sec.  1005.10(e)(2), 
provides that no financial institution or other person may require a 
consumer to establish an account for receipt of electronic fund 
transfers with a particular institution as a condition of employment or 
receipt of a government benefit. Existing comment 10(e)(2)-1 explains 
that an employer (including a financial institution) may not require 
its employees to receive their salary by direct deposit to any 
particular institution. These provisions regarding compulsory use 
precede the addition of the Payroll Card Rule to Regulation E.
    In September 2013, the Bureau reiterated the applicability of 
Regulation E's prohibition on compulsory use for payroll card 
accounts.\210\ The Bureau explained that, among other things, 
Regulation E's compulsory use provision prohibits employers from 
mandating that employees receive wages only on a payroll card of the 
employer's choosing.\211\
---------------------------------------------------------------------------

    \210\ CFPB Bulletin 2013-10, Payroll Card Accounts (Regulation 
E) (Sept. 12, 2013), available at http://files.consumerfinance.gov/f/201309_cfpb_payroll-card-bulletin.pdf.
    \211\ Id. at 3.
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    The Bureau believes that the same standards should apply to 
government

[[Page 77136]]

benefit accounts. The Bureau is aware that many State and local 
governments use prepaid cards for distributing non-needs tested 
benefits and similar payments, such as unemployment insurance and child 
support payments.\212\ These products are subject to EFTA and 
Regulation E. The Bureau understands that most, though not all, State 
governments using prepaid cards to distribute unemployment insurance 
payments also offer recipients the option of receiving these payments 
via direct deposit and/or paper check.\213\
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    \212\ See, e.g., Bd. of Governors of the Fed. Reserve Sys., 
Report to the Congress on Government-Administered, General-Use 
Prepaid Cards (July 2014), available at http://www.federalreserve.gov/publications/files/2014_Prepaid_Cards_Final.pdf. Nearly every State offers a prepaid 
card to disburse child support and unemployment insurance payments. 
Id. at 3.
    \213\ See, e.g., Lauren K. Saunders & Jillian McLaughlin, 2013 
Survey of Unemployment Prepaid Cards: States Save Workers Millions 
in Fees; Thumbs Down on Restricting Choice (Jan. 2013), available at 
http://www.nclc.org/images/pdf/pr-reports/report-prepaid-card-2013.pdf.
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    Based on discussions with interested stakeholders, the Bureau is 
aware that some may have perceived some ambiguity surrounding 
compulsory use of prepaid cards to distribute non-needs tested state 
and local government benefits. Specifically, some questions have arisen 
as to whether compulsory use of prepaid cards for non-needs tested 
benefits is permissible under Regulation E. EFTA and Regulation E 
clearly apply to the electronic distribution of non-needs tested 
government benefits generally, and EFTA section 913(2) prohibits 
``requiring a consumer to establish an account for receipt of 
electronic fund transfers with a particular financial institution as a 
condition of . . . receipt of a government benefit.''
    Therefore, the Bureau believes it is appropriate to clarify the 
application of the compulsory use provision in Regulation E to accounts 
established to receive such benefits. Thus, the Bureau is proposing to 
add comment 10(e)(2)-2, which would make clear that a government agency 
may not require consumers to receive government benefits by direct 
deposit to any particular institution. A government agency may require 
direct deposit of benefits by electronic means if recipients are 
allowed to choose the institution that will receive the direct deposit. 
Alternatively, a government agency may give recipients the choice of 
having their benefits deposited at a particular institution (designated 
by the government agency) or receiving their benefits by another means. 
Relatedly, the Bureau seeks comment on whether a financial institution 
would comply with this provision if it provides the first payment to a 
benefit recipient on a government benefit card and, at that time, 
provides information on how to divert or otherwise direct future 
payments to an account of the consumer's choosing.
    The Bureau is also proposing to make consumers' options more clear, 
for both government benefit accounts and payroll card accounts, via a 
notice on the pre-acquisition short form disclosure for these types of 
prepaid accounts. See section-by-section analysis of Sec. Sec.  
1005.15(c)(2) and 1005.18(b)(2)(i)(A).
    The Bureau requests comment on its proposed clarification of the 
prohibition on compulsory use of specific accounts for receipt of 
government benefits. The Bureau also seeks comment on whether a similar 
restriction should be extended to other types of prepaid accounts 
(other than payroll card accounts and government benefit accounts), 
such as cards used by post-secondary educational institutions for 
financial aid disbursements or insurance companies to pay out claims. 
In particular, the Bureau seeks comment on how consumers are enrolled 
in these other types of prepaid accounts, whether those enrollment 
methods involve concerns similar to those addressed above regarding 
prepaid cards for distribution of government benefits, and what the 
impact, if any, would be of expanding this provision to other types of 
prepaid accounts. Finally, the Bureau seeks comment on whether other 
interventions are appropriate with respect to prepaid products 
distributed by employers, government entities, educational 
institutions, and other third parties in connection with the payment of 
funds to particular groups.

Section 1005.12 Relation to Other Laws

12(a) Relation to the Truth in Lending Act
    Section 1005.12(a) provides guidance on whether the issuance 
provisions in Regulation E Sec.  1005.5 or the unsolicited issuance 
provisions in Regulations Z Sec.  1026.12(a) apply where access devices 
under Regulation E also are credit cards under Regulation Z. (For 
discussion of when this may occur, see the Regulation Z proposal, 
below.) In addition, Sec.  1005.12(a) also provides guidance on how the 
provisions on liability for unauthorized use and for resolving errors 
in Regulation E Sec. Sec.  1005.6 and 1005.11 and Regulation Z 
Sec. Sec.  1026.12(b) and 1026.13 interact where a credit transaction 
is incidental to an electronic fund transfer.
Issuance Rules
    Consistent with EFTA section 911(a) (15 U.S.C. 1693i(a)), existing 
Sec.  1005.5(a) provides that a financial institution generally may 
issue an access device to a consumer only: (1) In response to an oral 
or written request for the device; or (2) As a renewal of, or in 
substitution for, an accepted access device whether issued by the 
institution or a successor. Nonetheless, consistent with EFTA section 
911(b) (15 U.S.C. 1693i(b)), Sec.  1005.5(b) provides that a financial 
institution may distribute an access device to a consumer on an 
unsolicited basis if four enumerated situations are met.
    In contrast, the issuance rules for a credit card under Regulation 
Z are more restrictive. Consistent with TILA section 132, Regulation Z 
Sec.  1026.12(a), provides that regardless of the purpose for which a 
credit card is to be used, including business, commercial, or 
agricultural use, no credit card shall be issued to any person except: 
(1) In response to an oral or written request or application for the 
card; or (2) As a renewal of, or substitute for, an accepted credit 
card.
    Section 1005.12(a) provides guidance on whether the issuance 
provisions in Regulation E or the unsolicited issuance provisions in 
Regulations Z apply where access devices under Regulation E also are 
credit cards under Regulation Z. Specifically, Sec.  1005.12(a)(1) 
currently provides that EFTA and Regulation E subpart A govern: (1) The 
addition to an accepted credit card, as defined in Regulation Z (Sec.  
1026.12, comment 12-2), of the capability to initiate electronic fund 
transfers; (2) The issuance of an access device that permits credit 
extensions pursuant to an overdraft line of credit (involving a 
preexisting agreement between a consumer and a financial institution to 
extend credit only when the consumer's account is overdrawn or to 
maintain a specified minimum balance in the consumer's account), or 
under an overdraft service (as defined in Regulation E Sec.  
1005.17(a)); and (3) The addition of an overdraft service, as defined 
in Sec.  1005.17(a), to an accepted access device. On the other hand, 
Sec.  1005.12(a)(2) provides that TILA and Regulation Z apply to (1) 
the addition of a credit feature to an accepted access device; and (2) 
the issuance of a credit card that is also an access device, except the 
issuance of an access device that permits credit extensions pursuant to 
a preexisting overdraft line of credit or under an overdraft service. 
The application of these various provisions

[[Page 77137]]

to prepaid accounts and proposed revisions to the relevant prongs of 
Sec.  1005.12 are discussed below.
    Generally, the proposal would amend Sec.  1005.12(a) to provide 
that the unsolicited issuances rules in Regulation Z Sec.  1026.12(a) 
apply to the addition of a credit feature or plan to an access device 
for a prepaid account where the credit feature or plan would make the 
access device into a credit card under Regulation Z, even if the credit 
feature is structured as an overdraft line of credit.
    First, as noted, Sec.  1005.12(a)(1)(ii) provides that the issuance 
rules of EFTA and Regulation E subpart A govern the issuance of an 
access device that permits credit extensions (under a preexisting 
agreement between a consumer and a financial institution) only when the 
consumer's account is overdrawn or to maintain a specified minimum 
balance in the consumer's account, or under an overdraft service, as 
defined in Sec.  1005.17(a). Current comment 12(a)-2 then explains that 
for access devices that also constitute credit cards, the issuance 
rules of Regulation E apply if the only credit feature is a preexisting 
credit line attached to the asset account to cover overdrafts (or to 
maintain a specified minimum balance), known as an overdraft credit 
plan, or an overdraft service, as defined in Sec.  1005.17(a). For 
checking accounts, a consumer may have a preexisting agreement with the 
financial institution to cover checks that overdraft the account. This 
overdraft line of credit would be subject to Regulation Z. If a debit 
card is then added to access this overdraft line of credit under the 
preexisting agreement, Sec.  1005.12(a)(1)(ii) provides that the debit 
card (which would also be a credit card under Regulation Z) may be 
issued under the issuance rules in Regulation E, instead of the 
issuance rules in Regulation Z. Regulation Z's issuance rules apply if 
there is another type of credit feature being added to a debit card 
that would make the debit card into a credit card; for example, one 
permitting direct extensions of credit that do not involve the asset 
account.
    The proposal would amend Sec.  1005.12(a)(1)(ii) to provide that 
this provision does not apply to access devices for prepaid accounts. 
Thus, even if an access device for a prepaid account is issued to 
access a preexisting overdraft plan, the access device would be subject 
to the unsolicited issuance rules in TILA and Regulation Z Sec.  
1026.12(a) when that overdraft plan would make the access device into a 
credit card under Regulation Z. See proposed Sec.  1005.12(a)(2)(ii). 
The proposal also would move comment 12(a)-2 related to preexisting 
overdraft credit plans to proposed comment 12(a)-1 and would revise the 
comment to explain that it does not apply to access devices for prepaid 
accounts.
    As discussed above, Sec.  1005.12(a)(1)(ii) contemplates the 
situation where there is a preexisting agreement between a financial 
institution and the consumer for an overdraft line of credit where the 
institution will cover checks that overdraft the account and the 
Regulation E access device is issued to access this plan. For the 
reasons set forth in the section-by-section analysis of Regulation Z, 
the Bureau believes that credit card rules in Regulation Z, including 
the unsolicited issuance rules in Sec.  1026.12(a), generally should 
apply to credit card accounts that are linked to prepaid accounts as 
discussed above. Consistent with the unsolicited issuance rules in 
Regulation Z Sec.  1026.12(a), the Bureau is proposing these changes 
because it is concerned that unsolicited issuance of a prepaid card 
that can access an overdraft credit plan would pose risks to consumers. 
The Bureau seeks to ensure that prepaid account consumers are fully 
aware of the addition, or potential addition, of a credit feature to a 
prepaid account.
    Similarly, the proposal would carve prepaid accounts out from Sec.  
1005.12(a)(1)(iii), which provides that the issuance rules in EFTA and 
Regulation E govern the addition of an overdraft service, as defined in 
Sec.  1005.17(a), to an accepted access device. Current comment 12(a)-3 
provides that the addition of an overdraft service, as that term is 
defined in Sec.  1005.17(a), to an accepted access device does not 
constitute the addition of a credit feature subject to Regulation Z. 
Comment 12(a)-3 also explains that the provisions of Regulation E 
apply, including the liability limitations (Sec.  1005.6) and the 
requirement to obtain consumer consent to the service before any fees 
or charges for paying an overdraft debit card or ATM transaction may be 
assessed on the account (Sec.  1005.17). The proposal would amend Sec.  
1005.12(a)(1)(iii) to provide that this provision does not apply to 
access devices for prepaid accounts. The proposal also would move 
comment 12(a)-3 to proposed comment 12(a)-2 and revise the comment to 
indicate that this comment does not apply to access devices for prepaid 
accounts. As discussed in more detail in the section-by-section 
analysis of Sec.  1005.17, the proposal would revise the term 
``overdraft service'' as defined in Sec.  1005.17(a) to exclude a 
credit plan that is accessed by an access device for a prepaid account 
where the access device is a credit card under Regulation Z, because 
these credit plans would be subject to the provisions in Regulation Z.
    Second, the proposal would also add references to prepaid accounts 
in portions of the regulation stating that certain activities are 
subject to TILA and Regulation Z issuance rules. For example, Sec.  
1005.12(a)(2)(i) currently provides that the unsolicited issuance rules 
of TILA section 132 and Regulation Z Sec.  1026.12(a) apply to the 
addition of a credit feature to an accepted access device. The proposal 
would amend Sec.  1005.12(a)(2)(i) to provide that the unsolicited 
issuance rules in TILA and Regulation Z Sec.  1026.12(a) would apply to 
the addition of a credit feature or plan to an accepted access device, 
including an access device for a prepaid account, that would make the 
access device into a credit card under Regulation Z. Proposed comment 
12(a)-4 would explain that Regulation Z governs the addition of any 
credit feature or plan to an access device for a prepaid account where 
the access device also would be a credit card under Regulation Z. 
Proposed comment 12(a)-4 would note that Regulation Z (Sec.  
1026.2(a)(20), comment 2(a)(20)-2(ii)) provides guidance on whether a 
program constitutes a credit plan, and that Regulation Z (Sec.  
1026.2(a)(15)(i), comment 2(a)(15)-2) defines the term credit card and 
provides examples of cards or devices that are and are not credit 
cards.
    Similarly, Sec.  1005.12(a)(2)(ii) currently provides that TILA and 
Regulation Z apply to the issuance of a credit card that is also an 
access device, except as provided in Sec.  1005.12(a)(1)(ii). Proposed 
comment 12(a)-3 would cross reference proposed Sec.  1005.18(g) and 
Regulation Z Sec.  1026.12(h), which would prevent prepaid cards from 
accessing credit card accounts when the prepaid cards are issued. For 
the reasons discussed in the section-by-section analysis of proposed 
Sec.  1005.18(g), proposed Sec.  1005.18(g)(1)(ii) would prohibit a 
financial institution from allowing a prepaid account access device to 
access a credit plan subject to Regulation Z that would make the access 
device into a credit card at any time prior to 30 calendar days after 
the prepaid account has been registered. In addition, proposed Sec.  
1005.18(g)(1)(i) also would prohibit a financial institution from 
opening a credit card account subject to Regulation Z for the holder of 
a prepaid account, or providing a solicitation or application to open a 
credit card account subject to Regulation Z that would be accessed by 
the access device for a prepaid account

[[Page 77138]]

that is a credit card, prior to 30 calendar days after the prepaid 
account has been registered. For the reasons discussed in the section-
by-section analysis of Regulation Z proposed Sec.  1026.12(h), proposed 
Sec.  1026.12(h) would require a credit card issuer to wait at least 30 
calendar days from prepaid account registration before opening a credit 
card account for a holder of a prepaid account, or providing a 
solicitation or application to the holder of the prepaid account to 
open a credit card account, that would be accessed by the access device 
for a prepaid account that is a credit card.
    The Bureau believes that its proposed application of Regulations E 
and Z to the issuance of access devices strikes an appropriate balance 
between the regulations. The proposal recognizes that prepaid card 
issuers are not likely to have preexisting agreements with the customer 
to extend overdraft credit prior to issuing the prepaid card. The 
Bureau believes in particular that the addition of a credit feature to 
an accepted prepaid access device causes a significant transformation 
with respect to a prepaid account. The Bureau believes that applying 
the Regulation Z issuance rules to the addition of such a credit 
feature to a prepaid access device will help ensure that consumers are 
fully aware of the implications of their decision to effect such a 
transformation.
Rules Applicable to Limits on Liability for Unauthorized Use and to 
Billing Errors Procedures
    Section 1005.6 generally sets forth provisions for when a consumer 
may be held liable, within the limitations described in Sec.  
1005.6(b), for an unauthorized electronic fund transfer involving the 
consumer's account. Section 1005.11 generally sets forth the procedures 
for resolving errors relating to electronic fund transfers involving a 
consumer's account. Section 1005.18(e) sets forth a consumer's 
liability for unauthorized electronic fund transfers and the procedures 
for investigating errors related to electronic fund transfers involving 
prepaid accounts. See generally section-by-section analysis of proposed 
Sec.  1005.18(e).
    Relatedly, Regulation Z Sec.  1026.12(b) sets forth limits on the 
amount of liability that a credit card issuer may impose on a consumer 
for unauthorized use of a credit card. Regulation Z Sec.  1026.13 
generally sets forth error resolution procedures for billing errors 
that relate to extensions of credit that are made in connection with 
open-end accounts or credit card accounts.
    Regulation E Sec.  1005.12(a)(1)(iv) currently provides guidance on 
how the provisions on limits on liability for unauthorized use and the 
provisions setting forth error resolution procedures under Regulation E 
and Regulation Z apply when credit is extended incident to an 
electronic fund transfer. Specifically, Sec.  1005.12(a)(1)(iv) 
provides that EFTA and Regulation E govern a consumer's liability for 
an unauthorized electronic fund transfer and the investigation of 
errors involving an extension of credit that occurs pursuant to an 
overdraft line of credit (under an agreement between the consumer and a 
financial institution to extend credit when the consumer's account is 
overdrawn or to maintain a specified minimum balance in the consumer's 
account), or under an overdraft service, as defined in Sec.  
1005.17(a). Comment 12(a)-1 provides that for transactions involving 
access devices that also function as credit cards, whether Regulation E 
or Regulation Z applies depends on the nature of the transaction. For 
example, if the transaction solely involves an extension of credit, and 
does not include a debit to a checking account (or other consumer asset 
account), the liability limitations and error resolution requirements 
of Regulation Z apply. If the transaction debits a checking account 
only (with no credit extended), the provisions of Regulation E apply. 
If the transaction debits a checking account but also draws on an 
overdraft line of credit attached to the account, Regulation E's 
liability limitations apply, in addition to Regulation Z Sec.  
1026.13(d) and (g) (which apply because of the extension of credit 
associated with the overdraft feature on the checking account).\214\ If 
a consumer's access device is also a credit card and the device is used 
to make unauthorized withdrawals from a checking account, but also is 
used to obtain unauthorized cash advances directly from a line of 
credit that is separate from the checking account, both Regulation E 
and Regulation Z apply. Comment 12(a)-1 also sets forth examples that 
illustrate these principles.
---------------------------------------------------------------------------

    \214\ Section 1026.13(d) provides that a consumer need not pay 
(and the creditor may not try to collect) any portion of any 
required payment that the consumer believes is related to a disputed 
amount reflected on the consumer's credit card bill. It also 
provides that if the cardholder has enrolled in an automatic payment 
plan, the card issuer shall not deduct any part of the disputed 
amount or related finance or other charges from the consumer's asset 
account if the consumer provides to the card issuer a billing error 
notice that the card issuer receives any time up to 3 business days 
before the scheduled payment date. Section 1026.13(g) sets forth 
requirements governing what a creditor must do if it determines that 
a consumer owes all or part of the disputed amount and related 
finance or other charges.
---------------------------------------------------------------------------

    With respect to limits on liability for unauthorized use, Sec.  
1005.12(a) and comment 12(a)-1 are consistent with EFTA section 909(c), 
which applies EFTA's limits on liability for unauthorized use to 
transactions which involve both an unauthorized electronic fund 
transfer and an extension of credit pursuant to an agreement between 
the consumer and the financial institution to extend such credit to the 
consumer in the event the consumer's account is overdrawn. 15 U.S.C. 
1693g(c). In adopting rules in 1980 to implement EFTA, the Board 
generally applied Regulation E's error resolution procedures to credit 
transactions that are incident to an electronic fund transfer involving 
an extension of credit that occurs under an agreement between the 
consumer and a financial institution to extend credit when the 
consumer's account is overdrawn or to maintain a specified minimum 
balance in the consumer's account.\215\ In proposing these rules, the 
Board stated that the proposed rule would simplify procedures for 
financial institutions where an electronic fund transfer results in 
both a debit to a consumer's account and a credit extension.\216\
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    \215\ 45 FR 8249, 8257 (Feb. 6, 1980).
    \216\ 44 FR 25850, 25857 (May 3, 1979).
---------------------------------------------------------------------------

    For the reasons discussed in more detail in the section by section 
analysis of Regulation Z proposed Sec.  1026.13(i), the Bureau proposes 
to amend Sec.  1005.12(a)(1)(iv) by moving the current language to 
proposed Sec.  1005.12(a)(1)(iv)(A) and applying it to access devices 
that do not access prepaid accounts. The Bureau also proposes to add 
proposed Sec.  1005.12(a)(1)(iv)(B) to provide that with respect to a 
prepaid account, EFTA and Regulation E govern a consumer's liability 
for an unauthorized electronic fund transfer and the investigation of 
errors involving an extension of credit, under a credit plan subject to 
Regulation Z subpart B, that is incident to an electronic fund transfer 
when the consumer's prepaid account is overdrawn. Proposed Sec.  
1005.12(a)(1)(iv)(B) that applies to credit in connection with a 
prepaid account is similar but not the same as proposed Sec.  
1005.12(a)(1)(iv)(A) which applies to accounts other than prepaid 
accounts. Like proposed Sec.  1005.12(a)(1)(iv)(A), proposed Sec.  
1005.12(a)(1)(iv)(B) generally would apply Regulation E's limits on 
liability for unauthorized use and error resolution procedures to 
transactions that are partially funded through an

[[Page 77139]]

electronic fund transfer using a prepaid card and partially funded 
through credit under a plan that is accessed by a prepaid card when the 
consumer's prepaid account is overdrawn.\217\
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    \217\ This treatment would not apply to plans accessed by an 
account number that is a credit card under Regulation Z, where 
extensions of credit are permitted to be deposited directly only 
into particular prepaid accounts specified by the creditor. See the 
discussion of Regulation Z Sec.  1026.13(i) below.
---------------------------------------------------------------------------

    However, unlike proposed Sec.  1005.12(a)(1)(iv)(A), proposed Sec.  
1005.12(a)(1)(iv)(B) would not focus on whether there is an agreement 
between a consumer and a financial institution to extend credit when 
the consumer's prepaid account is overdrawn or to maintain a specified 
minimum balance in the consumer's prepaid account. Instead, proposed 
Sec.  1005.12(a)(1)(iv)(B) focuses on whether credit is extended under 
a ``plan'' when the consumer's prepaid account is overdrawn and the 
plan is subject to the provisions in Regulation Z subpart B. For 
example, a credit plan that is accessed by a prepaid card that is a 
credit card would be subject to the provisions of subpart B. Under the 
proposal, a prepaid card can be a credit card under Regulation Z even 
if the creditor retains discretion not to pay the credit transactions. 
As discussed in the section-by-section analysis of Regulation Z 
proposed Sec.  1026.2(a)(15)(i), proposed comment 2(a)(15)-2.i.F would 
provide that the term ``credit card'' for purposes of Regulation Z 
includes a prepaid card that is a single device that may be used from 
time to time to access a credit ``plan,'' except if the prepaid card 
only accesses credit that is not subject to any finance charge as 
defined in Regulation Z Sec.  1026.4 or any fee described in Regulation 
Z Sec.  1026.4(c) such as an application fee to apply for credit or a 
late payment fee and is not payable by written agreement in more than 
four installments. As discussed in the section-by-section analysis of 
proposed Regulation Z Sec.  1026.2(a)(20), with respect to credit that 
is accessed by a prepaid card, a ``plan'' includes a program where the 
consumer is obligated contractually to repay the credit. For example, 
such a plan includes a program under which a creditor routinely pays 
transactions when a consumer has insufficient or unavailable funds in a 
prepaid account and the consumer is obligated contractually to repay 
those transactions. Under the proposal, such a program would constitute 
a plan notwithstanding that the creditor retains discretion not to pay 
such transactions. Thus, proposed Sec.  1005.12(a)(1)(iv)(B) focuses on 
whether credit is extended under a ``plan'' that is subject to the 
provisions of subpart B, rather than whether there is an agreement 
between a consumer and a financial institution to extend credit when 
the consumer's account is overdrawn or to maintain a specified minimum 
balance in the consumer's account.
    Comment 12(a)-1 provides guidance on determining the applicable 
regulation related to liability and error resolution, primarily 
focusing on examples of when a debit card that also is a credit card 
under Regulation Z accesses a checking account. Under the proposal, 
comment 12(a)-1 would be moved to proposed comment 12(a)-5. The 
proposal also would amend proposed comment 12(a)-5 to provide guidance 
on determining the applicable regulation related to liability and error 
resolution for overdraft credit plans in connection with asset 
accounts, including prepaid accounts.
    Proposed comment 12(a)-5.i would also explain that for an account 
other than a prepaid account where credit is extended incident to an 
electronic fund transfer under an agreement to extend overdraft credit 
between the consumer and the financial institution, Regulation E's 
liability limitations and error resolution provisions apply, in 
addition to Regulation Z Sec.  1026.13(d) and (g) (which apply because 
of the extension of credit associated with the overdraft feature on the 
asset account). With respect to an account other than for a prepaid 
account, incidental credit that is not extended under an agreement 
between the consumer and the financial institution where the financial 
institution agrees to extend credit is governed solely by the error 
resolution procedures in Regulation E, and Regulation Z Sec.  
1026.23(d) and (g) do not apply.
    Proposed comment 12(a)-5 would provide that with respect to a 
prepaid account where credit is extended under a credit plan that is 
subject to Regulation Z subpart B, Regulation E's liability limitations 
and error resolution provisions apply, in addition to Regulation Z 
Sec.  1026.13(d) and (g) (which apply because of the extension of 
credit associated with the overdraft feature on the asset account). 
Under the proposal, a credit plan is subject to Regulation Z subpart B 
if the credit plan is accessed by an access device that is a credit 
card under Regulation Z or the credit plan is open-end credit. An 
access device for a prepaid account would not be a credit card if the 
access device only accesses credit that is not subject to any finance 
charge as defined in Regulation Z Sec.  1026.4 or any fee described in 
Regulation Z Sec.  1026.4(c) and is not payable by written agreement in 
more than four installments. See Regulation Z comment 2(a)(15)-2.i.F. 
Proposed comment 12(a)-5 would explain that incidental credit under a 
credit plan that only can be accessed by an access device for a prepaid 
account that is not a credit card is not subject to Regulation Z 
subpart B and is governed solely by the error resolution procedures in 
Regulation E because the credit plan is not accessed by a credit card 
and the plan is not open-end credit. In this case, Regulation Z Sec.  
1026.13(d) and (g) do not apply.
    Comment 12(a)-1.i and ii would be moved to proposed comment 12(a)-
5-.ii and iii, respectively, and would be revised to indicate how the 
principles and examples apply generally to asset accounts, including 
checking accounts and prepaid accounts.
    The Bureau believes that it is appropriate to apply the limits on 
liability and the error resolution procedures in Regulation E generally 
to transactions that debit a prepaid account but also draw on an 
overdraft plan that is subject to Regulation Z subpart B. The Bureau 
believes that its proposed approach is consistent with EFTA section 
909(c), which applies EFTA's limits on liability for unauthorized use 
to transactions which involve both an unauthorized electronic fund 
transfer and an extension of credit pursuant to an agreement between 
the consumer and the financial institution to extend such credit to the 
consumer in the event the consumer's account is overdrawn. 15 U.S.C. 
1693g(c). An unauthorized electronic fund transfer on a prepaid account 
generally would be subject to the limits on liability in Sec.  1005.6 
and proposed Sec.  1005.18(e); an unauthorized electronic fund transfer 
on a prepaid account also is an error for purposes of error resolution 
procedures set forth in Sec.  1005.11 and proposed Sec.  1005.18(e). 
See Sec.  1005.11(a)(1)(i). Although billing errors under Regulation Z 
Sec.  1026.13(a) include a broader category than only unauthorized use, 
the Bureau believes it is necessary and proper to apply Regulation E's 
error resolution provisions and limited Regulation Z error resolution 
provisions to these transactions, to facilitate compliance with EFTA 
section 908 and TILA section 161 on error resolution. The Bureau is 
concerned that conflicting provisions could apply to transactions that 
debit a prepaid account but also draws on an overdraft plan subject to 
Regulation Z subpart B if Regulation E's provisions applied to limits 
on liability

[[Page 77140]]

for unauthorized use, and Regulation Z's provisions generally apply to 
investigation of billing errors, including transactions involving 
unauthorized use. To avoid these potential conflicts and to facilitate 
compliance, under proposed Regulation Z Sec.  1026.12(a)(1)(v), if the 
transaction debits a prepaid account but also draws on an overdraft 
plan subject to Regulation Z subpart B, Regulation E's liability 
limitations and error resolution procedures apply to the entire 
transaction and Regulation Z's error resolution rules in Sec.  
1026.13(d) and (g) apply to the credit portion of the transaction. This 
approach is also consistent with the existing provisions in Sec.  
1005.11(a)(1)(iv) and Regulation Z Sec.  1026.13(i), which applies 
Regulation E's liability limitation and error resolution procedures to 
extensions of credit that is incident to an electronic fund transfer.
    The Bureau solicits comment on this approach. The Bureau also 
solicits comment on whether there are any other preferable approaches 
to determining how the liability limitations and error resolution 
procedures in Regulations E and Z should apply to transactions that 
debit prepaid accounts but also draw on overdraft plans that are 
subject to Regulation Z subpart B.
12(b) Preemption of Inconsistent State Laws
    In 2013, the Bureau published a final determination as to whether 
certain laws of Maine and Tennessee relating to unclaimed gift cards 
are inconsistent with and preempted by EFTA and Regulation E.\218\ The 
Bureau concluded that it had no basis for concluding that the 
provisions at issue in Maine's unclaimed property law relating to gift 
cards are inconsistent with, or therefore preempted by, Federal law. 
The Bureau did determine, however, that one provision in Tennessee's 
unclaimed property law relating to gift cards is inconsistent with, and 
therefore preempted by, Federal law. The Bureau's notice of its 
preemption determination stated that the determination would also be 
reflected in the commentary accompanying Regulation E.
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    \218\ 78 FR 24386, 24391 (Apr. 25, 2013).
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    The Bureau proposes to add a summary of its preemption 
determination with respect to Tennessee's unclaimed property law as 
comment 12(b)-4. Proposed comment 12(b)-4 would state that the Bureau 
had determined that a provision in the State law of Tennessee is 
preempted by the Federal law, effective April 25, 2013. Specifically, 
section 66-29-116 of Tennessee's Uniform Disposition of Unclaimed 
(Personal) Property Act is preempted to the extent that it permits gift 
certificates, store gift cards, and stored-value cards, as defined in 
Sec.  1005.20(a), to be declined at the point-of-sale sooner than the 
gift certificates, store gift cards, or stored value cards and their 
underlying funds are permitted to expire under Sec.  1005.20(e).
    Existing comment 12(b)-2 states, in part, that the Bureau 
recognizes state law preemption determinations made by the Board prior 
to July 21, 2011, unless and until the Bureau makes and publishes any 
contrary determination. The Bureau proposes to make this statement into 
a standalone comment in proposed comment 12(b)-2 under the heading 
Preemption determinations generally. The Bureau proposes to renumber 
the remainder of existing comment 12(b)-2 as proposed comment 12(b)-3, 
to make the heading for that comment Preemption determination--Michigan 
for the sake of clarity, and to update proposed comment 12(b)-3.i 
through .iv to provide full citations to the preempted Michigan law at 
issue therein, which appear in chapter 488 of the Michigan Compiled 
Laws. Additionally, the Bureau proposes adding language in proposed 
comment 12(b)-3.iv to clarify that the preemption of sections 488.17 
and 488.18 of Michigan law does not apply to transfers of $15 or less, 
which, pursuant to existing Sec.  1005.9(e), are not subject to Sec.  
1005.9. Section 1005.9(e) (then Sec.  205.9(e)) was added by the Board 
in 2007 to eliminate the requirement to provide terminal receipts for 
transactions of $15 or less.\219\
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    \219\ See 72 FR 36589 (July 5, 2007).
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    The Bureau seeks comment on this portion of its proposal.
Section 1005.15 Electronic Fund Transfer of Government Benefits
    Section 1005.15 of Regulation E currently contains provisions 
specific to certain accounts established by government agencies for 
distributing government benefits to consumers electronically, such as 
through ATMs or POS terminals. As discussed in more detail above, the 
Board amended Regulation E in 1994 to specifically address such 
accounts. In 1997, the Board modified Regulation E to exempt ``needs-
tested'' EBT programs established or administered under State or local 
law in response to a 1996 change to EFTA made by the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996.\220\ 
All accounts used to distribute benefits for Federally administered 
programs (including needs-tested EBT programs) and non-needs tested 
State and local programs, such as those used to distribute unemployment 
insurance payments, pensions, and child support, are currently covered 
by Sec.  1005.15.\221\
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    \220\ Public Law 104-193, 110 Stat. 2105 (1996).
    \221\ See, e.g., 62 FR 43467 (Aug. 14, 1997).
---------------------------------------------------------------------------

    Although the Bureau is proposing to include these accounts in the 
general definition of prepaid account in proposed Sec.  1005.2(b)(3), 
as discussed above, the Bureau is proposing for ease of administration 
to modify existing Sec.  1005.15 to address the proposed revisions for 
government benefit accounts, rather than subsuming the rules for such 
accounts into proposed Sec.  1005.18 as the Bureau proposes to do with 
respect to payroll card accounts. These proposed revisions and 
additions would generally align the requirements in Sec.  1005.15 with 
the proposed requirements for prepaid accounts generally in Sec.  
1005.18, which are discussed in more detail in the section-by-section 
analysis of proposed Sec.  1005.18 below.
15(a) Government Agency Subject to Regulation
    Existing Sec.  1005.15(a)(1) provides that a government agency is 
deemed to be a financial institution for purposes of EFTA and 
Regulation E if it directly or indirectly issues an access device to a 
consumer for use in initiating an electronic fund transfer of 
government benefits from an account, other than needs-tested benefits 
in a program established under State or local law or administered by a 
State or local agency. It also provides that the agency shall comply 
with all applicable requirements of EFTA and Regulation E, except as 
provided in Sec.  1005.15. The Bureau is proposing to adjust the final 
sentence of Sec.  1005.15(a)(1) to reflect that proposed Sec.  1005.15, 
as discussed in detail below, is no longer only providing an exception 
to a Regulation E requirement. The Bureau is otherwise not proposing to 
modify Sec.  1005.15(a)(1).
    Existing Sec.  1005.15(a)(2) defines, for purposes of Sec.  
1005.15, the term ``account'' to mean an account established by a 
government agency for distributing government benefits to a consumer 
electronically, such as through ATMs or POS terminals, but does not 
include an account for distributing needs-tested benefits in a program 
established under State or local law or administered by a State or 
local agency. For ease of reference, the Bureau is proposing to define 
such an account as a ``government benefit

[[Page 77141]]

account;'' no substantive change is intended by the addition of this 
definition.
    The Bureau does not intend for the proposed revisions in Sec.  
1005.15 to alter the programs or agencies to which Sec.  1005.15 is 
applicable. Thus, the Bureau also does not expect that its proposed 
revisions to Sec.  1005.15 would impose significant burden on 
government agencies distributing funds via government benefit accounts.
    The Bureau understands that government benefit account programs are 
typically administered by financial institutions pursuant to a contract 
between the institution and the agency.\222\ The Bureau is not aware of 
any covered programs run solely by an agency. Although the Bureau does 
not propose to substantively revise Sec.  1005.15(a), the Bureau 
requests comment as to whether these provisions in existing Sec.  
1005.15(a) remain relevant in light of both current industry practices 
and the Bureau's proposed definition for ``prepaid account'' in Sec.  
1005.2(b)(3). Specifically, the Bureau seeks comment on the effect on 
consumers and covered government benefit account programs were the 
Bureau to remove it.
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    \222\ See, e.g., Bd. of Governors of the Fed. Reserve Sys., 
Report to the Congress on Government-Administered, General-Use 
Prepaid Cards, at 3 (July 2014), available at http://www.federalreserve.gov/publications/es/2014_Prepaid_Cards_Final.pdf.
---------------------------------------------------------------------------

    The Bureau notes that although it is proposing to maintain Sec.  
1005.15 for government benefit accounts, there is some question as to 
whether separate provisions remain necessary or whether the 
requirements for such accounts could be subsumed into proposed Sec.  
1005.18. The Bureau thus requests comment on whether, in light of the 
proposal herein to address all other types of covered prepaid accounts 
in Sec.  1005.18, the Bureau should subsume all requirements for 
government benefit accounts into Sec.  1005.18 as well.
15(b) Issuance of Access Devices
    Existing Sec.  1005.15(b) explains that for purposes of Sec.  
1005.15, a consumer is deemed to request an access device when the 
consumer applies for government benefits that the agency disburses or 
will disburse by means of an electronic fund transfer. The agency shall 
verify the identity of the consumer receiving the device by reasonable 
means before the device is activated. The Bureau is not proposing to 
modify Sec.  1005.15(b).
15(c) Pre-Acquisition Disclosure Requirements
    The Bureau is proposing new disclosure requirements for government 
benefit accounts that would be provided before a consumer acquires a 
government benefit account. The requirements in proposed Sec.  
1005.15(c) would be in addition to the initial disclosure requirements 
in existing Sec.  1005.7(b) and would correspond to the requirements in 
proposed Sec.  1005.18(b) for prepaid accounts generally.\223\
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    \223\ The Bureau is also proposing, for purposes of government 
benefit accounts, to expand the requirement in existing Sec.  
1005.7(b)(5) to disclose fees related to EFTs to cover all fees 
related to the government benefit account, as discussed below in the 
section-by-section analysis of proposed Sec.  1005.15(f). See also 
proposed Sec.  1005.18(f) (proposing the same requirement for 
prepaid accounts).
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    EFTA section 905(a) sets forth disclosure requirements for accounts 
subject to the Act.\224\ In addition to these disclosures, the Bureau 
is proposing to use its authority under EFTA sections 904(a) and (c), 
905(a), and section 1032(a) of the Dodd-Frank Act to require government 
agencies to provide disclosures prior to the time a consumer acquires a 
government benefit account. As discussed in more detail in the section-
by-section analysis of proposed Sec.  1005.18(b)(1)(i) below for 
prepaid accounts, the Bureau believes that adjustment of the timing 
requirement is necessary and proper to effectuate the purposes of EFTA 
to provide a framework to establish the rights, liabilities, and 
responsibilities of government benefit account consumers, because the 
proposed revision will assist consumers' understanding of the terms and 
conditions of their government benefit accounts.
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    \224\ Specifically, EFTA section 905(a) states that ``[t]he 
terms and conditions of electronic fund transfers involving a 
consumer's account shall be disclosed at the time the consumer 
contracts for an electronic fund transfer service, in accordance 
with regulations of the Bureau.'' 15 U.S.C. 1693c(a)
---------------------------------------------------------------------------

    The Bureau is proposing in new Sec.  1005.15(c) to extend to 
government benefit accounts the same pre-acquisition disclosure 
requirements proposed for prepaid accounts, which are discussed in 
detail in the section-by-section analysis of proposed Sec.  1005.18(b) 
below. Specifically, proposed Sec.  1005.15(c)(1) would state that 
before a consumer acquires a government benefit account, a government 
agency shall comply with the pre-acquisition disclosure requirements 
applicable to prepaid accounts as set forth in proposed Sec.  
1005.18(b), in accordance with the timing requirements of proposed 
Sec.  1005.18(h).
    To address issues of compulsory use (see existing Sec.  
1005.10(e)(2) and proposed comment 10(e)(2)-2), the Bureau is proposing 
that a notice be provided at the top of the short form to highlight to 
consumers that they are not required to accept a government benefit 
account. Specifically, proposed Sec.  1005.15(c)(2) would state that 
before a consumer acquires a government benefit account, the agency 
must provide a statement pursuant to proposed Sec.  1005.18(b)(2)(i)(A) 
that the consumer does not have to accept the government benefit 
account and that the consumer can ask about other ways to get their 
benefit payments from the agency instead of receiving them through the 
account, in a form substantially similar to proposed Model Form A-
10(a). As explained in the section-by-section analysis of Sec.  
1005.10(e)(2) above, the Bureau is proposing to clarify that Regulation 
E does not permit a government agency to require individuals to receive 
government benefits by direct deposit to any particular institution. As 
noted, the Bureau believes it is important for consumers to realize 
they have the option of not accepting a government benefit account 
before they acquire the account, and that receiving such notice at the 
top of the short form will help to ensure consumers are aware of this 
right.
    Proposed comment 15(c)-1 would explain that Model Form A-10(a) 
contains a model form for the pre-acquisition short disclosure 
requirements for government benefit accounts pursuant to Sec.  
1005.15(c). Government agencies may use Sample Form A-10(e) of Appendix 
A to this part to comply with the pre-acquisition long form disclosure 
requirements of Sec.  1005.15(c)(1).
    Proposed comment 15(c)-2 would reiterate that Sec.  
1005.18(b)(1)(i) generally requires delivery of both the short form 
disclosure required by Sec.  1005.18(b)(2)(i) and the long form 
disclosure required by Sec.  1005.18(b)(2)(ii) before a consumer 
acquires a prepaid account. Proposed comment 15(c)-2.i would provide an 
example illustrating when a consumer receives disclosures before 
acquisition of an account for purposes of proposed Sec.  1005.15(c)(1). 
Specifically, the example would address a situation in which a 
government agency informs a consumer that she can receive distribution 
of benefits via a government benefit account in the form of a prepaid 
card. In the first example, the consumer receives the short form and 
long form disclosures to review at the time the consumer receives 
benefits eligibility information from the agency. After

[[Page 77142]]

receiving the disclosures, the consumer agrees to receive benefits via 
the government benefit account. The comment explains that these 
disclosures were provided to the consumer pre-acquisition, and the 
agency has complied with proposed Sec.  1005.15(c)(1). By contrast, if 
the consumer does not receive the short form and long form disclosures 
to review until the time at which the consumer receives the prepaid 
card, these disclosures were provided to the consumer post-acquisition 
and were not provided in compliance with proposed Sec.  1005.15(c)(1).
    Proposed comment 15(c)-3 would explain that the disclosures and 
notice required by Sec.  1005.15(c)(1) and (2) may be given in the same 
process or appointment during which the consumer acquires or agrees to 
acquire a government benefit account. When a consumer receives benefits 
eligibility information and signs up or enrolls to receive benefits 
during the same process or appointment, a government agency that gives 
the disclosures and notice required by proposed Sec.  1005.15(c)(1) and 
(2) before issuing a government benefit account complies with the 
timing requirements of proposed Sec.  1005.15(c).
15(d) Access to Account Information
15(d)(1) Periodic Statement Alternative
    EFTA section 906(c) requires that a financial institution provide 
each consumer with a periodic statement for each account of such 
consumer that may be accessed by means of an electronic fund transfer. 
Section 1005.9(b), which implements EFTA section 906(c), generally 
requires a periodic statement for each monthly cycle in which an 
electronic fund transfer occurred or, if there are no such transfers, a 
periodic statement at least quarterly.\225\ Financial institutions must 
deliver periodic statements in writing and in a form that the consumer 
can keep, unless consent is received for electronic delivery or unless 
Regulation E provides otherwise. See Sec. Sec.  1005.4(a)(1) and 
1005.9(b).
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    \225\ The periodic statement must include transaction 
information for each EFT, the account number, the amount of any fees 
assessed, the beginning and ending account balance, the financial 
institution's address and telephone number for inquiries, and a 
telephone number for preauthorized transfers. See Sec.  1005.9(b).
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    In the 1994 EBT Rule, the Board adopted a final rule that modified 
the periodic statement requirement for government benefit accounts. 
Pursuant to that rule, existing Sec.  1005.15(c) explains that 
government agencies can provide periodic statements that comply with 
the general provisions in Regulation E, or alternatively, the agency 
must make available to the consumer: (1) The account balance, through a 
readily available telephone line and at a terminal (such as by 
providing balance information at a balance-inquiry terminal, or 
providing it, routinely or upon request, on a terminal receipt at the 
time of an electronic fund transfer); and (2) a written history of 
account transactions that is provided promptly in response to an oral 
or written request and that covers at least 60 days.
    The Bureau is proposing to revise existing Sec.  1005.15(c) as new 
Sec.  1005.15(d)(1), which would generally align the periodic statement 
alternative for government benefit accounts with the proposed 
alternative for prepaid accounts discussed below in the section-by-
section analysis of proposed Sec.  1005.18(c). Specifically, the Bureau 
is proposing in Sec.  1005.15(d)(1) an alternative to the periodic 
statement requirement that would allow government agencies to instead 
provide access to account balance by telephone and at a terminal, 18 
months of transaction history online, and 18 months written transaction 
history upon request. To further the purposes of EFTA to provide a 
framework to establish the rights, liabilities, and responsibilities of 
prepaid account consumers (including government benefit account 
consumers), the Bureau believes it is necessary and proper to exercise 
its authority under EFTA section 904(c) to continue the exception to 
the periodic statement requirements of EFTA section 906(c) for 
government benefit accounts and to modify that exception in Regulation 
E to more closely align it with the proposed requirements for prepaid 
accounts generally. See also the section-by-section analysis of 
proposed Sec.  1005.18(c)(1) below.
    Proposed Sec.  1005.15(d)(1) and (1)(i) retain the existing 
language in current Sec.  1005.15(c) and (c)(1), and would state that a 
government agency need not furnish periodic statements required by 
Sec.  1005.9(b) if the agency makes available to the consumer the 
consumer's account balance, through a readily available telephone line 
and at a terminal (such as by providing balance information at a 
balance-inquiry terminal or providing it, routinely or upon request, on 
a terminal receipt at the time of an electronic fund transfer). This 
language is unchanged from existing Sec.  1005.15(c)(1). Existing Sec.  
1005.18(b)(1)(i) for payroll card accounts and proposed Sec.  
1005.18(c)(1)(i) for prepaid accounts, however, do not include the 
requirement to provide balance information at a terminal. As discussed 
below in the section-by-section analysis of proposed Sec.  
1005.18(c)(1)(i), the Bureau is seeking comment on whether a similar 
requirement to provide balance information at a terminal should be 
added to the requirements of proposed Sec.  1005.18(c) for prepaid 
accounts generally. The Bureau requests comment on whether, 
alternatively, the requirement to provide balance information for 
government benefit accounts at a terminal should be eliminated from 
Sec.  1005.15 given the other enhancements proposed herein and for 
parity with proposed Sec.  1005.18.
    The second piece of the proposed periodic statement alternative for 
government benefit accounts, proposed Sec.  1005.15(d)(1)(ii), would be 
an electronic history of the consumer's account transactions, such as 
through a Web site, that covers at least 18 months preceding the date 
the consumer electronically accesses the account. As noted above, the 
requirement to provide an electronic history of a consumer's account 
transactions would be new to government benefit accounts. This 
provision would mirror proposed Sec.  1005.18(c)(1)(ii) for prepaid 
accounts generally. The Bureau does not believe that this proposed 
requirement would impose significant burden on government agencies, as 
the Bureau believes that may government benefit account programs 
already provide electronic access to account information. For example, 
the Bureau found that all the government benefit card programs included 
in its Study of Prepaid Account Agreements already provide online 
access to account information \226\ and, in most cases, electronic 
periodic statements as well.\227\
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    \226\ See Study of Prepaid Account Agreements, at 18 tbl.5. All 
account agreements reviewed for cards used to distribute government 
benefits indicated that electronic access to account information is 
available. The Bureau acknowledges that this selection may have some 
bias as all account agreements, including those for government 
benefit programs, reviewed in the Study were obtained online; as 
such, those programs may be more likely than others to provide 
electronic access to account information.
    \227\ The Study of Prepaid Account Agreements found that 95.38 
percent of account agreements for government benefit cards indicate 
that those programs provide electronic periodic statements (in 
addition to electronic access to account history information). See 
id., at 20 tbl.7.
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    The third piece of the proposed periodic statement alternative, 
proposed Sec.  1005.15(d)(1)(iii), would be a requirement to provide a 
written history of the consumer's account transactions promptly in 
response to an oral or written request and that covers at least

[[Page 77143]]

18 months preceding the date the agency receives the consumer's 
request. This provision is similar to existing Sec.  1005.15(c)(2), but 
has been modified to change the time period covered by the written 
history from 60 days to 18 months, and to otherwise mirror the language 
used in proposed Sec.  1005.18(c)(1)(iii) for prepaid accounts 
generally.
15(d)(2) Additional Access to Account Information Requirements
    The Bureau is proposing new Sec.  1005.15(d)(2), which would 
require that a government agency comply with the account information 
requirements applicable to prepaid accounts as set forth in proposed 
Sec.  1005.18(c)(2), (3), and (4). As discussed in more detail below, 
proposed Sec.  1005.18(c)(2) requires that the electronic and written 
histories in the periodic statement alternative must include the 
information set forth in Sec.  1005.9(b). This provision currently 
exists for payroll card accounts in existing Sec.  1005.18(b)(2), but 
does not presently appear in Sec.  1005.15 for government benefit 
accounts. Proposed Sec.  1005.18(c)(3) would require disclosure of all 
fees assessed against the account, in both the history of account 
transactions provided as periodic statement alternatives, as well as in 
any periodic statement. Proposed Sec.  1005.18(c)(4) would require 
disclosure, in both the history of account transactions provided as 
periodic statement alternatives, as well as in any periodic statement, 
monthly and annual summary totals of fees imposed on and the total 
amount of deposits and debits made to a prepaid account. Proposed 
comment 15(d)-1 would refer to proposed comments 18(c)-1 through -5 for 
guidance on access to account information requirements.
    To further the purposes of EFTA to provide a framework to establish 
the rights, liabilities, and responsibilities of prepaid account 
consumers (including government benefit account consumers), the Bureau 
believes it is necessary and proper to exercise its authority under 
EFTA section 904(c) to modify the periodic statement requirements of 
EFTA section 906(c) to require inclusion of all fees charged and a 
summary total of both monthly and annual fees. See also the section-by-
section analysis of proposed Sec.  1005.18(c)(3) and Sec.  
1005.18(c)(4) below. These proposed revisions will assist consumers' 
understanding of the account activity on their government benefit 
accounts. In addition, the Bureau is also using its disclosure 
authority pursuant to the Dodd-Frank Act section 1032(a) because the 
Bureau believes that disclosure of all fees and account activity 
summaries ensure that the features of government benefit accounts, over 
the term of the account, are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with government benefit 
accounts.
15(e) Modified Disclosure Requirements
    Existing Sec.  1005.15(d) provides that a government agency that 
follows the periodic statement alternative in existing Sec.  1005.15(c) 
must modify certain initial and ongoing disclosures given to consumers. 
Existing Sec.  1005.15(d)(1) requires modification of the initial 
disclosures given pursuant to Sec.  1005.7(b) to reflect the methods a 
consumer can employ to obtain account balance information and copies of 
written account history, and to address corresponding changes in the 
timing requirements for the error resolution notice required by Sec.  
1005.7(b)(10). Existing Sec.  1005.15(d)(2) addresses modification of 
the annual error resolution notice required by Sec.  1005.8(b). 
Existing Sec.  1005.15(d)(3) and (4) adjust the triggering of the 60-
day period for reporting unauthorized transfers pursuant to the limited 
liability provisions in Sec.  1005.6(b)(3) and the error resolution 
provisions of Sec.  1005.11. Because the Bureau is proposing to modify 
the periodic statement alternative for government benefit accounts in 
proposed Sec.  1005.15(d)(1), the Bureau is proposing to modify the 
requirements in existing Sec.  1005.15(d), renumbered as new Sec.  
1005.15(e), to adjust the corresponding timing provisions therein and 
to align with the requirements of proposed Sec.  1005.18(d) for prepaid 
accounts generally, discussed below.
15(e)(1) Initial Disclosures
15(e)(1)(i) Account Information
    Proposed Sec.  1005.15(e)(1)(i) would require that a government 
agency modify the disclosures required under Sec.  1005.7(b) by 
disclosing a telephone number that the consumer may call to obtain the 
account balance, the means by which the consumer can obtain an 
electronic account history, such as the address of a Web site, and a 
summary of the consumer's right to receive a written account history 
upon request (in place of the a periodic statement required by Sec.  
1005.7(b)(6)), including a telephone number to call to request a 
history. The disclosure required by proposed Sec.  1005.15(e)(1)(i) may 
be made by providing a notice substantially similar to the notice 
contained in proposed appendix A-5.
15(e)(1)(ii) Error Resolution
    Mirroring existing Sec.  1005.15(d)(1)(iii), proposed Sec.  
1005.15(e)(1)(ii) would require that a government agency modify the 
disclosures required under Sec.  1005.7(b) by providing a notice 
concerning error resolution that is substantially similar to the notice 
contained in proposed appendix A-5, in place of the notice required by 
Sec.  1005.7(b)(10). These proposed modifications are discussed below 
in the section-by-section analysis of appendix A-5.
15(e)(2) Annual Error Resolution Notice
    Mirroring existing Sec.  1005.15(d)(2), proposed Sec.  
1005.15(e)(2) would require that an agency provide an annual notice 
concerning error resolution that is substantially similar to the notice 
contained in proposed appendix A-5, in place of the notice required by 
Sec.  1005.8(b). The Bureau is proposing to add that, alternatively, 
the agency may include on or with each electronic or written history 
provided in accordance with proposed Sec.  1005.15(d)(1), a notice 
substantially similar to the abbreviated notice for periodic statements 
contained in paragraph (b) of appendix A-3, modified as necessary to 
reflect the error resolution provisions set forth in proposed Sec.  
1005.15. The Bureau is proposing to allow each electronic and written 
history to include an abbreviated error resolution notice, in lieu of 
an annual notice, for parity with proposed Sec.  1005.18(d)(2) for 
prepaid accounts generally, which is based on existing Sec.  
1005.18(c)(2) for payroll card accounts.
    The Bureau seeks comment, however, on whether it should continue to 
require annual error resolution notices for government benefit accounts 
in certain circumstances, such as those accounts for which a consumer 
has not accessed an electronic history or requested a written history 
in an entire calendar year and thus would not have received any error 
resolution notice during the course of the year.
15(e)(3) Modified Limitations on Liability Requirements
    EFTA section 909 governs consumer liability for unauthorized 
electronic fund transfers. EFTA section 908 governs the timing and 
other requirements for consumers and financial institutions on error 
resolution, including provisional credit. EFTA section 909 on consumer 
liability is implemented by existing Sec.  1005.6. For accounts under 
Regulation E generally,

[[Page 77144]]

including payroll card accounts, Sec.  1005.6(a) provides that a 
consumer may be held liable for an unauthorized electronic fund 
transfer resulting from the loss or theft of an access device only if 
the financial institution has provided certain required disclosures and 
other conditions are met.\228\ If the consumer provides timely notice 
to the financial institution within two business days of learning of 
the loss or theft of the access device, the consumer's liability is the 
lesser of $50 or the amount of unauthorized transfers made before 
giving notice. Sec.  1005.6(b)(1). If timely notice is not given, the 
consumer's liability is the lesser of $500 or the sum of (1) the lesser 
of $50 or the amount of unauthorized transfers occurring within two 
business days of learning of the loss/theft and (2) the amount of 
unauthorized transfers that occur after two business days but before 
notice is given to the financial institution. Sec.  1005.6(b)(2). 
Section 1005.6(b)(3) provides, in part, that a consumer must report an 
unauthorized electronic fund transfer that appears on a periodic 
statement within 60 days of the financial institution's transmittal of 
the statement in order to avoid liability for subsequent transfers.
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    \228\ The required disclosures for this purpose include a 
summary of the consumer's liability under Sec.  1005.6, or under 
State law or other applicable law or agreement, for unauthorized 
electronic fund transfers; the telephone number and address of the 
person or office to be notified when the consumer believes an 
unauthorized transfer has been or may be made; and the financial 
institution's business days. Sec. Sec.  1005.6(a) and 1005.7(b)(1) 
through (3).
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    For government agencies that follow the periodic statement 
alternative in existing Sec.  1005.15(c), existing Sec.  1005.15(d)(3) 
provides that for purposes of Sec.  1005.6(b)(3), regarding a 60-day 
period for reporting any unauthorized transfer that appears on a 
periodic statement, the 60-day period shall being with the transmittal 
of a written account history or other account information provided to 
the consumer under existing Sec.  1005.15(c). The Bureau notes that 
this provision only modifies the 60-day period for consumers to report 
an unauthorized transfer and does not alter any other provision of 
Sec.  1005.6.
    Proposed Sec.  1005.15(e)(3) would modify existing Sec.  
1005.15(d)(3) to adjust the timing requirements for reporting 
unauthorized transfers based on the proposed requirement to provide 
consumers with electronic account history under proposed Sec.  
1005.15(d)(1)(ii), as well as written history upon request. 
Specifically, proposed Sec.  1005.15(e)(3)(i) would provide that for 
purposes of existing Sec.  1005.6(b)(3), the 60-day period for 
reporting any unauthorized transfer shall begin on the earlier of the 
date the consumer electronically accesses the consumer's account under 
proposed Sec.  1005.15(d)(1)(ii), provided that the electronic history 
made available to the consumer reflects the unauthorized transfer, or 
the date the agency sends a written history of the consumer's account 
transactions requested by the consumer under proposed Sec.  
1005.15(d)(1)(iii) in which the unauthorized transfer is first 
reflected.
    Proposed Sec.  1005.15(e)(3)(ii), which mirrors existing Sec.  
1005.18(c)(3)(ii) and proposed Sec.  1005.18(e)(1)(ii), would provide 
that an agency may comply with proposed Sec.  1005.15(e)(3)(i) by 
limiting the consumer's liability for an unauthorized transfer as 
provided under existing Sec.  1005.6(b)(3) for any transfer reported by 
the consumer within 120 days after the transfer was credited or debited 
to the consumer's account.
    The Bureau notes that nothing in this proposal modifies the 
requirement to comply with existing Sec.  1005.6(b)(4), regarding an 
extension of time limits if a consumer's delay in notifying the agency 
was due to extenuating circumstances, nor any other provisions of 
existing Sec.  1005.6.
15(e)(4) Modified Error Resolution Requirements
    EFTA section 908 governs the timing and other requirements for 
consumers and financial institutions on error resolution, including 
provisional credit, and is implemented for accounts under Regulation E 
generally, including government benefit accounts, in Sec.  1005.11. 
Section 1005.11(c)(1) and (3)(i) requires that a financial institution, 
after receiving notice that a consumer believes an electronic fund 
transfer from the consumer's account was not authorized, must 
investigate promptly and determine whether an error occurred (i.e., 
whether the transfer was unauthorized), within ten business days (20 
business days if the electronic fund transfer occurred within 30 days 
of the first deposit to the account). Upon completion of the 
investigation, the financial institution must report the 
investigation's results to the consumer within three business days. 
After determining that an error occurred, the financial institution 
must correct an error within one business day. See Sec.  1005.11(c)(1). 
Under EFTA section 909(b), the burden of proof is on the financial 
institution to show that an alleged error was in fact an authorized 
transaction; if the financial institution cannot establish proof of 
valid authorization, the financial institution must credit the 
consumer's account.
    Existing Sec.  1005.11(c)(2) provides that if the financial 
institution is unable to complete the investigation within ten business 
days, its investigation may take up to 45 days if it provisionally 
credits the amount of the alleged error back to the consumer's account 
within ten business days of receiving the error notice.\229\ 
Provisional credit is not required if the financial institution 
requires but does not receive written confirmation within 10 business 
days of an oral notice by the consumer. See Sec.  1005.11(c)(2)(i)(A). 
If the investigation establishes proof that the transaction was, in 
fact, authorized, the financial institution may reverse any provisional 
credit previously extended (assuming there are still available funds in 
the account). See Sec.  1005.11(d)(2).
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    \229\ The financial institution has 90 days (instead of 45) if 
the claimed unauthorized electronic fund transfer was not initiated 
in a state, resulted from a point-of-sale debit card transaction, or 
occurred within 30 days after the first deposit to the account was 
made. See Sec.  1005.11(c)(3)(ii).
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    For government agencies that follow the periodic statement 
alternative in existing Sec.  1005.15(c), existing Sec.  1005.15(d)(4) 
provides that an agency shall comply with the requirements of existing 
Sec.  1005.11 in response to an oral or written notice of an error from 
the consumer that is received no later than 60 days after the consumer 
obtains the written account history or other account information under 
existing Sec.  1005.15(c) in which the error is first reflected. The 
Bureau notes that this provision only modifies the 60-day period for 
consumers to report an error and does not alter any other provision of 
Sec.  1005.11.
    Proposed Sec.  1005.15(e)(4) would modify existing Sec.  
1005.15(d)(3) to adjust the timing requirements for reporting errors 
based on the proposed requirement to provide consumers with electronic 
account history under proposed Sec.  1005.15(d)(1)(ii), as well as 
written history upon request. Specifically, proposed Sec.  
1005.15(e)(4)(i) would provide that an agency shall comply with the 
requirements of existing Sec.  1005.11 in response to an oral or 
written notice of an error from the consumer that is received by the 
earlier of 60 days after the date the consumer electronically accesses 
the consumer's account under proposed Sec.  1005.15(d)(1)(ii), provided 
that the electronic history made available to the consumer reflects the 
alleged error, or 60 days after the date the agency sends a written 
history of the consumer's account transactions requested by the 
consumer under proposed

[[Page 77145]]

Sec.  1005.15(d)(1)(iii) in which the alleged error is first reflected.
    Proposed Sec.  1005.15(e)(4)(ii) would provide that in lieu of 
following the procedures in proposed Sec.  1005.15(e)(4)(i), an agency 
complies with the requirements for resolving errors in existing Sec.  
1005.11 if it investigates any oral or written notice of an error from 
the consumer that is received by the agency within 120 days after the 
transfer allegedly in error was credited or debited to the consumer's 
account.
    Proposed comment 15(e)-1 would refer to proposed comments 18(d)-1 
through -3, discussed below, for guidance on modified limited liability 
and error resolution requirements.
    The Bureau notes that proposed Sec.  1005.15 does not contain an 
exclusion that corresponds to proposed Sec.  1005.18(e)(3), which would 
exempt a financial institution from compliance with the liability 
limits and error resolution requirements under Sec. Sec.  1005.6 and 
1005.11 for any prepaid account for which it has not completed its 
collection of consumer identifying information and identity 
verification, provided the institution has disclosed to the consumers 
the risks of not registering the prepaid account. The Bureau is not 
proposing a similar exclusion for government benefit accounts because 
existing Sec.  1005.15(b) requires that government agencies verify 
consumers' identities before an access device for an account governed 
by Sec.  1005.15 is activated.
15(f) Initial Disclosure of Fees and Other Key Information
    The Bureau is proposing Sec.  1005.15(f) to provide that for 
government benefit accounts, a government agency shall comply with the 
requirements governing initial disclosure of fees and other key 
information applicable to prepaid accounts as set forth in proposed 
Sec.  1005.18(f), in accordance with the timing requirements of 
proposed Sec.  1005.18(h). This proposed requirement is in addition to 
the pre-acquisition disclosure requirements of proposed Sec.  
1005.15(c), discussed above.
    As discussed in more detail in the section-by-section analysis of 
proposed Sec.  1005.18(f) below, the Bureau is proposing to modify the 
initial disclosure of fees requirement in Sec.  1005.7(b)(5) for 
prepaid accounts, including government benefit accounts. EFTA section 
905(a)(4) requires financial institutions to disclose to consumers, as 
part of an account's terms and conditions, any charges for electronic 
fund transfers or for the right to make such transfers. Existing Sec.  
1005.7(b)(5) implements this requirement by stating that, as part of 
the initial disclosures, any fees imposed by a financial institution 
for electronic fund transfers or for the right to make transfers must 
be disclosed. Existing comment 7(b)(5)-1 further clarifies that other 
fees (for example, minimum-balance fees, stop-payment fees, or account 
overdrafts) may, but need not, be disclosed. The Bureau believes that 
for prepaid accounts (including government benefit accounts), however, 
it is important that the initial account disclosures provided to 
consumers list all fees that may be imposed in connection with the 
account, not just those fees related to electronic fund transfers.
    Thus, to further the purposes of EFTA to provide a framework to 
establish the rights, liabilities, and responsibilities of prepaid 
account users, the Bureau believes it is necessary and proper to 
exercise its authority under EFTA section 904(c) to propose an 
adjustment of the requirement EFTA section 905(a)(4), which is 
implemented in existing Sec.  1005.7(b)(5), for government benefit 
accounts. Specifically, the Bureau is proposing Sec.  1005.15(f), which 
would cross-reference Sec.  1005.18(f) to require that, pursuant to 
proposed Sec.  1005.18(f)(1), in addition to disclosing any fees 
imposed by a government agency for electronic fund transfers or the 
right to make such transfers, the agency must also provide in its 
initial disclosures given pursuant to Sec.  1005.7(b)(5) all other fees 
imposed by the agency in connection with a government benefit account. 
For each fee, an agency must disclose the amount of the fee, the 
conditions, if any, under which the fee may be imposed, waived, or 
reduced, and, to the extent known, whether any third party fees may 
apply. The Bureau believes that most agencies are already disclosing 
all fees in the terms and conditions accompanying government benefit 
accounts. These disclosures pursuant to proposed Sec. Sec.  1005.15(f) 
and 1005.18(f) must include all of the information required to be 
disclosed pursuant to Sec.  1005.18(b)(2)(ii)(B) and must be provided 
in a form substantially similar to Sample Form A-10(e).
    The Bureau believes that for consistency purposes and to facilitate 
consumer understanding of a government benefit account's terms, it is 
useful for the fee disclosure provided pursuant to Sec.  1005.7(b)(5), 
as modified by proposed Sec.  1005.18(f), to be in the same format of 
the long form disclosure requirement of proposed Sec.  
1005.18(b)(2)(ii)(A), as applied to government benefit accounts via 
proposed Sec.  1005.15(c).
15(g) Credit Card Plans Linked to Government Benefit Accounts
    The Bureau is proposing Sec.  1005.18(g), which would require that 
for credit plans linked to government benefit accounts, a government 
agency must comply with prohibitions and requirements applicable to 
prepaid accounts as set forth in proposed Sec.  1005.18(g). See the 
section-by-section analysis of proposed Sec.  1005.18(g) below for 
additional information on this proposed requirement. The Bureau seeks 
comment on this portion of its proposal for government benefit 
accounts.
Section 1005.17 Requirements for Overdraft Services
17(a) Definitions
    Section 1005.17 sets forth requirements that financial institutions 
must follow in order to provide ``overdraft services'' to consumers 
related to consumers' accounts. Under Sec.  1005.17, financial 
institutions must provide consumers with notice of their right to opt 
in, or affirmatively consent, to the institution's overdraft service 
for ATM and one-time debit card transactions, and obtain the consumer's 
affirmative consent, before fees or charges may be assessed on the 
consumer's account for paying such overdrafts.
    Section 1005.17(a) currently defines ``overdraft service'' to mean 
a service under which a financial institution assesses a fee or charge 
on a consumer's account held by the institution for paying a 
transaction (including a check or other item) when the consumer has 
insufficient or unavailable funds in the account. Section 1005.17(a) 
also provides that the term ``overdraft service'' does not include any 
payment of overdrafts pursuant to: (1) A line of credit subject to 
Regulation Z, including transfers from a credit card account, home 
equity line of credit, or overdraft line of credit; (2) A service that 
transfers funds from another account held individually or jointly by a 
consumer, such as a savings account; or, (3) A line of credit or other 
transaction exempt from Regulation Z pursuant to Sec.  1026.3(d). In 
adopting the provisions in what is now Sec.  1005.17, the Board 
indicated that these methods of covering overdrafts were excluded 
because they require the express agreement of the consumer.\230\
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    \230\ 74 FR 59033, 59040 (Nov. 17, 2009).
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    As discussed in the Overview of Regulation Z Proposal section, the

[[Page 77146]]

Bureau is declining to extend the current regulatory scheme governing 
overdraft services on checking accounts to prepaid accounts, and is 
instead proposing to regulate these types of services generally under 
Regulation Z (as well as Regulation E's compulsory use provision). The 
proposal would amend Sec.  1005.17(a)(1) to explain that the term 
``overdraft service'' does not include credit plans that are accessed 
by prepaid cards that are credit cards under Regulation Z. 
Specifically, the proposal would amend Sec.  1005.17(a)(1) to provide 
that the term ``overdraft services'' does not include any payments of 
overdrafts pursuant to a line of credit or credit plan subject to 
Regulation Z, including transfers from a credit card account, home 
equity line of credit, overdraft line of credit, or a credit plan that 
is accessed by an access device for a prepaid account where the access 
device is a credit card under Regulation Z. Similar to the other 
exemptions from the definition of ``overdraft service,'' credit card 
plans require the express agreement of consumers in that, under the 
proposal, such plans can be added to previously issued prepaid accounts 
only upon consumer request. See Regulation Z Sec.  1026.12(a)(1) and 
proposed comment 12(a)(1)-7. In addition, under the proposal, a credit 
card account may not be added to a previously issued prepaid account 
until 30 calendar days after the prepaid account has been registered. 
See proposed Sec.  1005.18(g)(1) and Regulation Z Sec.  1026.12(h). The 
Bureau believes that the provisions in Regulation Z Sec.  1026.12(a)(1) 
and (h) and Sec.  1005.18(g)(1) would provide sufficient protections to 
ensure that the addition of a credit card account to a previously 
issued prepaid account would occur only with the consumer's consent.
    The Bureau also notes that the opt-in provision in Sec.  1005.17 
would not apply to credit accessed by a prepaid card that is not a 
credit card because the card only accesses credit that is not subject 
to any finance charge defined in Regulation Z Sec.  1026.4 or any fee 
described in Regulation Z Sec.  1026.4(c) and is not payable by written 
agreement in more than four installments. This is because Sec.  
1005.17(a) applies only to overdraft services where a financial 
institution assessed a fee or charge for the overdraft. For prepaid 
accounts under the proposal, any fees or charges for ATM or one-time 
``debit card'' transactions (as that term is used in Sec.  1005.17) 
that access an institution's overdraft service would be considered 
``finance charges'' under the proposal.\231\ Thus, a prepaid card that 
is not a credit card could not be charging any fees or charges for ATM 
or one-time ``debit card'' transactions (as that term is used in 
Regulation E Sec.  1005.17) for accessing the overdraft service, such 
that the opt-in provision in Regulation E Sec.  1005.17 would apply. If 
a prepaid card was charging any fees or charges for ATM or one-time 
``debit card'' transactions (as that term is used in Regulation E Sec.  
1005.17) that accessed the overdraft service, the prepaid card would be 
a credit card under Regulation Z. In that case, the prepaid card would 
not be subject to the opt-in requirement in Sec.  1005.17, but would be 
subject to provisions of Regulation Z, as discussed above.
---------------------------------------------------------------------------

    \231\ Under the proposal, the term ``debit card'' in subpart A 
of Regulation E generally includes prepaid cards, except for 
purposes of Sec.  1005.17. See proposed comment Sec.  
1005.2(b)(3)(i)-8.
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Section 1005.18 Requirements for Financial Institutions Offering 
Prepaid Accounts
    Regulation E currently applies to payroll card accounts (as well as 
government benefit accounts, as discussed above in the section-by-
section analysis of Sec.  1005.15). Section 1005.18 contains provisions 
specific to payroll card accounts. Because payroll card accounts would 
be largely subsumed into the proposed definition of prepaid account, 
the Bureau proposes to revise Sec.  1005.18 by replacing it with 
provisions governing prepaid accounts, which the Bureau proposes to 
apply to payroll card accounts as well.
    The current provisions in Sec.  1005.18, as discussed below, 
provide an alternative to the periodic statement requirement of Sec.  
1005.9(b) for payroll card accounts and make corresponding adjustments 
to certain other provisions in Regulation E for financial institutions 
following the periodic statement alternative. In addition to providing 
a periodic statement alternative (and corresponding adjustments) for 
prepaid accounts, proposed Sec.  1005.18 also contains other 
modifications and additions to certain requirements in Regulation E, 
including with respect to pre-acquisition and other disclosures, 
limited liability and error resolution, and credit card plans linked to 
prepaid accounts. The provisions of proposed Sec.  1005.18 are 
discussed below in turn.
    The Bureau notes that while proposed Sec.  1005.18 would set forth 
specific requirements for prepaid accounts, there are other provisions 
in Regulation E subparts A and B that would apply to prepaid accounts 
by virtue of their being deemed accounts in the Regulation. Thus, to 
the extent a provision in Regulation E applies to an ``account,'' 
unless otherwise modified by proposed Sec.  1005.18, that provision 
would apply to a prepaid account. For example, Sec.  1005.8(a) requires 
provision of a change in terms notice in certain circumstances. As the 
Bureau is not proposing to modify this requirement for prepaid 
accounts, it would apply to prepaid accounts in the same manner as it 
does to all other accounts under Regulation E.
18(a) Coverage
    The Bureau is proposing to modify Sec.  1005.18(a) to state that a 
financial institution shall comply with all applicable requirements of 
EFTA and Regulation E with respect to prepaid accounts except as 
modified by proposed Sec.  1005.18. Proposed Sec.  1005.18(a) would 
also refer to proposed Sec.  1005.15 for rules governing government 
benefit accounts.
    Existing comment 18(a)-1 addresses issuance of access devices under 
Sec.  1005.5 and explains that a consumer is deemed to request an 
access device for a payroll card account when the consumer chooses to 
receive salary or other compensation through a payroll card account. 
The Bureau is proposing to add a cross-reference to Sec.  1005.5(b) 
(regarding unsolicited issuance of access devices) in comment 18(a)-1 
and to add additional guidance that would explain that a consumer is 
deemed to request an access device for a prepaid account when, for 
example, the consumer acquires a prepaid account offered for sale at a 
retail store or acquires a prepaid account by making a request or 
submitting an application by telephone or online. The Bureau notes that 
while financial institutions may provide prepaid accounts to consumers 
on an unsolicited basis, they must comply with the provisions on 
unsolicited issuance in existing Sec.  1005.5(b) and compulsory use in 
Sec.  1005.10(e)(2).
    The Bureau is also proposing to revise existing comment 18(a)-2 
regarding application of Regulation E to employers and services 
providers to refer to prepaid accounts in addition to payroll card 
accounts, but otherwise intends to leave comment 18(a)-2 unchanged.
    The Bureau seeks comment on this portion of its proposal.
18(b) Disclosure Requirements for Prepaid Accounts
Overview
    The Bureau is proposing to adopt new disclosures for prepaid 
accounts that would be provided before a consumer

[[Page 77147]]

acquires a prepaid account. These proposed disclosures, which the 
Bureau developed during a period of consumer testing and outreach, 
would be adopted in proposed Sec.  1005.18(b) and would be in addition 
to the initial disclosure requirements in existing Sec.  
1005.7(b).\232\ The Bureau believes that providing disclosures before 
the consumer's acquisition of the prepaid account will ensure that all 
consumers, regardless of the type of prepaid account they are 
acquiring, receive the proposed disclosures at a relevant time in the 
acquisition sequence.
---------------------------------------------------------------------------

    \232\ The Bureau is also proposing, for purposes of prepaid 
accounts, to expand the requirement in existing Sec.  1005.7(b)(5) 
to disclose fees related to EFTs to require the disclosure of all 
fees related to the prepaid account, as discussed below in the 
section-by-section analysis of proposed Sec.  1005.18(f).
---------------------------------------------------------------------------

    The proposal would require that a financial institution provide to 
the consumer both a ``short form'' and a ``long form'' disclosure 
before the consumer acquires a prepaid account. The short form would 
set forth the prepaid account's most important fees to facilitate basic 
understanding of the account's key terms and, when feasible, comparison 
shopping with other prepaid account products. The Bureau believes that 
this form would quickly allow the consumer to assess key fees and terms 
of the prepaid account. Meanwhile, the long form disclosure would list 
all of the fees associated with the prepaid account and would include 
more detailed information on how those fees are assessed. The long form 
would give consumers an opportunity to review all fee information about 
the prepaid account before acquiring an account.
    The Bureau is also proposing exceptions to the general disclosure 
requirement for situations where a consumer acquires a prepaid account 
in certain retail stores or orally by telephone. In these situations, a 
financial institution would still always have to provide the short form 
disclosure to the consumer prior to acquisition, but it would have the 
option of providing the long form disclosure post-acquisition, as long 
as the financial institution provides methods for consumers to access 
the long form electronically and orally prior to acquisition. See 
proposed Sec.  1005.18(b)(1)(i) through (iii).
Disclosure Requirements Generally
    EFTA section 905(a) sets forth disclosure requirements for 
accounts, stating that the terms and conditions of electronic fund 
transfers involving a consumer's account must be provided at the time 
the consumer contracts for an electronic fund transfer service, in 
accordance with the regulations of the Bureau. Section 905(a) further 
states that the disclosures must include, among other things and to the 
extent applicable, any charges for electronic fund transfers or for the 
right to make such transfers (section 905(a)(4)), that a fee may be 
imposed for use of certain ATMs (section 905(a)(10)), information 
regarding the type and nature of electronic fund transfers that the 
consumer can initiate (section 905(a)(3)), and details regarding the 
consumer's liability for unauthorized transactions and whom to contact 
in the event an unauthorized transaction has occurred (section 
905(a)(1) and (2)).\233\
---------------------------------------------------------------------------

    \233\ In addition, the Truth in Savings Act (TISA) (12 U.S.C. 
44, et seq.) contains disclosure requirements for accounts issued by 
depository institutions. Specifically, Regulation DD (10 CFR part 
1030), which implements TISA, requires disclosure of the amount of 
any fee that may be imposed in connection with the account (or an 
explanation of how the fee will be determined) and the conditions 
under which the fee may be imposed. 12 CFR 1030.4(b)(4).
---------------------------------------------------------------------------

    In prior rulemakings, the Board implemented provisions in 
Regulation E consistent with these statutory requirements, primarily in 
existing Sec.  1005.7. Specifically, section 1005.7(a) states that the 
required disclosures must be provided to a consumer at the time a 
consumer contracts for an electronic fund transfer or before the first 
electronic fund transfer is made involving the consumer's account. 
Section 1005.7(b) also sets forth what a financial institution must 
include in its initial disclosures, including details regarding the 
types of transfers that the consumer may make and the limitations on 
the frequency and dollar amount of the transfers, any fees imposed by 
the financial institution for electronic fund transfers or for the 
right to make transfers, and a notice that a fee may be imposed by an 
ATM operator when the consumer initiates an electronic fund transfer or 
makes a balance inquiry, among other requirements.
    At various points, these general provisions in Sec.  1005.7 were 
modified for use with other types of accounts or in other contexts. See 
generally Sec.  1005.14(b)(1) (disclosures provided by certain service 
providers);\234\ current Sec.  1005.15(d) (disclosures related to the 
electronic fund transfer of government benefits);\235\ Sec.  1005.16 
(disclosures at ATMs);\236\ Sec.  1005.17(d) (overdraft 
disclosures);\237\ current Sec.  1005.18(c)(1) (payroll card account 
disclosures); \238\ and Sec.  1005.31 (disclosures related to 
remittance transfers).\239\
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    \234\ 61 FR 19662, 19674 (May 2, 1996).
    \235\ 61 FR 19662, 19670 (May 2, 1996).
    \236\ 78 FR 18221, 18224 (Mar. 26, 2013).
    \237\ 74 FR 59033, 59053 (Nov. 17, 2009).
    \238\ 71 FR 51437, 51449 (Aug. 30, 2006).
    \239\ 77 FR 50244, 50285 (Aug. 20, 2012).
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Comments Received and Stakeholder Outreach Regarding Disclosure
    In proposing new requirements and a modification of the existing 
disclosure requirements in Sec.  1005.7(b)(5) for prepaid accounts, the 
Bureau has considered comments received in response to the Prepaid 
ANPR, in addition to conducting further outreach. In the Prepaid ANPR, 
the Bureau noted that one of its goals was to allow consumers to easily 
compare financial products by ensuring transparent fee disclosure.\240\ 
The Bureau also asked three specific sets of questions related to 
disclosure: (1) What steps could the Bureau take to most effectively 
regulate prepaid products to provide the consumer with transparent, 
useful, and timely fee disclosures?; (2) How can the Bureau best enable 
a consumer to compare various GPR cards, or other payment products, 
that may have different fee structures or be offered through various 
distribution channels? Should market participants be required to 
provide disclosure pre-sale, post-sale, or both?; and (3) Should the 
existence, or lack thereof, of FDIC pass-through insurance associated 
with a GPR card be disclosed to the consumer? If so, how and when 
should the existence of FDIC pass-through insurance be disclosed? \241\
---------------------------------------------------------------------------

    \240\ 77 FR 30923, 30925 (May 24, 2012).
    \241\ Id.
---------------------------------------------------------------------------

    Comments received in connection with the first two sets of these 
questions are addressed below, and the comments received in connection 
with the set of questions regarding FDIC pass-through deposit insurance 
are addressed below in the section-by-section analysis of proposed 
Sec.  1005.18(b)(2)(i)(B)(13).
    As to the first set of questions, commenters focused primarily on 
disclosures that would appear on the external packaging material of a 
GPR card sold in a retail store. Many industry and consumer advocacy 
group commenters suggested that the Bureau develop specific 
disclosures, such as a uniform chart or fee box, that a financial 
institution would affix to a GPR card's packaging when the card is 
offered for sale in a retail store, instead of a more general rule that 
stated only that fees be disclosed clearly and conspicuously without 
providing specific instructions or model forms. Many of these industry 
commenters suggested that adopting a standardized form would be less 
confusing than complying with a clear and conspicuous standard. Apart 
from suggesting a standardized form, industry

[[Page 77148]]

commenters mostly agreed that on-package disclosures should include 
only the fees that a consumer would most commonly incur while using a 
prepaid account, in order to increase the likelihood that consumers 
would understand and use the disclosures.
    Many consumer advocacy group commenters, on the other hand, 
encouraged the Bureau to require full disclosure to the consumer of all 
fees associated with a GPR card before the consumer acquires an 
account, rather than only a subset of certain fees. These groups were 
concerned that consumers would not have a full understanding of a 
prepaid account's true costs without this information and that 
providers could subvert the disclosure's purpose by adjusting fee 
schedules to increase or add fees not required to be disclosed on a 
shorter disclosure.
    Separately, some consumer advocacy group commenters suggested that 
the Bureau propose an ``all-in'' cost disclosure. These commenters 
explained that an ``all-in'' disclosure would present a single number 
to the consumer that would estimate the approximate cost of a prepaid 
account product. These consumer advocacy group commenters also asserted 
that such a disclosure could estimate, for example, the average monthly 
cost of using the prepaid account product based on one or several 
different use cases. Some of the consumer advocacy group commenters 
also suggested that the Bureau could collect actual usage data from 
issuers of prepaid accounts and use that data to develop an algorithm 
or other equation to serve as the basis for this type of all-in 
disclosure.\242\
---------------------------------------------------------------------------

    \242\ The ``all-in'' disclosure concept is discussed in more 
detail in the section-by-section analysis of proposed Sec.  
1005.18(b).
---------------------------------------------------------------------------

    As to the second set of questions regarding how to facilitate 
consumer comparison shopping and whether pre- or post-sale disclosures 
are necessary, many industry and consumer advocacy group commenters 
agreed that it was important for consumers to receive disclosures 
before they buy a prepaid account. Industry commenters further 
discouraged the Bureau from implementing any disclosure regulations 
that would mandate a specific method of delivery for disclosures 
provided after the consumer acquires a prepaid account, which they 
viewed as potentially imposing a large burden on industry without 
significantly benefiting the consumer. Industry and consumer advocacy 
group commenters also encouraged the Bureau to develop disclosures to 
accommodate the variety of distribution channels through which prepaid 
products are distributed and sold, while also considering how 
distribution may evolve in the future. Several consumer advocacy group 
commenters emphasized the need for the Bureau to ensure disclosures 
provided online through a Web site are easy to locate, while also 
considering that many consumers lack internet access and would have 
difficulty viewing disclosures online. Some commenters also suggested 
that providers implement mechanisms to ensure consumers purchasing 
prepaid accounts online have actually reviewed the disclosures.
    In addition to reviewing comments received in response to the 
Prepaid ANPR, the Bureau has also engaged in additional outreach with 
interested stakeholders and conducted consumer focus groups and one-on-
one testing of prototype disclosures. As discussed in greater detail 
above and in the report published with this proposal, the Bureau 
engaged a contractor, ICF, to hold four focus group sessions to gain a 
general understanding of how and why consumers use prepaid accounts. 
The Bureau also worked with ICF to conduct one-on-one interviews with 
consumers to test various model form prototypes the Bureau developed, 
including variations of the model short form and sample long form 
disclosures proposed herein.
    Based on its review of the comments received in response to the 
Prepaid ANPR, outreach with stakeholders, insights gathered from 
consumer testing, and its general market analysis, the Bureau is 
proposing a new pre-acquisition disclosure regime that it believes will 
standardize industry disclosures, increase consumers' understanding of 
prepaid accounts' terms, and improve consumers' ability to compare 
prepaid account products prior to acquiring a prepaid account. The 
Bureau is also proposing model forms and sample forms.
Proposed Disclosure Regime
    As noted above, EFTA section 905(a) sets forth disclosure 
requirements for accounts subject to the Act.\243\ Proposed section 
1005.18(b) would implement EFTA section 905(a) for prepaid accounts. In 
addition, the Bureau is proposing to use its authority under EFTA 
sections 904(a) and (c), 905(a), and section 1032(a) of the Dodd-Frank 
Act to require financial institutions to provide disclosures prior to 
the time a consumer acquires a prepaid account and for disclosures to 
include all fees that may be charged for the prepaid account. The 
Bureau is also proposing, in certain circumstances that financial 
institutions provide disclosures in languages other than English. As 
discussed in the section-by-section analysis of proposed Sec.  
1005.18(b)(1)(i), proposed Sec.  1005.18(b)(2)(ii)(A), and proposed 
Sec.  1005.18(b)(6), the Bureau believes that adjustment of the timing 
and fee requirement and the disclosure language is necessary and proper 
to effectuate the purposes of EFTA to provide a framework to establish 
the rights, liabilities and responsibilities of prepaid account users, 
because the proposed revision will assist consumers' understanding of 
the terms and conditions of their prepaid accounts. In addition, the 
Bureau believes that pre-acquisition disclosures of all fees for 
prepaid accounts as well as certain foreign language disclosures will, 
consistent with Dodd-Frank section 1032(a), ensure that the features of 
the prepaid accounts are fully, accurately, and effectively disclosed 
to consumers in a manner that permits consumers to understand the 
costs, benefits, and risks associated with the account.
---------------------------------------------------------------------------

    \243\ The relevant portion of EFTA section 905 states that 
``[t]he terms and conditions of electronic fund transfers involving 
a consumer's account shall be disclosed at the time the consumer 
contracts for an electronic fund transfer service, in accordance 
with regulations of the Bureau . . .''
---------------------------------------------------------------------------

    The Bureau believes that there are many ways a consumer could 
obtain a prepaid account and that the proposed disclosure regime should 
be adaptable to this variety. For example, a consumer might purchase a 
prepaid account in a retail store, online through a provider's Web 
site, or by calling a provider by telephone. A consumer could also 
receive a prepaid account from an employer in the form of a payroll 
card account or a student might receive a prepaid account from their 
university in connection with the disbursement of financial aid. The 
Bureau believes that framing the disclosure regime as one that would 
apply before the consumer's acquisition of the prepaid account will 
ensure that any consumer who obtains a prepaid account, regardless of 
the type of prepaid account or its method of acquisition, will receive 
the proposed disclosures.
    The proposed pre-acquisition disclosure regime would have two 
parts. First, the Bureau is proposing that a consumer would receive a 
``short form'' disclosure before acquiring a prepaid account. The short 
form, as demonstrated in proposed Model Forms A-10(a) through (d) and 
as discussed below in the section-by-section analysis of proposed Sec.  
1005.18(b)(3)(iii)(A), would consist of a ``static'' portion that would 
set forth fees that must be

[[Page 77149]]

disclosed for all prepaid account products, even if such fees are $0 or 
if they relate to features not offered for a particular prepaid account 
product.\244\ This static portion would have a ``top-line'' component 
highlighting four types of fees (the periodic fee, per-purchase fees, 
ATM withdrawal fees, and the cash reload fee) at the top of the form. 
The Bureau believes these fee types are the most important to consumers 
when shopping for a prepaid account.\245\ The top-line fees would be 
displayed in a more prominent and larger font size than the remainder 
of the disclosures on the form to draw consumers' attention to those 
fees quickly. Three additional fee types (ATM balance inquiry fees, a 
customer service fee, and an inactivity fee) and a statement regarding 
the availability of overdraft services and other credit features would 
also be required to appear in the static portion of the short form. 
Additionally, the short form would include an ``incidence-based'' 
portion that would list up to three additional fees that consumers most 
commonly incur for a particular prepaid account product. Short forms 
for payroll card accounts and government benefit accounts would also 
include a notice at the top of the form regarding compulsory use that 
consumers are not required to accept such cards as the only method of 
receiving funds).\246\ See Sec.  1005.10(e)(2)
---------------------------------------------------------------------------

    \244\ The Bureau refers to a ``prepaid account product'' to mean 
a product that offers prepaid accounts with identical fee schedules 
to any consumer who opens an account.
    \245\ See section-by-section analysis of proposed Sec.  
1005.18(b)(2)(i) for a complete discussion of the short form's 
contents.
    \246\ See section-by-section analysis of proposed Sec.  
1005.18(b)(2)(i)(A) for a discussion of the notice requirement on 
the short form for payroll card accounts. See section-by-section 
analysis of proposed Sec.  1005.15(c)(2) for a discussion of the 
notice requirement on the short form for government benefit 
accounts.
---------------------------------------------------------------------------

    The second part of the Bureau's proposed pre-acquisition disclosure 
regime would require that, before acquiring a prepaid account, 
consumers would always receive a stand-alone ``long form'' disclosure 
that would set forth all of a prepaid account product's fees and their 
qualifying conditions, except for accounts that consumers acquire in 
retail stores or orally by telephone. For prepaid accounts consumers 
acquire in retail stores, financial institutions could disclose a URL 
and telephone number on the short form that a consumer would use to 
access the content of the long form disclosure prior to acquisition, 
but they would not have to provide a stand-alone long form disclosure 
prior to the consumer's acquisition of the prepaid account. For prepaid 
accounts acquired orally by telephone, financial institutions could 
inform a consumer that they can access the long form by telephone or 
online, but would not have to provide the long form disclosure before 
acquisition unless a consumer requests it.\247\
---------------------------------------------------------------------------

    \247\ In all acquisition scenarios, however, the financial 
institution would have to provide a version of the long form in the 
terms and conditions included inside a package in a retail setting 
or provided to the consumer through other methods, such as in the 
mail after acquisition. See comment to proposed Sec.  1005.18(f).
---------------------------------------------------------------------------

    This proposal would mean that consumers would receive or have 
access to the short form and long form disclosures in all prepaid 
account acquisition scenarios. Thus, consumers acquiring prepaid 
accounts in the form of a payroll card account, a government benefit 
account, at a bank branch, at a retail store, or on a Web site, for 
example, would always have the opportunity to review the short form and 
long form disclosures before acquiring a prepaid account. The Bureau 
believes it is important for consumers to have access to both of these 
disclosures in all acquisition scenarios because they serve different 
but complementary goals. First, the Bureau believes that by prominently 
displaying important fees with limited explanatory text, the short form 
will increase the likelihood consumers notice the disclosure of these 
key fees and are able to use the disclosure to inform their acquisition 
choice. The short form would present the key fees of a prepaid account 
in a simplified format rather than requiring a consumer to navigate an 
exhaustive list of fees and their qualifications for each product in 
order to identify those that are most relevant. The Bureau also 
believes that the short form's design, and in particular the emphasized 
top-line portion of the disclosure, will prominently present key fees, 
and create a visual hierarchy of information that will more effectively 
draw consumer's attention to a prepaid account product's key terms. The 
Bureau also believes this visual hierarchy on the short form will 
increase the likelihood that consumers will engage with the disclosure. 
Research has shown that such engagement, or the formation of the intent 
to use the disclosure, is an important first step to ensure that 
consumers utilize and understand any disclosure.\248\ The Bureau 
believes that, in many cases, consumers spend little time reviewing fee 
disclosures when shopping for prepaid accounts, and it is therefore 
important that any disclosure quickly draw consumers' attention to the 
most important information regarding that particular account with 
minimal clutter on the form.
---------------------------------------------------------------------------

    \248\ See, e.g., Ian Ayres & Alan Schwartz, The No-Reading 
Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014).
---------------------------------------------------------------------------

    The Bureau also believes that by standardizing most components of 
the short form, consumers will receive consistent, key fee information 
about prepaid account products regardless of how or where they shop for 
or obtain prepaid accounts. For example, under this proposal, a 
consumer who takes a package containing a prepaid account access device 
off of a J-hook in a retail store would see a short form listing the 
same types of fees in the static portion of the short form included on 
the exterior of the packaging material as the fee types included in the 
static portion of the short form for an entirely different prepaid 
account product a consumer would see when shopping online. Similarly, 
consumers receiving payroll card accounts at their place of employment 
would receive a short form disclosure containing the same fees in the 
static portion of the short form before agreeing to receive wages via 
the payroll card account. The Bureau believes that standardizing pre-
acquisition disclosures across all possible acquisition channels will 
make it easier for consumers to compare different types of prepaid 
account products.
    As discussed below in the section-by-section analysis of proposed 
Sec.  1005.18(b)(2)(i)(B)(8), however, the Bureau is also proposing to 
include an incidence-based portion on the short form disclosure to 
highlight the most commonly charged fees that are not otherwise 
captured in the form. In part, the Bureau has proposed to include this 
incidence-based portion on the short form to address concerns that 
providers could simply change their fee structures to make their 
products appear less expensive relative to other products. The Bureau 
acknowledges that this portion of the short form would not be 
standardized across different prepaid account products due to the 
different fees financial institutions would be required to disclose on 
the incidence-based portion of the short form. \249\ The Bureau 
believes, however, that having identical fee types listed in the static 
portion of the short form will be

[[Page 77150]]

sufficiently consistent so as to facilitate consumer comparison 
shopping, even if the incidence-based portion of the form introduces 
some variance. At the same time, the incidence-based portion of the 
short form disclosure will ensure that consumers are made aware of any 
other significant fees relating to a particular prepaid account 
product.
---------------------------------------------------------------------------

    \249\ The Bureau also notes that the proposed updating 
requirements for the proposed incidence-based fee disclosure could 
result in these fees being different for the same prepaid account 
product due to differing proposed requirements for timing of 
revisions to in-store versus online forms. See the section-by-
section analysis of proposed Sec.  1005.18(b)(2)(i)(B)(8)(I).
---------------------------------------------------------------------------

    The Bureau also recognizes that providing only a subset of fee 
information about a prepaid account on the short form might not give 
all consumers the information they need to make their acquisition 
decisions. Thus, the Bureau is proposing also to require provision pre-
acquisition of the long form disclosure, which would set forth all of a 
prepaid account's fees to a consumer and the conditions under which 
those fees could be imposed. The Bureau expects that consumers seeking 
to learn about more fees than those listed on the short form will 
utilize the long form. The proposed long form also would provide 
detailed explanations to consumers about conditions that may cause fees 
to vary, such as the impact of crossing a threshold number of 
transactions or receiving direct deposits into the prepaid account. 
Such explanations would not be permitted on the short form in order to 
preserve its simplicity, but may be relevant to some consumers' 
acquisition decisions. See proposed Sec.  1005.18(b)(2)(i)(C).\250\
---------------------------------------------------------------------------

    \250\ As discussed in greater detail below, the Bureau is 
proposing Sec.  1005.18(b)(1)(ii) and (b)(iii) to require that for 
prepaid accounts consumers acquire in retail stores or orally by 
telephone, long form disclosures would only need to be made 
accessible, but not necessarily provided, pre-acquisition (although 
they must be provided after acquisition with the terms and 
conditions as part of the initial disclosures).
---------------------------------------------------------------------------

    The Bureau does not believe consumers would necessarily benefit 
from receiving only this long form disclosure before acquiring a 
prepaid account. In the Bureau's testing, for example, many 
participants reported feeling overwhelmed by the amount of information 
included on a prototype long form and they struggled to compare two 
long form disclosures, even those that listed identical fee types. The 
Bureau believes that the potential size and complexity of the long form 
might overwhelm and lead consumers to disregard the disclosure and also 
not use it to comparison shop across products or even to evaluate a 
single product. As discussed above, the short form, on the other hand, 
will be in a simpler format and its static portion, the Bureau 
believes, will facilitate comprehension and comparison shopping. 
Insofar as the Bureau does recognize that the subset of fee information 
on the short form may be incomplete for some consumers, the Bureau 
believes that providing both the short form and long form disclosures 
would strike the right balance between giving consumers key information 
about a prepaid account to aid understanding and comparison shopping, 
while also providing them with the opportunity to review all of a 
prepaid account's fee information pre-acquisition.
    The Bureau also recognizes that in certain acquisition scenarios, 
it is less likely that a consumer would engage in comparison shopping. 
For example, when the consumer receives disclosures for a payroll card 
account, it may be more difficult for that consumer to comparison shop. 
Even in this situation, though, the Bureau believes that consumers 
would benefit from receiving the short form and long form disclosures 
prior to acquiring the payroll card account because the disclosures 
will facilitate the consumer's understanding of the account's terms and 
may allow for subsequent comparisons to be made.
    The Bureau understands that many prepaid account providers 
currently provide disclosures that include many (if not all) of their 
prepaid account's fees, and therefore the Bureau does not believe that 
this aspect of the proposal introduces a significant new burden, as 
discussed in greater detail below in the Section 1022 Analysis. As 
discussed below, however, the Bureau does recognize that there are 
different forms of disclosures that could apply to prepaid account pre-
acquisition disclosures and that burden may vary.
Alternative Approaches Considered by the Bureau
    The Bureau has considered a variety of approaches to pre-
acquisition disclosures, including those suggested by commenters to the 
Prepaid ANPR and others who have opined to the Bureau and in other 
publications about prepaid account disclosures.
    ``All-in'' disclosure. Among the alternatives the Bureau has 
considered is disclosure of a single monthly cost for using a prepaid 
account. Proponents commented that such a disclosure is appealing 
because it would provide a quick and understandable reference point 
and, as compared to a disclosure listing several different numbers with 
line items for each fee type, could also allow for easier comparisons 
among prepaid account products. Proponents have suggested that this 
figure could be conceptually similar to the ``Energy Star'' cost 
disclosure regime the FTC has implemented for appliances,\251\ and 
would present the average amount paid by users of that particular 
prepaid account product over a designated time period (such as monthly) 
or the output of a formula intended to replicate typical consumers' use 
of prepaid accounts.
---------------------------------------------------------------------------

    \251\ The FTC's Energy Labeling Rule shows consumers how much it 
might cost to run an appliance each year based on how much energy it 
uses, and makes it easier for shoppers to compare the energy use 
among similar models. See Fed. Trade Comm'n, EnergyGuide Labeling: 
FAQs for Appliance Manufacturers (May 2013), available at http://www.business.ftc.gov/documents/bus-82-energyguide-labels-faqs.
---------------------------------------------------------------------------

    While the Bureau believes that this ``all-in'' disclosure could 
potentially have several benefits, it declines to propose such an 
approach at this time for several reasons. First, the Bureau is 
concerned that it may not be possible to develop a single formula to 
reflect accurately how most consumers typically use a prepaid account. 
A single formula might include several fee types, such as ATM 
withdrawal fees, any periodic maintenance fees, and cash reload fees, 
and weight them based on how often a consumer might incur those fees 
during a month to determine the approximate cost to all consumers of 
that prepaid account product. The Bureau's testing, along with other 
studies, has identified, however, that there is no single, typical use 
case for all prepaid accounts.\252\ Thus, it would be difficult to 
determine which fee types should be included in such a formula and how 
often such fees might be incurred.
---------------------------------------------------------------------------

    \252\ See, e.g., 2014 Pew Study, at 13.
---------------------------------------------------------------------------

    Second and relatedly, a prepaid account that might have a higher 
cost under a formula adopted by the Bureau may actually be less costly 
for certain consumers, depending on how they use the card. For example, 
a formula might factor in several ATM withdrawal fees each month, but 
for consumers not using the prepaid account for ATM withdrawals, the 
disclosure of that single number could be confusing or misleading, and 
potentially cause a consumer to acquire a prepaid account with a lower 
all-in cost according to the prescribed formula, but that will cost the 
particular consumer more. Although multiple usage formulas might 
rectify this to some degree, the Bureau believes that disclosing more 
than one such number on a single form could compound consumer 
confusion.
    The Bureau also is concerned that an all-in number that presents 
the average amount paid by users of that particular prepaid account 
product over a designated time period would also be

[[Page 77151]]

confusing because consumers would likely struggle to interpret how such 
a summary statistic would apply to their own prepaid account 
usage.\253\ In addition, historical data does not exist for new 
products and may be inaccurate for products that have changed fees or 
features. For these reasons, the Bureau has concluded, at this time, 
that an all-in disclosure would be of limited utility, and could 
perhaps even be misleading to consumers, but the Bureau might 
reconsider the utility of this approach in the future.
---------------------------------------------------------------------------

    \253\ For example, when testing a concept that presented a fee 
amount next to a graphic representing the range of the maximum and 
minimum fees that other providers might charge for the same service, 
the Bureau found that the vast majority of testing participants did 
not understand this graphic or how it might apply to their own 
prepaid card usage.
---------------------------------------------------------------------------

    Category headings. The Bureau also considered a short form 
disclosure that would include category headings based on the function 
for which a consumer would utilize the service associated with each 
fee, a format that many prepaid account providers have already adopted, 
in lieu of the top-line fee format on the short form that the Bureau is 
proposing.\254\ The Bureau declines to propose this ``categories'' 
approach for several reasons. First, the Bureau believes that category 
headers take up needed space on the form that may limit disclosure of 
other, more important information about the prepaid accounts, 
particularly given that some categories might include only one 
fee.\255\ Second, the Bureau believes it would be difficult on the same 
short form to include both its proposed top-line concept and to divide 
fees into categories. Though space constraints are only an issue for 
accounts sold in retail stores (due to packaging material size 
constraints), the Bureau is proposing that a short form with the same 
format and content would be disclosed in all acquisition scenarios, and 
thus, it is important that the short form's design can be implemented 
in all of these scenarios. Finally, during consumer testing, the Bureau 
did not find that participants' comprehension of fees and their purpose 
improved when a form included categories; indeed, most participants 
understood most fees without such a label. Although the Bureau is not 
proposing to include category headings in the proposed short form, it 
is proposing that the long form disclosure--which would have more space 
and detail--would include such headings to facilitate navigation of the 
larger amount of information that the Bureau anticipates will be 
included on that form. See proposed Sec.  1005.18(b)(4)(i)(B).
---------------------------------------------------------------------------

    \254\ See ICF Report, at App. C, 2A. As listed in the prototype, 
an ``Add and withdraw money'' category, for example, would list the 
various ways the consumer could withdraw money from a prepaid 
account, such as through a withdrawal from an automated teller 
machine.
    \255\ For example, a ``Maintenance'' category might include only 
one periodic fee, such as a monthly fee.
---------------------------------------------------------------------------

    The Bureau seeks comment on all of these alternatives and its 
proposed approach. In particular, the Bureau seeks comment on the 
utility of including category headings as part of the short form, in 
lieu of the top-line, and on incorporating an ``all-in'' summary fee 
concept into prepaid account disclosures. The Bureau also seeks comment 
on whether it should consider other disclosure alternatives and why 
such alternatives would be more appropriate than the Bureau's proposed 
pre-acquisition disclosure regime. Finally, the Bureau seeks comment on 
whether any pre-acquisition disclosure regime that requires consumers 
to receive forms disclosing fee information before acquiring a prepaid 
account is necessary.
    To implement its proposed pre-acquisition disclosure regime, the 
Bureau is proposing timing, content, form and other requirements for 
prepaid account disclosures. The following discussion sets forth these 
proposed requirements in detail.
18(b)(1) Timing of Disclosures
18(b)(1)(i) General
    As discussed above, Sec.  1005.7(b) of Regulation E currently 
requires financial institutions to provide certain initial disclosures 
when a consumer contracts for an electronic fund transfer service or 
before the first electronic fund transfer is made involving a 
consumer's account. The Bureau is proposing in revised Sec.  
1005.18(b)(1)(i) that, in addition to these initial disclosures that 
are usually provided in an account's terms and conditions document, a 
financial institution must also provide a consumer with certain fee-
related disclosures before a consumer acquires a prepaid account. 
Specifically, the Bureau is proposing that except when a consumer 
acquires a prepaid account in a retail store or orally by telephone, as 
described in proposed Sec.  1005.18(b)(1)(ii) or (iii), a financial 
institution must provide a short form and a long form disclosure 
required by proposed Sec.  1005.18(b)(2)(i) and (ii) before a consumer 
acquires a prepaid account. The Bureau believes consumers in all 
acquisition scenarios would benefit from receiving these additional, 
pre-acquisition disclosures prior to contracting for an electronic fund 
transfer service or before the first electronic fund transfer is made 
involving the account, at which point they would receive the initial 
disclosures that Regulation E already requires.
    The Bureau believes disclosures that provide fee information prior 
to a consumer's acquisition of a prepaid account (rather than at the 
time of contracting for an electronic fund transfer service, which may 
be later) are necessary and beneficial to consumers for several 
reasons. First, the Bureau believes a consumer should receive clear 
disclosures about prepaid accounts before acquiring them. Based on its 
outreach, the Bureau understands that some financial institutions may 
already provide limited disclosures to consumers prior to acquisition, 
and that some financial institutions may not disclose the fees that 
consumers may find relevant to their acquisition decision until the 
account is purchased (or otherwise acquired), the packaging material is 
opened, and a consumer reviews the enclosed terms and conditions 
document. For example, one prepaid product currently sold in retail 
stores imposes an inactivity fee after ninety days of no transactions, 
but this fee is not disclosed on an outward-facing external surface of 
the prepaid account access device's packaging material that is visible 
before purchase. Further, the Bureau believes that some employees 
acquiring payroll card accounts may receive information about the 
accounts in a manner that makes it difficult for an employee to 
comprehend the accounts' key fees. For example, employees might receive 
terms and conditions documents regarding payroll card accounts at the 
same time they receive other benefits-related paperwork, making the 
fees difficult for employees to comprehend while sorting through other 
important and time-sensitive paperwork. Similarly, certain providers of 
prepaid accounts online may present disclosures on their Web sites in a 
way that makes it difficult for consumers to have the chance to review 
them prior to acquisition.
    Additionally, the Bureau believes that pre-acquisition disclosures 
can also decrease the ability of financial institutions to obscure key 
fees. Many participants in the Bureau's consumer testing reported 
incurring fees that they did not become aware of until after they 
purchased their prepaid account. Several participants also admitted to 
having difficulty understanding the disclosures they received with 
their current prepaid accounts and were very unsure as to whether key 
fees had been

[[Page 77152]]

disclosed before they acquired the accounts.
    Second, as some commenters to the Prepaid ANPR emphasized, in order 
to comparison shop among products, it is helpful for consumers to be 
able to review disclosures setting forth key terms in like ways before 
choosing a product. As noted earlier, the Bureau recognizes that 
consumers offered prepaid products by third parties like employers or 
educational institutions may be unable to easily comparison shop. For 
example, at the time students are offered a student card from their 
university, such as when registering for school, they might be unable 
to compare that card with other products. The Bureau believes, however, 
that even in this scenario, students will benefit from receiving the 
short form and the long form disclosure so that they can better 
understand the product's terms before deciding to accept it. 
Additionally, the Bureau believes that both of these disclosures may 
inform the way in which these consumers decide to use the product once 
they have acquired it and enable them to, at a convenient time, compare 
it with any other products.
    Third, the Bureau believes that consumers could potentially use 
their prepaid account for an extended period of time and perhaps incur 
substantial fees over that time. For example, during the Bureau's 
consumer testing, participants indicated that they tend to use a given 
prepaid account product, even one they do not like, at least until they 
spend the entirety of the initial load amount, which could be as much 
as $500. Others reported reloading the account, using it for as long as 
one or two years after purchase, and often arranging to receive direct 
deposit of wages or benefits into the account. Thus, the Bureau 
believes that whatever disclosure information a consumer uses when 
selecting a prepaid account could have a significant, and potentially 
long-term, impact, especially if a consumer chooses to receive direct 
deposit into a prepaid account. Current research supports this belief. 
Specifically, one study indicates that prepaid accounts receiving 
direct deposit of government benefits might have life spans of as long 
as three years, and consumers who receive non-government direct deposit 
on their accounts use them on average for longer than one year.\256\ 
Though other, older research estimates the average life span of some 
prepaid accounts may be on average less than six months, the Bureau 
believes that even this period of time is significant if consumers load 
most or all of their funds into their prepaid accounts.\257\
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    \256\ Fumiko Hayashi & Emily Cuddy, Fed. Reserve Bank of Kansas 
City, General Purpose Reloadable Prepaid Cards: Penetration, Use, 
Fees and Fraud Risks at 33-35 (Working Paper No. RWP 14-01, 2014), 
available at https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf.enter/publications/discussion-papers/2012/D-2012-
August-Prepaid.pdf.
    \257\ A 2012 study by the Federal Reserve Bank of Philadelphia 
indicates that the average life span of GPR cards tends to be 
between 3 and 6 months. See 2012 FRB Philadelphia Study, at 18.
---------------------------------------------------------------------------

    Regulation E, however, currently only provides for initial 
disclosures to be delivered at the time a consumer contracts for an 
electronic fund transfer service or before the first electronic fund 
transfer is made involving a consumer's account. The Bureau believes 
that, in the prepaid account context, this might sometimes be too late. 
With prepaid accounts, consumers often contract for an electronic fund 
transfer when acquiring the prepaid account and completing an initial 
load. The Bureau therefore is concerned that consumers may receive the 
fee-related, initial disclosures required by Sec.  1005.7(b) (which 
proposed Sec.  1005.18(f) would modify for prepaid accounts) that are 
typically provided within the prepaid account's terms and conditions 
document too late to utilize them to decide on the right prepaid 
account product for their needs and to comparison shop among various 
prepaid account products.
    The Bureau is therefore proposing Sec.  1005.18(b)(1)(i), which 
would require a financial institution, in most cases, to provide the 
short and long form disclosures described in proposed Sec.  
1005.18(b)(2)(i) and (ii) before a consumer acquires a prepaid account. 
As noted above, this aspect of the proposal is authorized under EFTA 
sections 904(a) and (c), 905(a), and Dodd-Frank sections 1032(a). The 
Bureau seeks comments on all aspects of its proposal to mandate pre-
acquisition disclosures. In particular, the Bureau solicits feedback on 
whether pre-acquisition disclosures are necessary or if the fee 
information provided pursuant to existing Sec.  1005.7(b) (as modified 
by proposed Sec.  1005.18(f)) at the time a consumer contracts for the 
prepaid account is sufficient to inform consumers about the account's 
terms and conditions.
    The Bureau is also proposing to add comment 18(b)(1)(i)-1, which 
would provide examples of what would and would not qualify as having 
provided disclosures pre-acquisition. The first example would clarify 
how pre-acquisition disclosures work in a bank branch context. 
Specifically, proposed comment 18(b)(1)(i)-1.i would explain that when 
a consumer inquires about obtaining a prepaid account at a branch 
location of a bank, then receives the printed short form and long form 
disclosures related to the prepaid account product, and after receiving 
the disclosures, agrees to open a prepaid account with the bank, a 
consumer would have received the short form and long form disclosures 
pre-acquisition. Another proposed example would address payroll card 
accounts. Specifically, proposed comment 18(b)(1)(i)-1.ii would explain 
that if a consumer learns that he or she can receive wages via a 
payroll card account, at which time a consumer receives the short form 
and long form disclosure to review, and a consumer agrees to receive 
wages via a payroll card account, a consumer would have received the 
short form and long form disclosures pre-acquisition. Proposed comment 
18(b)(1)(i)-1.ii would further clarify that if a consumer receives the 
payroll card or other device at the end of the first pay period, at 
which time a consumer also receives the short form and long form 
disclosure to review for the first time, these disclosures were 
provided to a consumer post-acquisition, and thus not provided in 
compliance with proposed Sec.  1005.18(b)(1)(i).
    Proposed comment 18(b)(1)(i)-2 would provide further explanation 
regarding circumstances when short form and long form disclosures would 
be considered to have been delivered after a consumer acquires a 
prepaid account, and thus in violation of the timing requirement in 
proposed Sec.  1005.18(b)(1)(i). Specifically, proposed comment 
18(b)(1)(i)-2 would explain that when the short form and long form 
disclosures required under proposed Sec.  1005.18(b)(2)(i) and (ii) are 
presented after a consumer has initiated a purchase for a prepaid 
account on a financial institution's Web site, but before a consumer 
provides any personal identifying information and agrees to accept the 
prepaid account, such disclosures would be made pre-acquisition in 
accordance with proposed Sec.  1005.18(b)(1)(i). Proposed comment 
18(b)(1)(i)-2 would also explain that the short form and long form 
disclosures that are provided electronically when a consumer acquires a 
prepaid account on a financial institution's Web site are considered to 
be given after a consumer acquires a prepaid account if a consumer can 
easily bypass the disclosures before acquiring a prepaid account. 
Proposed comment 18(b)(1)(i)-

[[Page 77153]]

2 would also clarify that a financial institution can present the short 
form and long form disclosures on the same Web page to fulfill the 
requirements of proposed Sec.  1005.18(b)(1)(i), and that a financial 
institution could also present the short form disclosure on a Web page 
and include a hyperlink directly to the long form disclosure on that 
same Web page, but, if it does so, a consumer must not have to review 
any unrelated pages before viewing the long form disclosure. The Bureau 
nevertheless seeks comment on whether additional guidance is necessary 
regarding how electronic disclosures can be provided in compliance with 
the pre-acquisition timing requirement in proposed Sec.  
1005.18(b)(1)(i).
    Some consumer advocacy groups that responded to the Prepaid ANPR 
suggested that the Bureau also require that financial institutions 
confirm that consumers have read disclosures provided online. The 
Bureau believes that such a requirement is infeasible. Nevertheless, 
the Bureau seeks comment on whether technology exists that could be 
implemented by all potentially covered entities and that would permit 
them to confirm a consumer has read online disclosures, or if providing 
guidance that a consumer should not be able to easily bypass the pre-
acquisition disclosures would ensure that consumers have sufficient 
opportunity to review disclosures provided electronically.
18(b)(1)(ii) Disclosures for Prepaid Accounts Acquired in Retail Stores
    The Bureau is proposing an adjustment to its proposed general pre-
acquisition timing requirement where consumers acquire prepaid accounts 
in retail stores. Proposed Sec.  1005.18(b)(1)(ii) would provide that 
financial institutions would have to provide a written version of the 
short form disclosure before a consumer acquires a prepaid account in 
person in a retail store. But it would permit financial institutions to 
delay providing the long form disclosure until after the consumer 
acquires a prepaid account as long as certain conditions are met. Those 
conditions are described in proposed Sec.  1005.18(b)(1)(ii)(A) through 
(C).
    The Bureau believes that in many cases it is not feasible for 
financial institutions that offer prepaid accounts in retail stores to 
provide printed long form disclosures prior to acquisition. For 
example, retail stores may require financial institutions to use 
packaging material with specific dimensions that accommodate standard 
J-hook display racks. The Bureau understands that the dimensions of a 
typical J-hook display used today for prepaid accounts may limit a 
prepaid account access device's packaging material to no larger than 4 
inches by 5.25 inches. In addition, the length of the hooks on which a 
prepaid account's packaging material is displayed is finite and can 
accommodate only a limited number of packages depending on each 
package's thickness.
    Due to these apparent size and space limitations, the Bureau 
believes that many financial institutions would not be able to present 
both the short and long form disclosures required by Sec.  
1005.18(b)(2)(i) and (ii) on the packaging before a consumer acquires a 
prepaid account in a retail store, without overhauling the packaging's 
design or otherwise adjusting the relevant retail space. For example, 
more disclosures could require longer, wider or thicker packaging 
material than that currently used. The Bureau believes that such 
packaging adjustments would impose a significant burden and likely 
decrease the number of prepaid account products that could be sold at 
one time in retail stores. In turn, this could increase the cost of 
prepaid account products and limit comparison shopping (if the retail 
store maintains the same overall space for the display and sale of all 
prepaid account products).
    Nevertheless, the Bureau believes it is important that consumers be 
provided an opportunity to review both the short form and long form 
disclosures before acquisition. Thus, proposed Sec.  1005.18(b)(1)(ii) 
would require that in retail stores, a financial institution could 
provide the long form disclosure after a consumer acquires a prepaid 
account in person in a retail store, as long as the three conditions 
discussed below are met. The Bureau believes these conditions will 
ensure a consumer receives a written, short form disclosure that 
includes methods for accessing the long form disclosure by telephone or 
via a Web site.
    Proposed Sec.  1005.18(b)(1)(ii)(A) would set forth the first 
condition: that the access device for the prepaid account available for 
sale in a retail store must be inside of a packaging material. This 
condition would apply even if the product, when sold, is only a 
temporary access device. As noted above, J-hooks place limitations on 
the size and volume of packaging material that can be used to market 
prepaid accounts. If a financial institution does not use such 
packaging material because, for example, a customer service 
representative is responsible for distributing prepaid accounts to 
consumers, then the Bureau does not believe that space constraints 
would prevent a financial institution from providing both the short and 
long form disclosure pre-acquisition. The Bureau considered requiring 
that in order to qualify for the retail store exemption, the packaging 
material should also be directly accessible to a consumer. Under such a 
requirement, a financial institution would not qualify for the retail 
store exemption if the prepaid account access devices were inside of 
packaging material, but such packaging material was stored behind glass 
or a counter, and a consumer would have to request to see a package 
from a customer service representative in order to review the 
disclosures. The Bureau decided against proposing this requirement. The 
Bureau believes that retailers that do not make packaging material 
directly accessible to consumers may have justifiable reasons for doing 
so, such as security concerns, yet still face space constraints that 
make pre-acquisition delivery of both proposed forms difficult. 
Nevertheless the Bureau seeks comment on whether retailers that use 
packaging material, but do not make it directly accessible to 
consumers, actually do face space constraints that justify allowing 
them to disclose the long form post-acquisition.
    Proposed Sec.  1005.18(b)(1)(ii)(B) would set forth the second 
condition: the short form disclosures required by proposed Sec.  
1005.18(b)(2)(i) must be provided on or be visible through an outward-
facing, external surface of a prepaid account access device's packaging 
material in the tabular format described in proposed Sec.  
1005.18(b)(3)(iii). The Bureau recognizes that fulfilling this 
condition could mean that some financial institutions that offer 
prepaid accounts in retail stores and want to comply with proposed 
Sec.  1005.18(b)(1)(ii) may have to change their packaging. The Bureau, 
however, believes that the majority of current prepaid account 
products' packaging material would allow financial institutions to 
include the short form content requirements on an external surface that 
is visible to a consumer pre-acquisition without altering the structure 
of the existing packaging.
    The third condition, set forth in proposed Sec.  
1005.18(b)(1)(ii)(C), would require that a financial institution 
include a telephone number and URL on the short form disclosure, as 
required by proposed Sec.  1005.18(b)(2)(i)(B)(11), that a consumer can 
use to access the long form disclosure while in a retail store. The 
Bureau believes that even if it is not feasible for a consumer to 
receive both the short and long form disclosures pre-acquisition in 
some

[[Page 77154]]

retail settings, the consumer should at least be able to access the 
long form disclosure by telephone or via a Web site, should they want 
to obtain comprehensive fee information. The Bureau understands that 
many consumers use mobile devices that can access the internet, and the 
Bureau notes that all of the participants in the Bureau's consumer 
testing reported having a smartphone with internet access. Indeed, 
recent polls indicate that as many as 65 percent of adults in the 
United States own a smartphone.\258\ The Bureau therefore believes that 
many consumers at least have the ability to access a Web site through 
the URL that would be listed on the short form pursuant to proposed 
Sec.  1005.18(b)(2)(i)(B)(11) when shopping for a prepaid account. 
Several testing participants also mentioned, however, that even though 
they have a smartphone, they were concerned whether all consumers would 
be able to access a Web site when in a retail store or whether they 
would always have sufficient reception to access a Web site from their 
smartphone while indoors. The Bureau is therefore also proposing that 
when a financial institution is not disclosing the long form before a 
consumer acquires a prepaid account, the financial institution must 
also make the long form available to a consumer by telephone, a method 
that even consumers with mobile devices that are not smartphones could 
use to access the long form disclosure's contents.
---------------------------------------------------------------------------

    \258\ The Nielsen Company, The Digital Consumer, at 5 (Feb. 
2014), available at http://www.nielsen.com/content//corporate/us/en/reports-downloads/2014%20Reports/the-digital-consumer-report-feb-2014.pdf. In 2012, the Board estimated that 35 percent of the U.S. 
population uses smartphones. See Bd. of Governors of the Fed. 
Reserve, Consumers and Mobile Financial Services, at 3 n1 (Mar. 
2012), available at http://www.Federalreserve.gov//mobile-device-report-201203.pdf (internal citations omitted).
---------------------------------------------------------------------------

    The Bureau recognizes that proposed Sec.  1005.18(b)(ii)(C) assumes 
that a consumer would have a mobile device capable of either accessing 
the internet or making calls when shopping in a retail store. But it 
believes that providing these two methods will increase the likelihood 
that most consumers would be able to access the long form disclosure in 
a retail store. The Bureau also acknowledges that it might be 
complicated for financial institutions to provide the long form 
disclosure by telephone, whether using an interactive voice response 
system or through a customer service agent. Further, as discussed in 
the section-by-section analysis of proposed Sec.  1005.18(b)(1)(iii), 
it may be harder for a consumer to understand the information in the 
long form when delivered orally. Nevertheless, the Bureau believes that 
if a consumer takes the affirmative step to request additional 
information about a prepaid account by telephone when shopping in a 
retail store, it could be more likely that the consumer is seeking out 
specific information that is not included on the short form, and will 
therefore be less likely to suffer from information overload.
    The Bureau further recognizes that permitting financial 
institutions to only provide a short form disclosure to a consumer pre-
acquisition in retail stores means that consumers may not see full fee 
information before acquiring a prepaid account. It could be due to the 
technical reasons described above or due to the fact that consumers 
lack the time or motivation to seek it out. Indeed, in the Bureau's 
consumer testing, some participants had difficulty noticing and 
understanding language that listed the methods for accessing the long 
form disclosure on the short form. Some participants also reported that 
they would be unlikely to use their mobile device to seek out such 
information when shopping because, in the past, they spent limited time 
shopping for a prepaid account.
    The Bureau therefore considered whether, as some non-partisan 
research and advocacy organizations have suggested, it might be better 
for consumers to see all of a prepaid account's fees pre-acquisition 
for prepaid accounts sold in retail stores and all other acquisition 
scenarios to avoid putting the burden on consumers to seek out 
additional information. The Bureau declines to propose this approach 
for multiple reasons. First, the Bureau believes that recent research 
indicates that many consumers have difficulty comprehending and 
utilizing extensive amounts of information when making decisions about 
certain financial products.\259\ Second, when consumers use a 
disclosure, recent research indicates they might have trouble 
identifying which information is relevant to them, prioritizing and 
comprehending the information they encounter, or utilizing that 
information to make the best choice for their situation.\260\ The 
Bureau believes this comprehension difficulty could be exacerbated in a 
retail store where consumers often make acquisition decisions quickly. 
During its consumer testing, the Bureau also learned that only a few 
types of fees drive most consumers' decisions about prepaid accounts. 
The Bureau believes the proposed short form disclosure captures these 
fees. Third, when participants in the Bureau's consumer testing saw 
longer lists of fees during testing, they frequently cited one of the 
fees included on the short form disclosure as that which would most 
influence their decision about which prepaid product to acquire. In 
other words, testing participants were not relying on the additional 
information in the long form disclosure to make a decision. The results 
suggest that the participants would have reached the same decision 
reviewing a short form disclosure.
---------------------------------------------------------------------------

    \259\ See James Lacko & Janis Pappalardo, The Failure and 
Promise of Mandated Consumer Mortgage Disclosures: Evidence from 
Qualitative Interviews and a Controlled Experiment with Mortgage 
Borrowers, 100 a.m. Econ. Rev. 516 (2010); Kleimann Commc'n Group, 
Know Before You Owe: Evolution of the Integrated TILA RESPA 
Disclosures (July 9, 2012). See generally, Eric Johnson et al. Can 
Consumers Make Affordable Care Affordable? The Value of Choice 
Architecture, PLOS One, Dec. 2013, at 1, 2.
    \260\ Id.
---------------------------------------------------------------------------

    Testing participants also spent more time comparing two long form 
disclosures when engaging in a shopping comparison exercise Such time 
is additional time that the Bureau believes consumers are less likely 
to spend when shopping in a retail setting. Finally, consumers in 
testing also generally found it more difficult to perform side-by-side 
comparisons of two long form disclosures included on the inside of 
prototype packaging material versus comparing two short form 
disclosures provided on an outside surface of prototype packaging 
material. The Bureau also considered the significant cost to industry 
of providing the long form disclosure. As discussed above, the 
packaging adjustments including such a disclosure would likely require 
based on the space constraints in many retail locations.
    To summarize, the Bureau proposes that, in retail stores, financial 
institutions may provide the proposed long form disclosure after 
acquisition, if the three conditions in proposed Sec.  
1005.18(b)(1)(ii)(A) through (C) are satisfied. The Bureau also notes 
that pursuant to proposed Sec.  1005.18(f), all consumers, including 
those shopping in retail stores, would get a long form disclosure in 
the terms and conditions document that they receive after they have 
acquired a prepaid account. In a retail setting, the terms and 
conditions document would likely be provided inside the packaging 
material and immediately accessible to a consumer post-acquisition.
    Nevertheless, the Bureau seeks comment on all aspects of this 
approach to fee disclosures for prepaid accounts

[[Page 77155]]

sold in retail locations. Specifically, the Bureau seeks comment on 
what information consumers should receive when shopping for a prepaid 
account in a retail store and how comprehensive this information could 
be, given the space constraints imposed by J-hooks. The Bureau also 
seeks comment on whether to require disclosure of the long form pre-
acquisition in retail stores instead of permitting financial 
institutions to only make it accessible to a consumer. Finally, the 
Bureau solicits comment on whether the two methods (Web site or 
telephone number) that the Bureau has proposed to include on the short 
form in retail stores are reliable ways for consumers to access the 
long form disclosure when shopping in a retail store, and whether there 
are other methods that could be required instead of or in addition to 
those that are proposed. The Bureau also seeks comment on whether it 
should require that consumers must be able to access the telephone 
number listed after regular business hours.\261\
---------------------------------------------------------------------------

    \261\ The Bureau also considered requiring that financial 
institutions list an SMS short code on the short form disclosure 
provided in retail stores. See section-by-section analysis of 
proposed Sec.  1005.18(b)(2)(i)(B)(11) for a discussion of this 
alternative.
---------------------------------------------------------------------------

    Proposed comment 1005.18(b)(1)(ii)-1 would provide guidance on the 
definition of retail store. Specifically, proposed comment 
1005.18(b)(1)(ii)-1 would explain that, for purposes of the proposed 
requirements of Sec.  1005.18(b)(1)(ii), a retail store is a location 
where a consumer can obtain a prepaid account in person and that is 
operated by an entity other than a financial institution or by an agent 
of the financial institution. Proposed comment 1005.18(b)(1)(ii)-1 
would further clarify that a bank or credit union branch is not a 
retail store, but that drug stores and grocery stores at which a 
consumer can acquire a prepaid account may be retail stores. Proposed 
comment 1005.18(b)(1)(ii)-1 would also clarify that a retail store that 
offers one financial institution's prepaid account products exclusively 
would be considered an agent of the financial institution, and, thus, 
both the short form and the long form disclosure must be provided pre-
acquisition pursuant to proposed Sec.  1005.18(b)(1)(i) in such 
settings.
    The Bureau believes that if a financial institution is the sole 
provider of prepaid account products in a given retail store, or is 
otherwise an agent of the financial institution, then it is easier for 
the financial institution to manage the distribution of disclosures to 
a consumer, and they might be less dependent on the J-hook 
infrastructure to market their products to consumers. Thus, the Bureau 
believes that financial institutions with such exclusive relationships 
should have fewer hurdles to providing both the short form and long 
form disclosures to a consumer before acquisition. Nevertheless, the 
Bureau seeks comment on whether agents of the financial institution 
face space constraints in retail stores that would make it difficult to 
provide the short form and long form disclosures pre-acquisition.
    Proposed comment 1005.18(b)(1)(ii)-2 would clarify that except when 
providing the long form disclosure post-acquisition in accordance with 
the retail store exception set forth in proposed Sec.  
1005.18(b)(1)(ii), the short form and long form disclosures required by 
proposed Sec.  1005.18(b)(2)(i) and (ii) must be provided to a consumer 
pre-acquisition in compliance with proposed Sec.  1005.18(b)(1)(i). 
Proposed comment 1005.18(b)(1)(ii)-2 would further explain that 
disclosures are considered to have been provided post-acquisition if 
they are inside the packaging material accompanying a prepaid account 
access device that a consumer cannot see or access before acquiring the 
prepaid account, or if it is not readily apparent to a consumer that he 
or she has the ability to access the disclosures inside of the 
packaging material. Proposed comment 1005.18(b)(1)(ii)-2 would also 
provide the example that if the packaging material is presented in a 
way that consumers would assume they must purchase the prepaid account 
before they can open the packaging material, the financial institution 
would be deemed to have provided disclosures post-acquisition.
    Proposed comment 1005.18(b)(1)(ii)-3 would explain that a payroll 
card account offered to and accepted by consumers working in retail 
stores would not be considered a prepaid account acquired in a retail 
store for purposes of proposed Sec.  1005.18(b)(1)(ii), and thus, a 
consumer would have to receive the short form and long form disclosures 
pre-acquisition pursuant to the timing requirement set forth in 
proposed Sec.  1005.18(b)(1)(i). The Bureau does not believe that there 
are space constraints involved in offering payroll card accounts to 
retail store employees. Thus, the Bureau believes that retail store 
employees receiving payroll card accounts must receive both the short 
form and long form disclosures pre-acquisition in accordance with 
proposed Sec.  1005.18(b)(1)(i).
    Proposed comment 18(b)(1)(ii)-4 would clarify that pursuant to 
proposed Sec.  1005.18(b)(1)(ii)(C), a financial institution must make 
the long form accessible to a consumer by telephone and by a Web site 
when not providing a printed version of the long form disclosure to a 
consumer prior to acquisition of a prepaid account. Proposed comment 
18(b)(1)(ii)-4 would clarify that a financial institution could, for 
example, provide the long form disclosure by telephone using an 
interactive voice response system or by using a customer service agent.
18(b)(1)(iii) Disclosures for a Prepaid Account Acquired Orally by 
Telephone
    Similar to its proposed alternative for retail stores, the Bureau 
is also proposing, for several reasons, to modify the general pre-
acquisition disclosure requirement in proposed Sec.  1005.18(b)(1)(i) 
when a consumer acquires a prepaid account orally by telephone. First, 
the Bureau believes prepaid accounts acquired by telephone introduce 
logistical challenges that make it difficult for financial institutions 
to provide both the short form and the long form disclosures to all 
consumers. The Bureau also believes that it may be more difficult for 
consumers to process information disclosed orally and that therefore, 
generally, less fee information should be provided when consumers 
acquire prepaid accounts by telephone. The Bureau acknowledges that 
consumers are probably less likely to comparison shop when acquiring 
prepaid accounts by telephone, but the Bureau believes that some 
consumers might want to compare the short form disclosure of prepaid 
account products they are considering acquiring orally by telephone to 
short form disclosures for other prepaid accounts that they might 
already possess or have available on their computer during the 
telephone call.
    The Bureau is therefore proposing that before a consumer acquires a 
prepaid account orally by telephone, a financial institution must 
disclose orally the short form information that would be required by 
proposed Sec.  1005.18(b)(2)(i). See proposed Sec.  1005.18(b)(1)(iii). 
The Bureau believes that disclosing only limited information by 
telephone will increase the likelihood that a consumer will understand 
any information about the prepaid account when acquiring it orally by 
telephone. Proposed Sec.  1005.18(b)(1)(iii) would further state that a 
financial institution may provide the disclosures required by Sec.  
1005.18(b)(2)(ii) after a consumer acquires a prepaid account orally by 
telephone if the financial institution

[[Page 77156]]

communicates to a consumer orally, before a consumer acquires the 
prepaid account, that the information required to be disclosed by Sec.  
1005.18(b)(2)(ii) is available orally by telephone and on a Web site.
    The Bureau believes that a financial institution should be able to 
disclose information contained in the long form orally, by, for 
example, allowing a consumer to ask a customer service agent about a 
fee or by using an automated system, but the Bureau questions the 
effectiveness of requiring that the full long form disclosure be 
provided orally to every consumer. Rather, the Bureau believes that as 
long as consumers are made aware of their ability to access the 
information contained in the long form disclosure, they will be able to 
get enough information to make an informed acquisition decision. Those 
who wish to learn more about the prepaid account can do so, and 
financial institutions would not be unduly burdened by having to 
provide the long form disclosure to all consumers who acquire prepaid 
accounts by telephone.
    The Bureau recognizes that proposed Sec.  1005.18(b)(1)(ii)(C) 
would require that a financial institution always disclose the 
telephone number and the URL that a consumer can use to access in the 
long form disclosure on all short forms when qualifying for the retail 
store exception. But, for prepaid accounts acquired orally by telephone 
pursuant to proposed Sec.  1005.18(b)(1)(iii), the Bureau believes it 
is sufficient to let a consumer know that the long form disclosure is 
available by telephone and through a Web site without having to 
actually dictate the telephone number and the URL of the Web site, 
unless a consumer requests them. A version of the long form, however, 
would still be required to be provided after acquisition in the prepaid 
account's initial disclosures. See proposed Sec.  1005.18(f).
    The Bureau seeks comment on all aspects of this part of the 
proposal. Specifically, the Bureau seeks comment on whether consumers 
will benefit from hearing the contents of only the short form disclosed 
orally. The Bureau also seeks comment on whether financial institutions 
should be required to disclose all fees associated with a prepaid 
account orally before acquisition instead of having the option not to 
disclose full fee information as long as they make consumers aware of 
the methods by which they can access the content of the long form 
disclosure.
    Proposed comment 18(b)(1)(iii)-1 would explain that, for purposes 
of proposed Sec.  1005.18(b)(1)(iii), a prepaid account is considered 
to have been acquired orally by telephone when a consumer speaks to a 
customer service agent or communicates with an automated system, such 
as an interactive voice response system, to provide personal 
identifying payment information to acquire a prepaid account, but would 
clarify that prepaid accounts acquired using a mobile device without 
speaking to a customer service agent or communicating with an automated 
system are not considered to have been acquired orally by telephone. 
The Bureau believes that the proposed general pre-acquisition 
disclosure requirement in proposed Sec.  1005.18(b)(1)(i) should be 
modified when a consumer acquires a prepaid account orally by 
telephone. By contrast, if a consumer is using a smartphone to access a 
mobile application to acquire a prepaid account, and is not receiving 
disclosures about the prepaid account orally, the Bureau proposes that 
disclosures could be provided electronically pursuant to proposed Sec.  
1005.18(b)(3)(i)(B) and that a consumer still receive both the short 
form and long form disclosures pre-acquisition. Though a consumer may 
access a mobile application to acquire a prepaid account on a mobile 
phone device, the Bureau believes that once a consumer has entered the 
application, disclosures can be provided in a similar, if not 
identical, way to how they are offered on a Web site. Thus, the Bureau 
believes that in such a scenario the logistical challenges justifying 
an alternative requirement for accounts acquired orally using the 
telephone are not present.
    Proposed comment 18(b)(1)(iii)-2 would explain how disclosures 
provided orally can comply with the pre-acquisition timing requirement 
in proposed Sec.  1005.18(b)(2)(i). Specifically, proposed comment 
18(b)(1)(iii)-2 would clarify that to comply with the pre-acquisition 
requirement set forth in proposed Sec.  1005.18(b)(1)(i) for prepaid 
accounts acquired orally by telephone, a financial institution may, for 
example, read the short form disclosure required under proposed Sec.  
1005.18(b)(2)(i) over the telephone after a consumer has initiated the 
purchase of a prepaid account by calling the financial institution, but 
before a consumer agrees to acquire the prepaid account. Proposed 
comment 18(b)(1)(iii)-2 would also clarify that although the long form 
disclosure required by proposed Sec.  1005.18(b)(2)(ii) is not required 
to be given pre-acquisition when a consumer acquires a prepaid account 
orally by telephone, a financial institution must communicate to a 
consumer that the long form is available upon request either orally by 
telephone or on a Web site. Finally, the proposed comment would clarify 
that a financial institution must provide information on all fees in 
the terms and conditions as required by existing Sec.  1005.7(b)(5), as 
modified by proposed Sec.  1005.18(f), before the first electronic fund 
transfer is made from a consumer's prepaid account.
18(b)(2) Content of Disclosures
    Proposed Sec.  1005.18(b)(2) would set forth substantive content 
requirements for the Bureau's proposed pre-acquisition disclosure 
regime. Specifically, proposed Sec.  1005.18(b)(2)(i) would set forth 
the information a financial institution would have to provide on the 
short form disclosure, and proposed Sec.  1005.18(b)(2)(ii) would set 
forth the information a financial institution would have to provide on 
the long form disclosure. The proposed content for each disclosure is 
discussed in detail below.
18(b)(2)(i) Short Form Content Requirements
    Proposed Sec.  1005.18(b)(2) would set forth substantive content 
requirements for the Bureau's proposed pre-acquisition disclosure 
regime. Specifically, proposed Sec.  1005.18(b)(2)(i) would set forth 
the information a financial institution would have to provide on the 
short form disclosure, and proposed Sec.  1005.18(b)(2)(ii) would set 
forth the information a financial institution would have to provide on 
the long form disclosure. The proposed content for each disclosure is 
discussed in detail below.
18(b)(2)(i) Short Form Content Requirements
    As explained above, the Bureau is proposing that financial 
institutions provide a short form disclosure before a consumer acquires 
a prepaid account. See proposed Sec.  1005.18(b)(1)(i). Proposed Sec.  
1005.18(b)(2)(i) would require disclosure of specific information on 
the short form about a prepaid account, including certain notices, 
fees, and other information, as applicable. Specifically, for all 
prepaid accounts, financial institutions would be required to disclose, 
in the static portion of the short form, the fee types set forth in 
proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7), even if such fees 
are not charged or if those features are not offered in connection with 
a particular prepaid account product. A disclosure regarding whether a 
prepaid account might offer an overdraft service or another type of 
credit feature to a consumer would also

[[Page 77157]]

be disclosed in the static portion of the short form pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(9). In addition, the short form 
would require, in proposed Sec.  1005.18(b)(2)(i)(B)(8), disclosure of 
up to three additional fees most commonly incurred by users of a given 
prepaid account product in the prior 12-month period. This portion of 
the disclosure would vary across prepaid account products. Pursuant to 
proposed Sec.  1005.18(b)(3)(iii)(A), the short form disclosure would 
be in a form substantially similar to the proposed Model Forms A-10(a) 
through (d).
    Depending on the structure of a particular prepaid account, 
however, the Bureau understands that the short form may not capture all 
of a particular prepaid account's fees or explain the conditions under 
which a financial institution might impose those fees. The Bureau's 
consumer testing, however, indicated that when participants were shown 
prototype short forms, most understood that they represented only a 
subset of fee information and that they could potentially be charged 
fees not shown on the form. Further, except in certain retail stores or 
with respect to accounts acquired orally by telephone, under the 
proposed pre-acquisition disclosure regime, a consumer would receive a 
long form disclosure simultaneously with the short form and therefore 
have the opportunity to see all fees associated with a prepaid account 
and any relevant conditions before acquiring a prepaid account.\262\ 
See proposed Sec.  1005.18(b)(1)(i). Further, most testing participants 
did not identify any additional fees that they would like to see listed 
in a short form. The Bureau therefore believes that the proposed short 
form would contain most fees that might be charged in connection with a 
prepaid account, and those fees that are most important for a consumer 
to know in advance of acquiring a prepaid account.
---------------------------------------------------------------------------

    \262\ For prepaid accounts acquired in retail stores or orally 
by telephone, the long form would have to be made available to the 
consumer either electronically or by telephone. See section-by-
section analysis of proposed Sec.  1005.18(b)(1)(ii) and (iii).
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    The Bureau also recognizes that disclosing even this proposed 
subset of fee information on the short form runs the same risk of 
information overload that the Bureau believes could occur if all fees 
were disclosed to a consumer instead of just a subset of fees. The 
Bureau believes, however, based on its consumer testing and other 
research, that incorporating elements of visual hierarchy will mitigate 
these risks. Most importantly, the fee types that would be disclosed 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(1) through (4) in the 
top-line of the short form would use font size and other elements to 
promote readability.\263\ The Bureau is proposing to add comment 
18(b)(2)(i)-1 to explain what a provider should disclose on the short 
form when fees are inapplicable to a particular prepaid account 
product. Specifically, proposed comment 18(b)(2)(i)-1 would explain 
that the disclosures required by proposed Sec.  1005.18(b)(2)(i) must 
always be provided prior to prepaid account acquisition, even when a 
particular disclosure is inapplicable to a specific prepaid account. 
The proposed comment would also provide an example that if a financial 
institution does not charge a fee to a consumer for withdrawing money 
at an ATM in the financial institution's network or an affiliated 
network, which is a type of fee that would be required to be disclosed 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(3), the financial 
institution should list ``ATM withdrawal (in network)'' on the short 
form disclosure and list ``$0'' as the fee. Proposed comment 
18(b)(2)(i)-1 would further clarify that if, however, the financial 
institution does not allow a consumer to withdraw money from ATMs that 
are in the financial institution's network or from those in an 
affiliated network, the financial institution would still have to list 
``ATM withdrawal (in-network)'' and ``ATM withdrawal (out-of-network)'' 
on the short form disclosure but instead state ``not offered'' or ``N/
A.'' The Bureau believes it important that the static portion of the 
short form disclosure would list identical account features and fee 
types across all prepaid account products, to enable consumers to 
quickly determine and compare the potential cost of certain offered 
features.
---------------------------------------------------------------------------

    \263\ See the section-by-section analysis of proposed Sec.  
1005.18(b)(4)(iii).
---------------------------------------------------------------------------

    The Bureau is also proposing to adopt comment 18(b)(2)(i)-2, to 
further explain how to disclose fees and features on the short form 
disclosure. Specifically, the proposed comment would explain that no 
more than two fees could be listed for each fee type required to be 
listed by proposed Sec.  1005.18(b)(2)(i)(B)(2), (3) and (5) in the 
short form disclosure, and that only one fee could be disclosed for 
each fee type required to be listed by proposed Sec.  
1005.18(b)(2)(i)(B)(1), (4), (6), (7) and (8). The proposed comment 
would clarify, however, that proposed Sec.  1005.18(b)(2)(i)(B)(8) 
would require the disclosure of up to three additional fees. Finally, 
the proposed comment would clarify that for example, if a financial 
institution offers more than one method for loading cash into a prepaid 
account, only the fee for the method that would charge the highest fee 
would be disclosed, and the financial institution could use an asterisk 
or other symbol next to the cash reload fee disclosed to indicate that 
the fee may be lower. See section-by-section analysis of proposed 
comment 18(b)(2)(i)(C)-1.
    As discussed in detail above, the Bureau believes that simplicity 
and clarity are important goals of the short form disclosure. Insofar 
as allowing complicated explanations and multiple different fees to be 
disclosed for a particular feature could disrupt those goals, the 
Bureau proposes that for most fees on the short form, a financial 
institution only be permitted to list one fee--the highest fee a 
consumer could incur for a particular activity, as discussed in more 
detail below in the section-by-section analysis of proposed Sec.  
1005.18(b)(2)(i)(C). The Bureau notes that these limitations would only 
apply to the short form disclosure; the financial institution would 
have both the long form disclosure and any other portion of the 
packaging material or Web site to disclose other relevant fees.
    The Bureau also believes there is particular value in maintaining 
simplicity on the short form by limiting the top-line portion of the 
form in order to encourage consumer engagement with the disclosure. 
Thus, the Bureau is proposing to require only four fee types in the 
top-line. For two of those fee types--per purchase fees and ATM 
withdrawal fees--the Bureau is also proposing to require disclosure of 
two fee values. See proposed comment 18(b)(2)(i)-2. The Bureau believes 
that it is important to include two per purchase fees--a per purchase 
fee when a consumer uses a signature and a per purchase fee when a 
consumer uses a PIN--because consumers could potentially incur these 
fees every time they use their prepaid accounts, and the fee could vary 
depending on how a consumer completes the transaction. The Bureau 
believes including two per purchase fees will highlight for consumers 
that the fees for completing a transaction using a personal 
identification number versus the fee for using a signature could 
differ. Similarly, the Bureau believes that it is important to include 
two ATM withdrawal fees in order to highlight that fees for in-network 
and out-of-network transactions may differ and to signal to consumers 
that the product's ATM network may have an impact on the fee incurred, 
which could lead a consumer to seek out more information about the

[[Page 77158]]

relevant network. The Bureau notes that in its testing, some 
participants were confused about the meaning of an ATM network.
    By contrast, the Bureau is proposing to allow only one periodic fee 
and one cash reload fee to be listed in the top-line of the short form. 
The Bureau acknowledges that both of these fees might also vary based, 
for example, on how often a consumer uses a prepaid account or the 
method used to reload cash into a prepaid account. Despite this 
possibility for variation, however, the Bureau believes consumers will 
benefit more from immediately seeing the two ways the per purchase and 
ATM withdrawal fees may vary.
    The Bureau seeks comment on all aspects of this part of the 
proposal. Specifically, the Bureau solicits feedback on whether 
mandating disclosure of inapplicable features on the short form 
disclosure would be unnecessarily confusing to consumers, or whether 
financial institutions will find it difficult to explain elsewhere on a 
prepaid account access device's packaging material or on their Web 
sites that certain features may not be available. In addition, the 
Bureau seeks comment on whether only providing the highest fee on the 
short form disclosure for a given fee type will be misleading to 
consumers, even when financial institutions include a symbol, like an 
asterisk, to indicate the fee amount could vary. The Bureau also seeks 
comment on the proposed type of and number of fees included in the top-
line portion of the form, as discussed further below in the section-by-
section analysis of proposed Sec.  1005.18(b)(4)(iii). Finally, the 
Bureau also solicits comment on whether the cost of purchasing or 
activating a prepaid account should be included on the short form 
disclosure.
18(b)(2)(i)(A) Payroll Card Account Notices
    Pursuant to existing Sec.  1005.10(e)(2), no financial institution 
or other person may require a consumer to establish an account for 
receipt of electronic fund transfers with a particular institution as a 
condition of employment or receipt of a government benefit. See also 
existing comment 10(e)(2)-1 and proposed comment 10(e)(2)-2. The Bureau 
believes it is important for consumers to realize they have the option 
of not receiving payment of wages via a payroll card account, and that 
receiving such notice at the top of the short form disclosure will help 
to ensure consumers are aware of this right. Thus, the Bureau is 
proposing that a notice be provided at the top of the short form for a 
payroll card account to highlight for consumers that they are not 
required to accept a particular payroll card account.
    Specifically, proposed Sec.  1005.18(b)(2)(i)(A) would require 
that, when offering a payroll card account, a financial institution 
must include a statement on the short form that a consumer does not 
have to accept the payroll card account, and that a consumer can ask 
about other methods to get wages or salary from the employer instead of 
receiving them via a payroll card account, in a form substantially 
similar to the language set forth in Model Form A-10(b). The Bureau is 
proposing a similar notice requirement for government benefit accounts. 
Proposed Sec.  1005.18(b)(2)(i)(A) would state that for requirements 
regarding what notice to give a consumer when offering a government 
benefit account, see proposed Sec.  1005.15(c)(2).
18(b)(2)(i)(B) Fees and Other Information
18(b)(2)(i)(B)(1) Periodic Fee
    Proposed Sec.  1005.18(b)(2)(i)(B)(1) would require disclosure of a 
periodic fee charged for holding a prepaid account, assessed on a 
monthly or other periodic basis, using the term ``Monthly fee,'' 
``Annual fee,'' or a substantially similar term. This proposed 
provision is intended to capture regular maintenance fees that a 
financial institution levies on a consumer solely for having a prepaid 
account for a period of time, whether the fee is charged monthly, 
annually, or for some other period of time. A financial institution 
could choose a label for this fee that accurately reflects the relevant 
periodic interval. Pursuant to the formatting requirements in proposed 
Sec.  1005.18(b)(4), a financial institution would be required to 
disclose this fee in the top-line of the short form disclosure.
    The Bureau believes that all prepaid accounts should disclose such 
a periodic fee, or the absence thereof, for several reasons. First, the 
Bureau's analysis of fee data indicates that many prepaid accounts 
charge a recurring fee, typically on a monthly basis. Second, the 
Bureau believes a periodic fee is one that consumers will likely pay no 
matter what other fees they incur because it is imposed for maintaining 
the prepaid account, unless a financial institution offers a way for a 
consumer to avoid that fee (e.g., through the receipt of a regular 
direct deposit or maintaining a certain average daily account balance). 
Those prepaid accounts that do not assess a periodic fee often charge 
other fees instead, typically per purchase fees.\264\ The Bureau 
therefore believes that the lack of a periodic fee is also an important 
feature of a prepaid account that should be included in the top-line to 
allow consumers to more easily identify this trade-off between periodic 
fees and per purchase fees. Third, the Bureau believes that the 
existence of a monthly fee (or lack thereof) is typically a key factor 
in a consumer's decision about whether to acquire a particular prepaid 
account. Additionally, in the Bureau's testing, participants frequently 
cited periodic fees as one of the most important factors influencing 
their decision about which prepaid account product to acquire.
---------------------------------------------------------------------------

    \264\ Per purchase fees are also proposed to be on the top-line 
of the short form. See proposed Sec.  1005.18(b)(2)(i)(B)(2).
---------------------------------------------------------------------------

18(b)(2)(i)(B)(2) Per Purchase Fee
    Proposed Sec.  1005.18(b)(2)(i)(B)(2) would require disclosure of 
two fees for making a purchase using a prepaid account, both for which 
when a consumer uses a personal identification number and when a 
consumer provides a signature, including at point-of-sale terminals, by 
telephone, on a Web site, or by any other means, using the term ``Per 
purchase fee'' or a substantially similar term, and ``with PIN'' or 
``with sig.,'' or substantially similar terms.
    Although the Bureau understands that most prepaid accounts do not 
charge per transaction fees for purchases of goods or services from a 
merchant, some do. When charged, the impact of these fees could be 
substantial for consumers who make multiple purchases. Often these fees 
are charged when periodic fees are not (see proposed Sec.  
1005.18(b)(2)(i)(B)(1)), and thus a consumer may be choosing between a 
prepaid account that has no monthly fee but charges for each purchase 
and a prepaid account that has a monthly fee but no per purchase 
charge. Therefore, the Bureau believes it appropriate for all prepaid 
accounts to disclose on the short form both whether there is a per 
purchase fee and, if so, the fee for making those purchases. The 
Bureau's model forms (see proposed Model Forms A-10(a) through (d)) 
would disclose this amount on the top-line portion of the short form.
    The Bureau further recognizes that a handful of prepaid accounts 
charge a different per purchase fee depending on whether the purchase 
is processed as a signature or PIN transaction. While PIN debit 
transactions require input of the accountholder's PIN code at the time 
of authorization of the transaction, for a signature transaction, the 
accountholder

[[Page 77159]]

may sign for the transaction but does not need to enter his or her PIN 
code. The Bureau is therefore proposing model forms for prepaid 
accounts that disclose both fees for these two authorization methods. 
See proposed Model Forms A-10(a) through (d). Nevertheless, the Bureau 
seeks comment on whether two per purchase fees should be disclosed on 
the short form disclosure. The Bureau also solicits comment on whether 
there are additional per purchase fees beyond using a PIN or a 
signature that the Bureau should consider including in the short form 
disclosure.
18(b)(2)(i)(B)(3) ATM Withdrawal Fees
    Proposed Sec.  1005.18(b)(2)(i)(B)(3) addresses disclosure on the 
short form of ATM fees for withdrawing cash. Specifically, proposed 
Sec.  1005.18(b)(2)(i)(B)(3) would require disclosure of two fees for 
using an ATM to initiate a withdrawal of cash in the United States from 
a prepaid account, both within and outside of the financial 
institution's network or a network affiliated with the financial 
institution, using the term ``ATM withdrawal fee'' or a substantially 
similar term, and ``in-network'' or ``out-of-network,'' or 
substantially similar terms. The Bureau's model forms (see proposed 
Model Forms A-10(a) through (d)) would disclose these ATM withdrawal 
fees on the top-line portion of the short form.
    The Bureau understands that most prepaid accounts have ATM fees 
that differ depending on whether the ATM is in a network of which the 
financial institution that issued the card is a member or an affiliate. 
Typically, prepaid account cards can also be used on other ATM networks 
of which the issuing financial institution is not a member or an 
affiliate. Insofar as accessing these networks often costs the 
financial institution more, they typically charge a higher fee to a 
consumer for using that out-of-network ATM. For example, one current 
prepaid account product charges $0 for in-network ATM withdrawals and 
$2 for ATM withdrawals that occur out-of-network. Given that such 
potential variances are common, the Bureau believes that disclosure of 
fees for both in- and out-of-network ATMs withdrawals is important. 
Although the Bureau notes that many participants during its consumer 
testing were unfamiliar with the difference between ``in-network'' and 
``out-of-network,'' the Bureau believes the inclusion of these two fees 
on the top-line of the proposed short form would highlight for 
consumers that such fee variations can occur and the importance of 
understanding the ATM network associated with a particular prepaid 
account product.
    Nevertheless, the Bureau seeks comment on whether disclosure of 
additional information regarding ATM withdrawal fees and ATM networks 
is necessary on the short form. Specifically, the Bureau solicits 
comment on whether the in- versus out-of network distinction makes 
sense for prepaid accounts. The Bureau also solicits comment on whether 
there are additional types of ATM withdrawal fees (other than foreign 
ATM withdrawal fees, which are discussed below) that should be included 
in the short form. For example, the Bureau is aware that some financial 
institutions impose different ATM withdrawal fees on ATMs that are 
``bank-owned.''
    Proposed comment 18(b)(2)(i)(B)(3)-1 would clarify that if the fee 
imposed on the consumer for using an ATM in a foreign country to 
initiate a withdrawal of cash is different from the fee charged for 
using an ATM in the United States within or outside the financial 
institution's network or a network affiliated with the financial 
institution, a financial institution would not disclose the foreign ATM 
fee pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(3), but may be 
required to do so pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8), as 
part of the incidence-based fee disclosure.
18(b)(2)(i)(B)(4) Cash Reload Fee
    Proposed Sec.  1005.18(b)(2)(i)(B)(4) would require disclosure of a 
fee for loading cash into a prepaid account using the term ``Cash 
reload'' or a substantially similar term. Cash reloads are one of the 
primary ways for a consumer to add funds to a prepaid account. As such, 
the Bureau believes that the existence of a cash reload service and the 
amount of any fee for using such a service, if any, is important for 
consumers to know insofar this is a key feature of many prepaid 
accounts. Further, the Bureau's model forms (see proposed Model Forms 
A-10(a) through (d)) would disclose the cash reload fee on the top-line 
of the short form disclosure as described in the section-by-section 
analysis of proposed Sec.  1005.18(b)(4)(i).
    The Bureau also proposes to adopt new comment Sec.  
1005.18(b)(2)(i)(B)(4)-1, which would provide guidance on what would be 
considered a cash reload fee. Specifically, the proposed comment would 
explain that the cash reload fee, for example, would include the cost 
of adding cash at a point-of-sale terminal, or the cost of purchasing 
an additional card or other device on which cash is loaded and then 
transferred into a prepaid account, or any other method a consumer may 
use to load cash into a prepaid account. This proposed comment would 
also clarify that if a financial institution offers more than one 
method for a consumer to load cash into the prepaid account, proposed 
Sec.  1005.18(b)(2)(i)(C) would require that it only disclose the 
highest fee on the short form. The Bureau notes that consumers may 
incur additional third party fees when loading cash onto a card or 
other access device; these expenses are typically not controlled by the 
financial institution or program manager and instead are charged by the 
entity selling the cash reload product. Such fees would not be 
incorporated into the proposed short form disclosure. See proposed 
comment Sec.  1005.18(b)(2)(i)(C)-2. The Bureau notes, however, that, 
pursuant to proposed comment 18(b)(2)(ii)(A)-3, fees imposed by third 
parties acting as an agent of the financial institution would always 
have to be disclosed in the long form.
    The Bureau considered requiring financial institutions to list on 
the short form disclosure both cash reload methods discussed in 
proposed comment 18(b)(2)(i)(B)(4)-1: Loads via a point-of-sale 
terminal and loads via an additional card or other device. The Bureau 
recognizes that many prepaid accounts make both methods available to 
consumers and only allowing providers to list the fee for the method 
that imposes the highest fee could confuse consumers about which 
methods are available, and inhibit their ability to accurately estimate 
the fees they will incur based on the method they most commonly 
utilize. The Bureau, however, believes it is important to limit the 
amount of information on the short form disclosure to maintain its 
simplicity in order to facilitate consumer understanding of the 
information that is included. Further, in testing, the Bureau found 
that participants consistently understood a disclosure containing a 
single cash reload fee, and therefore the Bureau does not believe it is 
as important to include two fees for this fee type. Although the Bureau 
is proposing to allow only the highest cash reload fee to be disclosed 
in the short form, however, financial institutions would be able to use 
an asterisk or other symbol pursuant to proposed Sec.  
1005.18(b)(2)(i)(C) discussed below (in addition to any other part of 
the packaging material or Web site) to indicate when more than one 
method exists for reloading cash into a prepaid account.

[[Page 77160]]

18(b)(2)(i)(B)(5) ATM Balance Inquiry Fees
    Directly below the proposed top-line disclosure in the short form 
disclosure, the Bureau proposes to include balance inquiry fees charged 
by the financial institution for inquiring into the prepaid account's 
balance at an ATM. Specifically, proposed Sec.  1005.18(b)(2)(i)(B)(5) 
would require disclosure of two fees for using an ATM to check the 
balance of a consumer's prepaid account, both within and outside of the 
financial institution's network or a network affiliated with the 
financial institution, using the term ``ATM balance inquiry'' or a 
substantially similar term, and ``in-network'' or ``out-of-network,'' 
or substantially similar terms.
    As discussed above regarding disclosure of ATM withdrawal fees the 
Bureau believes it is important for consumers to know that different 
fees could be imposed when requesting balance inquiries at an ATM in a 
financial institution's network or outside of the network. The Bureau, 
however, does believe it is less common for consumers to initiate ATM 
balance inquiries transactions compared to withdrawals at ATMs, and 
thus, the Bureau is not proposing to include the two balance-inquiry 
fees in the top-line of the short form disclosure. Nevertheless, the 
Bureau seeks comment on whether consumers incur ATM balance inquiry 
fees frequently enough to justify including these fees in the top-line 
of the short form disclosure.
    Proposed comment 18(b)(2)(i)(B)(5)-1 would clarify that if the fee 
imposed on a consumer for using an ATM in a foreign country to check 
the balance of a consumer's prepaid account is different from the fee 
charged for using an ATM within or outside the financial institution's 
network or a network affiliated with the financial institution in the 
United States, a financial institution would not disclose the foreign 
ATM balance inquiry fee pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(5), but could be required to do so by proposed 
Sec.  1005.18(b)(2)(i)(B)(8), discussed below.
18(b)(2)(i)(B)(6) Customer Service Fee
    Proposed Sec.  1005.18(b)(2)(i)(B)(6) would require disclosure on 
the short form of any fee for calling the financial institution or its 
service provider, including an interactive voice response system, about 
a consumer's prepaid accounts using the term ``Customer service fee'' 
or a substantially similar term. The Bureau believes that many 
consumers regularly have issues with their prepaid accounts that 
require talking to a customer service agent by telephone. The Bureau 
also believes that some providers impose fees for making such a call. 
Additionally, several participants in testing reported having incurred 
such customer service fees. For these reasons, the Bureau believes that 
the short form disclosure should include this fee. This disclosure 
would be required even if the financial institution did not charge such 
a fee. See proposed comment 18(b)(2)(i)-1.
18(b)(2)(i)(B)(7) Inactivity Fee
    Proposed Sec.  1005.18(b)(2)(i)(B)(7) would require disclosure of a 
fee for non-use, dormancy, or inactivity on a prepaid account, using 
the term ``Inactivity fee'' or a substantially similar term, as well as 
the duration of inactivity that triggers a financial institution to 
impose such an inactivity fee.\265\ The Bureau believes that many 
financial institutions charge consumers fees when they do not use their 
prepaid account for a specified period of time. The Bureau believes 
disclosure of these fees is important insofar as consumers sometimes 
acquire a prepaid account for occasional use; such consumers may want 
to know that a particular prepaid account product charges fees for 
inactivity.\266\ Thus, the Bureau is proposing that financial 
institutions disclose the existence, duration, and amount of inactivity 
fees, or that no such fee will be charged, as part of the static 
portion of the short form disclosure. The Bureau notes, however, that, 
as with all the disclosures in the short form, the requirement to 
disclose a particular fee type is not an endorsement of the practice of 
imposing such a fee.
---------------------------------------------------------------------------

    \265\ The Bureau understands that some States bar or limit 
inactivity fees, and nothing in this portion of the proposal is 
meant to preempt any applicable State laws.
    \266\ In testing, several participants mentioned only using 
their prepaid cards occasionally.
---------------------------------------------------------------------------

    The Bureau, however, also believes that a lower inactivity fee may 
correlate with a prepaid account product imposing a higher monthly 
periodic fee on a consumer. Thus, a consumer who uses a prepaid account 
only sporadically, but often enough to not reach the dormancy period 
that would trigger the inactivity fee, might actually incur higher fees 
if they shop based on the inactivity fee instead of the monthly 
periodic fee. The Bureau considered whether the risk of potential 
confusion to a consumer outweighs the benefit of including the 
inactivity fee on the short form disclosure, but believes that 
providing consumers with the inactivity fee amount and the relevant 
duration of dormancy will allow consumers to make an informed choice 
about which prepaid account product is best for their usage patterns.
    Proposed comment 18(b)(2)(i)(B)(7)-1 would clarify that when a 
financial institution is disclosing the inactivity fee in the long form 
disclosure pursuant to proposed Sec.  1005.18(b)(2)(ii)(A), a financial 
institution should specify whether this inactivity fee is imposed in 
lieu of or in addition to the periodic fee disclosed pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(1).
    The Bureau seeks comment on all aspects of this part of the 
proposal. Specifically, the Bureau seeks comment on including the 
inactivity fee as part of the static portion of the short form 
disclosure could confuse consumers, and whether it is important to 
communicate the potential relationship between inactivity fees and 
monthly periodic fees more clearly on the short form disclosure.
18(b)(2)(i)(B)(8) Incidence-Based Fee Disclosures
    In addition to the fee types that all financial institutions would 
have to disclose in the static portion of the short form pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7), the Bureau is 
proposing that financial institutions would also disclose up to three 
additional ``incidence-based'' fees not already disclosed elsewhere on 
the short form that are incurred most frequently for that particular 
prepaid account product. If a financial institution offers several 
prepaid account products, the incidence-based fees analysis would be 
conducted separately for each product, based on usage patterns in the 
prior 12-month period. Thus, the incidence-based fees provided to a 
consumer on the short form disclosure could vary from one product to 
the next depending on which fees consumers incurred most frequently for 
a particular prepaid account product.
    The Bureau is proposing this disclosure because it is concerned 
that, while the fee types disclosed in the static portion of the short 
form under the proposed rule should generally include the key fees on 
most prepaid accounts, that list is not comprehensive and there could 
be other fees that consumers might incur with some frequency. The 
Bureau is also concerned that absent this incidence-based disclosure, 
there is a risk of evasion. For example, a financial institution could 
restructure its fee schedule for a prepaid account product to make the 
fees disclosed in the static portion of the

[[Page 77161]]

short form pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(1) through 
(7) cheaper, knowing they would not be the fees that consumers would 
most frequently pay. The Bureau believes that requiring financial 
institutions to disclose other fees that are frequently paid by 
consumers will limit the ability of financial institutions to evade 
disclosing relevant fee information upfront on the short form 
disclosure. Additionally, the Bureau believes that the incidence-based 
portion of the short form, though it does mandate a specific metric to 
determine which additional fees may be listed, would also provide some 
flexibility to industry participants to disclose three more fee types 
that might be particular to their prepaid account product and are 
imposed for features that could be appealing to consumers.
    Accordingly, the Bureau is proposing Sec.  1005.18(b)(2)(i)(B)(8), 
which would establish a three-part provision to determine which 
incidence-based fees a financial institution must include on its short 
form disclosures. First, proposed Sec.  1005.18(b)(2)(i)(B)(8)(I) would 
require, except as provided in proposed Sec.  
1005.18(b)(2)(i)(B)(8)(II) or (III), disclosure of up to three fees, 
other than any of those disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (7), that were incurred most frequently 
in the prior 12-month period by consumers of that particular prepaid 
account product.
    Thus, for existing prepaid account products, proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I) would require that at the same time each 
year, a financial institution assess whether the incidence-based fees 
disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8)(I) were the 
most frequently incurred fees in the prior 12-month period, in 
accordance with the timing requirements of proposed Sec.  1005.18(h). 
Proposed Sec.  1005.18(b)(2)(i)(B)(8)(I) would further require that the 
financial institution would then have to, if necessary and within 90 
days, revise the incidence-based fees on disclosures provided in 
written or electronic form pursuant to proposed Sec.  1005.18(b)(1)(i). 
Disclosures provided on the packaging material of prepaid account 
access devices, for example, in retail stores pursuant to proposed 
Sec.  1005.18(b)(1)(ii), or in other locations, must be revised when 
the financial institution is printing new packaging material for its 
prepaid account access devices, in accordance with the timing 
requirements in proposed Sec.  1005.18(h). Proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I) would also require that all disclosures 
provided pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8)(I) and 
created after a financial institution makes an incidence-based fee 
assessment and determines changes are necessary, would have to include 
such changes in accordance with the timing requirements in proposed 
Sec.  1005.18(h). This final requirement in proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I) would apply to all disclosures, whether in 
written or electronic form, or on the packaging material of a prepaid 
account product sold in a retail store.
    The Bureau believes that it is important for the incidence-based 
fee disclosure to list a prepaid account product's most commonly 
incurred fees. The Bureau, however, recognizes that financial 
institutions would need time to update disclosures upon assessing 
whether any changes to the incidence-based fee disclosure are needed, 
although it expects such changes to be infrequent. The Bureau believes 
such updates will be easier for disclosures provided in electronic form 
or in written form outside of a retail setting. Thus, the Bureau is 
proposing that financial institutions would have to make written and 
electronic updates within 90 days to ensure that consumers receive up-
to-date incidence-based fee disclosures. The Bureau, however, 
recognizes that it could be more complicated and time-consuming for 
financial institutions to make updates to packages used to market 
prepaid accounts in retail stores, and is therefore proposing that 
financial institutions would be able to implement updates on packaging 
material whenever they are printing new stock during normal inventory 
cycles. The Bureau acknowledges that this proposal could result in some 
disclosures for the same prepaid account product (i.e., electronic 
disclosures provided online or printed disclosures provided in person 
without the use of packaging) having different incidence-based fee 
disclosures on the short forms provided on retail store packaging 
material. The Bureau, however, does not believe that this discrepancy 
will significantly impact a consumer's decision regarding which prepaid 
account product to acquire since consumers will most likely compare the 
disclosures for two distinct products, and not consider disclosures for 
the same prepaid account product found in different acquisition 
channels.
    The Bureau also recognizes that allowing financial institutions to 
continue to use packaging with out-of-date incidence-based fee 
disclosure in retail stores could reduce the effectiveness of this 
disclosure. The Bureau, however, believes that imposing a cut-off date 
after which sale or distribution of out-of-date retail packages would 
be prohibited could be overly burdensome. Nevertheless, the Bureau 
seeks comment about whether not including such a cut-off date would 
negatively impact consumers in a significant way.
    Though the Bureau is not proposing specific package update 
requirements for the incidence-based fee disclosure, the Bureau notes, 
however, that financial institutions generally must ensure all other 
fee types and amounts disclosed pre-acquisition, whether on retail 
packaging, online, or through other means, are accurate at the time 
such disclosures are provided. The Bureau, therefore, does not believe 
that a general disclosure update requirement is necessary for non-
incidence-based fee disclosures provided before a consumer acquires a 
prepaid account, as a financial institution must continue to honor 
whatever fee schedule it provides a consumer.
    The Bureau is also proposing to adopt several comments to provide 
additional guidance on incidence-based fee disclosures. First, proposed 
comment 18(b)(2)(i)(B)(8)-1 would clarify how many additional fees a 
financial institution must disclose pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I) and when disclosure of fewer than three 
incidence-based fees would be permitted. Specifically, the proposed 
comment would explain that if a prepaid account product only has one, 
two or three fees not already disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (7), proposed Sec.  
1005.18(b)(2)(i)(B)(8) would require disclosure of these fees assuming 
it was incurred by a consumer at least once during the prior 12-month 
period. Proposed comment 18(b)(2)(i)(B)(8)-1 would also clarify that, 
conversely, if a prepaid account has four fees not already disclosed 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7), proposed 
Sec.  1005.18(b)(2)(i)(B)(8)(I) would require disclosure of the three 
fees most frequently incurred. Finally, the proposed comment would 
clarify that if the disclosures made pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (7) capture a prepaid account product's 
entire fee schedule, a financial institution has no obligation to 
disclose additional information on the short form pursuant to proposed 
Sec.  1005.18(b)(2)(i)(B)(8)(I).
    The Bureau also proposes to add comment 18(b)(2)(i)(B)(8)-2, which 
would clarify how to determine which fees were incurred most frequently 
in the prior 12-month period. Specifically, the proposed comment would 
explain

[[Page 77162]]

that incidence should be considered on a total basis across all 
consumers using a particular prepaid account product. The proposed 
comment would further clarify that, for example, if a given consumer 
incurred one fee type ten times during the prior 12-month period, all 
ten instances of that individual consumer's paying such a fee would be 
factored into the total incidence calculation for that fee type. The 
proposed comment would also clarify that if a financial institution 
offers more than one prepaid account product, it would have to consider 
a consumers' fee incidence for each product separately and not 
consolidate the fee incidence across all of its prepaid account 
products. Finally, the proposed comment would clarify that the price 
for purchasing or activating a prepaid account could be an incidence-
based fee for purposes of proposed Sec.  1005.18(b)(2)(i)(B)(8).
    Proposed comment 18(b)(2)(i)(B)(8)(I)-3 would provide guidance on 
the relationship between proposed Sec.  1005.18(b)(2)(i)(B)(8)(I) and 
the proposed effective date regime in proposed Sec.  1005.18(h). 
Specifically, the proposed comment would explain that Sec.  
1005.18(h)(2) further requires a financial institution to make its 
first incidence-based fee assessment in time to ensure that all prepaid 
accounts and related packaging material, access devices, and physical 
other materials, that are offered, sold, or otherwise made available to 
consumers in connection with a prepaid account include the incidence-
based disclosure within 12 months. The proposed comment would also 
clarify that if a financial institution creates new disclosures within 
nine months of the effective date, those disclosures would need to 
include the appropriate incidence-based fee disclosure in accordance 
with proposed Sec.  1005.18(h)(1). Proposed comment 
18(b)(2)(i)(B)(8)(I)-4 would explain how to disclose incidence-based 
fees for those prepaid account products that give consumers the 
opportunity to choose among multiple service plans with different fee 
schedules.\267\ Specifically, the proposed comment would explain that 
when disclosing multiple service plans on a short form disclosure as 
permitted by proposed Sec.  1005.18(b)(3)(iii)(B) (discussed below), a 
financial institution must consider the frequency with which fees are 
incurred from all of those plans as a whole to determine which three 
additional fees to disclose pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I). The Bureau recognizes that it is possible 
the most commonly incurred fees among all of the multiple service plans 
could also be one of the fees that varies in amount depending on the 
service plan selected by a consumer. But the Bureau believes it is 
unlikely because the short form will capture most fees charged by most 
prepaid account providers, and the multiple service plans, when 
available, will only have those plans fee schedules vary based on a 
couple of fee types--typically, the periodic fee and the per purchase 
fees, both of which are already required to be disclosed for each 
service plan. Thus, the Bureau believes it is unlikely that one of the 
remaining fees that could qualify for the incidence-based fee 
requirement would vary across service plans. The Bureau, however, seeks 
comment on whether it is actually the case that most prepaid account 
products offering multiple service plans only vary based on a couple of 
fee types. If, however, the financial institution is disclosing the fee 
schedule for only the service plan in which a consumer is enrolled by 
default upon acquiring the prepaid account, the proposed comment would 
further clarify that it would consider only the fee incidence for that 
service plan . The proposed comment would also reference that proposed 
comment 18(b)(3)(iii)(B)-1 provides guidance on what would constitute 
multiple service plans. Proposed comment 18(b)(2)(i)(B)(8)(I)-5 would 
explain that proposed Sec.  1005.18(b)(2)(i)(B)(8)(I) would not require 
that financial institutions immediately destroy existing inventory in 
retail stores or elsewhere in the distribution channel, to the extent 
the disclosures on such packaging materials are otherwise accurate, to 
comply with proposed Sec.  1005.18(b)(2)(i)(B)(8)(I). The proposed 
comment would further clarify that for example, if a financial 
institution determines that an incidence-based fee listed on a short 
form disclosure in a retail store is no longer one of the most commonly 
incurred fees and makes the appropriate change when printing new 
disclosures, any packages in retail stores that contain the previous 
incidence-based fee disclosure could still be sold and the financial 
institution would comply with proposed Sec.  1005.18(b)(2)(i)(B)(8)(I).
---------------------------------------------------------------------------

    \267\ See section-by-section analysis of Sec.  
1005.18(b)(3)(iii)(B) and comment 18(b)(3)(iii)(B)-1 for a more 
detailed discussion of how the Bureau defines multiple service plans 
for prepaid account products under the proposed pre-acquisition 
disclosure regime.
---------------------------------------------------------------------------

    18(b)(2)(i)(B)(8)(II). Recognizing that new prepaid products have 
no prior fee data history, the Bureau is also proposing additional 
requirements to address such circumstances. Thus, proposed Sec.  
1005.18(b)(2)(i)(B)(8)(II) would require that, if a particular prepaid 
account product was not offered by the financial institution during the 
prior 12-month period, the financial institution would have to disclose 
up to three fees other than any of those fees disclosed pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7) that it reasonably 
anticipates will be incurred by consumers most frequently during the 
next 12-month period. Proposed Sec.  1005.18(b)(2)(i)(B)(8)(II) would 
also provide that the incidence-based fee disclosures for newly-created 
prepaid account products would have to be included on all disclosures 
created for the prepaid account product, whether the disclosure is 
written, electronic, or on the packaging material of a prepaid account 
product sold in a retail store, in accordance with the timing 
requirements in proposed Sec.  1005.18(h). Although financial 
institutions do not have actual fee data for new prepaid account 
products, the Bureau believes that they nonetheless would have a 
reasonable expectation as to which fees will be incurred most 
frequently. Thus, proposed Sec.  1005.18(b)(2)(i)(B)(8)(II) would 
require institutions, for those prepaid account products without prior 
fee data, to estimate in advance the fees that should be disclosed in 
the incidence-based portion of the short form disclosure.
    The Bureau proposes to add commentary and provide examples 
explaining how to apply proposed Sec.  1005.18(b)(2)(i)(B)(8)(II) in 
situations where a financial institution has inadequate data regarding 
a prepaid account's fee history. Specifically, proposed comment 
18(b)(2)(i)(B)(8)(II)-1 would explain that the provider should use 
available data to reasonably anticipate what fees should be disclosed. 
The proposed comment would also provide guidance about what is 
considered a new prepaid account product. Specifically, the proposed 
comment would clarify that, for example, if a financial institution 
changes the name of its prepaid account product and develops a new 
marketing and distribution plan but does not alter the prepaid 
account's fee schedule, this would be considered a new prepaid account 
product for purposes of proposed Sec.  1005.18(b)(2)(i)(B)(8)(II); 
however, insofar as the fee schedule remains unchanged, and the 
financial institution reasonably anticipates that the fees it 
previously disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I) would remain unchanged, the financial 
institution should continue to disclose those fees for an additional 
12-month period.

[[Page 77163]]

    1005.18(b)(2)(i)(B)(8)(III). The Bureau is also proposing to add 
additional requirements for when a particular prepaid account product's 
fee schedule changes. Specifically, proposed Sec.  
1005.18(b)(2)(i)(B)(8)(III) would require that if a financial 
institution changes an existing prepaid account product's fee schedule 
at any point after assessing its incidence-based fee disclosure 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8)(I), it would have to 
determine whether, after making such changes, it reasonably anticipates 
that the existing incidence-based fee disclosure would represent the 
most commonly incurred fees for the remainder of the current 12-month 
period. If the financial institution reasonably anticipates that the 
current incidence-based fee disclosure would not represent the most 
commonly incurred fees for the remainder of the current 12-month 
period, it would have to update the incidence-based fee disclosure 
within 90 days for disclosures provided in written or electronic form, 
in accordance with the timing requirements in proposed Sec.  
1005.18(h).
    Proposed Sec.  1005.18(b)(2)(i)(B)(8)(III) would also state that 
disclosures provided on a prepaid account product's packaging material, 
for example, in retail stores pursuant to proposed Sec.  
1005.18(b)(1)(ii), or in other locations, must be revised when the 
financial institutions is printing new packaging material, in 
accordance with the timing requirements of proposed Sec.  1005.18(h). 
Finally, proposed Sec.  1005.18(b)(2)(i)(B)(8)(III) would also state 
that all disclosures provided pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8)(III) and created after a financial institution 
makes an incidence-based fee assessment and determines changes are 
necessary must include such changes, in accordance with the timing 
requirements of proposed Sec.  1005.18(h). Proposed comment 
18(b)(2)(i)(B)(8)(III)-1 would also provide several examples of 
demonstrate how different changes to an existing prepaid account 
product could impact the incidence-based fee disclosure. Specifically, 
the proposed comment would explain that, for example, if a financial 
institution changes its card replacement fee from $3.00 to $4.00 in May 
after already assessing in January whether the incidence-based fees 
need to be updated for the current 12-month period, this change in the 
fee schedule would subject the prepaid account product to proposed 
Sec.  1005.18(b)(2)(i)(B)(8)(III). The proposed comment would further 
explain that, in this example, the financial institution would assess 
whether it reasonably anticipates that the existing incidence-based fee 
disclosure still lists what will be the most commonly incurred fees 
from May until the following January when the financial institution 
would conduct its next, annual incidence-based fees assessment.
    The Bureau notes that its proposed model forms do not isolate or 
identify these incidence-based fees in a way that distinguishes them 
from the other fees disclosed under proposed Sec.  
1005.18(b)(2)(i)(B)(5)-(7) that are not required to be in the top-line. 
Thus, a consumer comparing two different prepaid account products may 
see some types of fees that are the same (the seven standardized fees 
disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(1)-(7)) and 
may see some that differ (the three incidence-based fees disclosed 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8)). During its consumer 
testing, the Bureau tested language identifying the incidence-based 
fees as such, but this language was often ignored or misunderstood by 
participants. Nevertheless, the Bureau recognizes that some variation 
on the short form fee disclosure could lead to confusion, and thus the 
Bureau seeks comment on whether the model forms should more clearly 
indicate to a consumer the meaning of the incidence-based fees.
    The Bureau also recognizes that the proposed procedure for 
determining and disclosing incidence-based fees could be complicated in 
some instances, particularly for new prepaid accounts or those with 
revised fee schedules. Further, the Bureau acknowledges that basing the 
incidence-based fees determination on fee incidence might not make 
sense for all prepaid products. Thus, the Bureau seeks comment on all 
aspects of this incidence-based fees proposal. Specifically, the Bureau 
solicits feedback on whether other measures, such as fee revenue, would 
be better measures of the most important remaining fees to disclose to 
consumers considering a prepaid account. Relatedly, the Bureau seeks 
comment on whether there should be a de minimis threshold below which 
changes to the incidence ranking would not require form revisions, and 
if so, what that threshold should be. Such comments would be most 
useful if aided by data supporting the suggested threshold. The Bureau 
also seeks comment on how often financial institutions should be 
required to update the incidence-based fees disclosures, whether 
financial institutions should have to all conduct their incidence-based 
fee assessment at the same time in the 12-month period, and whether the 
timing requirements for updates to electronic and written disclosures 
versus those provided on retail packaging should be different. 
Additionally, under the current proposal, a financial institution would 
have to consider the cost of purchasing or activating the prepaid 
account as a fee when determining its incidence-based fee disclosure, 
but the Bureau is not otherwise mandating its disclosure in the short 
form disclosure.\268\ The Bureau also seeks comment on whether the cost 
to purchase the account, as a one-time fee, should be excluded from the 
incidence-based fee disclosure or whether it should be mandated as part 
of the static portion of the short form. The Bureau also solicits 
comment on whether there are alternate approaches for disclosing key 
fees not captured by the standardized portion of the short form that 
recognize how products may vary and that would prevent evasion of the 
short form's requirements.
---------------------------------------------------------------------------

    \268\ The Bureau notes, however, that this fee, when applicable, 
would be listed in the long form disclosure pursuant to proposed 
Sec.  1005.18(b)(2)(ii)(A).
---------------------------------------------------------------------------

18(b)(2)(i)(B)(9) Overdraft Services and Other Credit Features
    The Bureau is proposing that the short form disclosure would also 
have to include a statement indicating whether the prepaid account 
product could offer a credit feature to a consumer. Specifically, 
proposed Sec.  1005.18(b)(2)(i)(B)(9) would require a statement on the 
short form that credit-related fees may apply, in a form substantially 
similar to proposed Model Form A-10(c), if, at any point, a credit plan 
that would be a credit card account under Regulation Z, 12 CFR part 
1026 may be offered in connection with the prepaid account. Proposed 
Sec.  1005.18(b)(2)(i)(B)(9) would also state that such a credit plan 
could be accessed by a credit card under Regulation Z, 12 CFR 
1026.2(a)(15)(i), that also is an access device that accesses the 
prepaid account, or the credit plan could be accessed by an account 
number that is a credit card under Regulation Z, where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor offering the plan. Finally, 
proposed Sec.  1005.18(b)(2)(i)(B)(9) would state that if neither of 
these two types of credit plans would be offered in connection with the 
prepaid account at any point, a financial institution would have to 
disclose on the short form a statement that no overdraft or credit-
related fees

[[Page 77164]]

would be charged, in a form substantially similar to proposed Model 
Form A-10(d) in Appendix A.
    In the Bureau's consumer testing, many participants expressed a 
desire to avoid using any financial products that offer overdraft. 
Further, the 2014 Pew Survey indicates that many consumers turn to 
prepaid cards specifically to avoid incurring any overdraft 
charges.\269\ The Bureau therefore believes that if a financial 
institution may offer a credit feature, then a consumer should be on 
notice of this possibility before acquiring the prepaid account. The 
Bureau believes that placing such notice on the short form would allow 
a consumer to decide whether they want to acquire a product that may 
offer credit, or whether they would prefer a product that would not 
offer credit, which, when applicable would also be disclosed in a 
statement on the short form disclosure. Without such a notice, the 
Bureau believes that consumers may not have adequate information to 
decide which prepaid product is best for them. The Bureau recognizes, 
however, that receiving notice about credit features on the short form 
disclosure might be confusing to consumers, since the Bureau is 
proposing to prohibit financial institutions from offering credit 
features to prepaid account holders until they have held an account for 
at least thirty days, and not all account holders would qualify for 
such credit features.\270\ See proposed Sec. Sec.  1005.18(g) and 
1026.12(h). The Bureau, however, believes that the importance of 
alerting all consumers as to whether a prepaid account product could 
offer credit features outweighs any risk of confusion. The Bureau 
nevertheless seeks comment on all aspects of this part of the proposal, 
and, in particular, whether including notice of credit features on the 
short form disclosure is the proper approach.
---------------------------------------------------------------------------

    \269\ 2014 Pew Study, at 1.
    \270\ For a more detailed discussion of the Bureau's approach to 
credit features offered on prepaid accounts, see the introduction to 
the TILA discussion.
---------------------------------------------------------------------------

    Proposed comment (b)(2)(i)(B)(9)-1 would explain that the statement 
indicating whether a prepaid account product offers credit plans to a 
consumer would have to be provided on all short form disclosures, 
regardless of whether some consumers would be solicited to enroll in 
such a plan, if such a plan could be offered.
    The Bureau solicits comment on all aspects of the requirement to 
include a statement on the availability of credit features, including 
whether such statements should be required to be disclosed on the short 
form, and what statements would be most helpful for consumers in 
deciding between products that offer credit features and those that do 
not.
18(b)(2)(i)(B)(10) Statement Regarding Other Fees
    In addition to disclosure of specific fee types and a credit 
feature, the short form would also require, in proposed Sec.  
1005.18(b)(2)(i)(B)(10) disclosure of certain information regarding 
additional fees that a financial institution could impose on a prepaid 
account that are not captured in the short form. Specifically, proposed 
Sec.  1005.18(b)(2)(i)(B)(10) would require financial institutions to 
include on the short form a statement regarding the number of fees 
other than those listed in the short form pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (8) that are listed on the long form 
disclosure pursuant to proposed Sec.  1005.18(b)(2)(ii)(A), in a form 
substantially similar to the clause set forth in appendix A-10(a) 
through (d). The Bureau believes that because the short form may only 
include a subset of a prepaid account's fees, it would be important for 
consumers to understand when more fees might apply. As noted earlier, 
many participants in the Bureau's consumer testing reported finding out 
about fees only after they incur them. The Bureau believes that 
including a statement on the short form disclosure indicating exactly 
how many additional fees could apply to encourage consumers to seek out 
more information about a prepaid account before acquisition.
    The Bureau recognizes, however, that this statement might suggest 
any other fees that apply are punitive when in fact such fees might be 
charged for services a consumer could find beneficial, and that might 
not be offered on competing cards. Nevertheless, the Bureau solicits 
comment on whether including this type of statement on the short form 
would be useful to consumers or if, instead, it might interfere with 
their ability to make an informed choice among prepaid accounts.
    Unlike the incidence-based fees, the Bureau does not believe it is 
necessary to propose provisions about updating the statement regarding 
other fees. Pursuant to proposed Sec.  1005.18(f), a financial 
institution would have to include the long form disclosure in the terms 
and conditions provided as part of a prepaid account's terms and 
conditions. Thus, any updates that are made to the fees disclosed in 
the long form would require an overhaul of all of the disclosures for a 
given prepaid account product, which the Bureau believes is unlikely to 
occur. The Bureau also seeks comment, however, on whether guidance 
around updating this statement is necessary.
    Proposed comment 18(b)(2)(i)(B)(10)-1 would provide examples of how 
to comply with proposed Sec.  1005.18(b)(2)(i)(B)(10). Specifically, 
the proposed comment would clarify that if a financial institution 
charges a fee for issuing a consumer a replacement card, but this fee 
is not among the top three fees its consumers incurred most frequently 
during the prior 12-month period and therefore would not be disclosed 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8), and if this would be 
the only fee the financial institution would not be required to 
disclose elsewhere on the short form, then the financial institution 
would include a statement on the short form disclosure that it may 
charge one other fee not otherwise listed, in a form substantially 
similar to the language set forth in the Model Forms in proposed 
appendix A-10(a) through (d) of this part. The proposed comment would 
also provide an example that if a financial institution does not charge 
any fees other than those required to be disclosed pursuant to proposed 
Sec.  1005.18(b)(2)(i)(B)(1) through (8), the financial institution 
may, but is not required to, include a statement on the short form 
disclosure that it does not charge any other fees not listed on the 
short form disclosure.
    Proposed comment 18(b)(2)(i)(B)(10)-2 would provide guidance about 
how to count the total number of fees to disclose pursuant to proposed 
Sec.  1005.18(b)(2)(i)(B)(10). Specifically, the proposed comment would 
clarify that if the fee a financial institution imposes might vary, 
even if the variation is based on a consumer's choice of how to utilize 
a particular service, the financial institution must count each 
variation of the fee that might be imposed as a separate fee. The 
proposed comment would further explain that for example, if a financial 
institution imposes one fee to issue a replacement card to the consumer 
using standard mail service, but charges a different (and perhaps 
higher) fee if the consumer requests expedited delivery of the 
replacement card, and neither of these fees are incurred frequently 
enough to be disclosed as an incidence-based fee pursuant to proposed 
Sec.  1005.18(b)(2)(i)(B)(8), then the financial institution would 
still count each of these fees separately when determining the total 
number of fees to disclose pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(10). Even if a fee

[[Page 77165]]

could be waived under certain conditions, the proposed comment 
clarifies that it would still be counted to comply with proposed Sec.  
1005.18(b)(2)(i)(B)(10).
    Nevertheless the Bureau seeks comment on whether this guidance is 
sufficient to enable compliance with Sec.  1005.18(b)(2)(i)(B)(10). The 
Bureau also solicits comment on whether its proposed approach to 
addressing fee amount variations when counting the number of other fees 
could actually be misleading to the consumer.
18(b)(2)(i)(B)(11) Telephone Number and Web site
    Proposed Sec.  1005.18(b)(2)(i)(B)(11) would require disclosure, in 
a form substantially similar to the language set forth in the Model 
Forms in proposed appendix A-10(c) and (d), of a telephone number and 
the unique URL of a Web site that a consumer may enter to access the 
long form disclosure required under proposed Sec.  1005.18(b)(2)(ii). 
Proposed Sec.  1005.18(b)(2)(i)(B)(11) would also state that this 
disclosure would be required only when a financial institution chooses 
not to provide a written form of the disclosures required by proposed 
Sec.  1005.18(b)(2)(ii) before a consumer acquires a prepaid account at 
a retail store as described in proposed Sec.  1005.18(b)(1)(ii). The 
Bureau believes that using either of these methods, a consumer should 
be able to access information about the fees listed in the long form 
disclosure, and any conditions on the applicability of those fees, as 
described in the section-by-section analysis of proposed Sec.  
1005.18(b)(2)(ii)(A). As discussed above, the Bureau believes that if a 
consumer is not receiving the long form disclosure before acquisition 
in a retail store, it is important that they are still able to access 
the information. The Bureau also believes it is important that the URL 
of the Web site be unique to ensure that a consumer can directly access 
the same type of stand-alone long form that could be required to be 
provided pursuant to proposed Sec.  1005.18(b)(1)(i) in written or 
electronic form before a consumer acquires a prepaid account.
    Proposed comment 18(b)(2)(i)(B)(11)-1 would provide further details 
about the telephone number that would have to be included on the short 
form when a financial institution does not provide the long form 
disclosure before a consumer acquires a prepaid account. Specifically, 
proposed comment 18(b)(2)(i)(B)(11)-1 would state that a financial 
institution must make the long form disclosure described in proposed 
Sec.  1005.18(b)(2)(ii) accessible to a consumer orally via a telephone 
number disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(11) 
when a financial institution chooses not to provide a written form of 
these disclosures before a consumer acquires a prepaid account, as 
described in proposed Sec.  1005.18(b)(2)(i)(B)(11). The proposed 
comment would further clarify that for example, a financial institution 
could use a customer service agent or an interactive voice response 
system, to provide this disclosure. Proposed comment 
18(b)(2)(i)(B)(11)-1 would also explain that a consumer must not incur 
a fee to call this telephone number before acquiring a prepaid account. 
The proposed comment would further clarify that the telephone number 
disclosed pursuant to Sec.  1005.18(b)(2)(i)(B)(11) could be the same 
as the customer service number for which a financial institution impose 
a fee on a consumer to use for other purposes, but a consumer could not 
incur any customer service or other transaction fees when calling this 
number to access the information set forth in proposed Sec.  
1005.18(b)(2)(ii) before acquiring a prepaid account in retail store.
    The Bureau considered requiring that this number be toll-free, but 
ultimately decided that having a toll-free number is less important to 
consumers, most of whom use mobile phones and do not incur additional 
fees for making long distance calls, and such a requirement could 
impose a burden on smaller prepaid account providers because they would 
perhaps have to maintain a separate toll-free line just for their 
prepaid account products. The Bureau notes that some card networks may 
require financial institutions to maintain toll-free lines, and 
therefore numbers disclosed in such cases will likely be toll-free.
    Proposed comment 18(b)(2)(i)(B)(11)-2 would clarify that Sec.  
1005.18(b)(2)(i)(B)(11) requires disclosure of a unique URL that must 
take consumers to the Web page where disclosures described in Sec.  
1005.18(b)(2)(ii) may be viewed when a financial institution chooses 
not to provide a written form of those disclosures before a consumer 
acquires a prepaid account, as described in proposed Sec.  
1005.18(b)(1)(ii). The proposed comment would further clarify that an 
entered URL that requires a consumer to navigate various other Web 
pages before viewing the long form disclosure would not comply with 
proposed Sec.  1005.18(b)(2)(i)(B)(11). The Bureau believes that 
consumers make acquisition decisions in retail stores relatively 
quickly--often while standing--and should not have to navigate 
different links to access the Web page that contains the long form 
disclosure. The Bureau has also considered requiring financial 
institutions to use shortened URLs on the short form disclosure 
provided in retail stores to decrease the amount of time required to 
access the long form disclosure. The Bureau seeks comment on whether 
such a requirement regarding the URL is necessary.
    The Bureau also considered whether to propose to require financial 
institutions to disclose an SMS short code, which might be easier to 
type than a URL, that consumers could text to receive the URL that 
links directly to the long form disclosure.\271\ The Bureau, however, 
decided against including this method for several reasons. First, 
sending a text message using an SMS short code would still require that 
consumers have a mobile phone that is capable of sending text messages 
and that a consumer receives adequate internet reception when in a 
retail store. Thus, the Bureau does not believe that an SMS short code 
would broaden the spectrum of consumers who could access the long form 
disclosure when in a retail store, and it could impose an additional 
cost on consumers who incur fees from their mobile carriers for 
receiving text messages. Further, the Bureau did not believe that an 
SMS short code would save a consumer who wants to access the long form 
disclosure an appreciable amount of time. The Bureau also believed that 
there could be security concerns involved with offering disclosures via 
SMS. The Bureau has also considered, but is not requiring, that a quick 
response (QR) code be included in the short form. Some Prepaid ANPR 
commenters suggested QR codes as another method for accessing 
information. Although potentially useful, a QR code would require a 
substantial amount of space on the small short form and, the Bureau 
believes, QR code adoption remains low.
---------------------------------------------------------------------------

    \271\ An SMS short code is a group of numbers one can send as a 
text message using a mobile phone and receive a text message in 
response.
---------------------------------------------------------------------------

    The Bureau seeks comment on its proposal to disclose a telephone 
number and the unique URL of a Web site on the short form disclosure 
when the long form disclosure is not provided pre-acquisition in retail 
stores, and whether there are other methods the Bureau should consider 
disclosing on the short form. The Bureau also seeks comment on whether 
providing a SMS code or QR code on the short form would increase

[[Page 77166]]

the number of consumers who would be willing or able to access the long 
form disclosure pre-acquisition in a retail store.
18(b)(2)(i)(B)(12) Statement Regarding Registration
    The Bureau is also proposing that a statement regarding the 
importance of registering the prepaid account with the financial 
institution be included on the short form disclosure. Specifically, 
proposed Sec.  1005.18(b)(2)(i)(B)(12) would require a statement that 
communicates to a consumer that a prepaid account must be registered 
with a financial institution or service provider in order for the funds 
loaded onto the account to be protected, in a form substantially 
similar to the clause included on proposed Model Forms A-10(a) through 
(d).
    As discussed in the section-by-section analysis of proposed Sec.  
1005.18(e)(3), registration typically means that a consumer provides 
identifying information such as name, address, date of birth, and 
Social Security Number or other government-issued identification number 
so that the financial institution can identify the cardholder and 
verify the cardholder's identity. The Bureau is proposing to add this 
statement because many consumer protections set forth in this proposal 
would not take effect until a consumer registers an account. For 
example, under proposed Sec.  1005.18(e)(3), a consumer would not be 
entitled to error resolution rights or protection from unauthorized 
transactions until after registering the prepaid account. The Bureau 
believes that this is an important protection insofar as unregistered 
prepaid accounts are like cash--once lost, funds may be difficult or 
impossible to protect or replace because the financial institution may 
not know who is the rightful cardholder.
    The Bureau, however, recognizes that in some acquisition scenarios, 
for example, government benefit accounts, payroll card accounts, or 
cards used to disburse financial aid to students, this type of 
statement might be less useful because consumers must register with the 
government agency, employer, or institution of higher education, in 
order to acquire the account. The Bureau therefore solicits comment on 
whether the short form disclosure provided to consumers pre-acquisition 
should always include this statement.
18(b)(2)(i)(B)(13) Statement Regarding FDIC (or NCUSIF) Insurance
    The Bureau is proposing to address pass-through deposit (and share) 
insurance in proposed Sec.  1005.18(b)(2)(i)(B)(13). As discussed 
above, the FDIC, among other things, protects funds placed by 
depositors in insured banks and savings associations; the NCUA provides 
a similar role for funds places in credit unions. As explained in the 
FDIC's 2008 General Counsel Opinion No. 8, the FDIC's deposit insurance 
coverage will ``pass through'' the custodian to the actual underlying 
owners of the deposits in the event of failure of an insured 
institution, provided certain specific criteria are met.\272\
---------------------------------------------------------------------------

    \272\ 73 FR 67155, 67157 (Nov. 13, 2008).
---------------------------------------------------------------------------

    In response to the Prepaid ANPR, many consumer advocacy group 
commenters suggested that the Bureau require that pass-through deposit 
(or share) insurance cover all funds loaded into prepaid accounts, 
while many industry group commenters suggested that the Bureau propose 
clear disclosure of whether a prepaid product carries FDIC insurance or 
not.
    The Bureau believes it is not always easy to determine or explain 
whether FDIC or NCUSIF pass-through deposit or share insurance would 
apply to a particular prepaid account. Thus, as is discussed below, the 
Bureau is proposing disclosure be made regarding FDIC or NCUSIF 
insurance in only limited situations. In the Bureau's Study of Prepaid 
Account Agreements, the Bureau found that 65.85 percent of all account 
agreements reviewed stated that cardholder funds were protected by FDIC 
deposit (or NCUSIF share) insurance (this includes agreements that 
explained insurance coverage depends on card registration and/or that 
it only applies to funds held by a bank or credit union in a pooled 
account associated with the program). Of the remaining agreements, 
17.23 percent implied that the program was FDIC or NCUSIF insured by 
stating that the issuer is an FDIC or NCUSIF-insured institution, but 
that did not address FDIC or NCUSIF insurance coverage for the program. 
A small number of agreements, 6.15 percent of those reviewed, did not 
address FDIC or NCUSIF insurance coverage for the program. For the 
latter two categories of programs, it is possible that such programs 
are in fact set up to be eligible for pass-through deposit (or share) 
insurance, but it was not possible to tell from reviewing the program's 
account agreement. Finally, 10.77 percent of agreements explicitly 
stated that the program was not insured.\273\
---------------------------------------------------------------------------

    \273\ See Study of Prepaid Account Agreements, at 27-28 and tbl. 
13. In addition, the Bureau has observed that some GPR card 
providers disclose the existence of pass-through deposit insurance 
coverage or that the issuing bank is an FDIC-insured institution on 
their retail packaging, often quite prominently. The Bureau's Study 
of Prepaid Account Agreements, however, did not examine pass-through 
insurance statements made on GPR cards' retail packaging. Likewise, 
the Study did not examine pass-through insurance statements made on 
prepaid programs' other marketing materials or on their Web sites. 
See id.
---------------------------------------------------------------------------

    In its consumer testing, the Bureau observed that some participants 
misunderstood the scope of the protections FDIC pass-through deposit 
insurance actually provides for prepaid accounts. During the consumer 
focus groups, for example, participants were asked if they had heard of 
FDIC deposit insurance and how it related to their GPR cards. Nearly 
all participants said they had heard of FDIC deposit insurance, and 
many consumers believed the funds on their GPR cards were FDIC-
insured.\274\ When consumers were asked to explain what it meant that 
their GPR card had FDIC deposit insurance, most made vague references 
to their funds being ``protected.'' Upon further probing, however, the 
majority of participants incorrectly thought FDIC deposit insurance 
would protect their funds in the event of fraudulent charges or a 
stolen card.\275\ A few believed a problem of that nature would be 
resolved faster if the prepaid card had FDIC deposit insurance than if 
it did not. Some participants stated that FDIC insured money in banks; 
they reasoned that because their card was most likely connected to a 
bank, the money on their cards was therefore protected from fraud by 
the FDIC, although others disagreed. Very few participants understood 
FDIC insurance correctly in that it applies to the insolvency of the 
bank that holds the underlying funds and not to the funds on a prepaid 
card itself in the case of an unauthorized transaction on the account.
---------------------------------------------------------------------------

    \274\ See ICF Report, at 10.
    \275\ The Bureau notes, however, that despite believing that 
FDIC insurance could ``protect'' funds held in a prepaid account, no 
testing participants mentioned FDIC insurance when asked to 
interpret the statement ``Register your card to protect your 
money,'' which would be disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(12). See ICF Report, at 5.
---------------------------------------------------------------------------

    In light of the results of the Bureau's Study of Prepaid Account 
Agreements indicating that many products meeting the proposed 
definition of prepaid account already provide pass-through deposit 
insurance coverage and consumers' misunderstandings about what 
protections pass-through deposit insurance actually affords, the Bureau 
has decided not to propose any requirements related to the affirmative 
existence of pass-through deposit insurance. The Bureau is proposing, 
however, that financial institutions would have to disclose a statement 
on the short form if a prepaid account is

[[Page 77167]]

not set up to be eligible for FDIC (or NCUSIF) pass-through deposit (or 
share) insurance. Specifically, proposed Sec.  1005.18(b)(2)(i)(B)(13) 
would require that if a prepaid account product is not set up to be 
eligible for FDIC deposit or NCUSIF share insurance, a financial 
institution would have to include a statement on the short form 
disclosure that FDIC deposit insurance or NCUSIF share insurance, as 
appropriate, does not protect funds loaded into the prepaid account, in 
a form substantially similar to the clause set forth in Model Forms A-
10(c) and (d).
    The Bureau seeks comment on all aspects of this part of the 
proposal. Specifically, the Bureau solicits comment on whether the 
existence--or lack thereof--of pass-through deposit (or share) 
insurance should be disclosed on retail packaging, online disclosures, 
or in any other medium, as many consumer advocacy group comments to the 
Prepaid ANPR suggested. The Bureau has also observed that financial 
institutions currently use varied language to describe FDIC (or NCUSIF) 
insurance. The Bureau therefore solicits comment on whether specific 
language should be used to describe pass-through deposit (or share) 
insurance, and if so, what that language should be. The Bureau also 
solicits comment on whether there is a simple way that this, and other 
conditions on the applicability FDIC pass-through insurance described 
above, can be disclosed, particularly in retail stores given the 
limited space available on card packaging material. Finally, the Bureau 
solicits comment on whether non-banks that issue prepaid accounts could 
apply the proposed statement regarding FDIC or NCUSIF insurance to 
their products, or whether the Bureau should propose an alternative 
requirement regarding the disclosure of the availability of FDIC or 
NCUSIF insurance for non-banks that issue prepaid accounts.
18(b)(2)(i)(B)(14) CFPB Web Site
    Proposed Sec.  1005.18(b)(2)(i)(B)(14) would require disclosure of 
the URL of the Web site of the Consumer Financial Protection Bureau in 
a form that is substantially similar to the clauses set forth in 
appendix A-10(a) of this part. The Bureau intends to develop resources 
on its Web site that would, among other things, provide basic 
information to consumers about prepaid accounts, the benefits and risks 
of using them, how to use the proposed disclosures, and a URL to the 
Bureau's complaint portal for prepaid products.
18(b)(2)(i)(C) Disclosing Variable Fees
    Proposed Sec.  1005.18(b)(2)(i)(C) would set forth how, within the 
confines of the proposed short form disclosure, financial institutions 
could disclose fees that may vary. As noted above, in many instances, 
prepaid accounts may have certain fees that vary depending on how a 
consumer uses the account. For example, monthly periodic fees are, for 
some prepaid account products, waived when a consumer receives direct 
deposit or when the monthly balance exceeds a certain amount. In some 
instances, these conditional situations could become complicated and 
difficult to explain on a short form disclosure, particularly for 
multiple fees. The Bureau believes that allowing multiple, complex 
disclaimers on a single form would be complicated and make 
comprehension and comparisons more difficult.
    Thus, the Bureau is proposing Sec.  1005.18(b)(2)(i)(C), which 
would provide that if the amount of the fee that a financial 
institution imposes for each of the fee types disclosed pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B) could vary, a financial institution 
would have to disclose the highest fee it could impose on a consumer 
for utilizing the service associated with the fee, along with a symbol, 
such as an asterisk, to indicate that a lower fee might apply, and 
include text explaining that the fee could be lower, in a form 
substantially similar to the clause set forth in the Model Forms A-
10(a) through (d) in appendix A. Proposed Sec.  1005.18(b)(2)(i)(C) 
would also state that a financial institution would have to use the 
same symbol and text for all fees that could be lower, but could use 
any other part of the prepaid account product's packaging material or 
Web site to provide more detail about how a specific fee type may be 
lower. Proposed Sec.  1005.18(b)(2)(i)(C) would further state that a 
financial institution must not disclose any third party fees imposed in 
connection with any of the fees disclosed pursuant to Sec.  
1005.18(b)(2)(i)(B)(1) through (8). To the extent third party fees 
apply or fees could be lower, the Bureau is not proposing to allow that 
information to be conveyed on the short form beyond allowing the 
financial institution to use a symbol to indicate when this is the 
case.
    Proposed comment 18(b)(2)(i)(C)-1 would provide examples of how to 
disclose variable fees on the short form in compliance with proposed 
Sec.  1005.18(b)(2)(i)(C). Specifically, the proposed comment would 
explain that, for example, if a financial institution charges a monthly 
fee of $4.95, but the financial institution waives this fee if a 
consumer receives direct deposit payments into the prepaid account, the 
financial institution would list a monthly fee of $4.95 on the short 
form disclosure with an asterisk (or other symbol) next to the dollar 
amount that refers to a statement that explains the fee may be lower. 
The proposed comment would also clarify that another example might be 
if a financial institution charges a cash reload fee of $3.95 at reload 
networks that are not agents of the financial institution but would 
waive this fee if a consumer loads money at a point-of-sale terminal 
operated by a retailer that is an agent of the financial institution. 
In this example, the financial institution would disclose a cash reload 
fee of $3.95 on the short form disclosure pursuant to proposed Sec.  
1005.18(b)(2)(i)(C) with an asterisk (or other symbol) next to the 
dollar amount that refers to the same statement that the fee may be 
lower. The proposed comment would further clarify that proposed Sec.  
1005.18(b)(2)(i)(C) does not permit a financial institution explain the 
conditions under which a fee may be lower, but a financial institution 
could use any other part of the prepaid account product's packaging 
material or may use its Web site to disclose that information, and that 
information would also be required to be disclosed pursuant to proposed 
Sec.  1005.18(b)(2)(ii)(A). Proposed comment 18(b)(2)(i)(C)-2 would 
explain that third parties could include service providers and other 
entities, regardless of whether the entity is an agent of the financial 
institution. The Bureau believes that regardless of whether a third 
party has a relationship with the financial institution, no additional 
fees should be disclosed on the short form.
    The Bureau recognizes that its proposed approach to the disclosure 
of variable fees on the short form could potentially obscure some 
complexity in a prepaid account's fee structure. The Bureau, however, 
proposes to require that this information be disclosed on the long form 
(see proposed Sec.  1005.18(b)(2)(ii)(A)) and to permit its disclosure 
outside the confines of the short form to mitigate any risk of 
confusion. See comment 18(b)(2)(i)(C)-1. Thus, the Bureau believes that 
its proposed short form disclosure--and the requirement to disclose the 
highest fee with an indication that the fee may be lower in certain 
circumstances--would allow consumers to know the maximum they will pay 
for that fee type while indicating to consumers when

[[Page 77168]]

they could qualify for a lower fee. The Bureau, however, recognizes the 
compromises it has made, and it seeks comment on whether there are 
other ways that variability should be addressed. The Bureau also 
solicits feedback on whether it should mandate or permit the disclosure 
of third party fees on the short form. Also, the Bureau seeks comment 
on whether financial institutions should be allowed to use more than 
one type of symbol to explain variability of fees listed in the short 
form. Additionally, the Bureau also seeks comment on whether a de 
minimis exception should be allowed that would permit financial 
institutions to disclose a different fee if it is close in value to the 
highest fee.
18(b)(2)(ii) Long Form Content Requirements
    In addition to the short form, the proposed rule would require 
financial institutions to provide a long form disclosure pre-
acquisition. Pursuant to proposed Sec.  1005.18(b)(3)(iii)(A), in most 
cases, the contents of the long form disclosure discussed below would 
have to be in a form substantially similar to proposed Sample Form A-
10(e).
18(b)(2)(ii)(A) Fees
    Proposed Sec.  1005.18(b)(2)(ii)(A) would require the disclosure in 
the long form of all fees that may be imposed by the financial 
institution in connection with a prepaid account. For each fee type, 
the financial institution would have to disclose the amount of the fee, 
the conditions, if any, under which the fee may be imposed, waived, or 
reduced, including, to the extent known, any third party fee amounts 
that may apply. Proposed Sec.  1005.18(b)(2)(ii)(A) would also require 
that if such third party fees may apply but the amount of those fees 
are not known, a financial institution would have to instead include a 
statement indicating that third party fees may apply without specifying 
the fee amount, and that a fee imposed by a third party who acts as an 
agent of the financial institution for purposes of the prepaid account 
would always be disclosed.
    As noted above, this part of the proposal is authorized under EFTA 
sections 904(a) and (c), 905(a), and Dodd-Frank Act sections 1032(a). 
The Bureau believes that pre-acquisition disclosures of all fees for 
prepaid accounts will, consistent with EFTA section 902 and Dodd-Frank 
section 1032(a), assist consumers' understanding of the terms and 
conditions of their prepaid accounts, and ensure that the features of 
the prepaid accounts are fully, accurately, and effectively disclosed 
to consumers in a manner that permits consumers to understand the 
costs, benefits, and risks associated with the account. The Bureau 
believes that this disclosure would, in many ways, be similar to what 
many financial institutions disclose today regarding prepaid accounts' 
fee structures in the terms and condition documents, but the content of 
the long form in proposed Sec.  1005.18(b)(2)(ii)(A) would be provided 
to a consumer as a stand-alone document before a consumer acquires a 
prepaid account.\276\
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    \276\ Pursuant to existing Sec.  1005.7(b)(5), as modified by 
proposed Sec.  1005.18(f), a version of the long form must also be 
provided in the terms and conditions for prepaid accounts at the 
time the consumer contracts for an electronic funds transfer or 
before the first electronic funds transfer is made involving the 
consumer's account. See section-by-section analysis of proposed 
Sec.  1005.18(f).
---------------------------------------------------------------------------

    Proposed Sec.  1005.18(b)(2)(ii)(A) would also state that a 
financial institution could not utilize any symbols, such as asterisks, 
to explain the conditions under which any fee may be imposed. The 
Bureau believes it is important that consumers can easily follow the 
information in the long form, and that, when financial institutions do 
not face space constraints like on the short form, text should be used 
to explain any information about fees, instead of relying on a consumer 
first to notice symbols and then associate them with text in a 
footnote, for example. See proposed comment 18(b)(2)(ii)(A)-2.
    The Bureau also proposes to add commentary to explain the format of 
the long form disclosure. Specifically, proposed comment 
18(b)(2)(ii)(A)-1 would explain that for example, if a financial 
institution charges a cash reload fee, the financial institution must 
list the amount of the cash reload fee and also specify any 
circumstances under which a consumer could qualify for a lower fee. The 
proposed comment would further explain that relevant conditions to 
disclose in the long form disclosure could also include, for example, 
if there is a limit on the amount of cash a consumer may load into the 
prepaid account in a transaction or during a particular time period. 
Proposed comment 18(b)(2)(ii)(A)-2, would explain that a financial 
institution may, at its option, choose to disclose pursuant to proposed 
Sec.  1005.18(b)(2)(ii)(A), any service or feature it provides or 
offers even if it does not charge a fee for that service or feature.
    The proposed comment would clarify that, for example, a financial 
institution may choose to list ``online bill pay service'' and indicate 
that the fee is ``$0'' or ``free'' when the financial institution does 
not charge consumers a fee for that service or feature. Proposed 
comment 18(b)(2)(ii)(A)-2 would further clarify that by contrast, where 
a service or feature is available without a fee for an introductory 
period, but where a fee may be imposed at the conclusion of the 
introductory period for that service or feature, the financial 
institution could not indicate that the fee is ``$0.'' The proposed 
comment would clarify that the financial institution would instead have 
to list the main fee and explain in the separate explanatory column how 
the fee could be lower during the introductory period, what that 
alternative fee would be, and when it will be imposed. The proposed 
comment would provide further guidance that similarly, if a consumer 
would have to enroll in an additional service to avoid incurring a fee 
for another service, neither of those services would disclose a charge 
of, ``$0,'' but, instead, would list each fee amount imposed if the 
consumer does not enroll. The proposed comment would also provide an 
example that if the monthly fee is waived once a consumer receives 
direct deposit payments into the prepaid account, the monthly fee 
imposed upon a consumer if they do not receive direct deposit would be 
disclosed in the long form, and an explanation regarding how receiving 
direct deposit might lower the fee would have to be included in the 
explanatory column in the long form. A financial institution's ability 
to disclose any fees of its choosing in the long form disclosure (as 
long as the fee amounts disclosed are accurate) is different from the 
disclosures required on the short form (see proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (7) and proposed comment 18(b)(2)(i)-1), 
which must always be included, even when inapplicable to a particular 
prepaid account product, and a financial institution cannot choose to 
disclose more fee information than what is required.
    Proposed comment 18(b)(2)(ii)(A)-3 would provide guidance on the 
disclosure of third party fees in the long form disclosure. 
Specifically, the proposed comment would explain that proposed Sec.  
1005.18(b)(2)(ii)(A) generally requires the disclosure, to the extent 
known, of any third party fee amounts that may apply. Proposed comment 
18(b)(2)(ii)(A)-3 would further explain that, for example, a financial 
institution that offers balance updates to a consumer via text message 
would disclose that mobile phone carrier data charges could apply for 
each text message a consumer receives. The

[[Page 77169]]

proposed comment would also clarify that proposed Sec.  
1005.18(b)(2)(ii)(A) requires that a financial institution must always 
disclose in the long form any fees imposed by a third party who is 
acting as an agent of the financial institution for purposes of the 
prepaid account product. The proposed comment would also provide an 
example that any fees that the provider of a cash reload service who 
has a relationship with the financial institution may impose would be 
disclosed in the long form.
18(b)(2)(ii)(B) Overdraft Services and Other Credit Features
    Proposed Sec.  1005.18(b)(2)(ii)(B) would require the financial 
institution to include in the long form the disclosures described in 
Sec.  1026.60(a), (b) and (c) of Regulation Z (12 CFR part 1026) if at 
any point, a credit plan that would be a credit card account under 
Regulation Z, 12 CFR part 1026 may be offered in connection with the 
prepaid account. Proposed Sec.  1005.18(b)(2)(ii)(B) would further 
state that such a credit plan could be accessed by a credit card under 
Regulation Z, 12 CFR 1026.2(a)(15)(i), that also is an access device 
that accesses the prepaid account, or a credit plan could be accessed 
by an account number that is a credit card under Regulation Z where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor offering the 
plan.
    The Bureau recognizes that Regulation Z does not require these 
disclosures to be provided until a consumer is actually solicited for 
the credit plan. The Bureau, however, believes it is important for 
consumers who are considering whether to acquire a prepaid account to 
know not only if a credit plan could be offered at any point, as 
required to be disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(9), but also what the possible cost of such a plan 
might be. Because of the space constraints on the short form, as 
discussed above, the Bureau believes it is appropriate for a consumer 
to receive as part of the long form disclosure more complete 
information about any credit plan that could be offered to them, even 
if they would not be solicited for such a plan until at least thirty 
days after registering a particular prepaid account. See proposed Sec.  
1005.18(g) and 1026.12(h).
    Proposed comment 18(b)(2)(ii)(B)-1 would clarify that the 
disclosures described in Sec.  1026.60(a), (b) and (c) of Regulation Z 
(12 CFR part 1026) would have to appear in the form required under 12 
CFR 1026.60(a), (b) and (c), and, to the extent possible, on the same 
printed page or Web page as the rest of the information required to be 
listed pursuant to proposed Sec.  1005.18(b)(2)(ii). The Bureau 
recognizes that depending on the number of fees included in the long 
form disclosure, it might not be possible to include both disclosures 
on the same printed page. The Bureau believes, however, that to the 
extent it would be possible to include these disclosures on the same 
printed page or Web page, doing so would make it easier for the 
consumer to review the disclosures.
18(b)(2)(ii)(C) Telephone Number, Web Site and Mailing Address
    Proposed Sec.  1005.18(b)(2)(ii)(C) would require disclosure of the 
name, telephone number, Web site, and mailing address of the person or 
office that a consumer could contact to learn about the terms and 
conditions of the prepaid account, to obtain prepaid account balance 
information, to request a written copy of transaction history pursuant 
to proposed Sec.  1005.18(c)(1)(iii) if the financial institution does 
not provide a periodic statement pursuant to existing Sec.  1005.9(b) 
or to notify the person or office when a consumer believes that an 
unauthorized electronic fund transfer has occurred as required by 
existing Sec.  1005.7(b)(2) or proposed Sec.  1005.18(d)(1)(ii).
18(b)(2)(ii)(D) Statement Regarding FDIC (or NCUSIF) Insurance
    Proposed Sec.  1005.18(b)(2)(ii)(D) would require that the long 
form also include the disclosure required under proposed Sec.  
1005.18(b)(2)(i)(B)(13) regarding FDIC (or NCUSIF), pass-through 
deposit (or share) insurance, when appropriate. This statement would be 
the same as the statement included on the short form pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(13). For more details, see section-
by-section analysis of proposed Sec.  1005.18(b)(2)(i)(B)(13).
18(b)(2)(ii)(E) CFPB Web Site and Telephone Number
    Proposed Sec.  1005.18(b)(2)(ii)(D) would require disclosure of the 
URL of the Web site of the Consumer Financial Protection Bureau, and a 
telephone number a consumer could contact and the URL a consumer could 
visit to submit a complaint related to a prepaid account. As discussed 
in the section-by-section analysis of proposed Sec.  
1005.18(b)(2)(i)(B)(14), the Bureau intends to develop resources on its 
Web site that would, among other things, provide basic information to 
consumers about prepaid accounts, the benefits and risks of using them, 
and how to use the proposed disclosures. The Bureau also believes that 
consumers would benefit from seeing the Consumer Financial Protection 
Bureau's Web site and telephone number that they can use to submit a 
complaint about a prepaid account.
    The Bureau seeks comment on all aspects of the proposed contents of 
the long form disclosure. In particular, the Bureau seeks comment on 
whether it should propose more specific content requirements for the 
long form disclosure, or whether some of the information the Bureau 
proposes to include on the long form is unnecessary.
18(b)(3) Form of Pre-Acquisition Disclosures
    Proposed Sec.  1005.18(b)(3) would set forth the requirements for 
how the short form and long form disclosures must be presented. 
Specifically, proposed Sec.  1005.18(b)(3)(i) sets forth general 
requirements for written, electronic, and oral disclosures. Proposed 
Sec.  1005.18(b)(3)(ii) would provide requirements regarding whether 
these disclosures would have to be in a retainable form. Proposed Sec.  
1005.18(b)(3)(iii) would set forth parameters for the tabular form in 
which the disclosures would have to be presented, including specific 
requirements for short forms presenting multiple service plans.
18(b)(3)(i) General
    Except when such disclosures are provided electronically or orally, 
as described in proposed Sec.  1005.18(b)(3)(iii)(B) and (C), proposed 
Sec.  1005.18(b)(3)(i)(A) would provide that short form and long form 
disclosures required by proposed Sec.  1005.18(b)(2)(i) and (ii) 
generally must be disclosed in writing. The Bureau believes that 
consumers can best review the terms of a prepaid account before 
acquisition when seeing these disclosures in written form. As is 
discussed above, however, the Bureau recognizes that in certain 
situations it is not practicable to provide written disclosures. For 
example, when a consumer acquires a prepaid account on the internet, 
the Bureau believes that a financial institution cannot easily provide 
written (non-electronic) disclosures to a consumer pre-acquisition.
    Currently, Regulation E permits disclosures to be provided in 
electronic form, subject to compliance with consumer consent and other 
applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C 7001, et seq.). Sec.  
1005.4(a)(1). The E-Sign Act generally allows the use of electronic 
records to

[[Page 77170]]

satisfy any statute, regulation, or rule of law requiring that such 
information be provided in writing, if a consumer has affirmatively 
consented to such use and has not withdrawn such consent, and if 
certain format of delivery requirements are met. Before receiving such 
consent, the E-Sign Act requires that financial institutions make clear 
to a consumer that they have the option of receiving records in paper 
form, to specify whether a consumer's consent applies to a specific 
transaction or throughout the duration of their relationship with the 
financial institution, and to inform a consumer of how he or she might 
withdraw consent and update information needed to contact them 
electronically, among other requirements. The E-Sign Act also requires 
financial institutions to retain record of any disclosures that have 
been provided to a consumer electronically so that a consumer can 
access them later.
    When the Bureau issued regulations on remittance transfers, the 
Bureau altered Regulation E's general requirement for remittance that 
provides electronic disclosures are permissible as long as they comply 
with the E-Sign Act. The Bureau mandated that certain disclosures could 
be provided electronically, in retainable form, without having to 
comply with the E-Sign Act if the sender electronically requests the 
remittance transfer provider to send the remittance transfer. See Sec.  
1005.31(a)(2).
    The Bureau is proposing to modify the general Regulation E 
electronic disclosure requirement for prepaid accounts in proposed 
Sec.  1005.18(b)(3)(i)(B), which would require that a financial 
institution would have to provide the short form and long form 
disclosure required by proposed Sec.  1005.18(b)(2)(i) and (ii) in 
electronic form when a consumer acquires a prepaid account through the 
Internet, including via a mobile application. Proposed Sec.  
1005.18(b)(3)(i)(B) would also state that disclosures required by 
proposed Sec.  1005.18(b)(2)(i) and (ii) would have to be provided 
electronically in a manner which is reasonably expected to be 
accessible in light of how a consumer is acquiring the prepaid account. 
In addition, proposed Sec.  1005.18(b)(3)(i)(B) would provide that the 
electronic disclosures required by Sec.  1005.18(b)(2)(i) and (ii) 
would not need to meet the consumer consent and other applicable 
provisions of the E-Sign Act.
    As in the remittances pre-purchase disclosure context, the Bureau 
believes altering the general Regulation E requirement for prepaid 
accounts is necessary to ensure consumers that receive relevant 
disclosure information at the appropriate time. The Bureau believes 
that during the pre-acquisition time period for prepaid accounts it is 
important for consumers who decide to go online to acquire a prepaid 
account to see the relevant disclosures for that prepaid account 
product in electronic form. The Bureau believes that consumers will 
often decide whether to acquire a particular prepaid account after 
doing significant research online, and that if they are not able to see 
disclosures on the products' Web sites, they cannot make an informed 
acquisition decision. As discussed above, Regulation E's current 
general E-Sign provision allows financial institutions to provide 
disclosures electronically at their discretion; \277\ however, the 
Bureau believes that, for Internet acquisitions of prepaid products, a 
mandate of electronic disclosures on Web sites is more appropriate.
---------------------------------------------------------------------------

    \277\ See Sec.  1005.4(a)(1).
---------------------------------------------------------------------------

    The general Regulation E E-Sign provision also requires that 
financial institutions comply with E-Sign consent provisions when 
providing disclosures electronically. The Bureau is not proposing to 
require such compliance for prepaid accounts that are acquired through 
the Internet. Instead, the Bureau is proposing Sec.  
1005.18(b)(3)(i)(B), which would state that electronic disclosures of 
the short form and long forms for prepaid accounts acquired through the 
Internet would only have to be provided electronically in a manner 
which is reasonably expected to be accessible in light of how a 
consumer acquired the prepaid account. For example, if a consumer has 
acquired a prepaid account through a Web site, it is reasonable to 
expect that a consumer would be able to view electronic disclosures on 
a Web site and no E-Sign consent would be necessary. The Bureau notes, 
however, that this alternative E-Sign requirement applies only to the 
pre-acquisition disclosure of the short form and long form disclosures 
for prepaid accounts acquired over the Internet and does not alter the 
application of the general E-Sign provision in Regulation E to prepaid 
account after acquisition, or for any other type of account.
    The Bureau also proposes to add comment 18(b)(3)(i)(B)-1 which 
would explain how to disclose the short and long forms electronically. 
Specifically, the proposed comment would explain that a financial 
institution may, at its option, provide the short and long form 
disclosures on the same Web page or two different Web pages as long as 
the disclosures are provided in accordance with the pre-acquisition 
disclosure requirements in proposed Sec.  1005.18(b)(1)(i). The Bureau 
recognizes, as several consumer advocacy group commenters to the 
Prepaid ANPR stated, that disclosures provided electronically on Web 
sites may be difficult for consumers to find because they are sometimes 
buried several pages deep or require some form of registration or 
logging on to access. To mitigate the risk of consumers having trouble 
locating electronic disclosures on a Web site, the Bureau generally 
believes that disclosures provided on a Web site should be easy to 
locate, whether they are provided on the same Web page, or on two 
separate pages. See proposed comment 18(b)(1)-2.
    Proposed comment 18(b)(3)(i)(B)-2 would provide guidance around the 
lack of an E-sign requirement for prepaid account pre-acquisition 
disclosures. Specifically, the proposed comment would clarify that if, 
for example, a consumer is acquiring a prepaid account using a 
financial institution's Web site, it would be reasonable to expect that 
a consumer would be able to access pre-acquisition disclosures provided 
on a similar Web site.
    Proposed Sec.  1005.18(b)(3)(i)(B) would also require that 
disclosures provided to a consumer through a Web site as described in 
proposed Sec.  1005.18 (b)(2)(i)(B)(11) would have to be made in an 
electronic form using machine-readable text that is accessible via both 
Web browsers and screen readers. Proposed comment 18(b)(3)(i)(B)-3 
would clarify that a disclosure would not comply with this requirement 
if it was not provided in a textual format that can be read 
automatically by an Internet search engines or other computer systems. 
This textual format could include, for example, JSON, XML, or a similar 
format.
18(b)(3)(i)(C) Oral Disclosures
    The Bureau is also proposing Sec.  1005.18(b)(3)(i)(C), which would 
state that disclosures required by proposed Sec.  1005.18(b)(2)(i) 
would have to be provided orally when a consumer acquires a prepaid 
account orally by telephone as described in proposed Sec.  
1005.18(b)(3)(iii). Proposed Sec.  1005.18(b)(3)(i)(C) would also state 
that disclosures provided to a consumer through the telephone number 
described in proposed Sec.  1005.18(b)(2)(i)(B)(11) also would have to 
be made orally. The Bureau believes that when a consumer acquires a

[[Page 77171]]

prepaid account orally by telephone or when a consumer requests to hear 
the long form disclosure in a retail store by calling the telephone 
number disclosed on the short form pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(11), it is not practicable for a financial 
institution to provide these disclosures in written form and therefore 
oral disclosures could be provided.
18(b)(3)(ii) Retainable Form
    Proposed Sec.  1005.18(b)(3)(ii) would require that disclosures 
required by proposed Sec.  1005.18(b)(2)(i) and (ii) be provided in a 
retainable form except for disclosures provided to a consumer through 
the telephone number described in proposed Sec.  
1005.18(b)(2)(i)(B)(11) or disclosure provided orally pursuant to 
proposed Sec.  1005.18(b)(1)(iii). The Bureau notes, however, that 
Regulation E does have general recordkeeping requirements. See Sec.  
1005.13(b). After having acquired a prepaid account orally, a consumer 
would receive the long form disclosure in the full terms and conditions 
accompanying the prepaid account inside its packaging. See proposed 
Sec.  1005.18(f). Further, the long form disclosure would also 
presumably be available on the financial institution's Web site as part 
of the full prepaid account agreement that would be required to be 
posted pursuant to proposed Sec.  1005.19, discussed below, should a 
consumer want to review it post-acquisition. Thus, the Bureau does not 
believe it is necessary for the disclosures provided to a consumer for 
a prepaid account acquired orally by telephone or the long form 
disclosure that a consumer may access by telephone pre-acquisition in a 
retail store to be retainable, and the Bureau does not believe it is 
practicable to provide retainable forms of oral disclosures. The Bureau 
does, however, believe that providing a retainable format of written 
and electronic disclosures is feasible in all other contexts. Proposed 
comment 18(b)(3)(ii)-1 would explain that a financial institution may 
satisfy the requirement to provide electronic disclosures in a 
retainable form if it provides disclosures on its Web site in a format 
that would be capable of being printed, saved or emailed to a consumer.
18(b)(3)(iii) Tabular Format
18(b)(3)(iii)(A) General
    The Bureau is also proposing, in proposed Sec.  
1005.18(b)(3)(iii)(A), tabular form requirements that would be used to 
present the short and long form disclosures. Currently, the Bureau 
believes that most financial institutions use some sort of table format 
to disclose prepaid account fees in their terms and conditions 
documents, although each institution selects different fees to 
highlight and presents them in different orders. Financial institutions 
also implement a variety of formats to present fee information on 
packaging material in retail stores. Thus, the burden is on consumers 
to identify the fees that are most important to them in the various 
tabular formats to determine the best product for their needs.
    During consumer testing, however, the Bureau found that few 
participants researched prepaid accounts before acquisition, 
particularly in retail stores. The Bureau believes that at least part 
of the reason that consumers do not do much comparison shopping is that 
doing so is not straightforward. In a retail store, prepaid accounts 
are often displayed behind counters, close to check-out lanes at ends 
of aisles and in other areas that can often be crowded or difficult to 
access, which can limit careful review of a product's terms. The Bureau 
believes that financial institutions are more likely to present fee 
information in a clearer and more complete format for prepaid account 
products offered online, but, as mentioned above, the format used to 
display this information varies, making comparisons harder. Although 
some variation is inevitable because each financial institution offers 
different services in connection with its prepaid accounts, the Bureau 
nevertheless believes that requiring use of a standardized form to 
disclose fee information can minimize some variation by maintaining a 
consistent format and, in the case of the short form, also keeping many 
of the fee types that are listed constant.
    The Bureau therefore is proposing that, except as provided in 
proposed Sec.  1005.18(b)(3)(iii)(B), short form disclosures required 
by proposed Sec.  1005.18(b)(2)(i) that are provided in writing or 
electronically shall be in the form of a table substantially similar to 
proposed Model Forms A-10(a) through (d), as applicable. Long form 
disclosures required by proposed Sec.  1005.18(b)(2)(ii)(A) through (E) 
that are provided in writing or electronically would have to be in a 
form of a table substantially similar to proposed Sample Form A-
10(e).\278\ The Bureau is proposing a sample form for the long form 
disclosure instead of a model form, as is proposed for the short form 
disclosure, because the Bureau believes the long form disclosures could 
vary depending on the number of fees included in the form and the 
extent of relevant conditions that would have to be disclosed in 
connection with each fee. Nevertheless the Bureau solicits comment on 
whether it should provide a model form for the long form disclosure.
---------------------------------------------------------------------------

    \278\ The Bureau notes that the explanatory text used in the 
model long form disclosure is meant only to serve as an example, as 
the Bureau is proposing only formatting requirements for the long 
form disclosure, and not specific language.
---------------------------------------------------------------------------

18(b)(3)(iii)(B) Disclosures for Prepaid Account Products Offering 
Multiple Service Plans
    As an exception to proposed Sec.  1005.18(b)(3)(iii)(A) (which 
applies to products with a single fee schedule), proposed Sec.  
1005.18(b)(3)(iii)(B) would set forth tabular form requirements for 
prepaid products offering multiple service plans. Specifically, 
proposed Sec.  1005.18(b)(3)(iii)(B)(1) would state that when a 
financial institution offers multiple service plans for a particular 
prepaid account product and each plan has a different fee schedule, the 
information required by proposed Sec.  1005.18(b)(2)(i)(B)(1) through 
(7) could be provided for each service plan in the form of a table 
substantially similar to the proposed Model Form A-10(f), and must 
include descriptions of each service plan included in the table using 
the terms, ``Pay-as-you-go plan,'' ``Monthly plan,'' ``Annual plan,'' 
or substantially similar terms. Proposed Sec.  1005.18(b)(3)(iii)(B)(1) 
would further state when disclosing multiple service plans on one short 
form, the information required by proposed Sec.  1005.18(b)(2)(i)(B)(8) 
must only be disclosed once in the table. Alternatively, proposed Sec.  
1005.18(b)(3)(iii)(B)(1) would permit a financial institution to 
disclose just the information required by proposed Sec.  
1005.18(b)(2)(i) for only the service plan in which a consumer is 
enrolled automatically by default upon acquiring the prepaid account, 
in the form of a table substantially similar to proposed Model Form A-
10(c) or (d). Finally, proposed Sec.  1005.18(b)(3)(iii)(B)(1) would 
state that regardless of whether a financial institution discloses all 
service plans on one form or chooses only to disclose the service plan 
in which a consumer is automatically enrolled by default, the 
disclosures required by proposed Sec.  1005.18(b)(2)(i)(B)(9) through 
(14) would only have to be disclosed once.
    As discussed above, the Bureau believes that it is important for 
short and long form disclosures to have a standardized format in order 
to facilitate consumers' comparison of multiple

[[Page 77172]]

products and their ability to understand key fee and service 
information about a prepaid product. The Bureau also recognizes, 
however, that financial institutions offering multiple service plans on 
one prepaid account need flexibility to disclose information about 
multiple plans to a consumer. The Bureau therefore is proposing that 
financial institutions may use one short form table that discloses the 
information required by proposed Sec.  1005.18(b)(2)(i) for each of the 
service plans to highlight for a consumer that such plans exist. At its 
option, a financial institution could also choose to only disclose the 
service plan in which a consumer is enrolled upon acquiring the prepaid 
account using the tabular format described in proposed Sec.  
1005.18(b)(3)(iii)(A) and note elsewhere on the packaging material or 
on its Web site the other service plans it offers. The Bureau believes 
that these options will give financial institutions the flexibility to 
accommodate disclosure of multiple service plans, while also 
maintaining the simplicity of the short and long form table designs to 
facilitate consumers' comparison shopping. In consumer testing, some 
participants were confused by short forms that included multiple 
service plans similar to the one proposed in Model Form A-10(f). The 
Bureau therefore also considered proposing that financial institutions 
must disclose each service plan in a separate short form table instead 
of allowing financial institutions to disclose all of the plans on one 
short form. Some testing participants also were unsure of which service 
plan applied upon purchase when seeing multiple service plans on one 
short form, an issue that the Bureau believes may be resolved if a 
financial institution only discloses the fee schedule for the plan that 
applies upon a consumer's acquisition of the account. The Bureau thus 
seeks comment on the best way to accommodate prepaid accounts products 
offering multiple service plans on the short form disclosure while 
providing accurate and sufficient information to consumers.
    The Bureau also acknowledges that only disclosing the service plan 
in which a consumer is automatically enrolled by default upon acquiring 
the prepaid account could potentially conflict with the Bureau's 
proposed requirement in proposed Sec.  1005.18(b)(2)(i)(C) that 
financial institutions would have to disclose the most expensive fee 
for each fee type required to be disclosed in the short form. For 
example, a ``pay-as-you-go'' plan in which a consumer is enrolled upon 
acquisition might not impose a periodic fee, and thus, could disclose 
``$0'' in the top-line of the short form where the periodic fee 
disclosure would be required. Under such a plan, if a consumer were to 
opt into a monthly plan, however, they could be charged a periodic fee 
higher than $0. The Bureau therefore also seeks comment on whether the 
disclosure of only the default plan on the short form would be clear or 
if the Bureau should require that financial institutions always 
disclose multiple service plans on the short form.
    Proposed Sec.  1005.18(b)(3)(iii)(B)(2) would state that the 
information required to be disclosed in the long form by proposed Sec.  
1005.18(b)(2)(ii) must be presented for all service plans in the form 
of a table substantially similar to proposed Sample Form A-10(g). The 
Bureau believes the long form disclosure should include all fee 
information about a prepaid account product, and therefore it should 
contain the fee schedule for every possible service plan.
    Additionally, the Bureau proposes to add comment 18(b)(3)(iii)(B)-1 
which would provide additional guidance on its proposed definition of 
multiple service plans. Specifically, proposed comment 18(b)(3)(iii)(B) 
would state that the multiple service plan disclosure provisions in 
proposed Sec.  1005.18(b)(3)(iii)(B) apply when a financial institution 
offers more than one service plan for a particular prepaid account 
product, and each plan has a different fee schedule. For example, a 
financial institution might offer a prepaid account product with one 
service plan where a consumer pays no periodic fee but instead pays a 
fee for each transaction, and another plan that includes a monthly fee 
but no per transaction fee. The proposed comment would also state that 
a financial institution could also offer a prepaid account product with 
one service plan for consumers who utilize another one of a financial 
institution's non-prepaid services (e.g., a mobile phone service) and a 
different plan for consumers who only utilize a financial institution's 
prepaid account products. Each of these plans would be considered a 
``service plan'' for purposes of proposed Sec.  1005.18(b)(3)(iii).
18(b)(4) Specific Formatting Requirements
18(b)(4)(i) Grouping
18(b)(4)(i)(A) Short Form Disclosures
    Proposed Sec.  1005.18(b)(4)(i)(A) would contain several formatting 
requirements for the short form disclosure. First, proposed Sec.  
1005.18(b)(4)(i)(A) would state that the information required by 
proposed Sec.  1005.18(b)(2)(i)(A) or proposed Sec.  1005.15(c)(2), 
when applicable, would have to be grouped together. Proposed Sec.  
1005.18(b)(4)(i)(A) would further state that the information required 
by proposed Sec.  1005.18(b)(2)(i)(B)(1) through (4) would have to be 
generally grouped together and appear in the order of the Model Forms 
in appendix A-10(a) through (d) of this part. As discussed above, the 
Bureau believes that grouping the fees required to be disclosed by 
proposed Sec.  1005.18(b)(2)(i)(B)(1) through (4) in the top-line will 
more effectively direct consumers' attention to these fees, which the 
Bureau believes are the most important fees. The Bureau also believes 
that, when it is applicable, the payroll card account or government 
benefit account notice banner should appear at the top of the short 
form to ensure consumers understand that they do not have to accept 
such an account. Finally, proposed Sec.  1005.18(b)(4)(i)(A) would 
further state that the information required by proposed Sec.  
1005.18(b)(2)(i)(B)(5) through (9) would have to be generally grouped 
together and appear in the order of the Model Forms in appendix A-10(a) 
through (d). The Bureau also proposes, in proposed Sec.  
1005.18(b)(4)(i)(A), that the textual information required by proposed 
Sec.  1005.18(b)(2)(i)(B)(10) through (14) must be grouped together on 
the short form disclosure and in the order they appear in proposed 
Model Forms A-10(c) and (d). The Bureau recognizes that some consumers 
may focus only on fee information and not review textual information. 
Indeed, in testing, many consumers did not notice some of the textual 
information included on model forms until the facilitator pointed it 
out to them. The Bureau therefore seeks comment on whether there is a 
better way to group the textual information on the short form 
disclosure to increase the likelihood that consumers will read it.
    The Bureau further proposes in Sec.  1005.18(b)(4)(i)(A) that the 
URL of the Web site disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(11) would not be permitted to exceed twenty-two 
characters, and that it must be meaningfully named. By meaningfully 
named, the Bureau means a URL that uses real words or phrases, 
particularly those related to the actual prepaid account product. The 
Bureau believes twenty-two characters is the maximum length of a URL 
that can fit legibly on a short form disclosure that would fit on most 
existing retail packaging material.

[[Page 77173]]

The Bureau believes these parameters will ensure that a consumer can 
easily enter the URL of the Web site listed on the short form into a 
mobile device when shopping in a retail store in order to access the 
long form. Using a meaningfully named URL will also ensure that it is 
easy for a consumer to understand, which the Bureau believes will 
increase the likelihood that a consumer would utilize the URL to seek 
out more information about a prepaid account product.
    Nevertheless the Bureau seeks comment on all aspects of this part 
of the proposal. Specifically, the Bureau solicits comment on whether a 
requirement that the URL be meaningfully named could make it more 
challenging for financial institutions to use shortened URLs or other 
mechanisms on the short form to facilitate accessibility of the long 
form in retail locations.
18(b)(4)(i)(B) Long Form Disclosures
    The Bureau proposes in Sec.  1005.18(b)(4)(i)(B) that all fees that 
may be imposed by the financial institution in connection with a 
prepaid account that proposed Sec.  1005.18(b)(2)(ii)(A) would require 
to be disclosed in the long form must be generally grouped together and 
organized by categories of function for which a consumer would utilize 
the service associated with each fee. The Bureau believes that 
disclosing fees in categories will aid consumers' navigation of the 
long form disclosure, which would include all of a prepaid account's 
fees and could be much longer than the short form disclosure. Proposed 
Sec.  1005.18(b)(4)(i)(B) would also require that text describing the 
conditions under which a fee could be imposed would have to appear in 
the table directly to the right of the numeric fee amount disclosed. 
The Bureau also proposes, in Sec.  1005.18(b)(4)(i)(B), that the 
telephone number, Web site and mailing address, the statement regarding 
FDIC insurance, if applicable, and the CFPB Web site and telephone 
number, as required to be disclosed by proposed Sec.  
1005.18(b)(2)(ii)(C) through (E) must be generally grouped together. 
Proposed Sec.  1005.18(b)(4)(i)(B) would also require that the 
information required by Sec.  1005.18(b)(2)(ii)(B) would have to be 
generally grouped together.
18(b)(4)(i)(C) Multiple Service Plan Disclosures
    The Bureau proposes in Sec.  1005.18(b)(4)(i)(C) that when a 
financial institution provides disclosures in compliance with proposed 
Sec.  1005.18(b)(3)(iii)(B)(1) and discloses the fee schedules of 
multiple service plans together on one short form, the fees required to 
be listed pursuant proposed Sec.  1005.18 (b)(2)(i)(B)(1) through (7) 
that vary among service plans must be generally grouped together, the 
fees that are the same across all service plans must be grouped 
together, as set forth in proposed appendix A-10(f). Proposed Sec.  
1005.18(b)(4)(i)(C) would further state that if the periodic fee varies 
between service plans, the financial institution must use the term 
``plan fee,'' or a substantially similar term when disclosing the 
periodic fee for each service plan. The Bureau believes that, when a 
financial institution chooses to disclose multiple service plans 
together on one short form, it is most useful for a consumer to see all 
the fees that vary among plans grouped together to more easily compare 
the different plans. The Bureau seeks comment on whether this grouping 
distinction for short forms that include multiple service plans makes 
sense.
    Proposed Sec.  1005.18(b)(4)(i)(C) would also state that the 
incidence-based fees disclosed pursuant to proposed Sec.  1005.18 
(b)(2)(i)(B)(8) must be grouped with the fees that are the same across 
all service plans as set forth in proposed Model Form A-10(f). The 
Bureau believes that since a financial institution would have to 
consider total incidence across all plans when determining its 
incidence-based fee disclosure to comply with proposed Sec.  
1005.18(b)(2)(i)(B)(8), it makes sense that these fees would be grouped 
with the fees that are the same across all service plans. See proposed 
comment 18(b)(2)(i)(B)(8)-1.
18(b)(4)(ii) Prominence and Size
    Proposed Sec.  1005.18(b)(4)(iii) would set forth the prominence 
and size requirements for the short form and long form disclosures. 
Generally, the Bureau believes that the information provided to 
consumers in the short and long form disclosure should appear in a 
large enough font size to ensure that consumers can easily read the 
information. Further, in its testing, the Bureau found that some 
participants had to use reading glasses or otherwise struggled to read 
existing prepaid account disclosures. Also, many participants reported 
a preference for larger font sizes to facilitate their ability both to 
read and to understand disclosures. Thus, as discussed below, the 
Bureau has proposed minimum font size requirements for both the short 
form and long form disclosures in order to ensure that consumers can 
easily read the disclosures. In addition, the Bureau believes that the 
relative font sizes of the disclosures made on the short form should 
ensure that consumers' attention is quickly drawn to the most important 
information about a prepaid account. As described in more detail below, 
the Bureau is therefore also proposing certain minimum font sizes for 
the short form disclosure requirements described in proposed Sec.  
1005.18(b)(2)(i) in addition to the requirement that the top-line fees 
(i.e., periodic fee, per purchase fees, ATM withdrawal fees, and cash 
reload fee) appear more prominently than all of the other information 
included on the short form to create a visual hierarchy of information.
    Proposed Sec.  1005.18(b)(4)(ii)(A) would require that all text 
used to disclose the information pursuant to proposed Sec.  
1005.18(b)(2) must be in a single, easy-to-read type face. Proposed 
Sec.  1005.18(b)(4)(ii)(A) would also state that all text included in 
the tables that would be required to be disclosed by proposed Sec.  
1005.18(b)(3)(iii) would have to be all black or one color type and 
printed on a white or other neutral contrasting background whenever 
practical. The Bureau believes that contrasting colors for the text and 
the background of the short form and long form disclosures will make it 
easier for consumers to read the disclosure. The Bureau believes that 
using a black color for the text and a white color for the background 
of the form is the most clear presentation, but the Bureau also 
recognizes that other similarly dark colors for text with a neutral 
background color could just as clearly present the information. For 
example, when including the payroll card account notice banner at the 
top of the short form, a financial institution could use a grey 
background if the background of the rest of the short form is white. 
The Bureau believes this type of distinction would make it easier for a 
consumer to see that banner.
    Proposed Sec.  1005.18(b)(4)(ii)(B)(1) would require that the 
information required to be disclosed by proposed Sec.  
1005.18(b)(2)(i)(A) and proposed Sec.  1005.15(c)(2) for the payroll 
card account or government benefit account notices banners would have 
to appear in a minimum eight-point font or the corresponding pixel size 
and appear in no larger a font than what is used for the information 
required to be disclosed by proposed Sec.  1005.18(b)(2)(i)(B)(1) 
through (4) in the top-line portion of the short form. Proposed Sec.  
1005.18(b)(4)(ii)(B)(2) would require that the top-line fees required 
to be disclosed by proposed Sec.  1005.18(b)(2)(i)(B)(1) through (4) be 
more prominent than the other parts of

[[Page 77174]]

the disclosure required by proposed Sec.  1005.18(b)(2)(i) and appear 
in a minimum 11 point font or the corresponding pixel size.
    As discussed above, the Bureau believes that consumers commonly 
incur these top-line fees when a financial institution imposes charges 
for these services. In the Bureau's consumer testing, participants 
reported that these fee disclosures were the most important to them. As 
discussed in the section-by-section analysis of proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (4), the Bureau recognizes that a 
financial institution may not charge a fee for all of these services. 
For example, a financial institution might not charge any per purchase 
fees when it imposes a monthly fee. The Bureau, however, still believes 
that such fees should be disclosed in a more prominent and larger font 
size than other information on the short form disclosure in order to 
draw consumers' attention to this information before acquiring a 
prepaid account. In proposed Model Form A-10(f), the amounts of these 
fees appear in bold to make them more prominent than the other 
information on the short form. The Bureau is also proposing pixel sizes 
because it acknowledges that font sizes could vary when applied in 
electronic contexts. Though the font sizes may differ, the relative 
sizes of the components of the short form would have to remain 
consistent to maintain the visual hierarchy of information included in 
the form.
    Additionally, the Bureau proposes in Sec.  1005.18(b)(4)(ii)(B)(2) 
that the fee disclosures required by proposed Sec.  
1005.18(b)(2)(i)(B)(5) through (9), namely, the ATM balance inquiry 
fees, inactivity fee, and incidence-based fees, must appear in a 
minimum eight-point font or the corresponding pixel size and appear in 
no larger a font than what is used to disclose the information required 
by proposed Sec.  1005.18(b)(2)(i)(B)(1) through (4). As discussed 
earlier, while the Bureau believes that these fees are important for a 
consumer to know pre-acquisition, the Bureau believes that these fees 
are less likely to drive most consumers' acquisition decisions when 
shopping among prepaid accounts and thus should be disclosed using a 
smaller font size.
    Proposed Sec.  1005.18(b)(4)(ii)(B)(2) would also require that the 
textual information disclosed on the short form pursuant to proposed 
Sec.  1005.18(b)(2)(ii)(10) through (14) must appear in a minimum 
seven-point font or corresponding pixel size and must appear in no 
larger a font than what is used to disclose the ATM balance inquiry 
fees, inactivity fee, and incidence-based fees that would have to be 
disclosed by proposed Sec.  1005.18(b)(2)(i)(B)(5) through (9).
    The Bureau notes that the proposed minimum font sizes are likely 
also the maximum sizes that could be used on the short form to ensure 
that it will still fit on most packaging material currently used in 
retail locations. In other acquisition scenarios, however, when space 
constraints are not as much of an issue, the Bureau expects that 
financial institutions would use larger versions of the short form. For 
example, when distributing disclosures for payroll card accounts in 
printed form, financial institutions could use 8.5 by 11 inch pieces of 
paper to present a larger version of the short form, as long as the 
form maintains the visual hierarchy of having the information on the 
short form gradually decrease in size from top to bottom. The Bureau 
further proposes in Sec.  1005.18(b)(4)(ii)(B)(2) that the statement 
disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(10), and the 
telephone number and URL disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(11) must be more prominent than the information 
disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(12) through 
(14) and proposed Sec.  1005.18(b)(2)(i)(C). The Bureau believes that 
it is particularly important for a consumer to see this information on 
the short form, and that making it more prominent than the other 
textual language on the short form could help to draw consumers' 
attention to these disclosures.
    Proposed Sec.  1005.18(b)(4)(ii)(B)(2) would also state that text 
used to distinguish each of the two fees that are required to be 
disclosed by proposed Sec.  1005.18(b)(2)(i)(B)(2), (3) and (5), or to 
explain the duration of inactivity that triggers a financial 
institution to impose an inactivity fee pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(7) would have to appear in at least six-point font 
or corresponding pixel size and appear in no larger a font than what is 
used for information required to be disclosed by Sec.  
1005.18(b)(2)(i)(B)(9) through (12). The Bureau believes that this 
descriptive information is less important than the actual fee 
information and therefore should be in a smaller font or pixel size.
    Finally, proposed Sec.  1005.18(b)(4)(ii)(B)(3) would require that 
the explanatory text disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(C) when any of the fees included on the short form 
could vary would have to be in a minimum seven-point font and appear in 
no larger the font than what is used to disclose the fees not in the 
top-line as required by proposed Sec.  1005.18(b)(2)(i)(B)(5) through 
(8). The Bureau believes that this explanatory text should be in the 
same font size as the rest of the textual information included on the 
short form.
    The Bureau is proposing Sec.  1005.18(b)(4)(ii)(C) to require that 
the fees and other information required to be disclosed in the long 
form by proposed Sec.  1005.18(b)(2)(ii) would have to appear in at 
least eight-point font or the corresponding pixel size. The Bureau 
believes that the long form, which will list all of a prepaid account's 
fees, need only appear in a font that is clear enough for consumers to 
read. The Bureau does not believe any part of the long form should be 
more prominent than another part. Thus, the Bureau is not proposing any 
rules regarding the relative font size of information disclosed in the 
long form.
    The Bureau is proposing in Sec.  1005.18(b)(4)(ii)(D) that when 
providing disclosures in compliance with proposed Sec.  
1005.18(b)(3)(iii)(B)(1) and disclosing the fee schedules of multiple 
service plans together on one form, disclosures required by proposed 
Sec.  1005.18(b)(2)(i)(B)(1) through (9) must appear in a minimum 
seven-point font or the corresponding pixel size. Proposed Sec.  
1005.18(b)(4)(ii)(D) would also require the disclosures required by 
proposed Sec.  1005.18(b)(2)(i)(B)(10) through (14) to appear in the 
font sizes set forth in proposed Sec.  1005.18(b)(4)(ii)(B)(2).
18(b)(5) Segregation
    Proposed Sec.  1005.18(b)(5) would explain that disclosures 
required under this section that are provided in writing or 
electronically would have to be segregated from everything else and 
could contain only information that is directly related to the 
disclosures required under this section. The Bureau believes it is 
important that only the information it would require to be disclosed be 
included on the short form and long form disclosures. As noted, 
financial institutions (or whatever entity is responsible for marketing 
the prepaid account) could use the remainder of a prepaid account's 
packaging material or Web site to disclose other information to a 
consumer, but the Bureau believes it is important to limit the amount 
of information permitted in its required disclosures to protect the 
integrity of forms' design.
18(b)(6) Prepaid Accounts Acquired in Foreign Languages
    Regulation E generally permits, but does not require, that 
disclosures be made in a language other than English, provided that 
where foreign language

[[Page 77175]]

disclosures are provided the disclosures are made available in English 
upon a consumer's request. See Sec.  1005.4(a)(2). When it issued 
regulations on remittance transfers, the Bureau altered Regulation E's 
general requirement for foreign language disclosures to require 
disclosures be made in English in addition to a foreign language if 
that foreign language is used principally by the remittance transfer 
provider to advertise, solicit, or market remittance transfer services 
at the office in which the sender conducts a transaction or asserts an 
error. (Sec.  1005.31(g)(1)(i)). The Bureau amended Regulation E in 
this way pursuant to a statutory mandate in Section 1073 of the Dodd-
Frank Act.
    The Bureau proposes also to modify the general Regulation E foreign 
language requirement for prepaid accounts such that proposed Sec.  
1005.18(b)(6) would require that if a financial institution principally 
uses a foreign language on prepaid account packaging material, by 
telephone, in person, or on the Web site a consumer utilizes to acquire 
a prepaid account, the short form and long form disclosures made 
pursuant to proposed Sec.  1005.18(b)(2)(i) and (ii) would have to be 
provided in that same foreign language. A financial institution would 
also have to provide the long form required to be disclosed by proposed 
Sec.  1005.18(b)(2)(ii) in English upon a consumer's request and on any 
part of the Web site where it provides the long form disclosure in a 
foreign language.
    As noted above, this proposal is made pursuant to the Bureau's 
authority under EFTA sections 904(a) and (c), 905(a), and Dodd-Frank 
Act section 1032(a). The Bureau notes that this proposed approach to 
foreign language disclosures applies only to prepaid accounts and would 
not alter the application of the general Regulation E provision for any 
other type of account. The Bureau believes that if a financial 
institution is primarily using a foreign language on the interface that 
a consumer sees or uses to initiate the process of acquiring a prepaid 
account, consumers should receive pre-acquisition disclosures in that 
foreign language to ensure that they are able to understand them. The 
Bureau also believes that such a consumer might benefit from receiving 
the long form disclosure in both the foreign language and English in 
case a consumer is comfortable speaking the language, but may only read 
English, or if a family member who speaks English assists a consumer 
with managing their prepaid account.
    The Bureau recognizes, however, that requiring financial 
institutions to provide short form disclosures in two languages could 
be burdensome. The Bureau therefore seeks comment on whether it is 
feasible for financial institutions in all acquisition scenarios to 
provide the long form disclosure in English in addition to in the 
foreign language in which the account is marketed, and whether 
financial institutions typically already provide disclosures in both 
languages. The Bureau also solicits comment on whether financial 
institutions should also provide the short form disclosure in English 
in all cases. Proposed comment 18(b)(6)-1 would provide several 
examples as to when financial institutions would have to provide the 
short form and long form disclosures in a foreign language. 
Specifically, the proposed comment would clarify that if, for example, 
a financial institution uses mostly Spanish on the packaging material 
of a prepaid account sold in a retail store, even though a few words 
appear in English, then the short form and, if accessed by the 
consumer, long form disclosure provided to a consumer must also be in 
Spanish. Proposed comment 18(b)(6)-1 would also clarify that if the 
homepage of the Web site a consumer visits to acquire a prepaid account 
is mostly in Spanish, the short form and long form disclosure a 
consumer receives pre-acquisition must also be in Spanish. 
Additionally, the proposed comment would clarify that a consumer who 
calls a telephone number to acquire a prepaid account and either speaks 
to a customer service agent in Spanish or interacts with an IVR system 
in Spanish must also receive the short form and long form information 
in Spanish in accordance with proposed Sec.  1005.18(b)(2)(ii). 
Finally, the proposed comment would clarify that if a consumer speaks 
with a customer service agent in a foreign language in a bank or credit 
union branch location, this would be considered ``in person,'' and a 
consumer would have to receive the short form and long form disclosures 
in that foreign language to comply with proposed Sec.  1005.18(b)(6).
18(b)(7) Disclosures on Prepaid Account Access Devices
    Proposed Sec.  1005.18(b)(7) would require that certain disclosures 
be made on the actual prepaid account access device itself. 
Specifically, the Bureau proposes that financial institutions must 
disclose the name of the financial institution, the URL of a Web site, 
and a telephone number that a consumer can use to access information 
about a prepaid account. Proposed Sec.  1005.18(b)(7) would also state 
that if a financial institution does not provide a physical access 
device in connection with a prepaid account, the Bureau is proposing 
that the disclosure must appear at the URL or other entry point a 
consumer must visit to access the prepaid account electronically. The 
Bureau further proposes that disclosure made on an accompanying 
document, such as a terms and conditions document, on packaging 
material surrounding an access device, or on a sticker or other label 
affixed to an access device would not constitute a disclosure on the 
access device. Proposed comment 18(b)(7)-1 would clarify that a 
consumer might use this information disclosed on the access device to 
contact a financial institution with a question about a prepaid 
account's terms and conditions, or to report when an unauthorized 
transaction has occurred involving a prepaid account.
    The Bureau believes it is important for a consumer to be able to 
access fee information, as well as check an account's balance, and have 
a means for reporting unauthorized transactions, even after a consumer 
has acquired a prepaid account. Disclosing telephone numbers on an 
access device will allow consumers to access this information if they 
are not in the location where they have retained the disclosures or are 
not able to access disclosures via the internet.
18(c) Access to Prepaid Account Information
    EFTA section 906(c) requires that a financial institution provide 
each consumer with a periodic statement for each account of such 
consumer that may be accessed by means of an electronic fund transfer. 
Section 1005.9(b), which implements EFTA section 906(c), generally 
requires a periodic statement for each monthly cycle in which an 
electronic fund transfer occurred or, if there are no such transfers, a 
periodic statement at least quarterly.\279\ Financial institutions must 
deliver periodic statements in writing and in a form that the consumer 
can keep, unless consent is received for electronic delivery or unless 
Regulation E provides otherwise. See Sec. Sec.  1005.4(a)(1) and 
1005.9(b).
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    \279\ The periodic statement must include transaction 
information for each EFT, the account number, the amount of any fees 
assessed, the beginning and ending account balance, the financial 
institution's address and telephone number for inquiries, and a 
telephone number for preauthorized transfers. Sec.  1005.9(b).
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    In the Payroll Card Rule, the Board modified the periodic statement 
requirement for payroll card accounts similar to what it had done 
previously for government benefit accounts under Sec.  1005.15. 
Pursuant to existing

[[Page 77176]]

Sec.  1005.18(b), financial institutions can provide periodic 
statements that comply with the general provisions in Regulation E, or 
alternatively, the institution must make available to the consumer: (1) 
The account balance, through a readily available telephone line; (2) an 
electronic history of account transactions that covers at least 60 days 
(including all the information required in periodic statements by Sec.  
1005.9(b)); and (3) a written history of account transactions that is 
provided promptly in response to an oral or written request and that 
covers at least 60 days (including all the information required in 
periodic statements by Sec.  1005.9(b)).
    The Bureau is proposing new Sec.  1005.18(c)(1) and (2) to apply 
Regulation E's periodic statement requirement to prepaid accounts, and 
an alternative that would allow financial institutions to instead 
provide access to account balance by telephone, at least 18 months of 
transaction history online, and at least 18 months written transaction 
history upon request. Proposed Sec.  1005.18(c)(3) would require 
financial institutions to disclose all fees assessed against the 
account, in any electronic or written account histories and periodic 
statements. In addition, the Bureau proposes in Sec.  1005.18(c)(4) to 
require financial institutions to disclose, in any electronic or 
written account histories and periodic statements, monthly and annual 
summary total of the amount of all fees imposed on a prepaid account, 
and the total amounts of deposits to and debits from a prepaid account.
    As discussed below in the section-by-section analysis of proposed 
Sec.  1005.18(c)(1), (3), and (4), to further the purposes of EFTA to 
provide a framework to establish the rights, liabilities, and 
responsibilities of prepaid account consumers, the Bureau believes it 
is necessary and proper to exercise its authority under EFTA section 
904(c) to propose an exception to the periodic statement requirements 
of EFTA section 906(c) and to modify the periodic statement 
requirements of EFTA section 906(c) to require inclusion of all fees 
charged and a summary total of both monthly and annual fees. These 
proposed revisions will assist consumers' understanding of their 
prepaid account activity. In addition, the Bureau is also using its 
disclosure authority pursuant to the Dodd-Frank Act section 1032(a) 
because the Bureau believes that disclosure of fee and account activity 
summaries ensures that the features of prepaid accounts, over the term 
of the product or service, are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with prepaid accounts.
18(c)(1) Periodic Statement Alternative
    As discussed above, financial institutions that issue payroll cards 
can provide periodic statements that comply with the general provisions 
in Regulation E, or alternatively, the institution must make available 
to the consumer: (1) The account balance, through a readily available 
telephone line; (2) an electronic history of account transactions that 
covers at least 60 days (including all the information required in 
periodic statements by Sec.  1005.9(b)); and (3) a written history of 
account transactions that is provided promptly in response to an oral 
or written request and that covers at least 60 days (including all the 
information required in periodic statements by Sec.  1005.9(b)). See 
existing Sec.  1005.18(b).
    Relatedly, the FMS Rule requires a prepaid card receiving a Federal 
payment (such as Social Security benefits, Federal tax refunds, or 
Federal government wages) to satisfy several conditions, including that 
the card issuer must comply with all of the requirements of, and 
provide the cardholder with all of the consumer protections that apply 
to, a payroll card account under Regulation E. See 31 CFR 210.5(b)(5). 
By virtue of the FMS Rule, the Bureau believes that a majority of 
prepaid account programs are presently complying with Regulation E's 
periodic statement alternative for payroll card accounts. Indeed, in 
its Study of Prepaid Account Agreements, the Bureau found that almost 
all prepaid account agreements reviewed (including 99.03 percent of 
agreements reviewed for GPR card programs) provide electronic access to 
account information; \280\ a majority of programs reviewed (including 
73.91 percent of agreements for GPR card programs) explicitly provide 
that transactional history is available for at least 60 days (which is 
consistent with the payroll card account alternative in existing Sec.  
1005.18(b)); \281\ and most programs reviewed (including 88.41 percent 
of agreements for GPR card programs) make clear that paper statements 
or paper account histories are available upon request.\282\
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    \280\ See Study of Prepaid Account Agreements, at 18 tbl. 5.
    \281\ See id. at 19 tbl. 6.
    \282\ See id. at 21 tbl. 8.
---------------------------------------------------------------------------

    This is consistent with what other studies of the prepaid industry 
have found. For example, the Center for Financial Services Innovation 
(CFSI) found in its review of 18 GPR card programs,\283\ representing 
an estimated 90 percent of the GPR card marketplace, that all card 
programs reviewed allowed cardholders to obtain balance information 
online, by calling customer service, by text message, or via mobile app 
or mobile-enabled Web site. CFSI found that eleven out of fifteen cards 
for which information was available (representing about 60 percent of 
the market sampled) provided at least two years of transactional data 
online, three provided one year of data, and one card provided six 
months of data.\284\ CFSI also found that fifteen cards (representing 
approximately 75 percent of the market sampled) allowed cardholders to 
make one-time requests for paper statements, and nine cards (about 40 
percent of the market sampled) allowed cardholders to receive ongoing 
monthly statements, typically for a fee ranging between $1 and $3.\285\ 
In a recent review of 66 GPR card programs, the Pew Charitable Trusts 
found that 45 cards (68 percent) disclosed a paper statement fee 
ranging from 99 cents to $10, with a median fee of $2.95; seven cards 
(11 percent) disclosed that paper statements were free, and 14 cards 
(21 percent) did not disclose any fee (or lack thereof) for paper 
statements. Pew also found that 65 cards (98 percent) disclosed that 
transaction information is provided online for free.\286\
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    \283\ Programs reviewed by CFSI included ``cards issued by the 
largest program managers in the marketplace, as well as a selection 
of smaller program managers that have particularly innovative 
cards.'' Ctr. for Fin. Services Innovation, Prepaid Industry 
Scorecard, Assessing Quality in the Prepaid Industry with CFSI's 
Compass Principles, at 6 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/CFSI_Prepaid_Industry_Scorecard_2014.pdf.
    \284\ Id. at 12. The CFSI study did not note, however, whether 
any prepaid programs might charge fees for these methods of 
accessing account information.
    \285\ Id. at 13.
    \286\ 2014 Pew Study, at 19-20.
---------------------------------------------------------------------------

    In its Prepaid ANPR, the Bureau sought comment on whether it was 
appropriate to modify Regulation E's general requirements for prepaid 
cards and, as an example, asked whether it was necessary to extend the 
requirement to provide periodic paper statements to prepaid cards. In 
response, most industry and trade association commenters recommended 
that the Bureau extend to prepaid cards the Payroll Card Rule's 
alternative method of complying with Regulation E's periodic statement 
requirement. Many of these commenters argued that paper statements are 
not a viable alternative for prepaid cards and that electronic access 
to account information--as

[[Page 77177]]

provided under the Payroll Card Rule--is more consistent with current 
consumer needs and expectations. They explained that consumers have 
shown little interest in receiving paper statements for prepaid 
accounts and that consumers prefer to have access to current and 
historical account information online. In addition, information 
contained on a monthly paper statement may be considered by consumers 
to be ``stale'' by the time it arrives. These commenters also cited the 
fact that prepaid card users are often transient which results in paper 
statements often being returned as undeliverable. Finally, industry 
commenters expressed concern that a paper statement requirement would 
be cost prohibitive and would ultimately result in fee increases.
    Consumer groups' comments regarding whether the Bureau should 
require written periodic statements were mixed. Some groups urged that 
paper statements be provided by default for all prepaid accounts unless 
the consumer explicitly opts out. One group argued this was necessary 
because, based on its research, many cards do not provide account 
history information sufficient to determine whether an unauthorized 
transaction occurred. Several groups argued that prepaid accounts 
should be exempt from the paper statement requirement only if they 
offer no credit or overdraft features and the underlying funds are held 
in an account with deposit insurance. Other groups suggested that it is 
appropriate to forego paper statements for prepaid accounts so long as 
consumers are able to receive ad hoc paper statements upon request.
    The Bureau conducted additional outreach to industry regarding the 
usage of written statements by consumers and the cost to financial 
institutions of providing such statements. Based on this outreach, the 
Bureau believes that there may be significant costs in providing 
monthly paper statements for all prepaid accounts. Beyond the costs of 
printing and mailing statements, the Bureau also understands, based on 
industry outreach, that there could be a high incidence of returned 
mail due to the transient nature of some prepaid account users if paper 
periodic statements were required for all prepaid accounts. Further, in 
its focus groups and consumer testing, the Bureau asked participants if 
they were satisfied with the information they have about their account 
and whether they would value a monthly electronic or paper statement. 
The Bureau notes that almost no participants said that they would want 
to receive a monthly paper statement that they had not requested. 
Instead, almost all participants stated that free access to account 
information online and by telephone provided by prepaid issuers and 
program managers largely met their needs.
    Based on its analysis, the Bureau is proposing to extend to prepaid 
accounts the Payroll Card Rule's alternative to providing periodic 
statements (existing Sec.  1005.18(c)(1)), with certain modifications 
that would be applicable to payroll card accounts as well as to prepaid 
accounts, as described below. The Bureau believes that the methods of 
access to account information in the Payroll Card Rule generally strike 
the appropriate balance between providing consumers the transactional 
history they need without unnecessarily burdening financial 
institutions. The Bureau believes that requiring written monthly 
statements to all prepaid card consumers could increase cost and 
burden. Thus, the Bureau is proposing to extend the Payroll Card Rule's 
provisions regarding access to account information to prepaid accounts, 
with certain modifications as described below. As noted above, this 
proposed revision is authorized under EFTA section 904(c) and section 
1032(a) of the Dodd-Frank Act. As with the Payroll Card Rule, financial 
institutions would generally be able to provide traditional periodic 
statements for prepaid accounts, whether in paper form or 
electronically with E-Sign consent,\287\ in lieu of the alternative in 
Sec.  1005.18(c)(1) discussed below, but consistent with proposed Sec.  
1005.18(c)(3) and (4) below.
---------------------------------------------------------------------------

    \287\ As explained above in the section-by-section analysis of 
proposed Sec.  1005.18(b)(3)(i), the E-Sign Act generally allows the 
use of electronic records to satisfy any statute, regulation, or 
rule of law requiring that such information be provided in writing, 
if a consumer has affirmatively consented to such use and has not 
withdrawn such consent, and certain format of delivery requirements 
are met.
---------------------------------------------------------------------------

18(c)(1)(i)
    As discussed above, a financial institution need not furnish 
periodic statements pursuant to Sec.  1005.9(b) if it instead follows 
the periodic statement alternative for payroll card accounts. See 
existing Sec.  1005.18(b)(1). The first part of that alternative, Sec.  
1005.18(b)(1)(i), currently requires a financial institution to provide 
access to the consumer's account balance through a readily available 
telephone line. The Bureau is proposing to extend this requirement in 
Sec.  1005.18(b)(1)(i), renumbered as Sec.  1005.18(c)(1)(i), to all 
prepaid accounts. The Bureau reminds financial institutions that, when 
providing balance information by telephone as part of the alternative 
to the Sec.  1005.9(b) periodic statement requirement, neither they nor 
their service providers would be permitted to charge consumers for 
accessing this information required to be provided pursuant to proposed 
Sec.  1005.18(c)(1)(i).
    As the Board explained in the supplementary information to the 
Payroll Card Rule, a readily available telephone line for providing 
balance information must be a local or toll-free telephone line that, 
at a minimum, is available during standard business hours. The Board 
noted that it expected that, in most cases, institutions would provide 
24-hour access to balance information through an automated line, which 
would ensure that consumers could access balance information at their 
convenience. Because the Board believed that it might be operationally 
difficult for some institutions to provide information about 60 days' 
worth of transactions through a telephone system, the Payroll Card Rule 
did not require institutions to provide information about specific 
transactions by telephone.\288\ For substantially similar reasons, the 
Bureau believes it is appropriate to propose extending existing Sec.  
1005.18(b)(1)(i), renumbered as new Sec.  1005.18(c)(1)(i), to all 
prepaid accounts.
---------------------------------------------------------------------------

    \288\ See 71 FR 51437, 51443 (Aug. 30, 2006).
---------------------------------------------------------------------------

    As discussed above in the section-by-section analysis of proposed 
Sec.  1005.15(d)(1)(i), the periodic statement alternative for 
government benefit accounts (both currently and as proposed) requires 
access to balance information through a readily available telephone 
line as well as at a terminal (such as by providing balance information 
at a balance-inquiry terminal or providing it, routinely or upon 
request, on a terminal receipt at the time of an electronic fund 
transfer). The Bureau seeks comment on whether a similar requirement to 
provide balance information at a terminal should be added to the 
requirements of proposed Sec.  1005.18(c)(1)(i) for prepaid accounts 
generally. As noted above, the Bureau is also requesting comment on 
whether, alternatively, the requirement to provide balance information 
for government benefit accounts at a terminal should be eliminated from 
Sec.  1005.15 given the other enhancements proposed therein and for 
parity with proposed Sec.  1005.18.
18(c)(1)(ii)
    The second part of the periodic statement alternative for payroll 
card accounts, Sec.  1005.18(b)(1)(ii), currently requires financial 
institutions to provide an electronic history of the consumer's account 
transactions, such as through a Web site, that covers at least 60 days

[[Page 77178]]

preceding the date the consumer electronically accesses the account. 
Based on the Bureau's Study of Prepaid Account Agreements, other public 
studies, and outreach, the Bureau believes that virtually all prepaid 
account providers make available some form of free electronic access to 
balance and transaction history information \289\ and that at least 60 
days of account history is typically provided.\290\ Further, the Bureau 
believes that, based on its outreach to industry stakeholders and 
recent public studies, many prepaid programs provide more extensive 
online account history information than is currently required by the 
Payroll Card Rule (60 days).\291\ Some prepaid account providers also 
offer periodic (e.g., monthly) electronic statements at no charge in 
addition to account history.\292\
---------------------------------------------------------------------------

    \289\ As noted above, in its Study of Prepaid Account 
Agreements, the Bureau found that 97.85 percent of all prepaid 
account agreements reviewed indicated that electronic access to 
account information was available; the remaining 2.15 percent of 
agreements were unclear as to whether such access was available. See 
Study of Prepaid Account Agreements, at 18 tbl. 5.
    \290\ The majority of account agreements reviewed in the Study 
of Prepaid Account Agreements that addressed access to account 
information with any specificity simply stated that account 
information would be available for at least the past 60 days (66.15 
percent of all agreements reviewed), a small portion explicitly 
provided for a longer period (7.40 percent), and the remainder were 
unclear as to the time period (26.46 percent). See id. at 19 tbl. 6.
    \291\ See, e.g., Ctr. for Fin. Services Innovation, Prepaid 
Industry Scorecard, Assessing Quality in the Prepaid Industry with 
CFSI's Compass Principles, at 12 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/CFSI_Prepaid_Industry_Scorecard_2014.pdf (finding that about 60 
percent of the market sampled, which is estimated to represent 
approximately 90 percent of the GPR card marketplace, allowed 
cardholders to access at least two years of transactional data 
online; the remaining products provided six months or one year of 
data).
    \292\ The Study of Prepaid Accounts found that 57.54 percent of 
agreements reviewed specifically stated that electronic periodic 
statements (rather than just electronic access to account history) 
are available. See Study of Prepaid Account Agreements, at 20 tbl. 
7.
---------------------------------------------------------------------------

    The Bureau is proposing to extend this requirement in existing 
Sec.  1005.18(b)(1)(ii) to prepaid accounts, renumbered as new Sec.  
1005.18(c)(1)(ii), and to expand the length of time that online access 
must cover from 60 days to 18 months. The Bureau is proposing to extend 
this time period because it believes that based on how consumers are 
currently using prepaid accounts, more than 60 days of account history 
may be, in many cases, beneficial for consumers. While recent account 
history is important for consumers tracking balances or monitoring for 
unauthorized transactions, a longer available account history serves a 
variety of potential purposes. For example, some consumers might need 
to demonstrate on-time bill payment or to compile year-end data for tax 
preparation purposes. The Bureau also believes that a consumer may 
realize during any given year that he needs financial records from the 
prior calendar year and that access to 18 months of prepaid account 
history will give the consumer six months into the next calendar year 
to make such a request. In addition, based on outreach to prepaid 
account providers and recent publicly available studies, as discussed 
above, the Bureau believes that many prepaid accounts provide at least 
12 months of account history and that, even if they do not, the cost of 
extending existing online histories to 18 months should be minimal. The 
Bureau reminds financial institutions that, when providing electronic 
access to account information as part of the alternative to the Sec.  
1005.9(b) periodic statement requirement, neither they nor their 
service providers would be permitted to charge consumers for providing 
access to account information required pursuant to proposed Sec.  
1005.18(c)(1)(ii).
Alternative Approaches Considered by the Bureau
    The Bureau considered other alternatives to the Payroll Card Rule's 
approach regarding access to account information. Among them, the 
Bureau considered proposing to require electronic periodic statements 
for all prepaid accounts, in addition to ongoing electronic access to 
account information. An electronic periodic statement requirement would 
require providers to deliver electronic periodic statements to 
consumers, even if the provider did not have the consumer's E-Sign 
consent. The Bureau viewed this as a potential, less-costly alternative 
to written statements. However, the Bureau questions whether the 
benefit of providing electronic periodic statements would justify the 
cost given that the existing Payroll Card Rule and this proposal 
require that electronic and written histories of account transactions 
provided as an alternative to Sec.  1005.9(b) contain the information 
set forth in Sec.  1005.9(b) for periodic statements generally. See 
section-by-section analysis of proposed Sec.  1005.18(c)(2).
    The Bureau additionally considered proposing to require financial 
institutions that do not provide periodic statements pursuant to Sec.  
1005.9(b) to periodically send an informational email or text message 
notification to consumers, for example, noting the prepaid account's 
remaining balance. The Bureau similarly considered requiring financial 
institutions to contact consumers by email or text message each time an 
inactivity, dormancy, or similar fee is assessed on the consumer's 
prepaid account. Such requirements would help remind consumers of the 
existence of prepaid accounts that they may have forgotten or have 
otherwise left dormant with unused balances. The Bureau considered that 
such requirements likely would be limited to those prepaid accounts for 
which consumers provided email addresses or mobile phone numbers and 
consented to receive such communications from the financial 
institution. The Bureau ultimately concluded, however, not to include 
such a requirement in this Proposed Rule because such a requirement may 
be overly burdensome given that consumers would have other access to 
account balance and transactional history under the proposal. The 
Bureau solicits comments on periodic statement alternatives on prepaid 
accounts.
    In the context of overdraft and other credit features on prepaid 
accounts, discussed in more detail below, the Bureau has considered the 
possibility of requiring additional real-time notifications of 
transactions triggering an overdraft or the accessing of a linked 
credit feature, or requiring real-time opt-in by consumers in order to 
approve each overdraft or other credit transaction in addition to what 
it proposes herein (and not in lieu of what Sec.  1005.17 requires for 
deposit accounts). The Bureau understands that there may be 
technological, operational, and procedural challenges to the timing and 
delivery of such a notice or compliance with such an opt-in 
requirement, particularly in the point of sale retail environment. The 
Bureau is unsure at this time whether such a procedure could be 
implemented given that notifications and/or consent might require 
multiple communications among financial institutions, card networks, 
and merchants. To the extent such real-time notification and consent 
could be provided or obtained by mobile device or other means, the 
Bureau continues to monitor developments with respect to real-time opt-
in. Accordingly, the Bureau is not proposing any requirements related 
to real-time notification or opt-in, but solicits comment on possible 
options and suggestions for what it might require in this regard for 
prepaid accounts.
18(c)(1)(iii)
    The third part of the periodic statement alternative for payroll 
card accounts, Sec.  1005.18(b)(1)(iii), currently requires financial 
institutions to provide

[[Page 77179]]

a written history of the consumer's account transactions promptly in 
response to an oral or written request, which covers at least 60 days 
preceding the date the financial institution receives the consumer's 
request. Similar to electronic account access above, the Bureau is 
proposing to extend this requirement in current Sec.  
1005.18(b)(1)(iii) to all prepaid accounts, renumbered as proposed 
Sec.  1005.18(c)(1)(iii), and to expand the length of time for which 
written history must be provided from 60 days to 18 months.
    In its Study of Prepaid Account Agreements, the Bureau found that 
most of the agreements reviewed indicate that paper account histories 
or paper statements are made available upon request.\293\ For those 
agreements that indicate fees are charged for providing paper account 
histories or statements,\294\ the amount of the fee varied widely 
(ranging from $0.75 to $10).\295\ As discussed previously, CFSI found 
15 out of 18 GPR cards it reviewed (representing approximately 75 
percent of the market sampled) allowed cardholders to make one-time 
requests for paper statements, and nine cards (about 40 percent of the 
market sampled) allowed cardholders to receive ongoing monthly 
statements, typically for a fee ranging between $1 and $3.\296\
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    \293\ The Study of Prepaid Account Agreements found that, across 
all agreements reviewed, 89.23 percent stated that paper statements 
or account histories are available. For payroll card programs, 96 
percent of agreements reviewed stated that paper statements or 
account histories were available, and 100 percent for government 
benefit cards. For GPR cards, 88.41 percent of agreements, and 64.29 
percent of agreements for all other types of programs stated that 
paper statements or account histories were available. See Study of 
Prepaid Account Agreements, at 21 tbl. 8.
    \294\ The Study of Prepaid Account Agreements found that, across 
all agreements reviewed that indicated a paper statement or account 
history is available, 32.41 percent do not charge a fee; 46.90 
percent specifically state a fee; 8.62 percent indicated that a fee 
would be charged but did not list the amount; and for 12.07 percent 
of agreements the Bureau was unable to find fee information for the 
programs generally. See id. at 22 tbl. 9.
    \295\ The Study of Prepaid Account Agreements found that, across 
all agreement reviewed, the average fee charged in the 136 
agreements that specified a non-zero fee amount was $3.54 and the 
median fee was $2.98. See id. at 23 tbl. 10.
    \296\ See Ctr. for Fin. Services Innovation, Prepaid Industry 
Scorecard, Assessing Quality in the Prepaid Industry with CFSI's 
Compass Principles, at 13 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/_Prepaid_Industry_Scorecard_2014.pdf.
---------------------------------------------------------------------------

    As discussed above, the Bureau understands from outreach to 
industry and its own consumer research that consumer utilization of 
written account histories is very low, regardless of whether a fee is 
charged to obtain such information. Of those prepaid account providers 
that shared specific statistics with the Bureau, none had greater than 
one percent of active customers requesting written histories for GPR 
cards on a regular basis, regardless of whether the entity made 
electronic statements available as well. The Bureau also observed 
during its consumer focus groups that participant receipt of or desire 
for written account histories was very low.
    The Bureau is proposing to extend existing comment 18(b)-1, which 
requires that the history of transactions provided under existing Sec.  
1005.18(b)(1)(ii) and (iii) reflect transactions once they have been 
posted to the account, and comment 18(b)-2 regarding retainability of 
electronic account history, to all prepaid accounts as new comments 
18(c)-1 and -2, and revise the internal paragraph references to conform 
with other numbering changes the Bureau is proposing, but otherwise 
leave these two comments unchanged.
    As the Board explained in the Payroll Card Rule, it anticipated 
that, in general, written account histories would be sent the next 
business day or soon after an institution receives the consumer's oral 
or written request. The Board explained that institutions also may 
designate a specific telephone number for consumers to call and a 
specific address for consumers to write to request a written copy of 
account transactions. The Board also noted that, although Sec.  1005.18 
does not address the issue, it believed that charging fees to consumers 
who make occasional requests for written histories could have a 
chilling effect on consumers' ability to obtain information about 
transactions and, thus, to exercise their error resolution rights.\297\ 
The Bureau shares these concerns.
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    \297\ See 71 FR 51437, 51444 (Aug. 30, 2006).
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    The Bureau reminds financial institutions that, when providing 
written account histories upon request as part of the alternative to 
the Sec.  1005.9(b) periodic statement requirement, generally, neither 
they nor their service providers would be permitted charge consumers 
for providing this required information pursuant to proposed Sec.  
1005.18(c)(1)(iii). During the Bureau's outreach, many industry 
participants indicated that consumers very rarely make these types of 
requests, so the Bureau does not anticipate that this requirement would 
pose a significant burden.
    The Bureau recognizes, however, that in certain situations 
consumers' requests for written account information may exceed what 
would be required under the proposal; therefore, the Bureau is 
proposing to clarify in new comment 18(c)-3 those instances where a 
financial institution would be permitted to charge a fee for providing 
such information. Proposed comment 18(c)-3 would include several 
examples of requests that exceed the requirements of proposed Sec.  
1005.18(c)(1) for providing account information and for which a 
financial institution would be permitted to charge a fee. A financial 
institution may assess a fee or charge to a consumer for responding to 
subsequent requests for written account information made in a single 
calendar month. For example, if a consumer makes a request for 18 
months of written account transaction history on June 1 and makes a 
request for 18 months of written history on August 5, the financial 
institution may not assess a fee or charge to the consumer for 
responding to either request. However, if the consumer requests 18 
months of written history on June 1 and then makes the same request on 
June 15, the financial institution may assess a fee or charge to the 
consumer for responding to the request made on June 15, as this is the 
second request in the same month. If a financial institution maintains 
more than 18 months of account transaction history, it may assess a fee 
or charge to the consumer for providing a written history of the 
consumer's account information for transactions occurring more than 18 
months prior to the date the institution receives the consumer's 
request, provided the consumer specifically requests the account 
transaction history for that time period. If a financial institution 
offers a consumer the ability to request automatic mailings of written 
history on a monthly or other periodic basis, it may, at its option, 
assess a fee or charge for such automatic mailings but not for account 
history requested pursuant to proposed Sec.  1005.18(c)(1)(iii).
    Proposed comment 18(c)-4 would explain that a financial institution 
may provide fewer than 18 months of written account transaction history 
if the consumer requests a shorter period of time. If a prepaid account 
has been open for fewer than 18 months, the financial institution need 
only provide account information pursuant to proposed Sec.  
1005.18(c)(1)(ii) and (iii) since the time of account opening. If a 
prepaid account is closed or becomes inactive, as defined by the 
financial institution, the financial institution must continue to 
provide at least 18 months of account transaction information from the 
date

[[Page 77180]]

the request is received. When a prepaid account has been closed or 
inactive for 18 months, the financial institution is no longer required 
to make available any account or transaction information available. The 
proposed comment references existing comment 9(b)-3, which provides 
that, with respect to written periodic statements, a financial 
institution need not send statements to consumers whose accounts are 
inactive as defined by the institution. The Bureau expects that for 
purposes of proposed comment 18(c)-4, a financial institution would 
similarly define for itself the threshold for when it considers a 
prepaid account inactive, consistent with existing comment 9(b)-3.
    The Bureau requests comment on all aspects of proposed Sec.  
1005.18(c)(1) regarding access to prepaid account information and 
commentary related thereto. In particular, the Bureau seeks comment on 
the methods of access consumers need to their account information, and 
the time period needed for such access. Additionally, the Bureau 
requests comment on other alternatives for providing access to account 
information, as well as potential changes to what is proposed herein.
18(c)(2) Information Included on Electronic or Written Histories
    Section 1005.18(b)(2) currently states that the history of account 
transactions provided under Sec.  1005.18(b)(1)(ii) and (iii) must 
include the information set forth in Sec.  1005.9(b). Section 1005.9(b) 
lists the various items that must be included in periodic statements, 
including, but not limited to, detailed transaction information and 
fees assessed. The Bureau proposes to renumber existing Sec.  
1005.18(b)(2) as new Sec.  1005.18(c)(2) and revise the cross-
references to correspond with proposed Sec.  1005.18(c)(1)(ii) and 
(iii), but otherwise leave this requirement unchanged. The Bureau 
solicits comment on this proposed approach.
18(c)(3) Inclusion of All Fees Charged
    The Bureau is proposing to require in new Sec.  1005.18(c)(3) that 
a periodic statement furnished pursuant to Sec.  1005.9(b) for a 
prepaid account, an electronic history of account transactions whether 
provided under proposed Sec.  1005.18(c)(1)(ii) or otherwise, and a 
written history of account transactions provided under proposed Sec.  
1005.18(c)(1)(iii) must disclose the amount of any fees assessed 
against a prepaid account, whether for electronic fund transfers or 
otherwise.
    EFTA section 906(c), generally implemented in Sec.  1005.9(b), 
provides that, among other things, a periodic statement must include 
the amount of any fees assessed against an account for electronic fund 
transfers or account maintenance. The Bureau notes that Regulation DD 
requires that periodic statements disclose all fees debited to accounts 
covered by that regulation. Sec.  1030.6(a)(3). Regulation DD defines 
``account'' to mean ``a deposit account at a depository institution 
that is held by or offered to a consumer. It includes time, demand, 
savings, and negotiable order of withdrawal accounts.'' Sec.  
1030.2(a). Because some prepaid accounts, as proposed herein to be 
defined under Regulation E, may not also constitute accounts as defined 
under Regulation DD, the Bureau is proposing new Sec.  1005.18(c)(3) to 
ensure that periodic statements and histories of account transactions 
for all prepaid accounts include all fees, not just those related to 
electronic fund transfers and account maintenance. As noted above, this 
proposed revision is authorized under EFTA section 904(c) and section 
1032(a) of the Dodd-Frank Act.
    The Bureau solicits comment on this portion of the proposal. In 
addition, the Bureau seeks comment on whether any other specific 
protections of Regulation DD, which may not apply to prepaid accounts 
provided by financial institutions (as defined in Regulation E) that 
are not depository institutions (as defined in Regulation DD), could be 
addressed for all prepaid accounts to ensure consistent protections for 
prepaid accounts regardless of who is providing the account.
18(c)(4) Summary Totals of Fees, Deposits, and Debits
    The Bureau is proposing new Sec.  1005.18(c)(4) to require that 
financial institutions provide a summary total of the amount of all 
fees assessed against the consumer's prepaid account, the total amount 
of all deposits to the account, and the total amount of all debits from 
the account, for the prior calendar month and for the calendar year to 
date. This information would be disclosed on any periodic statement 
provided pursuant to Sec.  1005.9(b), in any electronic history of 
account transactions whether provided pursuant to proposed Sec.  
1005.18(c)(ii)or otherwise, and on any written history of account 
transactions provided pursuant to proposed Sec.  1005.18(c)(iii). As 
discussed above, the Bureau is concerned that disclosure of a single 
``all-in'' estimation of fees on a prepaid product's packaging or 
elsewhere in pre-acquisition disclosures would not be feasible and 
ultimately would not provide useful information to consumers. The 
Bureau believes, however, that providing summary information about 
actual account usage (including fees incurred) would be useful to 
consumers in understanding their actual costs in using a particular 
prepaid account. As noted above, this proposed revision is authorized 
under EFTA section 904(c) and Dodd-Frank Act 1032(a). This summary 
total of fees proposal is similar to the requirement to disclose fees 
and interest in open end credit plans under Regulation Z. See 12 CFR 
1026.7(b)(6).
    The summary total of fees would include all fees assessed against 
the prepaid account in each calendar month, as well as a total for the 
year-to-date. The summary totals of both monthly and annual fees paid, 
and the totals of deposits to and debits from the account on a monthly 
and annual basis, would be updated on an ongoing basis for each month 
and each year in the prepaid account's online transaction history, and 
would be disclosed in any ad hoc written transaction history provided 
in response to a consumer's request or in a periodic statement.
    Proposed comment 18(c)-5 would explain that if a financial 
institution provides periodic statements pursuant to Sec.  1005.9(b), 
total fees, deposits, and debits may be disclosed for each statement 
period rather than each calendar month, if different. Proposed comment 
18(c)-5 would also explain that the fees that must be included in the 
summary total include those that are required to be disclosed pursuant 
to Sec.  1005.18(b)(2)(ii)(A). For example, an institution must include 
the fee it charges a consumer for using an out-of-network ATM in the 
summary total of fees, but it need not include any fee charged by an 
ATM operator with whom the institution has no relationship for the 
consumer's use of that operator's ATM.
    In addition, proposed comment 18(c)-5 would explain that the 
summary total of fees should be net of any fee reversals. The total 
amount of all debits from the account should be exclusive of fees 
assessed against the account. Finally, proposed comment 18(c)-5 would 
explain that the total deposits and total debits must include all 
deposits to and debits from the prepaid account, not just those 
deposits and debits that are the result of electronic fund transfers.
    The Bureau solicits comment on this portion of its proposal. In 
particular, the Bureau seeks comment on whether financial institutions 
are able to discern the amount of third party fees charged to a 
consumer's prepaid account (such as fees imposed by an ATM operator 
where the financial institution has no

[[Page 77181]]

relationship with the operator) and whether it would therefore be 
feasible for financial institutions to include such third party fees in 
this summary total of fees. The Bureau also seeks comment on whether 
and how credit accessed by a prepaid account, and the fees and finance 
charges related thereto, should be reflected in these proposed summary 
totals of fees, deposits and debits for the prepaid account.
18(d) Modified Disclosure Requirements
    The Bureau is proposing to extend the requirements in existing 
Sec.  1005.18(c)(1) related to initial disclosures regarding access to 
account information and error resolution, and in existing Sec.  
1005.18(c)(2) regarding annual error resolution notices, to all prepaid 
accounts. The Bureau proposes to renumber existing Sec.  1005.18(c)(1) 
and (2) as new Sec.  1005.18(d)(1) and (2) for organizational purposes 
and to separate the modified requirements related to disclosures in 
existing Sec.  1005.18(c)(1) and (2) from the modifications for 
limitations on liability and error resolution requirements in existing 
Sec.  1005.18(c)(3) and (4). See section-by-section analysis of 
proposed Sec.  1005.18(e). The Bureau proposes to adjust the internal 
cross-references in new Sec.  1005.18(d) in light of the various 
paragraph numbering changes and other revisions proposed throughout 
Sec.  1005.18.
    EFTA section 905(a)(7) requires financial institutions to provide 
consumers with an annual error resolution notice. The annual error 
resolution notice provision for payroll card accounts in existing Sec.  
1005.18(c)(2) permits a financial institution, in lieu of providing an 
annual notice concerning error resolution, to include an abbreviated 
error resolution notice on or with each electronic and written history 
provided in accordance with existing Sec.  1005.18(b)(1). Financial 
institutions providing periodic statements are similarly permitted to 
provide an abbreviated error resolution notice on or with each periodic 
statement pursuant to Sec.  1005.8(b). The Bureau considered limiting 
the requirement to provide annual error resolution notices to only 
active and registered prepaid accounts, but given this existing 
alternative for providing an abbreviated notice with electronic and 
written history, the Bureau does not believe such a modification is 
necessary. To further the purposes of EFTA to provide a framework to 
establish the rights, liabilities, and responsibilities of prepaid 
account users, the Bureau believes it is necessary and proper to 
exercise its authority under EFTA section 904(c) to propose an 
adjustment to the error resolution notice requirement of EFTA section 
905(a)(7), to permit notices for prepaid accounts as described in 
proposed Sec.  1005.18(d)(2), in order to facilitate compliance with 
error resolution requirements.
    The Bureau requests comment on the application of these provisions 
for initial disclosures regarding access to account information and 
error resolution, and annual error resolution notices, to all prepaid 
accounts. Specifically, the Bureau seeks comment on whether financial 
institutions would face particular challenges in providing annual error 
resolution notices to all consumers using prepaid accounts, as well as 
whether it should require that annual error resolution notices be sent 
for prepaid accounts in certain circumstances, such as those accounts 
for which a consumer has not accessed an electronic history or 
requested in written history in an entire calendar year and thus would 
not have received any error resolution notice during the course of the 
year.
18(e) Modified Limitations on Liability and Error Resolution 
Requirements
    EFTA section 908 governs the timing and other requirements for 
consumers and financial institutions pertaining to error resolution, 
including provisional credit. EFTA section 909 governs consumer 
liability for unauthorized electronic fund transfers. The Bureau is 
proposing to extend the Payroll Card Rule's limited liability 
provisions and error resolution provisions, including provisional 
credit, to all prepaid accounts. The Bureau also proposes to reorganize 
existing Sec.  1005.18(c)(3) and (4) into proposed Sec.  1005.18(e)(1) 
and (2) and to revise the paragraph headings for proposed Sec.  
1005.18(e), (e)(1) and (e)(2). Similar to the reorganization of 
existing Sec.  1005.18(c)(1) and (2) above, these changes are proposed 
to simplify the organization of proposed Sec.  1005.18 generally and to 
separate the modified requirements related to limited liability and 
error resolution from other modifications made for prepaid accounts.
    As discussed below in the section-by-section analysis of proposed 
Sec.  1005.18(e)(1), (2), and (3), the Bureau proposes to modify 
Regulation E's limited liability and error resolution timing 
requirements for prepaid accounts to accommodate how account 
information would be delivered by financial institutions choosing to 
follow the periodic statement alternative in proposed Sec.  
1005.18(c)(1) discussed above, and to exempt unverified prepaid 
accounts from the limited liability and error resolution requirements. 
To further the purposes of EFTA to provide a framework to establish the 
rights, liabilities, and responsibilities of prepaid account users and 
to facilitate compliance with its provisions, the Bureau believes it is 
necessary and proper to exercise its authority pursuant to EFTA section 
904(c) to modify the timing requirements of EFTA section 909(a) and to 
except unverified prepaid accounts from the error resolution and 
limited liability requirements of EFTA sections 908 and 909 to the 
extent such accounts remain unverified.
18(e)(1) Modified Limitations on Liability Requirements
    EFTA section 909 addresses consumer liability and is implemented in 
Sec.  1005.6. For accounts under Regulation E generally, including 
payroll card accounts, Sec.  1005.6(a) provides that a consumer may be 
held liable for an unauthorized electronic fund transfer resulting from 
the loss or theft of an access device only if the financial institution 
has provided certain required disclosures and other conditions are 
met.\298\ If the consumer provides timely notice to the financial 
institution within two business days of learning of the loss or theft 
of the access device, the consumer's liability is the lesser of $50 or 
the amount of unauthorized transfers made before giving notice. Sec.  
1005.6(b)(1). If timely notice is not given, the consumer's liability 
is the lesser of $500 or the sum of (1) the lesser of $50 or the amount 
of unauthorized transfers occurring within two business days of 
learning of the loss/theft and (2) the amount of unauthorized transfers 
that occur after two business days but before notice is given to the 
financial institution. Sec.  1005.6(b)(2). Section 1005.6(b)(3) 
provides, in part, that a consumer must report an unauthorized 
electronic fund transfer that appears on a periodic statement within 60 
days of the financial institution's transmittal of the statement in 
order to avoid liability for subsequent transfers.
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    \298\ The required disclosures for this purpose include a 
summary of the consumer's liability under Sec.  1005.6, or under 
State law or other applicable law or agreement, for unauthorized 
electronic fund transfers; the telephone number and address of the 
person or office to be notified when the consumer believes an 
unauthorized transfer has been or may be made; and the financial 
institution's business days. See Sec. Sec.  1005.6(a) and 
1005.7(b)(1) through (3).
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    Existing Sec.  1005.18(c)(3)(i) provides that, for payroll card 
accounts following the periodic statement alternative in existing Sec.  
1005.18(b), the 60-day period in Sec.  1005.6(b)(3) for reporting

[[Page 77182]]

unauthorized transfers begins on the earlier of (1) the date the 
consumer electronically accesses his account under Sec.  
1005.18(b)(1)(ii), provided that the electronic history reflects the 
transfer, or (2) the date the financial institution sends a written 
history of the consumer's account transactions requested by the 
consumer under Sec.  1005.18(b)(1)(iii) in which the unauthorized 
transfer is first reflected. Alternatively, existing Sec.  
1005.18(c)(3)(ii) provides that a financial institution may comply with 
the requirements of Sec.  1005.18(c)(3)(i) by limiting a consumer's 
liability for an unauthorized transfer as provided under Sec.  
1005.6(b)(3) for any transfer reported by the consumer within 120 days 
after the transfer was credited or debited to the consumer's account. 
The Bureau notes that this provision only modifies the 60-day period 
for consumers to report an unauthorized transfer and does not alter any 
other provision of Sec.  1005.6.
    In response to the Prepaid ANPR, the Bureau received few comments 
specifically regarding limited liability requirements. Most industry, 
trade association, and consumer advocacy group commenters suggested 
that GPR cards should generally be treated the same as payroll card 
accounts under Regulation E (except with respect to access to account 
information, discussed above, and provisional credit, discussed below). 
A few commenters, however, urged against extending protections for lost 
or stolen cards, arguing that there is a potential for abuse by some 
consumers, or suggested that modified liability provisions are needed 
to account for the increased risks they claimed are associated with 
prepaid products.
    The Bureau's Study of Prepaid Account Agreements found that the 
vast majority of programs reviewed limit consumer liability in 
accordance with existing Regulation E provisions.\299\ Similarly, CFSI 
found that all 18 programs in its review (representing an estimated 90 
percent of the GPR card marketplace) had adopted the Payroll Card 
Rule's version of Regulation E error resolution and limited liability 
protections.\300\
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    \299\ The Study of Prepaid Account Agreements found that across 
all prepaid account agreements reviewed, 88.92 percent provided full 
limited liability; 8.31 percent partially limited consumers' 
liability; and 2.77 percent did not appear to provide consumers with 
any limited liability protections. Excluding agreements for payroll 
card and government benefit card programs (100 percent of each 
provided full limited liability protections), 88.02 percent of 
agreements for GPR card programs and 64.28 percent of all other 
programs' agreements provide full limited liability protections to 
consumers. See Study of Prepaid Account Agreements, at 16 tbl. 4.
    \300\ Ctr. for Fin. Services Innovation, Prepaid Industry 
Scorecard, Assessing Quality in the Prepaid Industry with CFSI's 
Compass Principles, at 12 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/CFSI_Prepaid_Industry_Scorecard_2014.pdf.
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    The Bureau is proposing to extend to all prepaid accounts the 
existing limited liability provisions of Regulation E with 
modifications to the Sec.  1005.6(b)(3) timing requirements in proposed 
Sec.  1005.18(e)(1) for financial institutions following the periodic 
statement alternative in proposed Sec.  1005.18(c)(1).\301\ The text of 
proposed Sec.  1005.18(e)(1) would update internal paragraph citations 
to reflect other numbering changes made in this proposal and add the 
word ``unauthorized'' to refer to the transfer discussed in proposed 
Sec.  1005.18(e)(1)(i)(A) for consistency with usage elsewhere in 
proposed Sec.  1005.18(e)(1), but otherwise would remain unchanged from 
existing Sec.  1005.18(c)(3). Related commentary is discussed below in 
the section-by-section analysis of proposed Sec.  1005.18(e)(2). The 
Bureau notes that this proposal does not modify the requirement to 
comply with existing Sec.  1005.6(b)(4), regarding an extension of time 
limits if a consumer's delay in notifying the financial institution was 
due to extenuating circumstances, nor any other provisions of Sec.  
1005.6. As discussed above, this proposed revision is authorized under 
EFTA section 904(c). The Bureau seeks comments on all aspects of this 
part of the proposal.
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    \301\ The Bureau is proposing an additional modification in 
proposed Sec.  1005.18(e)(3), discussed below, to provide an 
exception to the requirement to provide limited liability protection 
when a financial institution has not completed collection of 
consumer identifying information and identity verification for a 
prepaid account, assuming notice of the risk of not registering the 
prepaid account has been provided to the consumer.
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18(e)(2) Modified Error Resolution Requirements
Overview of Existing Requirements
    EFTA section 908 governs the timing and other requirements for 
consumers and financial institutions on error resolution, including 
provisional credit, and is implemented for accounts under Regulation E 
generally, including payroll card accounts, in Sec.  1005.11. Section 
1005.11(c)(1) and (3)(i) requires that a financial institution, after 
receiving notice that a consumer believes an electronic fund transfer 
from the consumer's account was not authorized, must investigate 
promptly and determine whether an error occurred (i.e., whether the 
transfer was unauthorized), within ten business days (20 business days 
if the electronic fund transfer occurred within 30 days of the first 
deposit to the account). Upon completion of the investigation, the 
financial institution must report the investigation's results to the 
consumer within three business days. After determining that an error 
occurred, the financial institution must correct an error within one 
business day. See Sec.  1005.11(c)(1). Under EFTA section 909(b), the 
burden of proof is on the financial institution to show that an alleged 
error was in fact an authorized transaction; if the financial 
institution cannot establish proof of valid authorization, the 
financial institution must credit the consumer's account.
    Existing Sec.  1005.11(c)(2) provides that if the financial 
institution is unable to complete the investigation within ten business 
days, its investigation may take up to 45 days if it provisionally 
credits the amount of the alleged error back to the consumer's account 
within ten business days of receiving the error notice.\302\ 
Provisional credit is not required if the financial institution 
requires but does not receive written confirmation within 10 business 
days of an oral notice by the consumer. Sec.  1005.11(c)(2)(i)(A). If 
the investigation establishes proof that the transaction was, in fact, 
authorized, the financial institution may reverse any provisional 
credit previously extended (assuming there are still available funds in 
the account). Sec.  1005.11(d)(2).
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    \302\ The financial institution has 90 days (instead of 45) if 
the claimed unauthorized electronic fund transfer was not initiated 
in a state, resulted from a point-of-sale debit card transaction, or 
occurred within 30 days after the first deposit to the account was 
made. Sec.  1005.11(c)(3)(ii).
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    Existing Sec.  1005.18(c)(4) provides that, for payroll card 
accounts following the periodic statement alternative in existing Sec.  
1005.18(b), the period for reporting an unauthorized transaction is 
tied, in part, to the date the consumer electronically accesses the 
consumer's account pursuant to existing Sec.  1005.18(b)(1)(ii), 
provided that the electronic account history reflects the transfer at 
that time, or the date the financial institution sends a written 
history of the consumer's account transactions requested by the 
consumer pursuant to existing Sec.  1005.18(b)(1)(iii) in which the 
unauthorized transfer is first reflected. The Bureau notes that this 
provision only modifies the 60-day period for consumers to report an 
error and does not alter any other provision of Sec.  1005.11.
    As discussed above, the FMS Rule requires that the issuer of a 
prepaid card that receives a Federal payment must

[[Page 77183]]

comply with the error resolution and provisional credit requirements 
for payroll cards accounts in Regulation E. See 31 CFR 210.5(b)(5). The 
Bureau understands that prepaid cards that receive Federal payments 
and, as discussed previously, by extension many other prepaid cards 
that are eligible to receive Federal payments if the consumer so 
chooses, already comply with these provisions.
Comments Received and Other Industry Outreach
    In response to the Prepaid ANPR, industry, trade associations, and 
consumer groups were nearly unanimous in their support for extending 
Regulation E error resolution requirements to prepaid cards. Those 
industry commenters that disagreed suggested, however, that the Bureau 
should not extend Regulation E limited liability and error resolution 
provisions to prepaid products, arguing that consumers should assume 
some liability for fraud or stolen PINs in certain situations where the 
consumer acted negligently. One credit union argued that increasing 
protections for prepaid cards decreases the incentive for consumers to 
establish checking and savings accounts. Other commenters suggested 
that, if prepaid cards were covered under Regulation E at all, the 
Regulation should be modified to generally match existing industry 
practices rather than requiring financial institutions to change 
products in ways that commenters said could cause fees to increase, 
thus making these products more expensive for consumers.
    Several industry and trade association commenters requested that 
the Bureau shorten any time frame for consumers to report unauthorized 
transactions to 60 days from the date the transaction is posted to the 
consumer's account, arguing that a longer period is not necessary given 
consumers' readily available access to online account information. 
These parties also pointed out that, when consumers significantly delay 
reporting unauthorized transactions to their financial institution, it 
can be costly and difficult for the institution to investigate. Others 
argued that ten business days is too short a period in which to 
investigate errors before extending provisional credit and that time 
period should be extended to at least 20 business days or longer.
    Commenters were varied in their suggested approaches with respect 
to provisional credit. Some program managers, in comment letters 
responding to the Bureau's Prepaid ANPR as well as in other outreach 
conducted by the Bureau, have expressed concern about extending 
provisional credit to all prepaid card accounts, asserting that the 
potential fraud losses would be unsustainable. Specifically, they 
contend that cardholders intending to take advantage of the rules can 
make a purchase or withdraw cash at an ATM, assert that an error has 
occurred, obtain provisional credit (because many claims take most 
providers more than ten or even 20 business days to resolve), spend 
down those funds, and abandon the card before the provider is able to 
complete its investigation. Industry commenters argued that prepaid 
cards may have higher incidences of fraudulently-asserted errors than 
other types of accounts for a number of reasons, including that prepaid 
cards are often purchased anonymously; prepaid cards are easier to 
abandon and are more often abandoned (by quickly spending down the 
balance and discarding the card); consumers may not have any other 
ongoing relationship with the issuing bank or program manager; and 
fraud is less likely when a consumer's paycheck or employer is 
implicated (e.g., in accounts receiving direct deposit), whether those 
funds are being sent to a prepaid account, payroll card account, or 
other consumer asset account under Regulation E. As noted above, EFTA 
places the burden of proof on the financial institution to show that an 
alleged error was, in fact, an authorized transaction.
    Nevertheless, consumer advocates and some industry commenters 
argued that many prepaid accounts are used in substantially similar 
ways as traditional consumer asset accounts and thus consumers using 
prepaid accounts should receive protections for funds lost due to 
unauthorized use in the same timeframe as holders of other accounts 
covered by Regulation E. Consumer advocates repeatedly emphasized how 
important provisional credit can be for consumers, noting that many 
consumers who use prepaid cards have limited liquid assets and may put 
a substantial portion of those assets on their prepaid cards. Without 
provisional credit, if those funds are lost due to an unauthorized 
transfer, a consumer could be without those funds--most of their 
assets--for the duration of the financial institution's investigation 
(up to 45 days, or 90 days in certain circumstances). Consumer 
advocates contended that provisional credit may be particularly 
important to prepaid account users because they may be less likely to 
have access to other funds.
Study of Prepaid Account Agreements Regarding Error Resolution and 
Provisional Credit
    As discussed previously, the Bureau conducted its Study of Prepaid 
Account Agreements to better understand how providers of prepaid 
accounts would be affected by a requirement they offer error resolution 
with provisional credit. In this Study, the Bureau analyzed prepaid 
account terms and conditions to determine current industry practices in 
a number of areas, including with respect to error resolution and 
provisional credit. The Bureau found that across all agreements 
reviewed, 77.85 percent provided full error resolution with provisional 
credit protections, 12.31 percent provided error resolution with 
limitations on provisional credit; 9.23 percent provided error 
resolution without provisional credit; and 0.62 provided no error 
resolution protections.\303\ Because these statistics weight all 
agreements equally, and thus do not reflect individual programs' or 
providers' market shares, the Bureau also specifically analyzed the 22 
agreements for GPR card programs in the Study that belong to five of 
the largest program managers in the GPR card market (which together 
constituted 81 percent of the market by load volume and 72.2 percent 
market share based on number of active cards as of late 2012 \304\). 
The Bureau found that 17 of these agreements provide full error 
resolution protections with provisional credit, three provide error 
resolution with limitations on provisional credit, and two provide 
error resolution without provisional credit.\305\
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    \303\ See The Study of Prepaid Account Agreements, at 13 tbl. 3.
    \304\ Aite Group LLC, The Contenders: Prepaid Debit and Payroll 
Cards Reach Ubiquity, at 17, 23 (Nov. 2012).
    \305\ See The Study of Prepaid Account Agreements, at 13 tbl. 3.
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    Similarly, as noted above, CFSI found that all cards reviewed, 
representing an estimated 90 percent of the GPR card marketplace, had 
adopted the Payroll Card Rule's version of Regulation E's error 
resolution and limited liability protections.\306\
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    \306\ Ctr. for Fin. Services Innovation, Prepaid Industry 
Scorecard, Assessing Quality in the Prepaid Industry with CFSI's 
Compass Principles, at 12 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/CFSI_Prepaid_Industry_Scorecard_2014.pdf.
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    Apart from the relevant provisions in Regulation E, the Bureau 
notes that the four major payment card networks' rules all impose some 
form of zero liability protections for cardholders in certain 
circumstances. At least one network, for

[[Page 77184]]

example, requires provisional credit to be given after five days 
(rather than ten) for unauthorized transactions occurring over its 
network, unless certain exceptions apply.
Proposal
    The Bureau is proposing to extend to all prepaid accounts the error 
resolution provisions of Regulation E, including provisional credit, 
with modifications to the Sec.  1005.11 timing requirements in proposed 
Sec.  1005.18(e)(2) for financial institutions following the periodic 
statement alternative in proposed Sec.  1005.18(c)(1).\307\ The text of 
proposed Sec.  1005.18(e)(2) updates internal paragraph citations to 
reflect other numbering changes made in this proposal, but otherwise 
remains unchanged from existing Sec.  1005.18(c)(4). As discussed 
above, EFTA section 904(c) authorizes this proposed revision.
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    \307\ The Bureau is proposing an additional modification in 
proposed Sec.  1005.18(e)(3), discussed below, to provide an 
exception to the requirement to provide error resolution when a 
financial institution has not completed collection of consumer 
identifying information and identity verification for a prepaid 
account, assuming appropriate notice of the risk of not registering 
the prepaid account has been provided to the consumer.
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    The Bureau is proposing to extend to all prepaid accounts existing 
comment 18(c)-1 regarding the error resolution safe harbor provision, 
renumbered as new comment 18(e)-1 and with references to payroll card 
accounts changed to prepaid accounts. The Bureau is also proposing to 
extend existing comment 18(c)-2 to all prepaid accounts, with one 
substantive modification, renumbered as new comment 18(e)-2, and with 
the reference to payroll card account changed to prepaid account. This 
comment currently provides, in part, that a consumer is deemed to have 
accessed a payroll card account electronically when the consumer enters 
a user identification code or password or otherwise complies with a 
security procedure used by an institution to verify the consumer's 
identity. The Bureau proposes to add language to the comment to make 
clear that access to account information via a mobile application, as 
well as through a web browser, would constitute electronic access to an 
account for purposes of the timing provisions in proposed Sec.  
1005.18(e)(1) and (2). The existing comment also explains that an 
institution is not required to determine whether a consumer has in fact 
accessed information about specific transactions to trigger the 
beginning of the 60-day periods for liability limits and error 
resolution under Sec. Sec.  1005.6 and 1005.11. To further clarify 
this, the Bureau proposes to add an additional sentence to the end of 
proposed comment 18(e)-2 to explain that a consumer is not deemed to 
have accessed a prepaid account electronically when the consumer 
receives an automated text message or other automated account alert, or 
checks the account balance by telephone.
    The Bureau is proposing to extend existing comment 18(c)-3, 
regarding untimely notice of error by a consumer, to all prepaid 
accounts, renumbered as new comment 18(e)-3 and with internal paragraph 
citations updated to reflect other numbering changes made in this 
proposal. The last sentence of the comment currently provides that 
where the consumer's assertion of error involves an unauthorized EFT, 
the institution must comply with Sec.  1005.6 before it may impose any 
liability on the consumer. The Bureau is proposing to specifically note 
that compliance with Sec.  1005.6 includes compliance with the 
extension of time limits provided in Sec.  1005.6(b)(4).
    The Bureau seeks comments on all aspects of its proposal for new 
Sec.  1005.18(e)(2) and related commentary. In particular, the Bureau 
requests comment on whether there is an alternative approach to error 
resolution that the Bureau should adopt for prepaid accounts. The 
Bureau also seeks comment on whether error resolution with provisional 
credit is appropriate for all, or only certain, prepaid accounts, and 
whether there are any indicators that financial institutions use that 
might adequately predict the validity of a particular error claim, 
which might inform the Bureau's application of error resolution 
requirements to all prepaid accounts.
    The Bureau also seeks comment on whether there might be any other 
consequences to extending the requirement for error resolution with 
provisional credit to all prepaid accounts. In particular, the Bureau 
seeks comment on what impact the concern for increased fraud losses (or 
the potential therefor) might have on financial institutions' 
eligibility requirements and initial screening processes for new 
prepaid accountholders. The Bureau also seeks comment on whether 
institutions might become more apt to close accounts that have asserted 
error claims, and whether and how these factors might result in 
decreased access to financial products for consumers.
Alternative Approaches Considered by the Bureau
    In light of the various concerns raised in comment letters received 
in response to the Prepaid ANPR and during the Bureau's outreach to 
industry and consumer groups, the Bureau recognizes that provisional 
credit can be important to consumers, but also that there could be an 
increased risk of fraud by cardholders who might be unscrupulous and 
might be able to take advantage of a comprehensive provisional credit 
rule. Thus, the Bureau considered a number of alternatives to extending 
full provisional credit to all prepaid accounts. For example, the 
Bureau considered whether provisional credit should be limited only to 
prepaid accounts receiving payroll or government payments, those that 
have received some form of direct deposit within a certain period, such 
as 30 days, those that have been opened for a certain amount of time, 
or those that maintained a balance over a certain threshold prior to 
the alleged error, among other things.
    Any of these factors could potentially limit provisional credit 
fraud, although each has drawbacks. For example, even though providers 
indicated that a claim for an unauthorized transaction in the first few 
days after account opening is more likely to be fraudulent than claims 
on older accounts, consumers seeking to commit fraud could simply wait 
the designated period of time before asserting an error claim and 
seeking provisional credit if the Bureau were to require provisional 
credit only for prepaid accounts of a certain age. At the same time, 
honest consumers would be without key protections during that time 
period. Another approach would be to limit provisional credit to 
prepaid accounts that receive some form of direct deposit because 
consumers who receive wage or benefit payments on a card may be less 
likely to risk that payment to commit fraud. Ultimately, however, the 
Bureau believes the protection offered by this approach would 
potentially be too narrow because many consumers using prepaid accounts 
receive wages in forms other than direct deposit (such as those that 
receive their wages or tips in cash) and would not be able to receive 
provisional credit under such a standard. It would similarly leave 
consumers who do not receive any wage or benefit payments into their 
prepaid accounts unprotected.
    The Bureau seeks comment on whether there are any other 
alternatives to or potential limits on provisional credit that might 
contain fraud losses for

[[Page 77185]]

institutions while adequately protecting consumers from harm.
18(e)(3) Limitations on Liability and Error Resolution for Unverified 
Accounts
    To further the purposes of EFTA, the Bureau believes it is 
necessary and proper to propose to use its exceptions authority under 
EFTA section 904(c) to add new section Sec.  1005.18(e)(3). This 
proposed provision would provide that for prepaid accounts that are not 
payroll card accounts or government benefit accounts, if a financial 
institution discloses to the consumer the risks of not registering a 
prepaid account using a notice that is substantially similar to the 
proposed notice contained in paragraph (c) of appendix A-7, a financial 
institution is not required to comply with the liability limits and 
error resolution requirements under Sec. Sec.  1005.6 and 1005.11 for 
any prepaid account for which it has not completed it collection of 
consumer identifying information and identity verification.\308\ 
However, once the consumer's identity has been verified, a financial 
institution must limit the consumer's liability for unauthorized EFTs 
and resolve any errors that occurred prior to verification subject to 
the timing requirements of existing Sec. Sec.  1005.6 or 1005.11, or 
the modified timing requirements in proposed Sec.  1005.18(e), as 
applicable.
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    \308\ Relatedly, the Bureau is proposing to require that 
financial institutions include on the short form disclosure for all 
prepaid accounts a statement emphasizing the importance of 
registering the prepaid account. See section-by-section analysis of 
proposed Sec.  1005.18(b)(2)(i)(B)(12).
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    Proposed comment 18(e)-4 would explain that for the purpose of 
compliance with proposed Sec.  1005.18(e)(3), consumer identifying 
information may include the consumer's full name, address, date of 
birth, and Social Security number or other government-issued 
identification number. Comment 18(e)-4 would also explain that for an 
unauthorized transfer or an error asserted on a previously unverified 
prepaid account, whether a consumer has timely reported the 
unauthorized transfer or alleged error is based on the date the 
consumer contacts the financial institution to report the unauthorized 
transfer or alleged error, not the date the financial institution 
completes its customer identification and verification process. Comment 
18(e)-4 would further explain that for an error asserted on a 
previously unverified prepaid account, the time limits for a financial 
institution's investigation of errors pursuant to Sec.  1005.11(c) 
begin on the day following the date the financial institution completed 
its customer identification and verification process. A financial 
institution may not delay completing its customer identification and 
verification process, or refuse to verify a consumer's identity, based 
on the consumer's assertion of an error.
    The Bureau understands that financial institutions often conduct 
customer identification and verification at the onset of a relationship 
with a consumer, such as at the time a consumer signs up to receive 
wages via a payroll card account or when a consumer requests a GPR card 
online. For GPR cards purchased at retail stores, the financial 
institution may--but does not always--obtain customer-identifying 
information and perform verification at the time the consumer calls or 
goes online to activate the card. Because of restrictions imposed by 
FinCEN's Prepaid Access Rule (31 CFR 1022.210(d)(1)(v)) and the payment 
card networks' operating rules, among other things, the Bureau 
understands that customer identification and verification is almost 
always performed before a card can be reloaded, used to make cash 
withdrawals, or used to receive cash back at the point of sale. The 
Bureau believes that providers thus have an incentive to encourage 
consumers to register their cards to increase the functionality and 
thus the longevity of the consumer's use of the account.
    Collection of consumer identifying information and verification of 
identity under proposed Sec.  1005.18(e)(3) would include information 
collected, and identities verified, by a financial institution directly 
as well as by a service provider or agent of the institution. Thus, the 
Bureau expects that financial institutions providing prepaid accounts 
for purposes such as student financial aid disbursements or property or 
casualty insurance payments would likely not be able to avail 
themselves of the exclusion in Sec.  1005.18(e)(3) because consumer 
identifying information is collected and consumers' identities verified 
by the financial institution, or a service provider or agent of the 
institution, prior to distribution of such prepaid accounts. The Bureau 
solicits comment on the proposed exclusion and on what other types of 
prepaid account products might be eligible for it, and whether the 
exclusion should be applied more broadly or limited only to certain 
types of prepaid account products such as those sold anonymously at 
retail locations.
    The Bureau is proposing to adopt this exemption because it 
understands that financial institutions may face difficulties in 
determining whether an unauthorized transaction occurred if it does not 
know a prepaid accountholder's identity. For example, a financial 
institution might have a video recording provided by a merchant or ATM 
operator showing the card user, but without having identified the 
accountholder, it would have no way of knowing if the individual 
conducting the transaction is authorized to do so.
    The Bureau believes that financial institutions would follow the 
customer identification and verification requirements set forth in 
FinCEN's customer identification program requirements for banks in 31 
CFR 1020.220 or for providers and sellers of prepaid access in 31 CFR 
1022.210(d)(1)(iv).
    The Bureau anticipates that when a consumer calls to assert an 
error on an unverified account, the financial institution would inform 
the consumer of its policy regarding error resolution on unverified 
accounts and would begin the customer identification and verification 
process at that time. As noted previously, the Bureau believes that 
providers have an incentive to encourage consumers to register their 
cards to increase the functionality and thus the longevity of the 
consumer's use of the account.
    The Bureau seeks comment on all aspects of this part of its 
proposal, including whether FinCEN's regulations, as discussed above, 
are the appropriate standard to use for identification and verification 
of prepaid accountholders, or whether some other standard should be 
used. The Bureau also seeks comment on whether error resolution should 
be required even for unidentified or unverified accounts or whether, 
for such accounts, the Bureau should exercise its exceptions authority 
under EFTA to change the burden of proof from the financial institution 
to the accountholder in such circumstances rather than eliminate error 
resolution rights altogether. Such a change might add protections for 
consumers in particular circumstances, such as if their initial cash 
load amount does not match the amount actually credited to their 
prepaid account. (For example, if the consumer were to load $100 cash, 
but their online account balance shows only $10.) The Bureau seeks 
comment on the proportion of prepaid accounts for which customer 
identification and verification is either never performed or is 
attempted but cannot be completed. The Bureau also seeks comment on 
whether such accounts should receive error resolution protections but 
without requiring financial institutions to grant provisional credit.

[[Page 77186]]

    The Bureau believes that it is unlikely that a financial 
institution would seek to avoid completion of the identification and 
verification process in order to refuse to address an error asserted by 
a consumer given the potential benefits to the institution associated 
with having a consumer complete the identification and verification 
process. However, the Bureau seeks comment on whether such evasion is 
likely to occur and whether the Bureau should impose a time limit for 
completion of the customer identification and verification process.
18(f) Initial Disclosure of Fees and Other Key Information
    The Bureau is proposing Sec.  1005.18(f), which would modify the 
initial disclosure of fees requirement in Sec.  1005.7(b)(5) for 
prepaid accounts. EFTA section 905(a)(4) requires financial 
institutions to disclose to consumers, as part of the account's terms 
and conditions, any charges for electronic fund transfers or for the 
right to make such transfers. Existing Sec.  1005.7(b)(5) implements 
this requirement by stating that, as part of the initial disclosures, 
any fees imposed by a financial institution for electronic fund 
transfers or for the right to make transfers must be disclosed. 
Existing comment 7(b)(5)-1 further clarifies that other fees (for 
example, minimum-balance fees, stop-payment fees, or account 
overdrafts) may, but need not, be disclosed. The Bureau believes that 
for prepaid accounts, however, it is important that the initial account 
disclosures provided to consumers list all fees that may be imposed in 
connection with the prepaid account. The Bureau believes that because 
these disclosures are what consumers will likely reference throughout 
their ongoing use of their prepaid accounts, it is important that these 
disclosures include all relevant fee information, not just those fees 
related to electronic fund transfers.
    Thus, to further the purposes of EFTA to provide a framework to 
establish the rights, liabilities, and responsibilities of prepaid 
account users, the Bureau believes it is necessary and proper to 
exercise its authority under EFTA section 904(c) to propose an 
adjustment of the requirement in EFTA section 905(a)(4), which is 
implemented in existing Sec.  1005.7(b)(5), for prepaid accounts. In 
addition, the Bureau believes that disclosure of all fees for prepaid 
accounts will, consistent with Dodd-Frank Act section 1032(a), ensure 
that the features of prepaid accounts are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with a prepaid 
account. Specifically, the Bureau is proposing Sec.  1005.18(f), which 
would require that in addition to disclosing any fees imposed by a 
financial institution for electronic fund transfers or the right to 
make such transfers, the financial institution must also include in its 
initial disclosures given pursuant to Sec.  1005.7(b)(5) all other fees 
imposed by the financial institution in connection with a prepaid 
account. For each fee, a financial institution must disclose the amount 
of the fee, the conditions, if any, under which the fee may be imposed, 
waived, or reduced, and, to the extent known, whether any third party 
fees may apply.
    The Bureau believes that most providers are already disclosing all 
fees in the terms and conditions accompanying prepaid accounts. 
Further, the Bureau notes that Regulation DD, which implements TISA, 
requires that initial disclosures for deposit accounts include the 
amount of any fee that may be imposed in connection with the account 
(or an explanation of how the fee will be determined) and the 
conditions under which the fee may be imposed. Sec.  1030.4(b)(4).
    The Bureau is further proposing that these disclosures pursuant to 
proposed Sec.  1005.18(f) include all of the information required to be 
disclosed pursuant to Sec.  1005.18(b)(2)(ii)(B) and must be provided 
in a form substantially similar to Sample Form A-10(e). The Bureau 
believes that for consistency purposes and to facilitate consumer 
understanding of a prepaid account's terms, it is useful for the fee 
disclosure provided pursuant to Sec.  1005.7(b)(5), as modified by 
proposed Sec.  1005.18(f), to be in the same format of the long form 
disclosure requirement of proposed Sec.  1005.18(b)(2)(ii)(A).
    The Bureau seeks comment on this portion of the proposal.
18(g) Credit Card Plans Linked to Prepaid Accounts
    Proposed Sec.  1005.18(g)(1) would set forth timing rules related 
to when a credit card plan under Regulation Z could be linked to a 
prepaid account. Proposed Sec.  1005.18(g)(2) would set forth rules 
related to the terms applicable to the prepaid account when a credit 
card plan is linked to a prepaid account.
18(g)(1) Prohibitions
    Proposed Sec.  1005.18(g)(1) generally would restrict financial 
institutions that establish or hold prepaid accounts from linking a 
credit card plan under Regulation Z to a prepaid account, or allowing 
the prepaid account to be linked to such a credit card plan, until 30 
calendar days after the prepaid account has been registered. Proposed 
Sec.  1005.18(g)(1)(i) would restrict financial institutions that 
establish or hold prepaid accounts from providing solicitations or 
applications to holders of prepaid accounts to open credit card 
accounts subject to Regulation Z, prior to 30 calendar days after the 
prepaid accounts have been registered. For purposes of proposed Sec.  
1005.18(g)(1), the term solicitation would mean an offer by the person 
to open a credit or charge card account subject to Regulation Z that 
does not require the consumer to complete an application. A ``firm 
offer of credit'' as defined in section 603(l) of the Fair Credit 
Reporting Act (15 U.S.C. 1681a(l)) for a credit or charge card would be 
a solicitation for purposes of proposed Sec.  1005.18(g)(1).
    Proposed Sec.  1005.18(g)(1)(ii) would restrict financial 
institutions that establish or hold prepaid accounts of consumers from 
allowing prepaid access devices to access credit card plans subject to 
Regulation Z that would make the prepaid access devices into credit 
cards at any time prior to 30 calendar days after the prepaid accounts 
have been registered. Proposed Sec.  1005.18(g)(1)(iii) would restrict 
financial institutions that establish or hold prepaid accounts of 
consumers from allowing credit extensions from credit card plans 
subject to Regulation Z to be deposited in prepaid accounts, where the 
credit plans are accessed by account numbers that are credit cards 
under Regulation Z where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor, prior to 30 calendar days after the prepaid account has 
been registered. Proposed Sec.  1005.18(g)(1)(iii) is intended to 
address situations where (1) a separate line of credit is linked to a 
prepaid account where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor, (2) the consumer requests an advance on the open-end 
account using an account number only, and (3) the advance is deposited 
into the prepaid account. Proposed comment 18(g)-1 would cross 
reference provisions in Regulation Z that would provide guidance on 
when a program constitutes a credit plan (see proposed Sec.  
1026.2(a)(20) and comment 2(a)(20)-2.ii) and would provide guidance on 
when an access device for a prepaid account is a credit card and when 
an account number is a credit card where extensions of credit are

[[Page 77187]]

permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor (see Sec.  1026.2(a)(15)(i), 
proposed Sec.  1026.2(a)(15)(vii), and proposed comment 2(a)(15)-2.i.F 
and .G).
    Proposed Sec.  1005.18(g)(1) would complement a similar proposed 
provision in Regulation Z, proposed Sec.  1026.12(h), which would 
require credit card issuers to wait at least 30 calendar days after the 
prepaid account has been registered before the card issuer may provide 
a solicitation or an application to the holder of the prepaid account 
to open a credit or charge card account that will be accessed by the 
prepaid card that is a credit card under Regulation Z, or by an account 
number that is a credit card under Regulation Z where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor.
    The Bureau is proposing Sec.  1005.18(g)(1) pursuant to its 
authority under sections 904(a), 904(c), and 905(a) of EFTA (15 U.S.C. 
1693b) and Dodd-Frank Act section 1032(a). The Bureau believes that 
proposed Sec.  1005.18(g)(1) is necessary and proper to effectuate the 
express purposes of EFTA to provide a framework to establish the 
rights, liabilities and responsibilities of prepaid account users by 
helping consumers understand the terms of their prepaid accounts and 
that credit card plans linked to the prepaid accounts are optional. 
Under the Bureau's proposal and as discussed above, a consumer's 
registration of a prepaid account would be a critical step for 
obtaining Regulation E's consumer rights and protections with respect 
to the account, and the Bureau's proposal to restrict financial 
institutions from offering credit features to holders of prepaid 
accounts until 30 days after the accounts have been registered seeks, 
in part, to ensure that consumers understand that they are not required 
to request any credit feature in order to register and use a prepaid 
account.
    The Bureau is also proposing to adopt this provision because a 
consumer's decision of which prepaid account to purchase, register, and 
use is itself a complex decision involving several variables, including 
the consumer's finances and purchasing habits. If the consumer makes a 
choice that does not ultimately prove to be a good fit, it is 
relatively easy for that consumer to acquire a different prepaid 
account (to the extent that account does not have a credit feature). 
The Bureau believes that this dynamic has fostered a competitive 
market, and it is concerned that combining decisions on prepaid 
accounts and credit features would tend to undermine that in at least 
two ways. First, it makes the acquisition of the prepaid account even 
more complex by adding more variables to consider; as noted previously, 
consumers may spend little time shopping for a prepaid card. Second, 
the presence of a credit feature may make it harder for consumers to 
terminate their account relationships if consumers can incur 
significant debts before having a chance to determine how the prepaid 
account itself is performing.
    The Bureau's proposal seeks to keep that decision separate from a 
consumer's decision whether to add a credit feature to the prepaid 
account, which involves numerous additional variables that the consumer 
should consider. The two decisions in combination could cause consumers 
to make incorrect or suboptimal decisions. The Bureau is particularly 
concerned that the events of purchasing, registering, and adding a 
credit feature to a prepaid account could become conflated for prepaid 
accounts that consumers obtain on the Internet, because in that context 
the events could occur close together in time. In particular, the 
Bureau believes that the proposed 30-day waiting period would, 
consistent with Dodd-Frank section 1032(a), ensure that the features of 
the prepaid account and any credit card feature that might become 
connected to it are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the account. The Bureau believes 
that a consumer should have the opportunity to assess the features of a 
prepaid account by means of actually using it before being offered a 
credit feature that might make it more difficult for the consumer to 
terminate the prepaid account relationship due to outstanding credit 
balances.
    As discussed in the section-by-section analysis of Regulation Z 
Sec.  1026.12(a)(1), under the proposal, a credit card feature may be 
added to a previously issued prepaid card only upon the consumer's 
specific request and only in compliance with proposed Sec.  1026.12(h). 
Proposed Sec.  1026.12(h) would require credit card issuers to wait at 
least 30 calendar days after the prepaid account has been registered 
before the card issuer may open a credit card account for the holder of 
a prepaid account, or may provide a solicitation or an application to 
the holder of the prepaid account to open a credit or charge card 
account, that will be accessed by the prepaid card that is a credit 
card under Regulation Z or by an account number that is a credit card 
under Regulation Z where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor.
    The Bureau believes that Regulation E proposed Sec.  1005.18(g)(1) 
and Regulation Z proposed Sec.  1026.12(h), taken together, would 
promote the informed use of the prepaid account and the credit card 
account by separating the decision to purchase and register a prepaid 
account from the decision to accept an offer to link a credit card 
account to that prepaid account. By separating these decisions, Sec.  
1005.18(g)(1) would better allow consumers to focus on the terms and 
conditions that apply to the prepaid account at the time of purchase 
and registration which may enable the consumer to better understand 
those terms and conditions, consistent with EFTA section 905(a) which 
requires financial institutions to disclose the terms and conditions of 
electronic fund transfers involving a consumer's account. The Bureau 
also believes that requiring at least 30 calendar days to elapse 
between the registration of a prepaid account and any offer of a linked 
credit or charge card account would enhance consumer understanding of 
the terms of the prepaid account and would help consumers to make more 
informed decisions regarding linking a credit or charge card account 
the prepaid account. Otherwise, the Bureau fears that consumers could 
believe that they are required to request that the credit or charge 
card account be linked to the prepaid account in order to register or 
access the prepaid account.
    The Bureau recognizes that this provision would be unique to 
prepaid accounts. Compare existing 1005.17(c). Nevertheless and for the 
reasons discussed above, the Bureau believes that it is particularly 
important to separate these two decisions for prepaid accounts and 
related overdraft services and credit features. The Bureau solicits 
comment on this provision. The Bureau also solicits comment on the 30 
day time frame, and whether a shorter or longer time frame would better 
accomplish the goals of the provision.
    The Bureau notes that proposed Sec.  1005.18(g)(1) and Regulation Z 
Sec.  1026.12(h) would overlap in cases where the credit card plan is 
accessed by a prepaid card or the credit card plan is being offered by 
a financial institution that holds the prepaid account and is accessed 
by an account number where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor. In those cases, the financial

[[Page 77188]]

institution would be a ``card issuer'' under Regulation Z Sec.  
1026.2(a)(7) \309\ and the Bureau is proposing that both the 
requirements of proposed Regulation Z Sec.  1026.12(h) and proposed 
Regulation E Sec.  1005.18(g)(1) would apply to the financial 
institution who also is a card issuer. Nonetheless, the Bureau intends 
proposed Regulation E Sec.  1005.18(g)(1) and Regulation Z Sec.  
1026.12(h) to impose the same restrictions in those situations. In 
cases where the credit card account is being offered by a person other 
than the person who holds the prepaid account and is being accessed by 
an account number as described above, the person issuing the account 
number that is a credit card (i.e., card issuer) must comply with 
proposed Regulation Z Sec.  1026.12(h). In addition, the financial 
institution that holds the prepaid account must comply with Regulation 
E Sec.  1026.18(g)(1). The Bureau believes that imposing complementary 
restrictions on both the card issuer that is offering the credit card 
account and the financial institution that holds the prepaid account 
would prevent circumvention of the prohibition, and help ensure that 
consumers' decisions whether to open a credit card account linked to 
the prepaid account are separate from when the prepaid account is 
purchased or registered, in order to enable consumers to understand 
better the terms and conditions that apply to the prepaid account, 
consistent with EFTA section 905(a) which requires financial 
institutions to disclose the terms and conditions of electronic fund 
transfers involving a consumer's account.
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    \309\ Under the proposal, with respect to a prepaid card that is 
a credit card where the card accesses a credit plan that is offered 
by a third party, a person offering the credit plan that is accessed 
by the prepaid card would be an agent of the person issuing the 
prepaid card and thus, would be a card issuer with respect to the 
prepaid card that is a credit card. See Regulation Z proposed 
comment 2(a)(7)-1.ii. In this case, both the person offering the 
credit plan and the financial institution issuing the prepaid card 
would be card issuers under Regulation Z Sec.  1026.2(a)(7).
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18(g)(2) Requirements
    Proposed Sec.  1005.18(g)(2) would set forth rules related to the 
terms applicable to the prepaid account when a credit card plan is 
linked to a prepaid account. Specifically, proposed Sec.  1005.18(g)(2) 
would provide that where a credit card plan subject to Regulation Z may 
be offered at any point to the consumer with respect to a prepaid 
account that is accessed by an access device for the prepaid account 
where the access device is a credit card under Regulation Z or is 
accessed by an account number that is a credit card under Regulation Z 
where extensions of credit are permitted to be deposited directly only 
into particular prepaid accounts specified by the creditor, a financial 
institution that establishes or holds such a prepaid account may not 
apply different terms and conditions to a consumer's account that do 
not relate to an extension of credit, carrying a credit balance, or 
credit availability, depending on whether the consumer elects to link 
such a credit card plan to the prepaid account.
    Proposed comment 18(g)-2.i would provide guidance on the 
applicability of the restriction in proposed Sec.  1005.18(g)(2). 
Specifically, proposed comment 18(g)-2.i would explain that a financial 
institution may offer different terms on different prepaid account 
products, where the terms may differ between a prepaid account product 
where a credit card plan subject to Regulation Z cannot be linked to 
the prepaid account, and a prepaid account product where a credit card 
plan subject to Regulation Z can be linked to the prepaid account. 
Nonetheless, on the prepaid account product where a credit card plan 
subject to Regulation Z may be offered at any point to the consumer 
that is accessed by an access device for the prepaid account that is a 
credit card under Regulation Z or is accessed by an account number that 
is a credit card under Regulation Z where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor, a financial institution that 
establishes or holds such a prepaid account may not apply different 
terms and conditions to a consumer's account that do not relate to an 
extension of credit, carrying a credit balance, or credit availability, 
depending on whether the consumer elects to link such a credit card 
plan to the prepaid account. Proposed comment 18(g)-2.ii explains that 
Sec.  1005.18(g)(2) prevents a financial institution from waiving fees 
or reducing the amount of fees that do not relate to an extension of 
credit, carrying a credit balance, or credit availability if the 
consumer elects to link the prepaid account to a credit card plan.
    Proposed comment 18(g)-2.ii would provide examples of account terms 
and conditions that would be subject to the restrictions in proposed 
Sec.  1005.18(g)(2). The proposed examples in comment 18(g)-2.ii 
include fees assessed on the prepaid account that do not relate to an 
extension of credit, carrying a credit balance, or credit availability, 
including any transaction fees for transactions that are completely 
funded by the prepaid account and any one-time or periodic fees imposed 
for opening or holding a prepaid account. The proposed comment also 
would cross reference Regulation Z proposed Sec.  1026.4(b)(2) and 
comment 4(b)(2)-1.iii and .iv, which provide additional guidance on 
fees that relate to an extension of credit, carrying a credit balance 
or credit availability. Proposed comment 18(g)-2.iii also would provide 
examples of account terms and conditions that are not subject to the 
restrictions in proposed Sec.  1005.18(g)(2) because these terms and 
conditions would relate to an extension of credit, carrying a credit 
balance, or credit availability. The proposed examples would include 
(1) fees or charges assessed on the prepaid account applicable to 
transactions that access the credit card plan subject to Regulation Z, 
including transaction fees for transactions that either access just the 
credit card plan, or access both the prepaid account and the credit 
card plan; and (2) any one-time or periodic fees imposed for the 
issuance or availability of the credit card plan subject to Regulation 
Z. Proposed comment 18(g)-2.iv provides examples that illustrate the 
prohibition in proposed Sec.  1005.18(g)(2).
    The Bureau is proposing Sec.  1005.18(g)(2) pursuant to its 
authority under EFTA sections 904(a) and (c). In implementing its 
overdraft opt-in rule under Sec.  1005.17, the Board required that 
``[a] financial institution shall provide to consumers who do not 
affirmatively consent to the institution's overdraft service for ATM 
and one-time debit card transactions the same account terms, 
conditions, and features that it provides to consumers who 
affirmatively consent, except for the overdraft service for ATM and 
one-time debit card transactions.'' Sec.  1005.17(b)(3). The Board 
recognized that without this requirement, ``some institutions could 
otherwise effectively compel the consumer to provide affirmative 
consent to the institution's payment of overdrafts for ATM and onetime 
debit card transactions by providing consumers who do not opt in with 
less favorable terms, conditions, or features than consumers who do opt 
in.'' \310\ The Bureau believes that the same requirement should be 
extended here for the same reasons. As discussed in the section-by-
section analysis of Regulation Z Sec.  1026.12(a)(1), under the 
proposal, a credit card feature may be added to a previously issued 
prepaid card only upon the consumer's specific request and only in 
compliance with proposed Sec.  1026.12(h), which would require credit 
card issuers to wait at least 30 calendar days after the prepaid 
account has been registered before the

[[Page 77189]]

card issuer may open a credit or charge card account, or provide a 
solicitation or an application to the holder of the prepaid account to 
open a credit or charge card account, that will be accessed by the 
prepaid card that is a credit card under Regulation Z or an account 
number that is a credit card under Regulation Z where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor.
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    \310\ 74 FR 59033, 59044 (Nov. 17, 2009).
---------------------------------------------------------------------------

    The Bureau believes some institutions could otherwise effectively 
compel the consumer to request a credit card plan be linked to the 
prepaid account as described above by providing consumers who do not 
make such a request with less favorable terms, conditions, or features 
than consumers who do make such requests. For example, an institution 
could waive the monthly fee for holding a prepaid account for consumers 
who request that the credit card plan be linked to the prepaid account, 
but not waive the monthly fee for consumers who do not make such a 
request.
18(h) Compliance Dates
    The Bureau is proposing that all prepaid accounts comply with the 
requirements of EFTA and Regulation E, as modified by proposed Sec.  
1005.18, within nine months of publication of the Bureau's final rule 
in the Federal Register. This nine month effective date would apply to 
disclosures for newly-manufactured prepaid account materials and 
disclosures or other information delivered to consumers online or by 
telephone. The Bureau is proposing a delayed effective date for prepaid 
account packaging, access devices, and other printed materials that 
were created prior to the nine-month effective date, so that immediate 
removal or destruction of unsold or undistributed prepaid account 
packaging, access devices, or other physical materials created prior to 
the nine month effective date would not be mandated. However, within 12 
months of publication of the Bureau's final rule in the Federal 
Register, all prepaid accounts would have to comply fully with the 
requirements of the rule including its disclosure requirements, 
regardless of when the physical packaging, access devices, or other 
physical materials on which such disclosures appear were created.
    The Bureau addresses its proposed effective date in two places. The 
effective date for proposed Sec.  1005.18 is discussed in this section 
(a cross-reference to the proposed Sec.  1005.18(h) effective date 
appears in proposed Sec.  1005.15(c) for pre-acquisition disclosure 
requirements for government benefit accounts) while the effective date 
for the rest of this proposal is discussed in the Effective Date 
section at the conclusion of the section-by-section analysis.
Comments Received and Stakeholder Outreach Regarding Effective Date
    In determining the appropriate effective date to propose for this 
rule, the Bureau considered comments submitted in response to the 
Prepaid ANPR and also conducted further outreach and research. In the 
Prepaid ANPR, the Bureau stated that one of its goals was to be mindful 
of avoiding any unnecessary burden on industry. The Bureau also asked a 
series of specific questions related to how market participants manage 
their prepaid product inventory: (1) Through what methods, and under 
what circumstances, do market participants communicate a change of 
contract terms, or other information, to cardholders?; (2) Are there 
inventory replacement cycles that drive the printing of cards to stock 
distribution outlets?; (3) Do market participants conduct periodic 
maintenance of systems during which updating compliance systems would 
impose less of a burden? If so, how often does this maintenance occur?; 
and (4) Are there other issues with respect to the cost of regulatory 
compliance about which the Bureau should be aware? \311\
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    \311\ See 77 FR 30923, 30925 (May 24, 2012).
---------------------------------------------------------------------------

    In response, a number of industry commenters noted that mandating 
too short an implementation transition period to comply with new 
disclosure requirements would result in financial institutions having 
to remove, replace, and destroy existing inventory. These commenters 
contended that such logistical procedures would be quite burdensome and 
costly. Some commenters also noted the potential adverse environmental 
impact that could stem from a short implementation period resulting in 
the destruction of large quantities of unused products rendered 
unsaleable or undistributable by virtue of new rules.
    Industry commenters instead urged the Bureau to provide for an 
implementation period long enough to allow for the exhaustion of 
existing card inventories through ordinary sales, a process most 
commenters generally estimated would span 12 to 18 months, although a 
few suggested even longer. Under such an approach, industry commenters 
argued, financial institutions would be able to introduce newly-printed 
and compliant prepaid account product packages gradually so that they 
could avoid excessive expenses without needing to destroy a large 
number of non-compliant packages. Consumer advocacy groups and other 
commenters generally did not address this issue.
    Few industry commenters addressed the potential time needed for the 
implementation of changes related to other potential issues to be 
addressed by the proposed rule, such as error resolution procedures, 
access to account information, or other provisions in Regulation E. 
Commenters who did address these changes requested that financial 
institutions be given between 12 and 24 months of time to implement any 
systems-related updates. One commenter noted that such regulatory 
changes generally require making changes to systems, sales processes 
and training tools; conducting tests to ensure that changes are 
properly implemented without disruption to cardholders; and 
communicating changes to cardholders. These commenters further noted 
that systems-related updates are typically undertaken at predetermined 
biannual intervals and that regulatory deadlines resulting in systems-
related updates at previously unscheduled times would be particularly 
costly and disruptive.
Proposal
    The Bureau is proposing, in general, a nine month effective date 
for the requirements of new Sec.  1005.18. Proposed Sec.  1005.18(h)(1) 
would state that, except as provided in proposed Sec.  1005.18(h)(2), 
the requirements of EFTA and Regulation E, as modified by proposed 
Sec.  1005.18, apply to prepaid accounts nine months following the 
publication of the Bureau's final rule in the Federal Register. The 
disclosure requirements in proposed Sec.  1005.18(b) and (f)(2) would 
apply to prepaid account packaging, access devices, and other physical 
materials that are manufactured, printed, or otherwise prepared in 
connection with a prepaid account on or after nine months. Thus, 
proposed Sec.  1005.18(h)(1) would generally make applicable to all 
prepaid accounts the requirements of EFTA and Regulation E, as modified 
by proposed Sec.  1005.18's proposed provisions including those 
governing disclosures, access to prepaid account information, limited 
liability and error resolution, among others, after nine months. 
However, this first proposed effective date would not require 
destruction of previously-printed materials because it would only 
require packages, cards and other materials printed on or after the 
nine month date to comply with the rule's disclosure requirements in

[[Page 77190]]

proposed Sec.  1005.18(b) and (f)(2). These disclosure requirements 
would apply after nine months, however, for prepaid account disclosures 
and other information made available to consumers online or by 
telephone.
    For prepaid account packaging, access devices, and other printed 
materials created prior to this first effective date, the Bureau 
believes that nothing proposed herein would mandate a change-in-terms 
notice insofar as the proposal would not require increased fees, 
liability, or fewer types of available electronic fund transfers for 
consumers. See Sec.  1005.8(a) and 12 CFR 1030.5(a)(1). If, however, 
financial institutions wish to avail themselves of the more limited 
error resolution or limited liability requirements for existing 
unregistered prepaid accounts and their existing terms provide greater 
protections, then a change-in-terms notice may be required.
    Of course, if financial institutions wish to make substantive 
changes to prepaid account fees or terms, they would, as always, be 
required to remove from retail stores and other distribution channels 
prepaid account packaging, access devices, and other printed materials 
that their changes render inaccurate, and to provide notice of those 
changes to consumers with existing prepaid accounts. The Bureau 
believes that such legal requirements exist independent of the proposed 
rule under operative state consumer protection and contract laws.
    The Bureau understands that it may take some financial institutions 
longer than nine months to fully redesign prepaid account packaging, 
access devices, and other printed materials, and to begin printing new 
products. The Bureau is not proposing to mandate that financial 
institutions start manufacturing new materials exactly at the nine 
month mark. Rather, the Bureau is proposing to require that at whatever 
point after the nine month date a financial institution does decide to 
print new materials, those materials be in compliance with the 
requirements of proposed Sec.  1005.18.
    Other than disclosure-related issues discussed in proposed Sec.  
1005.18(h)(2), the Bureau believes nine months is an appropriate 
implementation period for the provisions proposed herein. The Bureau 
seeks to ensure that consumers receive the benefit of the protections 
proposed herein as soon as possible. As noted in the previous 
discussions of the Bureau's Study of Prepaid Account Agreements, a 
majority of providers are already complying with a majority of the 
proposed requirements. To the extent entities do need to make changes, 
the Bureau believes that they can be accomplished within a nine month 
period. Nevertheless, the Bureau seeks comment on whether nine months 
is appropriate or whether a longer or shorter period should be adopted 
for these parts of the proposal.
    The Bureau is also proposing a delayed effective date for certain 
packaging-related changes, which would be 12 months following the 
publication of the final rule in the Federal Register. This second 
date, in proposed Sec.  1005.18(h)(2), would require full compliance 
with the rule's disclosure requirements and prohibit the offering, sale 
or otherwise making available of prepaid accounts and related 
packaging, access devices, or other printed materials without such 
disclosures. As a result, by 12 months, financial institutions and 
their third party distribution agents would have to remove from retail 
store shelves and other distribution channels any prepaid accounts with 
disclosures not fully in compliance with the rule. As noted above, the 
Bureau believes that 12 months is an appropriate period after which 
products with old disclosures should not be sold. As noted, industry 
representatives have indicated to the Bureau that typically, prepaid 
product restocking cycles occur at least every 12 to 18 months, if not 
more frequently, although it could take as long as 24 months to sell 
out all existing product on retail shelves. By allowing financial 
institutions time to prepare, the Bureau expects its proposal to 
minimize, even if it may not entirely eliminate, destruction of prepaid 
product packaging. The Bureau notes that not all existing inventories 
will be exhausted after 12 months as part of normal restocking cycles. 
However, the Bureau believes that after 12 months, such inventories 
will be sufficiently exhausted such that to permit the sale of non-
compliant packages should no longer be permitted. Further, the Bureau 
notes so long as it proposed a fixed end-date for the sale of non-
compliant packages, prepaid providers will always have to incur certain 
fixed costs involved in confirming that non-compliant product is 
removed from retail stock. Thus, even if the Bureau adopted the longest 
period suggested by Prepaid ANPR commenters, providers still would need 
to incur costs in confirming that they and their retail partners are no 
longer offering non-compliant products for sale.
    The Bureau seeks comment on its proposed implementation timeframes 
for this proposed rule as set forth in proposed Sec.  1005.18(h), as 
well as possible alternative approaches. In particular, the Bureau 
seeks comment and supporting data on the costs to industry and benefits 
to consumers that might be expected from the Bureau's proposed 
effective dates and from any alternative approaches. Of particular 
interest to the Bureau is whether and to what extent the proposed 
timeframes would require financial institutions to remove, replace, and 
destroy portions of their product inventories and, if so, what the 
costs of doing so would be at various time intervals, including those 
proposed herein. The Bureau solicits comment both on the potential 
costs of alternate implementation timelines and on possible logistical 
constraints, such as the expected amount of time needed for third 
parties to print and deliver new prepaid account packages and other 
materials to financial institutions or those institutions' distribution 
networks or other service providers, and the expected amount of time 
needed for financial institutions to update their systems to comply 
with the proposed disclosure requirements and other requirements of 
Regulation E generally.
    In addition, the Bureau specifically requests comment on whether an 
effective date longer than 9 months would be needed for financial 
institutions to comply with the access to account information 
requirements proposed in Sec.  1005.18(c) and, if so, what an 
appropriate effective date for this portion of the proposal might be. 
The Bureau understands that many financial institutions currently 
provide prepaid account consumers with access to more than 60 days of 
account history and, additionally, that financial institutions 
generally have obligations to retain prepaid account transactional 
records outside the context of Regulation E for far longer than 60 
days. The Bureau specifically seeks comment on the amount of prepaid 
account transactional records financial institutions currently retain 
now and any difficulties financial institutions would face in using 
such transactional records to comply with proposed Sec.  1005.18(c).
    The Bureau is not proposing a longer effective date for 
implementation of the disclosures on prepaid access devices in proposed 
Sec.  1005.18(b)(7) for access devices that were sold or delivered to 
consumers prior to the effective date of the final rule. The Bureau 
understands that prepaid cards generally already list the financial 
institution's name, telephone number and URL of a Web site on the back 
of the card, and thus no changes to consumers' access devices would 
need to be made as a result of this proposal. The Bureau requests 
comment, however, on whether there may be prepaid cards that currently 
do

[[Page 77191]]

not list this information and, if so, whether the Bureau should allow 
financial institutions longer than nine months to replace those cards.
    The Bureau also seeks comments on whether it should adopt an 
alternative approach to the effective date of this proposal or whether 
it should adopt a single effective date for all proposed provisions.
Section 1005.19 Internet Posting of Prepaid Account Agreements
    The Bureau is proposing new Sec.  1005.19 to require prepaid card 
issuers to submit agreements for prepaid accounts to the Bureau for 
posting on a publicly-available Web site established and maintained by 
the Bureau. The Bureau is also proposing to require issuers to make 
prepaid account agreements available to the public on the issuers' own 
Web sites or, in certain limited circumstances, provide agreements 
directly to consumers holding prepaid accounts via a restricted Web 
site or in writing upon request. These new provisions in proposed Sec.  
1005.19 would be similar to existing requirements in Regulation Z 12 
CFR 1026.58 for open-end consumer credit card plans.
    The Bureau is proposing Sec.  1005.19 pursuant to its disclosure 
authority in EFTA section 905(a), its adjustment authority in EFTA 
section 904(c), and its authority in section 1032(a) of the Dodd-Frank 
Act. The Bureau believes collection and disclosure of the agreements 
allows for clear and accessible disclosure of the terms and conditions 
of prepaid accounts, and is necessary and proper to effectuate the 
purposes of EFTA to provide a framework to establish the rights, 
liabilities, and responsibilities of prepaid account consumers, because 
the proposed rule will assist consumers' understanding of and shopping 
for prepaid accounts based on the terms and conditions of those 
accounts. In addition, collection and disclosure of the agreements 
would, consistent with Dodd-Frank Act section 1032(a), permit the 
Bureau to prescribe rules to ensure that the features of any consumer 
financial product or service, both initially and over the term of the 
product or service, are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances. The Bureau is also proposing Sec.  1005.19 
pursuant to its authority in section 1022(c)(4) of the Dodd-Frank Act, 
which permits it to gather information from time to time regarding the 
organization, business conduct, markets, and activities of covered 
persons and service providers. Specifically, the Bureau is proposing to 
receive prepaid account agreements submitted by issuers on a quarterly 
basis, subject to certain exceptions, and to post those agreements on 
its Web site in order to aid the Bureau's monitoring for risks to 
consumers in the offering or provision of consumer financial products 
or services under section 1022(c)(1) and (4) of the Dodd-Frank Act.
    In 2009, section 204 of the Credit CARD Act added new TILA section 
122(d) to require creditors to post agreements for open-end consumer 
credit card plans on the creditor's Web sites and to submit those 
agreements to the Board for posting on a publicly-available Web site 
established and maintained by the Board. 15 U.S.C. 1632(d). The Board 
implemented these provisions in what is now 12 CFR 1026.58. The 
Bureau's receipt of credit card agreements pursuant to Sec.  1026.58 
has aided the Bureau in its market monitoring functions, and the 
Bureau's posting of those credit card agreements on its Web site may, 
among other things, enable consumers to more effectively compare credit 
cards.
    The Bureau is proposing Sec.  1005.19 for substantially the same 
reasons with respect to prepaid accounts. The Bureau expects to use the 
prepaid account agreements it receives from issuers pursuant to 
proposed Sec.  1005.19 to assist in its market monitoring efforts. In 
addition, the Bureau's posting of prepaid account agreements on its Web 
site would allow consumers to more easily compare terms of prepaid 
accounts currently in the marketplace as well as facilitate third 
parties' analysis of prepaid accounts and the development of online 
shopping tools. Consumers would also benefit from having access to 
their prepaid account agreements available through the issuers' Web 
sites (or available upon request in limited instances).
    The specific requirements in proposed Sec.  1005.19 largely mirror 
existing provisions in Sec.  1026.58 and the Bureau expects these rules 
to generally function in the same manner, albeit with certain 
modifications made in proposed Sec.  1005.19 to address differences 
between the credit card and prepaid account markets.
19(a) Definitions
    The Bureau is proposing in Sec.  1005.19(a) certain definitions 
specific to proposed Sec.  1005.19.
19(a)(1) Agreement
    The Bureau is proposing Sec.  1005.19(a)(1) to define ``agreement'' 
or ``prepaid account agreement'' for purposes of proposed Sec.  1005.19 
as the written document or documents evidencing the terms of the legal 
obligation, or prospective legal obligation, between a prepaid account 
issuer and a consumer for a prepaid account. An agreement or prepaid 
account agreement also includes fee information, as defined in proposed 
Sec.  1005.19(a)(3), which is discussed below. Proposed Sec.  
1005.19(a)(1) mirrors the definition of ``agreement'' or ``credit card 
agreement'' in Sec.  1026.58(b)(1) in Regulation Z.
    Proposed comment 19(a)(1)-1 would explain that an agreement may 
consist of several documents that, taken together, define the legal 
obligation between the issuer and the consumer. The Bureau has not 
included the second part of Regulation Z comment 58(b)(1)-2, which 
gives the example of provisions that mandate arbitration or allow an 
issuer to unilaterally alter the terms of the card issuer's or 
consumer's obligation are part of the agreement even if they are 
provided to the consumer in a document separate from the basic credit 
contract. The Bureau does not believe that prepaid account agreements 
contain arbitration clauses or provisions allowing the issuer to 
unilaterally alter contract terms in documents separate from the main 
agreement, and therefore does not believe such examples are necessary 
to include in proposed comment 19(a)(1)-1. The Bureau also has not 
included a comment similar to Regulation Z comment 58(b)(1)-1, which 
addresses inclusion of certain pricing information in a credit card 
agreement, as the Bureau does not believe such a comment is relevant to 
prepaid accounts.
19(a)(2) Amends
    The Bureau is proposing Sec.  1005.19(a)(2) to provide that for 
purposes of proposed Sec.  1005.19, an issuer ``amends'' an agreement 
if it makes a substantive change (an ``amendment'') to the agreement. A 
change is substantive if it alters the rights or obligations of the 
issuer or the consumer under the agreement. Any change in the fee 
information, as defined in proposed Sec.  1005.19(a)(3), discussed 
below, is deemed to be substantive. Proposed Sec.  1005.19(a)(2) 
mirrors the definition of the term amends in Sec.  1026.58(b)(2).
    With respect to Sec.  1026.58, the Board determined that requiring 
resubmission

[[Page 77192]]

of credit card agreements following minor, technical changes would 
impose a significant administrative burden with no corresponding 
benefit of increased transparency.\312\ The Bureau believes the same 
would be true for prepaid account issuers and therefore proposes a 
similar definition here.
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    \312\ 75 FR 7658, 7760 (Feb. 22, 2010).
---------------------------------------------------------------------------

    Proposed comment 19(a)(2)-1, which mirrors Regulation Z comment 
58(b)(2)-1, would give examples of changes, other than changes to fee 
information, that generally would be considered substantive, including: 
(i) Addition or deletion of a provision giving the issuer or consumer a 
right under the agreement, such as a clause that allows an issuer to 
unilaterally change the terms of an agreement; (ii) addition or 
deletion of a provision giving the issuer or consumer an obligation 
under the agreement, such as a clause requiring the consumer to pay an 
additional fee; (iii) changes that may affect the cost of the prepaid 
account to the consumer, such as changes in a provision describing how 
the prepaid account's monthly fee will be calculated; (iv) changes that 
may affect how the terms of the agreement are construed or applied, 
such as changes in a choice-of-law provision; and (v) changes that may 
affect the parties to whom the agreement may apply, such as provisions 
regarding authorized users or assignment of the agreement.
    Proposed comment 19(a)(2)-2, which mirrors Regulation Z comment 
58(b)(2)-2, would give examples of changes that generally would not be 
considered substantive, such as: (i) Correction of typographical errors 
that do not affect the meaning of any terms of the agreement; (ii) 
changes to the issuer's corporate name, logo, or tagline; (iii) changes 
to the format of the agreement, such as conversion to a booklet from a 
full-sheet format, changes in font, or changes in margins; (iv) changes 
to the name of the prepaid account to which the program applies; (v) 
reordering sections of the agreement without affecting the meaning of 
any terms of the agreement; (vi) adding, removing, or modifying a table 
of contents or index; and (vii) changes to titles, headings, section 
numbers, or captions.
    The Bureau requests comment, however, on whether certain changes, 
such as to an issuer's corporate name or to the name of the prepaid 
account to which the program applies, should be considered substantive 
for purposes of proposed Sec.  1005.19. The Bureau questions whether 
such changes, if not reflected in agreements posted to the Bureau's or 
the issuer's Web site, might inhibit a consumer's ability to locate an 
agreement for an existing prepaid account or to effectively comparison 
shop for a new prepaid account.
19(a)(3) Fee Information
    The Bureau is proposing Sec.  1005.19(a)(3) to define ``fee 
information'' for purposes of proposed Sec.  1005.19 as the information 
listed for the long form fee disclosure in proposed Sec.  
1005.18(b)(2)(ii). The Bureau believes that to enable consumers to shop 
for prepaid accounts and to compare information about various prepaid 
accounts in an effective manner, it is necessary that the agreements 
posted on the Bureau's Web site include fees and other pricing 
information. The Bureau expects that most issuers will include the long 
form disclosure required by proposed Sec.  1005.18(b)(2)(ii) directly 
in their prepaid account agreements. Others may perhaps maintain the 
long form disclosure as an addendum or other supplement to their 
prepaid account agreements.
    Proposed Sec.  1005.19(a)(3) is similar to the definition of 
pricing information in Sec.  1026.58(b)(7), but omits the exclusion for 
temporary or promotional rates and terms or rates and terms that apply 
only to protected balances, as the Bureau does not believe there is 
currently an equivalent to such rates and terms for prepaid accounts.
    The Bureau requests comment on whether it should also require that 
the short form disclosure that would be required by proposed Sec.  
1005.18(b)(2)(i) also be included in the definition of fee information 
for purposes of proposed Sec.  1005.19 and thus generally required to 
be submitted to the Bureau and posted on the issuer's Web site, as 
discussed below. The Bureau also solicits comment on whether, in light 
of the revisions proposed herein regarding credit accessed by prepaid 
accounts, an exclusion is needed for temporary rates and terms or rates 
and terms that apply only to protected balances similar to the 
exclusion in Sec.  1026.58(b)(7).
19(a)(4) Issuer
    The Bureau is proposing Sec.  1005.19(a)(4) to define ``issuer'' or 
``prepaid account issuer'' for purposes of proposed Sec.  1005.19 as 
the entity to which a consumer is legally obligated, or would be 
legally obligated, under the terms of a prepaid account agreement. 
Proposed Sec.  1005.19(a)(4) mirrors the definition of card issuer in 
Sec.  1026.58(b)(4).
    As discussed in more detail above, the Bureau understands that, in 
some cases, more than one financial institution is involved in the 
administration of a prepaid program. For example, a smaller bank may 
partner with a larger bank to market prepaid accounts to the smaller 
bank's customers, or a bank may partner with a program manager to offer 
prepaid accounts. The Bureau also understands that the terms of the 
arrangements can vary, for example with respect to which party uses its 
name and brand in marketing materials, sets fees and terms, conducts 
customer identification and verification, provides access to account 
information, holds the pooled account, and absorbs the risk of default 
or fraud.
    The Board believed that with respect to the definition of card 
issuer in what is now Sec.  1026.58(b)(4), without a bright-line rule 
defining which institution is the issuer, institutions might find it 
difficult to determine their obligations under Sec.  1026.58.\313\ 
Similarly, absent clarification from the Bureau, it may be difficult to 
determine which entity would be responsible for compliance with 
proposed Sec.  1005.19 for a particular prepaid account. For example, 
if two financial institutions are involved in issuing a prepaid 
program, one may have fewer than 3,000 open accounts while the other 
has more than 3,000 open accounts. It may be difficult to determine 
whether, for example, the de minimis exception (see proposed Sec.  
1005.19(b)(4)) applies in such cases. In addition, it may be unclear 
which institution is obligated to post and maintain the agreements on 
its Web site pursuant to proposed Sec.  1005.19(c) or (d)(1)(i) or 
respond to telephone requests for copies of agreements pursuant to 
proposed Sec.  1005.19(d)(1)(ii), discussed below. The Bureau therefore 
believes it would be beneficial to clarify which institution would be 
the prepaid account issuer for purposes of proposed Sec.  1005.19.
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    \313\ See 76 FR 22948, 22987 (Apr. 25, 2011).
---------------------------------------------------------------------------

    The Bureau is thus proposing to define issuer, in proposed Sec.  
1005.19(a)(4), with respect to a particular agreement as the entity to 
which a consumer is legally obligated, or would be legally obligated, 
under the terms of that agreement. The Bureau is proposing this 
approach for several reasons.
    First, the proposed definition would create a bright-line rule that 
would enable institutions involved in issuing prepaid accounts to 
determine their obligations under proposed Sec.  1005.19. Second, the 
proposed definition would be consistent with the actual legal 
relationship into which a consumer enters under a prepaid account 
agreement. Third, the Bureau believes that the institution to which the 
consumer is legally obligated under the

[[Page 77193]]

agreement may be in the best position to provide accurate, up-to-date 
agreements to both the Bureau and consumers.
    Fourth, the Bureau understands that an institution that partners 
with multiple other entities to issue prepaid accounts, such as in the 
payroll card account context, will in many cases use the same agreement 
for all the prepaid accounts issued in connection with those 
arrangements. Therefore, while the number of prepaid accounts issued 
with a given partner may be small, the total number of consumers 
subject to the corresponding agreement may be quite large. The Bureau 
believes it would be beneficial to have such agreements submitted to 
the Bureau for posting on the Bureau's Web site.
    The Bureau believes that in some cases consumers may be unsure 
about which institution issues their prepaid account. For example, a 
consumer may apply for a prepaid account through a link on the Web site 
of a bank with which the consumer has a pre-existing relationship, and 
the face of the prepaid card may prominently display that bank's logo. 
In some such cases, the consumer may assume that the card is issued by 
that bank, even though Web site disclaimers, the prepaid account 
agreement, the back of the prepaid card, and other materials explain 
that the card is issued by another institution. The Bureau believes, 
however, that institutions can take steps to alleviate this confusion, 
for example by disclosing the identity of the other institution and 
providing contact information for the other institution or a link to 
the other institution's Web site. The Bureau also believes that 
consumers would benefit from having a clearer understanding of to which 
institution they are legally obligated under a prepaid account 
agreement.
    Proposed comment 19(a)(4)-1, which mirrors Regulation Z comment 
58(b)(4)-1, would provide the following example of how the definition 
of issuer would apply. Bank X and Bank Y work together to issue prepaid 
accounts. A consumer that obtains a prepaid account issued pursuant to 
this arrangement between Bank X and Bank Y is subject to an agreement 
that states ``This is an agreement between you, the consumer, and Bank 
X that governs the terms of your Bank Y Prepaid Account.'' The prepaid 
account issuer in this example is Bank X, because the agreement creates 
a legally enforceable obligation between the consumer and Bank X. Bank 
X is the issuer even if the consumer applied for the prepaid account 
through a link on Bank Y's Web site and the cards prominently feature 
the Bank Y logo on the front of the card.
    Proposed comment 19(a)(4)-2, which mirrors Regulation Z comment 
58(b)(4)-2, would explain that while an issuer has a legal obligation 
to comply with the requirements of proposed Sec.  1005.19, it generally 
may use a third-party service provider to satisfy its obligations under 
proposed Sec.  1005.19, provided that the issuer acts in accordance 
with regulatory guidance regarding use of third-party service providers 
and other applicable regulatory guidance. In some cases, an issuer may 
wish to arrange for the entity with which it partners to issue prepaid 
accounts to fulfill the requirements of proposed Sec.  1005.19 on the 
issuer's behalf. For example, Program Manager and Bank work together to 
issue prepaid accounts. Under the proposed Sec.  1005.19(a)(4) 
definition, Bank is the prepaid account issuer for purposes of proposed 
Sec.  1005.19. However, Program Manager services the prepaid accounts, 
including mailing account opening materials and periodic statements to 
consumers. While Bank is responsible for ensuring compliance with 
proposed Sec.  1005.19, Bank may arrange for Program Manager (or 
another appropriate third-party service provider) to submit prepaid 
account agreements to the Bureau under proposed Sec.  1005.19 on Bank's 
behalf. Bank must comply with regulatory guidance regarding use of 
third-party service providers and other applicable regulatory guidance.
    Proposed comment 19(a)(4)-3, which mirrors Regulation Z comment 
58(b)(4)-3.i, would note that, as explained in proposed comment 19(c)-
2, if an issuer provides consumers with access to specific information 
about their individual accounts, such as providing electronic history 
of consumers' account transactions pursuant to Sec.  1005.18(c)(1)(ii), 
through a third-party Web site, the issuer is deemed to maintain that 
Web site for purposes of proposed Sec.  1005.19. Such a Web site is 
deemed to be maintained by the issuer for purposes of proposed Sec.  
1005.19 even where, for example, an unaffiliated entity designs the Web 
site and owns and maintains the information technology infrastructure 
that supports the Web site, consumers with prepaid accounts from 
multiple issuers can access individual account information through the 
same Web site, and the Web site is not labeled, branded, or otherwise 
held out to the public as belonging to the issuer. A partner 
institution's Web site is an example of a third-party Web site that may 
be deemed to be maintained by the issuer for purposes of proposed Sec.  
1005.19. For example, Program Manager and Bank work together to issue 
prepaid accounts. Under the proposed Sec.  1005.19(a)(4) definition, 
Bank is the issuer that issues these prepaid accounts for purposes of 
proposed Sec.  1005.19. Bank does not maintain a Web site specifically 
related to its prepaid accounts. However, consumers can access 
information about their individual accounts, such as an electronic 
history of their account transactions, through a Web site maintained by 
Program Manager. Program Manager designs the Web site and owns and 
maintains the information technology infrastructure that supports the 
Web site. The Web site is branded and held out to the public as 
belonging to Program Manager. Because consumers can access information 
about their individual accounts through this Web site, the Web site is 
deemed to be maintained by Bank for purposes of proposed Sec.  1005.19. 
Bank therefore may comply with proposed Sec.  1005.19(c) or (d)(1)(i) 
by ensuring that agreements offered to the public are posted on Program 
Manager's Web site in accordance with proposed Sec.  1005.19(c) or 
(d)(1)(i), respectively. Bank need not create and maintain a Web site 
branded and held out to the public as belonging to Bank in order to 
comply with proposed Sec.  1005.19(c) and (d)(1)(i) as long as Bank 
ensures that Program Manager's Web site complies with these sections.
    The Bureau is not proposing a comment similar to that of Regulation 
Z comment 58(b)(4)-3.ii which addresses Web site posting of private 
label credit card plans, as the Bureau does not believe such a comment 
is relevant for prepaid accounts, as discussed below.
    The Bureau solicits comment on its proposed definition of issuer, 
whether additional guidance would be helpful, and on whether there are 
preferable alternative approaches to defining issuer for purposes of 
proposed Sec.  1005.19. Additionally, the Bureau is aware that some 
program managers offer prepaid accounts in conjunction with multiple 
issuers, where the terms of the prepaid account agreements are largely 
similar. The Bureau also solicits comment on whether submission of a 
separate agreement for each issuer is the best approach in this 
situation or whether such agreements should be submitted in some other 
manner.
19(a)(5) Offers
    The Bureau is proposing Sec.  1005.19(a)(5) to provide that for 
purposes of proposed Sec.  1005.19, an issuer ``offers,'' or ``offers 
to the public,'' a prepaid account agreement if the issuer solicits 
applications for or

[[Page 77194]]

otherwise makes available prepaid accounts that would be subject to 
that agreement.
    Proposed comment 19(a)(5)-1 would explain that an issuer is deemed 
to offer a prepaid account agreement to the public even if the issuer 
solicits applications for or otherwise makes available prepaid accounts 
only to a limited group of persons. For example, an issuer may market 
affinity cards to students and alumni of a particular institution of 
higher education, or may solicit only residents of a specific 
geographic location for a particular prepaid account; in these cases, 
the agreement would be considered to be offered to the public. 
Similarly, agreements for prepaid accounts issued by a credit union are 
considered to be offered to the public even though such prepaid 
accounts are available only to credit union members. Agreements for 
payroll card accounts, government benefit accounts, or for prepaid 
accounts used to distribute student financial aid disbursements, or 
property and casualty insurance payouts, and other similar programs are 
also considered to be offered to the public.
    Proposed Sec.  1005.19(a)(5) is similar to the definition of the 
term ``offers'' in Sec.  1026.58(b)(5). Section 1026.58(b)(5) provides 
that an issuer ``offers'' or ``offers to the public'' an agreement if 
the issuer is soliciting or accepting applications for accounts that 
would be subject to that agreement. The Bureau does not believe that 
prepaid account issuers solicit or accept applications for prepaid 
accounts in the same manner as credit card issuers do for credit card 
accounts, and thus has modified this language for purposes of proposed 
Sec.  1005.19(a)(5). Proposed comment 19(a)(5)-1 is similar to 
Regulation Z comment 58(b)(5)-1, but includes several additional 
examples of prepaid accounts offered to the public. The Bureau is not 
proposing an equivalent comment to Regulation Z's comment 58(b)(5)-2, 
which provides that a card issuer is deemed to offer a credit card 
agreement to the public even if the terms of that agreement are changed 
immediately upon opening to terms not offered to the public, as the 
Bureau does not believe that prepaid account terms are modified in this 
manner.
19(a)(6) Open Account
    The Bureau is proposing Sec.  1005.19(a)(6) to provide that for 
purposes of proposed Sec.  1005.19, a prepaid account is an ``open 
account,'' or ``open prepaid account,'' if (i) there is an outstanding 
balance in the prepaid account; (ii) if the consumer can load funds to 
the account even if the account does not currently hold a balance; or 
(iii) the consumer can access credit through a credit plan that would 
be a credit card account under Regulation Z, 12 CFR part 1026 that is 
offered in connection with a prepaid account. A prepaid account that 
has been suspended temporarily (for example, due to a report by the 
consumer of unauthorized use of the card) is considered an open account 
or open prepaid account.
    Proposed comment 19(a)(5)-1 would explain that a prepaid account 
that meets any of the criteria set forth in proposed Sec.  
1005.19(a)(5) is considered open even if the issuer considers the 
account inactive. The term open account is used in the provisions 
regarding the de minimis and product testing exceptions in proposed 
Sec.  1005.19(b)(4) and (5) and the requirements in proposed Sec.  
1005.19(d) for agreements not submitted to the Bureau, discussed below.
    Proposed Sec.  1005.19(a)(6) is similar to the definition of open 
account or open credit card account in Sec.  1026.58(b)(6). While Sec.  
1026.58(b)(6) defines an open credit card account as one in which the 
cardholder can obtain extensions of credit on the account, or there is 
an outstanding balance on the account that has not been charged off, 
the Bureau has modified the definition to better reflect what it 
believes constitutes an open account in the prepaid context. Proposed 
Sec.  1005.19(a)(6) includes the explanation used in Sec.  
1026.58(b)(6), which provides that an account that has been suspended 
temporarily (for example, due to a report by the consumer of 
unauthorized use of the card) is nonetheless considered an open 
account. Proposed comment 19(a)(6)-1 is similar to Regulation Z comment 
58(b)(6)-1, with modifications to reflect the terms of proposed Sec.  
1005.19(a)(6).
19(a)(7) Prepaid Account
    The Bureau is proposing Sec.  1005.19(a)(7) to provide that for 
purposes of proposed Sec.  1005.19, ``prepaid account'' means a prepaid 
account as defined in proposed Sec.  1005.2(b)(3). Proposed comment 
19(a)(7)-1 would explain that for purposes of proposed Sec.  1005.19, a 
prepaid account includes, among other things, a payroll card account as 
defined in proposed Sec.  1005.2(b)(3)(iii) and a government benefit 
account as defined proposed Sec. Sec.  1005.2(b)(3)(iv) and 
1005.15(a)(2).
    The Bureau solicits comment on whether there are any types of 
prepaid accounts as defined in proposed Sec.  1005.2(b)(3) that should 
be excluded from the definition of prepaid account for purposes of this 
section or that should be excluded from certain of the requirements of 
this section.
    The Bureau expects that issuers offering prepaid accounts with 
overdraft services or other credit features proposed to be governed as 
credit cards under Regulation Z, as discussed below, would submit to 
the Bureau pursuant to proposed Sec.  1005.19 both the initial prepaid 
account agreement (including the disclosures required by proposed Sec.  
1005.18(b)(2)(ii)(B) as part of the fee information pursuant to 
proposed Sec.  1005.19(a)(3)) and the subsequent prepaid account 
agreement disclosing overdraft or credit terms, and also submit the 
latter agreement to the Bureau as a credit card agreement pursuant to 
Sec.  1026.58. The Bureau does not believe this approach would impose 
significant burden on prepaid account issuers, but nonetheless solicits 
comment on this approach.
Private Label Credit Cards
    The Board defined the term ``private label credit card account'' in 
what is now Sec.  1026.58(b)(8)(i) as a credit card account under an 
open-end (not home secured) consumer credit plan with a credit card 
that can be used to make purchases only at a single merchant or an 
affiliated group of merchants. The term ``private label credit card 
plan'' in Sec.  1026.58(b)(8)(ii) is similarly defined as all of the 
private label credit card accounts issued by a particular issuer with 
credit cards usable at the same single merchant or affiliated group of 
merchants. Regulation Z contains an exception and other specific 
provisions tailored specifically to private label credit card accounts 
and plans. See, e.g., Sec.  1026.58(b)(8), (c)(6); comments 58(b)(8)-1 
through -4; comments 58(c)(6)-1 through -6; and comment 58(d)-3.
    The Bureau does not believe that equivalent provisions are 
necessary or appropriate for proposed Sec.  1005.19, as the equivalent 
of a private label credit card in the prepaid context would be a 
closed-loop gift card. Such gift cards are outside the scope of the 
term prepaid account, as defined in proposed Sec. Sec.  1005.2(b)(3) 
and 1005.19(a)(7).
19(b) Submission of Agreements to the Bureau
    Proposed Sec.  1005.19(b) would require each issuer to 
electronically submit to the Bureau prepaid account agreements offered 
by the issuer on a quarterly basis. The Bureau will post the prepaid 
account agreements it receives on its Web site pursuant to proposed 
Sec.  1005.19(b)(7), discussed below.

[[Page 77195]]

19(b)(1) Quarterly Submissions
    The Bureau is proposing Sec.  1005.19(b)(1) to require issuers to 
make quarterly submissions of prepaid account agreements to the Bureau, 
in the form and manner specified by the Bureau. Such quarterly 
submissions would be required to be sent to the Bureau no later than 
the first business day on or after January 31, April 30, July 31, and 
October 31 of each year. Proposed comment 19(b)(1)-1 would refer to 
Regulation Z comment 58(c)(1)-1 for additional guidance as to the 
quarterly submission timing requirement.
    Regulation Z's Sec.  1026.58(b)(3) defines the term ``business 
day,'' for purposes of Sec.  1026.58, to mean a day on which the 
creditor's offices are open to the public for carrying on substantially 
all of its business functions. Section 1005.2(d) contains a similar 
definition of the term business day (any day on which the offices of 
the consumer's financial institution are open to the public for 
carrying on substantially all business functions). Insofar as that 
definition applies generally in subpart A and the Bureau believes it is 
appropriate for use in proposed Sec.  1005.19, the Bureau believes it 
is unnecessary to define the term again within proposed Sec.  1005.19.
    Proposed Sec.  1005.19(b)(1) would require that each quarterly 
submission contain the following four items. First, a quarterly 
submission must contain identifying information about the issuer and 
the agreements submitted, including the issuer's name, address, and 
identifying number (such as an RSSD ID number or tax identification 
number), and the name of the program manager, if any, for each 
agreement.
    Second, the quarterly submission must contain the prepaid account 
agreements that the issuer offered to the public as of the last 
business day of the preceding calendar quarter that the issuer has not 
previously submitted to the Bureau.
    Third, the quarterly submission must contain any prepaid account 
agreement previously submitted to the Bureau that was amended during 
the previous calendar quarter and that the issuer offered to the public 
as of the last business day of the preceding calendar quarter, as 
described in proposed Sec.  1005.19(b)(2) discussed below.
    Finally, the quarterly submission must contain notification 
regarding any prepaid account agreement previously submitted to the 
Bureau that the issuer is withdrawing, as described in proposed Sec.  
1005.19(b)(3), (4)(iii), and (5)(iii) discussed below.
    Proposed comment 19(b)(1)-2.i would explain that an issuer is not 
required to make any submission to the Bureau at a particular quarterly 
submission deadline if, during the previous calendar quarter, the 
issuer did not take any of the following actions: (A) Offering a new 
prepaid account agreement that was not submitted to the Bureau 
previously; (B) amending an agreement previously submitted to the 
Bureau; and (C) ceasing to offer an agreement previously submitted to 
the Bureau. Proposed comment 19(b)(1)-2.ii would refer to Regulation Z 
comment 58(c)(1)-2.ii for additional guidance as to when a quarterly 
submission is not required.
    Proposed comment 19(b)(1)-3 would explain that proposed Sec.  
1005.19(b)(1) permits an issuer to submit to the Bureau on a quarterly 
basis a complete, updated set of the prepaid account agreements the 
issuer offers to the public. Proposed comment 19(b)(1)-3 would also 
refer to Regulation Z comment 58(c)(1)-3 for additional guidance 
regarding quarterly submission of a complete set of updated agreements.
    Proposed Sec.  1005.19(b)(1) generally mirrors Sec.  1026.58(c)(1), 
except for the addition of the program manager's name into proposed 
Sec.  1005.19(b)(1)(i). Proposed comments 19(b)(1)-1, -2, and -3 are 
similar to Regulation Z comments 58(c)(1)-1, -2, and -3 except that 
proposed comments 19(b)(1)-1, -2.ii and -3 have been shortened to 
cross-reference the parallel comments in Regulation Z for specific 
examples regarding quarterly submission of agreements as the Bureau 
intends that these provisions would function the same for prepaid 
accounts as they do for credit card accounts.
    Proposed Sec.  1005.19(b) would require submission to the Bureau of 
agreements for all prepaid accounts offered to the public, unless one 
or more of the exceptions discussed below are met for withdrawn 
agreements (proposed Sec.  1005.19(b)(3)), issuers that qualify for the 
de minimis exception (proposed Sec.  1005.19(b)(4)), or agreements 
offered as part of a product test (proposed Sec.  1005.19(b)(5)). The 
Bureau solicits comment, however, on whether it should instead require 
submission of agreements for all open prepaid accounts (rather than 
only for agreements that are currently offered to the public), unless 
the de minimis or product testing exceptions are met. The Bureau 
believes that, in many instances, when a prepaid account issuer decides 
to cease offering a specific prepaid account program to the public, it 
also closes all existing accounts under that program after a period of 
time. The Bureau requests comment on whether this practice is 
widespread, or whether prepaid account issuers may have large numbers 
of open prepaid accounts under programs that are no longer offered to 
the public. If there are such programs, the Bureau believes there may 
be benefits to consumers in being able to locate agreements for such 
programs via the Bureau's Web site even if those programs are no longer 
being offered to the public.
    In addition, the Bureau solicits comment on whether submission of 
agreements on a quarterly basis is appropriate, or whether a shorter 
period, or a longer period such as semi-annually or annually, should be 
used. The Bureau also solicits comment on whether, alternatively, it 
should require issuers to submit revised agreements whenever agreements 
are revised, and whether such a requirement would impose a lower burden 
on issuers than would a set submission schedule.
    As discussed above, proposed Sec.  1005.19(b)(1) would require 
quarterly submission of agreements for all prepaid accounts offered to 
the public, unless one or more exceptions are met and proposed comment 
19(b)(1)-3 would explain an issuer is permitted to submit a complete, 
updated set of the prepaid account agreements each quarter. The Bureau 
solicits comment on whether, alternatively, it should instead require 
issuers to resubmit all agreements on a quarterly (or other) basis.
19(b)(2) Amended Agreements
    The Bureau is proposing Sec.  1005.19(b)(2) to provide that if a 
prepaid account agreement has been submitted to the Bureau, the 
agreement has not been amended, and the issuer continues to offer the 
agreement to the public, no additional submission regarding that 
agreement is required. Proposed comment 19(b)(2)-1 would refer to 
Regulation Z comment 58(c)(3)-1 for additional guidance regarding no 
requirement to resubmit agreements that have not been amended.
    Proposed Sec.  1005.19(b)(2) would also require that if a prepaid 
account agreement that previously has been submitted to the Bureau is 
amended, and the issuer offered the amended agreement to the public as 
of the last business day of the calendar quarter in which the change 
became effective, the issuer must submit the entire amended agreement 
to the Bureau, in the form and manner specified by the Bureau, by the 
first quarterly submission deadline after the last day of the calendar 
quarter in which the change became effective. Proposed comment 
19(b)(2)-2 would

[[Page 77196]]

further explain that the issuer is required to submit the amended 
agreement to the Bureau only if the issuer offered the amended 
agreement to the public as of the last business day of the calendar 
quarter in which the change became effective and would refer to 
Regulation Z comment 58(c)(3)-2 for additional guidance regarding the 
submission of amended agreements. Proposed comment 19(b)(2)-3 would 
reiterate that agreements that are not offered to the public as of the 
last day of the calendar quarter should not be submitted to the Bureau 
and would refer to Regulation Z comment 58(c)(3)-3 for additional 
guidance on agreements that have been amended but are no longer offered 
to the public.
    Finally, proposed comment 19(b)(2)-4 would explain that an issuer 
may not fulfill the requirement in proposed Sec.  1005.19(b)(2) to 
submit the entire amended agreement to the Bureau by submitting a 
change-in-terms or similar notice covering only the terms that have 
changed. In addition, amendments must be integrated into the text of 
the agreement (or the optional addendum described in proposed Sec.  
1005.19(b)(6)), not provided as separate riders. Proposed comment 
19(b)(2)-4 would also refer to Regulation Z comment 58(c)(3)-4 for 
additional guidance as to the submission of revised agreements.
    The Bureau believes that permitting issuers to submit change-in-
terms notices or riders containing amendments or revisions would make 
it difficult to determine a prepaid account's current fees and terms. 
Consumers could be required to sift through change-in-terms notices and 
riders in an attempt to assemble a coherent picture of the terms 
currently offered. The Bureau believes that issuers are better placed 
than consumers to assemble this information and that prepaid issuers 
customarily incorporate revised terms into their prepaid account 
agreements on a regular basis rather than only issue separate riders or 
notices.
    The Bureau solicits comment on whether it should require that other 
specific information be submitted regarding the prepaid account program 
or programs to which a specific agreement applies. For example, for 
payroll card accounts, the Bureau could require submission of the name 
of each employer that offers a payroll card account under a specific 
agreement, to assist consumers in identifying on the Bureau's or the 
issuer's Web site the agreement to which their payroll card account is 
subject.
    The Bureau also seeks comment on the possible format or formats in 
which it might require issuers to submit prepaid account agreements. 
For example, proposed Sec.  1005.19(c)(4), discussed below, would 
require issuers to post agreements on their Web sites in any electronic 
format that is readily usable by the general public. The Bureau 
requests comment on whether it should adopt a similar standard for 
agreements that are provided to it pursuant to proposed Sec.  
1005.19(b), or whether it should instead (or additionally) require 
issuers to provide agreements (or a portion of the agreement, such as 
the long form disclosure) using, for example, a machine-readable text 
format such as JSON, XML, or similar format that could be used by the 
Bureau or third parties to more easily create comparison shopping 
tools. See proposed comment 18(b)(3)(i)(B)-3 (discussing machine-
readable text).
    The Bureau expects to provide additional details regarding the 
electronic submission process in connection with the release of its 
final rule on this subject. Issuers will have no submission obligations 
until the Bureau has issued technical specifications addressing the 
form and manner for submission of agreements. The Bureau intends for 
the streamlined electronic submission process to be operational before 
proposed Sec.  1005.19(b) becomes effective.
    Proposed Sec.  1005.19(b)(2) mirrors the Regulation Z provisions 
regarding submission of amended agreements in Sec.  1026.58(c)(3). 
Proposed comments 19(b)(2)-1 through -4 mirror Regulation Z comments 
58(c)(3)-1 through -4, although the proposed 19(b)(2) comments have 
been shortened to cross-reference the parallel comments in Regulation Z 
for specific examples of submission of amended agreements as the Bureau 
intends that these provisions would function the same for prepaid 
accounts as they do for credit card accounts.
19(b)(3) Withdrawal of Agreements
    The Bureau is proposing Sec.  1005.19(b)(3) to provide that if an 
issuer no longer offers to the public a prepaid account agreement that 
previously has been submitted to the Bureau, the issuer must notify the 
Bureau, in the form and manner specified by the Bureau, by the first 
quarterly submission deadline after the last day of the calendar 
quarter in which the issuer ceased to offer the agreement. Proposed 
Sec.  1005.19(b)(3) mirrors the Regulation Z provisions regarding 
withdrawal of agreements previously submitted to the Bureau in Sec.  
1026.58(c)(4). Proposed comment 19(b)(3)-1 cross-references Regulation 
Z comment 58(c)(4)-1 for a specific example regarding withdrawal of 
submitted agreements as the Bureau intends that this provision would 
function the same for prepaid accounts as it does for credit card 
accounts.
    With respect to credit cards, the Board found that the number of 
credit card agreements currently in effect but no longer offered to the 
public was extremely large, and thus providing such agreements to the 
Board would have posed a significant burden on industry as well as 
diluted the active agreements posted on the Board's Web site to such an 
extent that they might no longer be useful to consumers.\314\ The 
Bureau does not believe that prepaid issuers have open prepaid accounts 
subject to agreements no longer offered to the public the same way that 
credit card issuers do. However, the Bureau believes that the primary 
benefit of making prepaid account agreements available on the Bureau's 
Web site would be to assist consumers in comparing prepaid account 
agreements offered by various issuers when shopping for a new prepaid 
account. Including agreements that are no longer offered to the public 
would not facilitate comparison shopping by consumers because consumers 
could not obtain the accounts subject to these agreements. Thus, the 
Bureau is proposing that an issuer only submit to the Bureau under 
proposed Sec.  1005.19(b) those agreements that the issuer currently 
offers to the public.
---------------------------------------------------------------------------

    \314\ 74 FR 54124, 54189 (Oct. 21, 2009).
---------------------------------------------------------------------------

19(b)(4) De Minimis Exception
    The Bureau is proposing Sec.  1005.19(b)(4) to provide a de minimis 
exception for the requirement to submit prepaid account agreements to 
the Bureau. Proposed Sec.  1005.19(b)(4)(i) would state that an issuer 
is not required to submit any prepaid account agreements to the Bureau 
if the issuer had fewer than 3,000 open prepaid accounts as of the last 
business day of the calendar quarter. As in Regulation Z, this de 
minimis exception would apply to all open prepaid accounts of the 
issuer, not to each of the issuer's prepaid account programs 
separately.
    For Regulation Z, the Board was not aware of a way to define a 
``credit card plan'' that would not divide issuers' portfolios into 
such small units that large numbers of credit card agreements could 
fall under the de minimis exception.\315\ The Board therefore 
established a de minimis exception based on an issuer's total number of

[[Page 77197]]

open accounts. Sec.  1026.58(c)(5). The Bureau believes that the same 
issues apply in attempting to define a ``prepaid account program'' for 
purposes of a de minimis threshold, and therefore similarly proposes to 
adopt a de minimis threshold that applies to all of an issuer's prepaid 
programs, rather than on a program-by-program basis.
---------------------------------------------------------------------------

    \315\ 74 FR 54124, 54191 (Oct. 21, 2009).
---------------------------------------------------------------------------

    The Bureau is proposing to use a lower de minimis threshold of 
3,000 open prepaid accounts, in place of the 10,000 open accounts 
threshold used in Regulation Z. The prepaid accounts market is smaller 
than the credit card market (based on number of open accounts) and 
there are some indications that smaller issuers (i.e., with small 
numbers of open accounts rather than small based on entity size) may 
account for more of the prepaid market than do smaller issuers in the 
credit card market. The Bureau seeks to create a de minimis threshold 
that would exempt a similar portion of open prepaid accounts from this 
requirement as are exempted by the current analogous requirement for 
credit cards. However, the Bureau lacks specific data that would permit 
it to accurately determine a comparable threshold for prepaid accounts.
    Public data indicate that none of the top 100 Visa and MasterCard 
credit card issuers (ranked by dollar amount of outstandings, and which 
covers both consumer and commercial credit cards) come close to falling 
below the 10,000 Regulation Z de minimis threshold, even as those 
issuers (when combined with Discover and American Express, which are 
the two largest U.S. issuers that are not MasterCard or Visa issuers) 
amount to more than 92 percent of total general purpose credit card 
loans outstanding.\316\ The smallest credit card issuers in this top-
100 list, based on total accounts and total active accounts, exceed the 
de minimis threshold by a factor of between two (for active accounts) 
and nearly four (for total accounts).
---------------------------------------------------------------------------

    \316\ HSN Consultants, Inc., The Nilson Report, Issue 1035 at 8, 
10-11 (Feb. 2014), and The Nilson Report, Issue 1038 at 10-11 (Apr. 
2014). Public data for the next tranche of credit card issuers does 
not include account volume, but it does include outstandings volume. 
The lowest outstandings for an issuer in the third 50 cohort are 
more than 60 percent of the outstandings for the smallest issuer by 
total account volume in the top-100. See The Nilson Report, Issue 
1042 at 11 (June 2014). As the smallest issuer by total account 
volume in the top-100 exceeded the de minimis threshold by several 
factors, the available indications are that the third 50 cohort 
would not fall below the de minimis threshold either.
---------------------------------------------------------------------------

    In comparison, the same public source indicates that three of the 
top 50 Visa and MasterCard prepaid account issuers would fall below a 
10,000 threshold, and one of these is right at the proposed 3,000 
threshold.\317\ Furthermore, the data in this report include a number 
of types of other prepaid products beyond commercial cards that are 
outside the proposed definition of prepaid account, such as consumer 
gift, healthcare, and rebates/rewards, creating the likelihood that 
additional top-50 prepaid issuers could fall below a de minimis 
threshold of 10,000 open prepaid accounts.\318\ Although it is not 
straightforward to calculate exactly how much of the market these top-
50 prepaid issuers represent, available indications are that it is 
significantly below the 92 percent accounted for by the top-100 credit 
card issuers.\319\
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    \317\ HSN Consultants, Inc., The Nilson Report, Issue 1043 at 10 
(June 2014). One issuer had 9,000 cards in circulation, another had 
8,000, and a third had only 3,000.
    \318\ One issuer was reported to have 14,000 cards in 
circulation, another had 16,000, and a third had 18,000.
    \319\ Nilson reports that the top-50 prepaid issuers accounted 
for some $118 billion in purchase volume in 2013. The Nilson Report, 
Issue 1043 at 1 (June 2014). One leading consultancy has estimated 
load on open-loop prepaid products for that year at over $242 
billion. Mercator Advisory Grp., Eleventh Annual U.S. Prepaid Cards 
Market Forecasts, 2014-2017 (Nov. 2014).
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    The Bureau solicits comment on its proposed adoption of a 3,000 
open accounts threshold for the de minimis exception. In addition, the 
Bureau recognizes that the proposed de minimis exception would not 
alleviate the administrative burden on large issuers of submitting 
agreements for prepaid account programs with a very small number of 
open accounts. The Bureau solicits comment on whether it should create 
a de minimis exception applicable to a prepaid account program offered 
by an issuer of any size and, if so, how the Bureau should define 
``prepaid account program'' for purposes of such an exception.
    Proposed comment 19(b)(4)-1 would explain that the de minimis 
exception in proposed Sec.  1005.19(b)(4) is distinct from the product 
testing exception in proposed Sec.  1005.19(b)(5). The de minimis 
exception provides that an issuer with fewer than 3,000 open prepaid 
accounts is not required to submit any agreements to the Bureau, 
regardless of whether those agreements qualify for the product testing 
exception. In contrast, the product testing exception provides that an 
issuer is not required to submit to the Bureau agreements offered 
solely in connection with certain types of prepaid account programs 
with fewer than 3,000 open accounts, regardless of the financial 
institution's total number of open accounts. Proposed comment 19(b)(4)-
2 would refer to Regulation Z comment 58(c)(5)-2 for additional 
guidance on the de minimis exception.
    Proposed Sec.  1005.19(b)(4)(ii) would state that if an issuer that 
previously qualified for the de minimis exception ceases to qualify, 
the issuer must begin making quarterly submissions to the Bureau no 
later than the first quarterly submission deadline after the date as of 
which the issuer ceased to qualify. Proposed comment 19(b)(4)-3 would 
refer to Regulation Z comment 58(c)(5)-3 for additional guidance on the 
date for determining whether an issuer qualifies for the de minimis 
exception. Proposed comment 19(b)(4)-4 would refer to Regulation Z 
comment 58(c)(5)-4 for additional guidance on the date for determining 
whether an issuer ceases to qualify for the de minimis exception.
    Finally, proposed Sec.  1005.19(b)(4)(iii) would state that if an 
issuer that did not previously qualify for the de minimis exception 
newly qualifies for the de minimis exception, the issuer must continue 
to make quarterly submissions to the Bureau until the issuer notifies 
the Bureau that it is withdrawing all agreements it previously 
submitted to the Bureau. Proposed comment 19(b)(4)-5 would refer to 
Regulation Z comment 58(c)(5)-5 for additional guidance on an issuer's 
option to withdraw its agreements submitted to the Bureau.
    Proposed Sec.  1005.19(b)(4) mirrors the Regulation Z provisions 
regarding the de minimis exception in Sec.  1026.58(c)(5), except for 
the lower proposed de minimis threshold figure. Proposed comments 
19(b)(4)-1 to -5 mirror Regulation Z comments 58(c)(5)-1 to -5, 
although proposed comments 19(b)(1)-2 to -5 have been shortened to 
cross-reference the parallel comments in Regulation Z for specific 
examples regarding the de minimis exception as the Bureau intends that 
these provisions would function the same for prepaid accounts as they 
do for credit card accounts. In addition, the references to the private 
label credit card exception in Regulation Z comment 58(c)(5)-1 have 
been removed as the Bureau does not believe that exception is relevant 
in the prepaid card context, as discussed above.
19(b)(5) Product Testing Exception
    The Bureau is proposing Sec.  1005.19(b)(5) to provide a product 
testing exception to the requirement to submit prepaid account 
agreements to the Bureau. Proposed Sec.  1005.19(b)(5) mirrors the 
Regulation Z provisions regarding the product testing exception in 
Sec.  1026.58(c)(7).

[[Page 77198]]

    Proposed Sec.  1005.19(b)(5)(i) would provide that an issuer is not 
required to submit to the Bureau a prepaid account agreement if, as of 
the last business day of the calendar quarter, the agreement: (A) Is 
offered as part of a product test offered to only a limited group of 
consumers for a limited period of time; (B) is used for fewer than 
3,000 open prepaid accounts; and (C) is not offered to the public other 
than in connection with such a product test.
    Proposed Sec.  1005.19(b)(5)(ii) would provide that if an agreement 
that previously qualified for the product testing exception ceases to 
qualify, the issuer must submit the agreement to the Bureau no later 
than the first quarterly submission deadline after the date as of which 
the agreement ceased to qualify. Finally, proposed Sec.  
1005.19(b)(5)(iii) would provide that if an agreement that did not 
previously qualify for the product testing exception newly qualifies 
for the exception, the issuer must continue to make quarterly 
submissions to the Bureau with respect to that agreement until the 
issuer notifies the Bureau that the agreement is being withdrawn.
    The Bureau believes that the administrative burden on issuers of 
preparing and submitting to the Bureau agreements used for a small 
number of prepaid accounts in connection with a product test by an 
issuer outweighs the benefit of increased transparency of including 
these agreements on the Bureau's Web site. The Bureau understands that 
issuers often test new prepaid account strategies and products by 
offering prepaid accounts to discrete, targeted groups of consumers for 
a limited time. Posting these agreements on the Bureau's and issuers' 
Web sites would not facilitate comparison shopping by consumers, as 
these terms are offered only to a limited group of consumers for a 
short period of time. Including these agreements could mislead 
consumers into believing that these terms are available more generally. 
In addition, posting these agreements could make issuer testing 
strategies transparent to competitors.
    The Bureau seeks comment on whether it should impose a time limit 
on how long an issuer can avail itself of the product testing 
exception, and if so, what that time limit might be, or whether the 
Bureau should adopt other conditions on use of the product testing 
exception. The Bureau is concerned about possible circumvention of the 
proposed requirements in Sec.  1005.19(b) via the product testing 
exception. For example, the Bureau is concerned about the possibility 
that issuers might deem small payroll card account programs part of a 
product test, even when all or substantially all of a particular 
employer's employees are enrolled in the payroll card account program. 
The Bureau seeks comment on whether it should specify that if all, or 
substantially all, of a company's employees are enrolled in a payroll 
card account program (excluding programs for the employees of the 
issuer or a service provider to the issuer, such as a program manager), 
that program does not qualify for the product testing exception.
19(b)(6) Form and Content of Agreements Submitted to the Bureau
    Proposed Sec.  1005.19(b)(6) would set forth the form and content 
requirements for prepaid account agreements submitted to the Bureau.
19(b)(6)(i) Form and Content Generally
    The Bureau is proposing Sec.  1005.19(b)(6)(i) to provide that each 
prepaid account agreement must contain the provisions of the agreement 
and the fee information in effect as of the last business day of the 
preceding calendar quarter. Proposed comment 19(b)(6)-1 would provide 
the following example to aid in determining the ``as of'' date of an 
agreement: On June 1, an issuer decides to decrease the out-of-network 
ATM withdrawal fee associated with one of the agreements it offers to 
the public. The change in that fee will become effective on August 1. 
If the issuer submits the agreement to the Bureau on July 31 (for 
example, because the agreement has been otherwise amended), the 
agreement submitted should not include the new lower out-of-network ATM 
withdrawal fee because that lower fee was not in effect on June 30, the 
last business day of the preceding calendar quarter. Proposed comment 
19(b)(6)-1 is similar to Regulation Z comment 58(c)(8)-1.
    Proposed Sec.  1005.19(b)(6)(i) would also state that agreements 
must not include any personally identifiable information relating to 
any consumer, such as name, address, telephone number, or account 
number. Further, as explained in proposed Sec.  1005.19(b)(6)(i), the 
following would not be deemed to be part of the agreement for purposes 
of proposed Sec.  1005.19, and therefore are not required to be 
included in submissions to the Bureau: (1) Ancillary disclosures 
required by State or Federal law, such as affiliate marketing notices, 
privacy policies, or disclosures under the E-Sign Act; (2) solicitation 
or marketing materials; (3) periodic statements; and (4) documents that 
may be sent to the consumer along with the prepaid account or prepaid 
account agreement such as a cover letter, a validation sticker on the 
card, or other information about card security. Finally, proposed Sec.  
1005.19(b)(6)(i) would state that agreements must be presented in a 
clear and legible font.
    Proposed Sec.  1005.19(b)(6)(i) generally mirrors the Regulation Z 
provisions in Sec.  1026.58(c)(8)(i) regarding the form and content of 
agreements that would be submitted to the Bureau. This paragraph 
excludes, however, two additional items listed in Sec.  
1026.58(c)(8)(i)(C) that are not deemed to be part of a credit card 
agreement--ancillary agreements between the issuer and the consumer, 
such as debt cancellation contracts or debt suspension agreements, and 
offers for credit insurance or other optional products and other 
similar advertisement--because the Bureau does not believe these items 
are relevant in the prepaid account context. Proposed Sec.  
1005.19(b)(6)(i) is not intended to provide an exhaustive list of the 
ancillary State and Federal law disclosures that are not deemed to be 
part of an agreement under proposed Sec.  1005.19. As indicated by the 
use of the phrase ``such as,'' the listed disclosures are merely 
examples of ``ancillary disclosures required by Federal or State law.'' 
The Bureau does not believe it is feasible to include in this paragraph 
a comprehensive list of all such disclosures, as such a list would be 
extensive and would change as State and Federal laws and regulations 
are amended. The Bureau notes that an issuer would not be prohibited by 
this or any other provision of proposed Sec.  1005.19 from choosing to 
include these items in submitted agreements.
19(b)(6)(ii) Fee Information
    The Bureau is proposing Sec.  1005.19(b)(6)(ii) to provide that fee 
information must be set forth either in the prepaid account agreement 
or in a single addendum to that agreement. The agreement or addendum 
thereto must contain all of the fee information, which is defined by 
proposed Sec.  1005.19(a)(3) as the information listed for the long-
form fee disclosure in proposed Sec.  1005.18(b)(2)(ii), as discussed 
above.
    Proposed Sec.  1005.19(b)(6)(ii) deviates from the provisions 
governing pricing information in Sec.  1026.58(c)(8)(ii) in that the 
proposed language permits, but does not require, prepaid account fee 
information to be provided in an addendum to the prepaid account 
agreement. The Bureau requests comment on whether it should require, 
rather than permit, prepaid account fee information in an addendum to 
the agreement and whether such a requirement might aid consumers in

[[Page 77199]]

more easily locating fee information in prepaid account agreements.
    Proposed Sec.  1005.19(b)(6)(ii) also omits the provisions 
contained in Sec.  1026.58(c)(8)(ii)(B) and (C) that address how to 
disclose pricing information that varies from one cardholder to another 
(such as annual percentage rates) and how to disclose variable rates 
and margins. Because prepaid account fees and terms currently do not 
vary between consumers based on creditworthiness or other factors in 
the same way that credit card account pricing and other terms do, the 
Bureau does not believe these provisions are either applicable or 
necessary with respect to prepaid account agreements. The Bureau 
likewise has not proposed an equivalent to Sec.  1026.58(c)(8)(iii) 
which allows for an optional variable terms addendum that allows 
provisions other than those related to pricing information that may 
vary from one cardholder to another depending on the cardholder's 
creditworthiness, State of residence or other factors to be set forth 
in a single addendum separate from the pricing information addendum. 
The Bureau has likewise not proposed a comment equivalent to that of 
58(c)(8)-2 regarding pricing information, nor that of 58(c)(8)-4 
regarding the optional variable terms addendum. The Bureau solicits 
comment on whether, in light of the revisions proposed herein regarding 
credit accessed by prepaid accounts, it should incorporate provisions 
similar to Sec.  1026.58(c)(8)(ii)(B), (8)(ii)(C), (8)(iii) or comments 
58(c)(8)-2 or 58(c)(8)-4 into proposed Sec.  1005.19.
    With credit cards, issuers offer a range of terms and conditions 
and issuers may make those terms and conditions available in a variety 
of different combinations, particularly with respect to items included 
in the pricing information. In Regulation Z, pricing information is 
required to be set out in a separate pricing information addendum, 
regardless of whether pricing information is also contained in the main 
text of the agreement. The Board concluded that it could be difficult 
for consumers to find pricing information if it is integrated into the 
text of the credit card agreement. The Board believed that requiring 
pricing information to be attached as a separate addendum would ensure 
that this information is easily accessible to consumers.\320\ The 
Bureau does not believe that prepaid account agreements vary in the 
same manner. The Bureau also believes that if prepaid account 
agreements contain the long form fee disclosure required by proposed 
Sec.  1005.18(b)(2)(ii) (see Sample Form A-10(e)), consumers would be 
able to easily locate such fee information within a prepaid account 
agreement and to compare fee information across agreements.
---------------------------------------------------------------------------

    \320\ 75 FR 7658, 7769 (Feb. 22, 2010).
---------------------------------------------------------------------------

    Proposed comment 19(b)(6)-2, which is largely similar to Regulation 
Z comment 58(c)(8)-3, would explain that fee agreement variations do 
not constitute separate agreements. Fee information that may vary from 
one consumer to another depending on the consumer's State of residence 
or other factors must be disclosed by setting forth all the possible 
variations or by providing a range of possible variations. Two 
agreements that differ only with respect to variations in the fee 
information would not constitute separate agreements for purposes of 
proposed Sec.  1005.19. For example, an issuer offers two types of 
prepaid accounts that differ only with respect to the monthly fee. The 
monthly fee for one type of account is $4.95, while the monthly fee for 
the other type of account is $0 if the consumer regularly receives 
direct deposit to the prepaid account. The provisions of the agreement 
and fee information for the two types of accounts are otherwise 
identical. The issuer should not submit to the Bureau one agreement 
with fee information listing a $4.95 monthly fee and another agreement 
with fee information listing a $0 monthly fee. Instead, the issuer 
should submit to the Bureau one agreement with fee information listing 
possible monthly fees of $4.95 or $0, including the explanation that 
the latter fee is dependent upon the consumer regularly receiving 
direct deposit.
19(b)(6)(iii) Integrated Agreement
    The Bureau is proposing Sec.  1005.19(b)(6)(iii) to prohibit 
issuers from providing provisions of the agreement or fee information 
to the Bureau in the form of change-in-terms notices or riders (other 
than the optional fee information addendum). Changes in provisions or 
fee information must be integrated into the text of the agreement, or 
the optional fee information addendum, as appropriate. Proposed comment 
19(b)(6)-3 would provide the following example illustrating this 
requirement: It would be impermissible for an issuer to submit to the 
Bureau an agreement in the form of a terms and conditions document 
dated January 1, 2015, four subsequent change in terms notices, and two 
addenda showing variations in fee information. Instead, the issuer must 
submit a document that integrates the changes made by each of the 
change in terms notices into the body of the original terms and 
conditions document and a single optional addendum displaying 
variations in fee information.
    Proposed Sec.  1005.19(b)(6)(iii) is similar to Sec.  
1026.58(c)(8)(iv) in that they both prohibit providing agreements and 
fee (or pricing) information to the Bureau in the form of change-in-
terms notice or riders, but the proposed language has been modified to 
reflect that prepaid account fee information may, but is not required 
to be, provided in an optional fee information addendum. Proposed 
comment 19(b)(6)-3 is similar to Regulation Z comment 58(b)-5.
    As discussed previously, the Bureau believes that permitting 
issuers to submit agreements that include change-in-terms notices or 
riders containing amendments and revisions would be confusing for 
consumers and would greatly lessen the usefulness of the agreements 
posted on the Bureau's Web site. In addition, the Bureau believes that 
prepaid account issuers customarily incorporate revised terms into 
their prepaid account agreements on a regular basis.
    The Board believed that there could potentially be significant 
burden on issuers for updating credit card agreements following changes 
in terms because of the potential variety in terms offered under a 
single agreement.\321\ The Bureau does not believe a similar burden 
exists for prepaid account agreements because a single prepaid account 
agreement would not contain a variety of variable terms predicated on 
the consumer's credit worthiness or other factors. In addition, the 
Bureau does not believe that prepaid account issuers modify the terms 
of prepaid account agreements as frequently as credit card issuers do. 
The Bureau nonetheless seeks comment on this aspect of the proposal.
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    \321\ See 75 FR 7658, 7770 (Feb. 22, 2010).
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19(b)(7) Bureau Posting of Prepaid Account Agreements
    The Bureau is proposing Sec.  1005.19(b)(7) to provide that the 
Bureau shall receive prepaid account agreements submitted by prepaid 
account issuers pursuant to proposed Sec.  1005.19(b), and shall post 
such agreements on a publicly-available Web site established and 
maintained by the Bureau. There is no equivalent to proposed Sec.  
1005.19(b)(7) in Sec.  1026.58 as the Bureau's posting of credit card 
agreements it receives is directed by TILA section 122(d). 15 U.S.C. 
1632(d).

[[Page 77200]]

19(c) Posting of Agreements Offered to the Public
    The Bureau is proposing Sec.  1005.19(c) to require an issuer to 
post and maintain on its publicly available Web site the prepaid 
account agreements that the issuer would be required to submit to the 
Bureau under proposed Sec.  1005.19(b). Agreements posted pursuant to 
proposed Sec.  1005.19(c) must conform to the form and content 
requirements for agreements submitted to the Bureau specified in 
proposed Sec.  1005.19(b)(6)(i)(B) through (D) and may be posted in any 
electronic format that is readily usable by the general public. 
Agreements posted pursuant to proposed Sec.  1005.19(c) must be 
accurate and updated whenever changes are made. Agreements must be 
placed in a location that is prominent and readily accessible by the 
public and must be accessible without submission of personally 
identifiable information.
    Section 1026.58(d)(1) requires credit card issuers to update the 
agreements posted on their Web sites at least as frequently as the 
quarterly schedule required for submission of agreements to the Bureau, 
but permits an issuer to update its agreements more frequently if it so 
chooses. For Regulation Z, the Board considered a consumer group 
comment requesting that the online agreement be updated within a 
specific period of time no greater than 72 hours. The Board declined to 
adopt such a requirement because it believed that the burden to card 
issuers of updating agreements in such a short time would outweigh the 
benefit. In addition, the Board noted that if a consumer applies or is 
solicited for a credit card, the consumer will receive the updated 
disclosure under existing rules in Regulation Z subpart B.\322\ The 
Bureau believes that prepaid account issuers generally update their 
agreements posted online as changes are made. The Bureau does not 
believe that prepaid account issuers face the same burdens as credit 
card issuers in updating prepaid account agreements posted online 
because the terms of such agreements do not vary in the same manner as 
credit card agreement terms, which may offer a variety of rates and 
fees depending on the creditworthiness of the consumer. Thus, for 
prepaid account agreements, the Bureau is proposing in Sec.  
1005.19(c)(3) that prepaid account agreements posted only be accurate 
and that issuers update their agreements whenever changes are made. The 
Bureau seeks comment on whether this portion of the proposal aligns 
with current industry practice and whether the Bureau should 
nonetheless specify a specific timeframe for updating prepaid account 
agreements posted online.
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    \322\ 75 FR 7658, 7772 (Feb. 22, 2010).
---------------------------------------------------------------------------

    Proposed comment 19(c)-1 would explain that an issuer's obligation 
to post and maintain prepaid account agreements on its Web site 
pursuant to proposed Sec.  1005.19(c) is distinct from that of Sec.  
1005.7, which requires an issuer to provide certain disclosures at the 
time a consumer contracts for an electronic fund transfer service or 
before the first electronic fund transfer is made involving the 
consumer's account, as well as the change in terms notice required 
under Sec.  1005.8(a). This requirement is also distinct from that of 
proposed Sec.  1005.18(b)(2)(ii), which would require issuers to make 
the long form disclosure available to consumers prior to prepaid 
account acquisition and which, depending on the methods an issuer 
offers prepaid accounts to consumers, may require posting of the long 
form disclosure on the issuer's Web site. If, for example, an issuer is 
not required to submit any agreements to the Bureau because the issuer 
qualifies for the de minimis exception under proposed Sec.  
1005.19(b)(4), the issuer is not required to post and maintain any 
agreements on its Web site under proposed Sec.  1005.19(c). The issuer 
would still be required to provide each individual consumer with access 
to his or her specific prepaid account agreement under proposed Sec.  
1005.19(d), discussed below, by posting and maintaining the agreement 
on the issuer's Web site or by providing a copy of the agreement upon 
the consumer's request. The issuer may also be required to post the 
long form disclosure required by proposed Sec.  1005.18(b)(2)(ii) 
online as well, depending on the methods by which the issuer offers 
prepaid accounts to consumers.
    Proposed comment 19(c)-2 would explain that if an issuer provides 
consumers with access to specific information about their individual 
accounts, such as balance information or copies of statements, through 
a third-party Web site, the issuer is considered to maintain that Web 
site for purposes of proposed Sec.  1005.19. Such a third-party Web 
site is deemed to be maintained by the issuer for purposes of proposed 
Sec.  1005.19(c) even where, for example, an unaffiliated entity 
designs the Web site and owns and maintains the information technology 
infrastructure that supports the Web site, consumers with prepaid 
accounts from multiple issuers can access individual account 
information through the same Web site, and the Web site is not labeled, 
branded, or otherwise held out to the public as belonging to the 
issuer. Therefore, issuers that provide consumers with access to 
account-specific information through a third-party Web site can comply 
with proposed Sec.  1005.19(c) by ensuring that the agreements the 
issuer submits to the Bureau are posted on the third-party Web site in 
accordance with proposed Sec.  1005.19(c).
    Proposed Sec.  1005.19(c) is similar to Sec.  1026.58(d), but does 
not include provisions regarding private label credit cards, as 
discussed above. Specifically, the Bureau is not proposing an 
equivalent to the provision addressing the Web site to be used for 
posting private label credit card agreements in Sec.  1026.58(d)(1) as 
well as Sec.  1026.58(d)(4) requiring quarterly updates of credit card 
agreements posted on card issuers' Web sites, as discussed above. 
Proposed comment 19(c)-1 is similar to Regulation Z comment 58(d)-1, 
although it has been modified to distinguish the requirement in 
proposed Sec.  1005.19(c) from other disclosure-related obligations in 
Regulation E. Proposed comment 19(c)-2 mirrors Regulation Z comment 
58(d)-2, although both it and proposed comment 19(c)-1 have been 
modified and to remove the portions discussing the private label credit 
card exception. An equivalent to Regulation Z comment 58(d)-3, 
regarding private label credit card plans, has likewise been omitted.
19(d) Agreements for All Open Accounts
19(d)(1) Availability of Individual Consumer's Prepaid Account 
Agreement
    The Bureau is proposing Sec.  1005.19(d)(1) to state that, with 
respect to any open prepaid account, unless the prepaid account 
agreement is provided to the Bureau pursuant to proposed Sec.  
1005.19(b) and posted to the issuer's publicly available Web site 
pursuant to proposed Sec.  1005.19(c), an issuer must either post and 
maintain the consumer's agreement on its Web site, or promptly provide 
a copy of the consumer's agreement to the consumer upon the consumer's 
request. Unlike agreements posted pursuant to proposed Sec.  
1005.19(c), which must be maintained on an issuer's publicly available 
Web site, agreements posted pursuant to proposed Sec.  1005.19(d) may 
be housed on a portion of the issuer's Web site that is available to 
consumers once they have logged into their accounts. If the issuer 
makes an agreement available upon request, the issuer must provide the 
consumer with the ability to request a copy of the agreement by 
telephone. The issuer must send to the consumer

[[Page 77201]]

a copy of the consumer's prepaid account agreement no later than five 
business days after the issuer receives the consumer's request.
    Proposed comment 19(d)-1, which is similar to Regulation Z comment 
58(e)-1, would provide examples illustrating the requirements of 
proposed Sec.  1005.19(d)(1). An issuer that is not required to submit 
agreements to the Bureau because it qualifies for the de minimis 
exception under proposed Sec.  1005.19(b)(4) would still be required to 
provide consumers with access to their specific agreements under 
proposed Sec.  1005.19(d). Similarly, an agreement that is no longer 
offered to the public would not be required to be submitted to the 
Bureau under proposed Sec.  1005.19(b), but would still need to be 
provided to the consumer to whom it applies under proposed Sec.  
1005.19(d).
    The Bureau does not believe it would be appropriate to apply the de 
minimis exception, the product testing exception, or the exception for 
accounts not currently offered to the public to the requirement that 
issuers provide consumers with access to their specific prepaid account 
agreement through the issuer's Web site. In addition, the Bureau 
believes that, for the reasons discussed above, posting prepaid account 
agreements that are not currently offered to the public on the Bureau's 
Web site would not be beneficial to consumers. However, the Bureau 
believes that the benefit of increased transparency of providing an 
individual cardholder access to his or her specific prepaid account 
agreement is substantial regardless of whether the cardholder's 
agreement continues to be offered by the issuer. The Bureau believes 
that this benefit outweighs the administrative burden on issuers of 
providing such access, and the Bureau therefore is not proposing to 
exempt agreements that are not offered to the public from the 
requirements of proposed Sec.  1005.19(d)(1). Similarly, the proposal 
requires that prepaid account issuers with fewer than 3,000 open 
prepaid accounts would not be required to submit agreements to the 
Bureau. However, the Bureau believes that the benefit of increased 
transparency associated with providing an individual cardholder with 
access to his or her specific prepaid account agreement is substantial 
regardless of the number of the issuer's open accounts. The Bureau 
believes that this benefit of increased transparency for consumers 
outweighs the administrative burden on issuers of providing such 
access, and the Bureau therefore is not proposing to apply the de 
minimis exception to the requirements in proposed Sec.  1005.19(d)(1).
    The Board believed that the administrative burden associated with 
posting each cardholder's credit card agreement on the issuer's Web 
site might be substantial for some issuers, particularly smaller 
institutions with limited information technology resources, and thus 
gave issuers the option of providing copies of agreements in response 
to cardholders' requests. The ability to provide agreements in response 
to a request made via telephone or Web site would ensure that 
cardholders still be able to obtain copies of their credit card 
agreements promptly.\323\
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    \323\ See 74 FR 54124, 54192 (Oct. 21, 2009).
---------------------------------------------------------------------------

    The Bureau does not know whether similar challenges are faced by 
prepaid account issuers, particularly for issuers that would qualify 
for the de minimis or product testing exceptions. The Bureau is thus 
proposing to similarly allow prepaid account issuers to satisfy the 
requirements of proposed Sec.  1005.19(d)(1) by providing a copy of a 
consumer's prepaid account agreement to the consumer upon the 
consumer's request. The Bureau requests comment on whether this 
allowance is necessary or if prepaid account issuers should all be 
required to post agreements on their Web sites. The Bureau also 
requests comment on whether issuers should be required by this 
regulation to provide copies of prepaid account agreements to all 
consumers upon request, regardless of whether the agreements are also 
posted online.
    Section 1026.58(e)(1) requires a credit card issuer to accept 
cardholders' requests for copies of their credit card agreements via 
the issuer's Web site as well as by telephone. The Bureau believes that 
prepaid account issuers will generally post prepaid account agreements 
to their Web sites pursuant to proposed Sec.  1005.19(d)(1)(i), even if 
the agreement is posted in a location that is only accessible to 
prepaid account consumers after they have logged in to their accounts. 
The Bureau thus expects that few, if any, issuers would be required to 
provide agreements in response to a consumer's request pursuant to 
proposed Sec.  1005.19(d)(1)(ii). The Bureau therefore does not believe 
it is necessary to require issuers to receive requests via the issuers' 
Web sites, although issuers could certainly allow consumers to make 
requests in that manner if they so choose.
    Section 1026.58(e)(1)(ii) also requires credit card issuers to 
allow cardholders to request copies of their agreements by calling a 
readily available telephone line the number for which is displayed on 
the issuer's Web site and clearly identified as to its purpose. 
Regulation Z comment 58(e)-2 provides additional clarification as to 
what is required to satisfy the ``readily available telephone line'' 
standard. Because the Bureau is proposing to require prepaid account 
issuers to provide telephone numbers for a variety of other 
purposes,\324\ the Bureau does not believe it is necessary to provide 
the same level of specificity regarding the telephone number to be used 
to request a copy of a prepaid account agreement pursuant to proposed 
Sec.  1005.19(d)(1)(ii) nor to provide a comment equivalent to that of 
Regulation Z comment 58(e)-2.
---------------------------------------------------------------------------

    \324\ See, e.g., proposed Sec.  1005.18(b)(7) (requiring 
disclosure of a telephone number on the prepaid account access 
device, to be used to contact the financial institution about the 
prepaid account).
---------------------------------------------------------------------------

    Section 1026.58(e)(1) also allows a credit card issuer, in response 
to such a cardholder's request for a copy of the cardholder's 
agreement, to provide that agreement to the cardholder electronically, 
such as by posting a copy of the agreement to its Web site in a 
location that is accessible by the cardholder. Because the Bureau 
expects that few, if any, issuers would be required to provide 
agreements upon request pursuant to proposed Sec.  1005.19(d)(1)(ii), 
as discussed above, it does not appear to be necessary or useful to 
allow an issuer to post a prepaid account agreement to a consumer's 
online account in response to a consumer's request. The Bureau is thus 
not proposing to permit issuers to provide copies of prepaid account 
agreements electronically in response to consumers' requests, except as 
permitted in proposed Sec.  1005.19(d)(2)(vi), discussed below. In 
addition, a provision corresponding to Sec.  1026.58(e)(2), containing 
a special provision for issuers without interactive Web sites, has not 
been included in proposed Sec.  1005.19, as the Bureau is not aware of 
any prepaid issuers that do not maintain Web sites (or do not use a 
third-party service provider to maintain such a Web site) from which 
consumers can access specific information about their individual 
prepaid accounts and thus does not believe such a provision is 
necessary for prepaid accounts. The Bureau is not proposing an 
equivalent to Regulation Z comment 58(e)-3, which provides examples 
regarding the deadline for providing copies of requested agreements, as 
the Bureau does not believe such examples are necessary given the more 
limited ways that issuers are permitted to respond to

[[Page 77202]]

requests under proposed Sec.  1005.19(d)(1)(ii).
    Section 1026.58(e)(ii) provides that the card issuer must send to 
the cardholder or otherwise make available to the cardholder a copy of 
the cardholder's agreement in electronic or paper form no later than 30 
days after the issuer receives the cardholder's request. The Board 
originally proposed requiring issuers to respond to such a request 
within 10 business days, but some commenters contended that 10 business 
days would not provide sufficient time to respond to a request. The 
commenters noted that they would be required to integrate changes in 
terms into the agreement and providing pricing information, which, 
particularly for older agreements that may have had many changes in 
terms over the years, could require more time. The Board believed it 
would be reasonable to provide more time for an issuer to respond to a 
cardholder's request for a copy of the credit card agreement, and thus 
allowed for 30 days in the final rule.\325\
---------------------------------------------------------------------------

    \325\ 75 FR 7658, 7773 (Feb. 22, 2010).
---------------------------------------------------------------------------

    The Bureau does not believe that issuers would face the same 
challenges in integrating changes in terms into prepaid account 
agreements in the same manner as with credit card agreements. The 
Bureau believes that requiring issuers to provide prepaid account 
agreements within five business days gives issuers adequate time to 
respond to requests while providing consumers with prompt access to 
their prepaid account agreements. The Bureau solicits comment regarding 
whether this period should be shorter or longer.
19(d)(2) Form and Content of Agreements
    The Bureau is proposing Sec.  1005.19(d)(2) to address the form and 
content requirements for agreements provided to consumers pursuant to 
proposed Sec.  1005.19(d)(1). Proposed Sec.  1005.19(d)(2)(i) would 
state that, except as otherwise provided in proposed Sec.  1005.19(d), 
agreements posted on the issuer's Web site pursuant to proposed Sec.  
1005.19(d)(1)(i) or sent to the consumer upon the consumer's request 
pursuant to proposed Sec.  1005.19(d)(1)(ii) must conform to the form 
and content requirements for agreements submitted to the Bureau as 
specified in proposed Sec.  1005.19(b)(6). Proposed Sec.  
1005.19(d)(2)(ii) provides that if the issuer posts an agreement on its 
Web site pursuant to proposed Sec.  1005.19(d)(1)(i), the agreement may 
be posted in any electronic format that is readily usable by the 
general public and must be placed in a location that is prominent and 
readily accessible to the consumer. Proposed Sec.  1005.19(d)(2)(iii) 
would state that agreements posted or otherwise provided pursuant to 
proposed Sec.  1005.19(d) may contain personally identifiable 
information relating to the consumer, such as name, address, telephone 
number, or account number, provided that the issuer takes appropriate 
measures to make the agreement accessible only to the consumer or other 
authorized persons.
    Proposed Sec.  1005.19(d)(2)(iv) would state that agreements posted 
or otherwise provided pursuant to proposed Sec.  1005.19(d) must set 
forth the specific provisions and fee information applicable to the 
particular consumer. Proposed Sec.  1005.19(d)(2)(v) would provide that 
agreements posted pursuant to proposed Sec.  1005.19(d)(1)(i) must be 
accurate and updated whenever changes are made. Agreements provided 
upon consumer request pursuant to proposed Sec.  1005.19 (d)(1)(ii) 
must be accurate as of the date the agreement is mailed or 
electronically delivered to the consumer. Proposed Sec.  
1005.19(d)(2)(vi) would state that agreements provided upon consumer 
request pursuant to proposed Sec.  1005.19(d)(1)(ii) must be provided 
by the issuer in paper form, unless the consumer agrees to receive the 
agreement electronically.
    Proposed Sec.  1005.19(d)(2) is generally similar to Sec.  
1026.58(e)(3), except that it contains modifications to reflect the 
changes in proposed Sec.  1005.19(d)(1) regarding the methods in which 
prepaid account agreements may be provided to consumers pursuant to 
proposed Sec.  1005.19(d). Proposed Sec.  1005.19(d)(2) does not, 
however, include the provision contained in Sec.  1026.58(e)(3)(iv) 
that requires agreements for all open prepaid accounts that are posted 
to a card issuer's Web site or otherwise provided to consumers to 
contain complete and accurate provisions and pricing information as of 
a date no more than 60 days prior to the date on which the agreement is 
posted to the card issuer's Web site pursuant to Sec.  1026.58(e)(1)(i) 
or the date the cardholder's request is received under Sec.  
1026.58(e)(1)(ii) or (e)(2). As described above, the Bureau does not 
believe that updating prepaid account agreements is as complex as for 
credit card agreements, nor that prepaid account agreements are 
modified as frequently as credit card agreements may be. Therefore, the 
Bureau does not believe that prepaid account issuers should be 
permitted to provide agreements to consumers that are as much as 60 
days out of date. Instead, pursuant to proposed Sec.  1005.19(d)(2)(v), 
the Bureau is proposing to require that agreements posted online be 
accurate and updated when changes are made, and that agreements 
provided upon consumer request be accurate as of the date the agreement 
is mailed or electronically delivered to the consumer.
19(e) E-Sign Act Requirements
    The Bureau is proposing Sec.  1005.19(e) to state that, except as 
otherwise provided in proposed Sec.  1005.19, issuers may provide 
prepaid account agreements in electronic form under proposed Sec.  
1005.19(c) and (d) without regard to the consumer notice and consent 
requirements of section 101(c) of the Electronic Signatures in Global 
and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). 
Because TILA section 122(d) specifies that a credit card issuer must 
provide access to cardholder agreements on the issuer's Web site, the 
Board did not believe that the requirements of the E-Sign Act applied 
to the regulations now contained at Sec.  1026.58.\326\ The Bureau is 
proposing Sec.  1005.19(e) for ease of administration of these 
requirements and for consistency with Sec.  1026.58(f).
---------------------------------------------------------------------------

    \326\ See 74 FR 54124, 54193 (Oct. 21, 2009).
---------------------------------------------------------------------------

    The Bureau requests comment on proposed Sec.  1005.19 generally, 
including whether it should require submission and posting of 
agreements at all and whether the procedures proposed herein are 
appropriate.
Other Regulation E Subpart A Provisions Applicable to Prepaid Accounts
    Because the Bureau is proposing to bring prepaid accounts within 
the definition of account generally under Regulation E, the 
requirements of Regulation E would apply to prepaid accounts except as 
modified or supplemented by this proposal. Except as otherwise 
addressed by this proposal, the Bureau envisions that such provisions 
would extend to prepaid accounts in the same manner they currently 
apply to payroll card accounts. Such requirements include, but are not 
limited to, Sec.  1005.5 regarding the issuance of access devices, 
Sec.  1005.8(a) regarding change in terms notices, Sec.  1005.10(a) 
through (d) regarding preauthorized transfers to and from consumers' 
accounts, and Sec.  1005.14 regarding electronic fund transfer service 
providers that do not hold consumers' accounts.
    The Bureau requests comment generally on the extension of these and 
other provisions in Regulation E to prepaid accounts. The Bureau also 
seeks

[[Page 77203]]

comment on whether any of these or other provisions in Regulation E 
provisions warrant specific modification for prepaid accounts.
Appendix A-5 Model Clauses for Government Benefit Accounts (Sec.  
1005.15(e)(1) and (2))
    Existing appendix A-5 provides model language for government 
agencies that offer accounts for distributing government benefits to 
consumers electronically; this model language reflects the 
modifications made to certain Regulation E provisions by existing Sec.  
1005.15. The Bureau is proposing to relabel appendix A-5 as Model 
Clauses for Government Benefit Accounts (Sec.  1005.15(e)(1) and (2)) 
and to revise the heading of paragraph (a) for clarity. The Bureau is 
also proposing to revise the text of paragraph (a) of appendix A-5, 
which currently explains to consumers how to obtain information about 
account balances and account histories, to note that the consumer's 
balance information, along with an 18 month history of the consumer's 
account transactions, is available online. The Bureau also proposes to 
revise the paragraph regarding a written transaction summary to 
correspond with the proposed revised language for prepaid accounts in 
paragraph (a) of appendix A-7, to state that the consumer has a right 
to at least 18 months of written history of account transactions by 
calling or writing to the agency (or its designee). The paragraph also 
states that the consumer will not be charged a fee for such information 
unless the consumer requests it more than once per month. The paragraph 
retains the existing optional bracketed language stating that the 
consumer may also request such a history by contacting his or her 
caseworker.
    The Bureau is similarly proposing to revise paragraph (b) of 
appendix A-5, which sets forth model clauses regarding disclosure of 
error resolution procedures for government agencies that provide 
alternative means of obtaining account information. The Bureau is 
proposing to revise the section citation in the paragraph heading, and 
to revise the first paragraph of paragraph (b) to correspond with the 
proposed revised language for prepaid accounts in paragraph (b) of 
appendix A-7. Specifically, the Bureau proposes to remove the sentence 
stating that the agency must hear from the consumer no later than 60 
days after the consumer learns of the error, and to add language 
stating that the agency must allow the consumer to report an error 
until 60 days after the earlier of the date the consumer electronically 
accesses his or her account, if the error could be viewed in the 
electronic history, or the date the agency sent the first written 
history on which the error appeared. The paragraph would also state 
that the consumer may request a written transaction history at any time 
by calling or writing, or optionally by contacting the consumer's 
caseworker.
    The Bureau requests comment on these proposed modifications to 
appendix A-5 and whether any additional modifications should be made. 
In particular, the Bureau solicits comment on whether it is necessary 
to retain the optional bracketed language that currently appears in 
paragraph (a) of appendix A-5, and that is mirrored in paragraph (b), 
directing consumers to request a written summary of transactional 
history by contacting the consumer's caseworker. The Bureau is 
particularly interested in whether any government benefit account 
programs use this optional language in their disclosures and whether 
inclusion of such language reduces consumer confidence in government 
benefit accounts or the privacy of consumers' account histories.
Appendix A-7 Model Clauses for Financial Institutions Offering Prepaid 
Accounts (Sec.  1005.18(d) and (e)(3))
    Existing appendix A-7 provides model clauses for financial 
institutions that offer payroll card accounts; these clauses reflect 
the modifications made by the Payroll Card Rule to certain Regulation E 
provisions in existing Sec.  1005.18. To reflect the proposed expansion 
of Sec.  1005.18 to cover prepaid accounts, the Bureau is proposing to 
revise the heading for appendix A-7 as well as the heading for 
paragraph (a) of appendix A-7. The Bureau is also proposing to revise 
paragraph (a) of appendix A-7, which explains to consumers how to 
obtain account information for payroll card accounts, to change the 
term payroll card account to prepaid account, and to provide that at 
least 18 months of electronic and written account transaction history 
is available to the consumer, rather than 60 days, as proposed in Sec.  
1005.18(c)(1)(ii) and (iii). The Bureau also proposes to add a sentence 
at the end of paragraph (a) of appendix A-7 to inform consumers that 
they cannot be charged for requesting such written account transaction 
history, unless requests are made more than once per month. As 
discussed above, the Bureau is proposing to allow financial 
institutions to assess a fee or charge for subsequent requests for 
written account information made in a single calendar month, in 
proposed comment 18(c)-3.i.
    The Bureau is similarly proposing to revise the heading of 
paragraph (b), and to revise the text of paragraph (b) of appendix A-7, 
which sets forth model clauses regarding disclosure of error resolution 
procedures for financial institutions that provide alternative means of 
obtaining payroll card account information, to change the term payroll 
card account to prepaid account and to renumber the section citation in 
the heading.
    The Bureau is also proposing to add a new paragraph (c) at the end 
of appendix A-7, for use by a financial institution that chooses, as 
explained in proposed comment 18(e)-4, not to comply with the liability 
limits and error resolution requirements in Sec. Sec.  1005.6 and 
1005.11 for prepaid accounts which it has not completed its collection 
of consumer identifying information and identity verification.
    This model language would state that it is important for consumers 
to register their prepaid accounts as soon as possible and that until a 
consumer registers his or her prepaid account, the financial 
institution is not required to research or resolve errors regarding the 
consumer's account. To register an account, the consumer is directed to 
a Web site and telephone number. The model language explains that the 
financial institution will ask for identifying information about the 
consumer (including full name, address, date of birth, and Social 
Security Number or government-issued identification number), so that it 
can verify the consumer's identity. Once the financial institution has 
done so, it will address the consumer's complaint or question as 
described earlier in appendix A-7.\327\
---------------------------------------------------------------------------

    \327\ The Bureau tested a version of this proposed model 
language with consumers. See ICF Report, at 23.
---------------------------------------------------------------------------

Appendix A-10 Model Forms and Sample Forms for Financial Institutions 
Offering Prepaid Accounts (Sec.  1005.15(c)(2) and Sec.  1005.18(b))
    The Bureau is proposing Model Forms A-10(a) through (d) and (f) and 
Sample Forms A-10(e) and (g) in appendix A in relation to the 
disclosure requirements set forth in proposed Sec.  1005.15(c)(2) and 
proposed Sec.  1005.18(b). Proposed Model Form A-10(a)would set forth 
the short form disclosure for government benefit accounts as described 
in proposed Sec.  1005.15(c)(2). Proposed Model Form A-10(b) would set 
forth the short form disclosure for payroll card accounts as described 
in proposed Sec.  1005.18(b)(2)(i)(A). Proposed Model Form A-10(c) 
would set forth the short

[[Page 77204]]

form disclosure for prepaid accounts that could offer an overdraft 
service or other credit feature as described in proposed Sec.  
1005.18(b)(2)(i)(B)(9). Proposed Model Form A-10(d) would set forth the 
short form disclosure for prepaid accounts that would not offer an 
overdraft service or other credit feature as described in proposed 
Sec.  1005.18(b)(2)(i)(B)(9). Proposed Model Form A-10(f) would set 
forth the short form disclosure for prepaid accounts that offer 
multiple service plans and choose to disclose them on one short form 
disclosure as described in proposed Sec.  1005.18(b)(3)(iii)(B)(1).
    Proposed Sample Form A-10(e) would set forth the long form 
disclosure for prepaid accounts as described in proposed Sec.  
1005.18(b)(3)(iii)(A). Proposed Sample Form A-10(g) would set forth the 
long form disclosure for prepaid accounts that offer multiple service 
plans as described in proposed Sec.  1005.18(b)(3)(iii)(B)(2).
Subpart B--Requirements for Remittance Transfers
    Section 1073 of the Dodd-Frank Act added section 919 to EFTA to 
establish consumer protections for remittance transfers sent by 
consumers in the United States to individuals and businesses in foreign 
countries. Among other things, EFTA section 919 requires the following 
protections for covered transactions sent by remittance transfer 
providers: (i) The provision of disclosures prior to and at the time of 
payment by the sender of the transfer; (ii) cancellation and refund 
rights; and (iii) the investigation and remedy of errors by providers. 
It also establishes liability standards for providers for the acts of 
their agents. On February 7, 2012, the Bureau published a final rule 
implementing these provisions largely in new subpart B of Regulation 
E.\328\
---------------------------------------------------------------------------

    \328\ 77 FR 6194 (Feb. 7, 2012). This final rule was 
subsequently amended. See 77 FR 40459 (July 10, 2012), 77 FR 50244 
(Aug. 20, 2012), 78 FR 6025 (Jan. 29, 2013), 78 FR 30662 (May 22, 
2013), 78 FR 49365 (Aug. 14, 2013), and 79 FR 55970 (Sept. 18, 2014) 
(collectively, the Remittance Rule).
---------------------------------------------------------------------------

    The Remittance Rule only applies to those entities that are 
remittance transfer providers. A remittance transfer provider is any 
person that provides remittance transfers for a consumer in the normal 
course of its business, regardless of whether the consumer holds an 
account with such person. Sec.  1005.30(f). A remittance transfer is 
the electronic transfer of funds requested by a sender to a designated 
recipient that is sent by a remittance transfer provider. Sec.  
1005.30(e)(1). The term remittance transfer applies regardless of 
whether the sender holds an account with the provider, and regardless 
of whether the transaction is also an electronic fund transfer, as 
defined in Sec.  1005.3(b). The Remittance Rule applies to remittance 
transfers sent to and from prepaid products. See generally, Sec.  
1005.30(c) and (e), and comments 30(c)-2.iii, 30(e)-2.ii, 30(e)-3.i.C, 
and 30(h)(3).
Section 1005.30 Remittance Transfer Definitions
30(g) Sender
    The Bureau proposes to make a conforming change to comment 30(g)-3. 
Currently, the comment contains a reference to an exception from the 
definition of account for bona fide trust accounts. As discussed 
earlier in this section-by-section analysis, the Bureau is proposing to 
renumber the exception for bona fide trust accounts as Sec.  
1005.2(b)(2). Accordingly, the Bureau is proposing conforming change to 
comment 30(g)-3 to reflect the proposed renumbering.
    As discussed above, the Remittance Rule applies to remittance 
transfers sent to and from prepaid products. The Bureau does not intend 
this proposed rule to alter the applicability of the Remittance Rule to 
transfers sent to and from prepaid products. At the same time, the 
Bureau welcomes comment on the proposed rule's potential implications 
for the Remittance Rule. As discussed in the section-by-section 
analysis above, with certain exceptions such as payroll card accounts, 
accounts for the receipt of certain government benefits, and gift cards 
(or certain other types of limited purpose cards), prepaid products 
generally have not been covered under current subpart A of Regulation 
E. In proposing to expand the current definition of account in 
Regulation E, additional prepaid products such as GPR cards and certain 
digital wallets would fall within the definition of account under 
Regulation E. Accordingly, the Bureau seeks comment on whether 
additional clarification or guidance is necessary with respect to the 
Remittance Rule.
Regulation Z
Overview of Bureau's Approach to Its Regulation Z Proposal
    In developing this proposal, the Bureau has considered whether and 
how to regulate credit accessed through a prepaid account. 
Specifically, the Bureau has considered potential transactions where 
financial institutions allow consumers to overdraw their prepaid 
accounts through an overdraft service, a draw from a linked line of 
credit, or by pushing credit onto a specified prepaid account to cover 
transactions for which there are insufficient or unavailable funds. As 
is explained in detail below, the Bureau proposes to treat most credit 
plans for which finance charges are imposed as ``open-end (not-home 
secured) credit plans'' accessed by a ``credit card'' under Regulation 
Z, and thus subject to credit card protections. In addition and as is 
explained above, the Bureau is also proposing to revise provisions in 
Regulation E regarding compulsory use (proposed Sec.  1005.10(e)(1)) 
and to adopt other rules specific to prepaid accounts that offer credit 
features (proposed Sec. Sec.  1005.12(a) and 1005.18(b)(2)(i)(B)(9), 
(b)(2)(ii)(B) and (g)) to provide consumers with greater control over 
how they enroll in a credit feature and pay any credit balances 
associated with their prepaid accounts, and also to prevent evasion of 
the Regulation Z protections.
    In its evaluation of credit features offered in connection with 
prepaid accounts, the Bureau has carefully considered a variety of 
information and factors, including existing relevant consumer 
protection regulations governing overdraft services and a range of 
credit products subject to Regulation Z; consumers' use of those 
features to the extent offered in today's market, consumer 
expectations, and understanding of prepaid accounts and credit features 
offered in connection with prepaid accounts (including through 
discussion in the Bureau's consumer testing); review of comments 
received from industry, consumers, and consumer advocacy groups in 
response to the Prepaid ANPR; analysis of data from the Bureau's 
overdraft research on deposit accounts and other available research; 
further outreach to industry, consumer advocacy, and other groups; and 
ongoing market analysis.
    The bulk of the feedback the Bureau has received has focused 
specifically on the permissibility of overdraft services on prepaid 
accounts. In the Prepaid ANPR, the Bureau noted that while most GPR 
cards do not offer overdraft features, some do allow cardholders to opt 
in to an overdraft program in which the issuer may authorize overdrafts 
and charge an overdraft transaction fee.\329\ The Bureau then sought 
public input on the costs, benefits, and consumer protection issues 
related to any credit features that financial institutions may offer on 
GPR cards.
---------------------------------------------------------------------------

    \329\ 77 FR 30923, 30925 (May 24, 2012).
---------------------------------------------------------------------------

    The Bureau received a significant number of comments on the issue 
of credit features and prepaid accounts. Most industry commenters 
encouraged the Bureau not to adopt regulations that

[[Page 77205]]

would limit these credit features. In particular, commenters stated 
that overdraft for prepaid accounts should function as it does for 
accounts with linked debit cards--i.e., subject to the current 
Regulation E opt-in framework for overdraft. Commenters argued that to 
the extent the Bureau wants to treat prepaid accounts as transaction 
account substitutes, they should be subject to the same regulatory 
requirements (and exceptions) as those accounts, including opt-in 
requirements for overdraft services. One trade association argued that 
it would be unfair for the Bureau to prohibit overdraft on prepaid 
cards while such features remain permitted on checking accounts. Some 
industry commenters argued that their customers want--or even need--
access to short-term credit in connection with their GPR cards. Several 
other trade associations similarly argued that consumers want access to 
credit features on prepaid cards. They urged the Bureau to ensure that 
consumers understand such features, and they argued that the Bureau 
should conform regulations for such products to those that now exist 
for traditional deposit accounts in Regulations E, Z, and DD.
    However, some industry commenters urged the Bureau not to permit 
credit features in connection with prepaid products. For example, one 
credit union stated that, in its opinion, only the funds loaded onto a 
prepaid card should be made available for transactions. A large 
financial institution similarly stated that, in its opinion, GPR cards 
should remain ``prepaid,'' without being linked or having access to 
overdraft services. A community bank stated that it was its practice to 
urge prepaid card customers who wanted overdraft services to transition 
into checking accounts, where it had systems in place to deal with the 
credit risk, and that it would not permit overdrafts on its prepaid 
products.
    Most consumer advocates that commented also urged that the Bureau 
ban overdraft services in connection with prepaid products, because the 
overdraft fees and accumulating debt can be harmful. They argued that 
prepaid consumers are often more vulnerable or do not anticipate having 
to deal with credit on their prepaid accounts. These commenters 
explained that prepaid cards are marketed to and used by a variety of 
vulnerable groups, including low-income consumers, consumers with 
blemished credit histories, unbanked and underbanked consumers with 
limited access to traditional accounts, young consumers and students, 
undereducated consumers, public benefit recipients, and consumers who 
are trying to control their spending. Many of these vulnerable groups 
have, historically, struggled with credit products, including 
overdraft. Additionally, at least one consumer advocacy group commenter 
urged the Bureau to subject overdraft services on prepaid accounts to 
Regulation Z's rules for credit cards. Consumer group commenters 
further argued that permitting credit features on prepaid cards could 
eviscerate State payday and usury laws as well as protections for 
servicemembers, such as the MLA. Consumer advocacy group commenters 
also argued that application of existing opt-in overdraft rules, which 
currently apply to deposit accounts and payroll card accounts, would 
not prevent harm to consumers who use prepaid cards because opt-in does 
not, in the opinion of the commenters, protect vulnerable consumers 
from predatory lending. In addition, the consumer advocacy group 
commenters contended that credit features on prepaid products are 
unnecessary because less vulnerable consumers who can access credit 
will still have access to credit cards, deposit accounts that offer 
overdraft services, lines of credit, and other credit products.
    The Bureau also received a number of comments from consumers who 
use prepaid products currently offering overdraft services. Most of 
these consumers voiced support for such services, stating that the 
overdraft fee charged by their prepaid products was less than the 
overdraft fees charged by banks, allowing them to bridge cash 
shortfalls between paychecks and fulfill other short-term credit needs. 
Most participants in the Bureau's consumer testing, however, expressed 
concern about overdraft programs and explained that they preferred 
prepaid products because they did not allow them to spend more than 
what was loaded onto the card.\330\
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    \330\ ICF Report at 6.
---------------------------------------------------------------------------

    Since the close of the comment period for the Prepaid ANPR, the 
Bureau has continued its evaluation of prepaid products and related 
credit features, received additional feedback on this issue from 
interested parties, and the Bureau has also collected relevant data. In 
various forms, parties have submitted studies, additional comment, and 
other evidence to advocate for different approaches to regulating 
overdraft services and credit features on prepaid accounts. The Bureau 
has also reviewed data gathered by third parties and reported on by 
non-profit organizations and other government agencies.
    As explained in more detail below, the Bureau has concluded that 
the most appropriate approach is to propose to treat a broad range of 
credit features that financial institutions could offer in connection 
with prepaid accounts as subject to the rules governing credit cards 
under TILA, EFTA, and their implementing regulations. This includes 
programs structured as overdraft services; the Bureau is declining to 
extend existing exemptions under Regulation Z and Regulation E's 
compulsory use provision for overdraft services on deposit accounts to 
prepaid accounts. In this overview, the Bureau first addresses the 
application of Regulation Z's rules for open-end (not home-secured) 
credit plans and for credit cards to overdraft services and other 
credit features offered on prepaid accounts. Next, the Bureau discusses 
the benefits of applying these rules to all credit features offered on 
prepaid accounts. Finally, the Bureau provides section-by-section 
analysis of its specific proposed revisions to Regulation Z.
Credit Offered in Connection With Prepaid Cards--Including Overdraft 
Services--Satisfies TILA's Definition of Open-End Credit
    The Bureau believes that a range of credit features offered in 
connection with prepaid accounts--including those features structured 
as overdraft services--should be subject to regulation as credit cards 
under TILA, EFTA, and their implementing regulations. Specifically, the 
Bureau believes that overdraft lines of credit, overdraft services, and 
similar credit features offered in connection with a prepaid account 
satisfy the definitions of (1) credit; (2) open-end (not home-secured) 
credit plan; and (3) credit cards under TILA and Regulation Z. Although 
the Board had chosen to exempt overdraft services (but not other forms 
of credit) offered in connection with traditional deposit accounts from 
Regulation Z, the Bureau chooses not to exercise its exception 
authority to expand further the scope of the existing exemptions to 
prepaid accounts.
    As described above, TILA defines credit broadly as the right 
granted by a creditor to a debtor to defer payment of debt or to incur 
debt and defer its payment. 15 U.S.C. 1602(f). Under the statute and 
Regulation Z, open-end credit exists where there is a plan in which the 
creditor reasonably contemplates repeated transactions; the creditor 
may impose a finance charge from time to time on an outstanding unpaid 
balance, and the credit is generally replenished to the extent that

[[Page 77206]]

any outstanding balance is repaid. Sec.  1026.2(a)(20). Closed-end 
credit is credit that does not meet the definition of open-end credit. 
Sec.  1026.2(a)(10).
    The Board subjected overdraft lines of credit in connection with 
traditional deposit accounts to Regulation Z requirements for open-end 
credit, but carved overdraft services on traditional deposit accounts 
out from Regulation Z through operation of the definitions of the terms 
``creditor'' and ``finance charge.'' A creditor is generally defined 
under Regulation Z to mean a person who regularly extends consumer 
credit that is subject to a finance charge or is payable by written 
agreement in more than four installments (not including a down 
payment), and to whom the obligation is initially payable, either on 
the face of the note or contract, or by agreement when there is no note 
or contract. See Sec.  1026.2(a)(17)(i).\331\ In 1969, however, the 
Board adopted an exclusion to the definition of finance charge for 
``charges imposed by a financial institution for paying items that 
overdraw an account, unless the payment of such items and the 
imposition of the charge were previously agreed upon in writing.'' See 
Sec.  1026.4(c)(3). Thus, the Board created an exception for financial 
institutions that offer overdraft services in connection with 
traditional deposit accounts if they do not agree in writing to pay the 
items and do not structure the repayment of the credit by written 
agreement in more than four installments. Under the exception, the fees 
charged for the overdrafts are not ``finance charges'' under Regulation 
Z, and thus a financial institution extending credit is not a 
``creditor'' under Regulation Z because it is not charging a finance 
charge and is not structuring the repayment of the credit by written 
agreement in more than four installments. As discussed further below, 
the Bureau declines to extend this exception to include prepaid 
accounts. Absent this exception, the Bureau believes that overdraft 
services, like overdraft lines of credit and similar credit features 
that could be offered in connection with prepaid accounts, will meet 
the definitions of credit and open-end credit under TILA and Regulation 
Z if interest rates, transaction fees, or other types of finance 
charges are imposed in connection with the credit services.
---------------------------------------------------------------------------

    \331\ The term ``creditor'' also includes a card issuer, which 
is a person that issues credit cards, when that person extends 
credit accessed by the credit card. See Sec.  1026.2(a)(17)(iii) and 
(iv). Regulation Z defines the term ``credit card'' to mean any 
card, plate, or other single credit device that may be used from 
time to time to obtain credit. See Sec.  1026.2(a)(15). A charge 
card is a credit card on an account for which no periodic rate is 
used to compute a finance charge. See Sec.  1026.2(a)(15)(iii). In 
addition to being creditors under TILA and Regulation Z, card 
issuers also generally must comply with the credit card rules in the 
FCBA and in the Credit CARD Act (if the card accesses an open-end 
credit plan), as implemented in Regulation Z subparts B and G. See 
generally Sec. Sec.  1026.5(b)(2)(ii), 1026.7(b)(11), 1026.12 and 
1026.51 through .1026.60.
---------------------------------------------------------------------------

Finance Charge
    The Bureau analyzed whether it was reasonable to interpret 
``credit'' to include when overdrafts are paid in relation to prepaid 
accounts. The Bureau believes it is because, in accordance with TILA's 
definition of credit, the payment of an overdraft represents the right 
granted by a creditor to a debtor to defer payment of debt or to incur 
debt and defer its payment. 15 U.S.C. 1602(f).
    In its analysis, the Bureau examined whether a fee charged for an 
overdraft service (or other credit feature on a prepaid product) 
qualifies as a finance charge. TILA section 106(a) defines finance 
charge as the sum of all charges, payable directly or indirectly by the 
person to whom the credit is extended, and imposed directly or 
indirectly by the creditor as an incident to the extension of credit. 
15 U.S.C. 1605(a). The plain language of the definition of credit in 
TILA section 103(e) covers situations in which a consumer makes a 
transaction which exceeds the funds in the consumer's account, and the 
bank elects to cover the transaction by advancing funds to the consumer 
which the consumer must repay. 15 U.S.C. 1602(f). This statutory 
language does not exempt overdraft services, including those that may 
be offered in connection with prepaid accounts.\332\ The Bureau 
believes that fees levied for overdraft services or other credit 
features on prepaid accounts--such as interest charges, transaction 
charges, service charges, and annual or other periodic fees to 
participate in the credit program--generally represent finance charges. 
See section-by-section analysis of proposed Sec.  1026.4(a), (b)(2), 
(c)(3) and (c)(4). Regulation Z defines ``finance charge'' as the cost 
of consumer credit as a dollar amount. The term includes any charge 
payable directly or indirectly by the consumer and imposed directly or 
indirectly by the creditor as an incident to or a condition of the 
extension of credit. Sec.  1026.4(a). The Bureau believes that fees 
that are levied for overdraft services are thus ``finance charges'' 
because they are directly payable by the consumer and imposed directly 
by the creditor as a condition of the extension of credit, which would 
be funds advanced to cover the consumer's overdraft.
---------------------------------------------------------------------------

    \332\ See also OCC 2001 Guidance; Joint Guidance (noting that 
overdraft satisfies the definition of ``credit'' in TILA).
---------------------------------------------------------------------------

Open-End (Not Home-Secured) Credit Plan
    Having determined that fees for overdraft services and other types 
of credit products in connection with prepaid accounts can be finance 
charges, the Bureau then examined the question of whether the programs 
themselves are open-end (not home-secured) credit plans. As discussed 
below, the Bureau believes that overdraft lines of credit, overdraft 
services, and similar products that could be offered in connection with 
prepaid accounts can be regulated by Regulation Z as ``open-end 
credit'' where a financial institution routinely extends credit to 
cover transactions for which there are insufficient funds in the 
account (even if the institution retains, by contract, the discretion 
not to pay the transactions) and obligates the consumer contractually 
to repay the debt, and may impose finance charges from time to time on 
an outstanding unpaid balance. The Bureau recognizes (as noted above) 
that a line of credit where there is a written agreement to pay 
overdrafts and impose finance charges is already covered by Regulation 
Z as ``open-end credit,'' whether it is associated with a prepaid or 
checking account; pursuant to this proposal and as discussed further 
below, overdraft services for prepaid accounts would now be treated 
similarly to such lines of credit, with certain proposed modifications.
    TILA section 103(j) defines an open-end credit plan as ``a plan 
under which the creditor reasonably contemplates repeated transactions, 
which prescribes the terms of such transactions, and which provides for 
a finance charge which may be computed from time to time on the 
outstanding unpaid balance.'' 15 U.S.C. 1602(j). Regulation Z defines 
``open-end credit'' to mean consumer credit extended by a creditor 
under a plan in which (1) the creditor reasonably contemplates repeated 
transactions; (2) the creditor may impose a ``finance charge'' from 
time to time on an outstanding unpaid balance; and (3) the amount of 
credit that may be extended to the consumer during the term of the plan 
(up to any limit set by the creditor) is generally made available to 
the extent that any outstanding balance is repaid. Regulation Z 
explains that for there to be an open-end credit plan, there must first 
be a plan. Comment 2(a)(20)-2 explains that a plan

[[Page 77207]]

connotes a contractual arrangement between the creditor and the 
consumer. For a plan to be an open-end credit plan, it must then 
satisfy the three requirements noted above. See Sec.  1026.2(a)(20).
    The Bureau understands that financial institutions offering 
automated overdraft services include in their account agreements 
details about how the overdraft service will operate and information 
about overdraft fees. These terms and conditions documents explain that 
consumers using overdraft programs must agree to repay the debt created 
by an overdraft and the related fee, indicating that a contractual 
arrangement between the creditor and the consumer exists. Although 
these agreements typically note that the financial institution retains 
discretion to authorize or decline any particular overdraft, as a 
practical matter financial institutions operating automated overdraft 
programs exercise limited if any discretion in authorizing particular 
transactions so long as the overdraft transaction is within the 
overdraft limit that the institution previously established.\333\ The 
Bureau understands that financial institutions have historically argued 
(in connection with deposit account overdraft services) that an 
overdraft service is not an open-end credit plan subject to TILA 
because, in the account agreement, they typically reserve discretion 
not to pay overdrafts.\334\ In practice, the Bureau believes that this 
discretion is typically limited; automated overdraft systems for 
prepaid accounts are typically programmed to approve all would-be 
overdrafts that are within a predetermined credit limit. Furthermore, 
the Bureau believes that the contractual reservation of discretion is 
no different from credit card issuers' standard practice of reserving 
discretion to decline a credit card transaction without prior notice, 
notwithstanding that the transaction is within the credit limit.\335\ 
Thus, the Bureau believes that simply labeling an overdraft service as 
discretionary is insufficient to negate the existence of a credit plan.
---------------------------------------------------------------------------

    \333\ As noted above, the nature of such an arrangement also 
establishes an arrangement between the institution and the consumer 
to pay certain overdrafts.
    \334\ Several commenters to the Prepaid ANPR also made this 
point.
    \335\ Bureau staff reviewed many agreements in the Bureau's 
database. See generally http://www.consumerfinance.gov/credit-cards/agreements/.
---------------------------------------------------------------------------

    The FDIC reached a similar conclusion in its guidance on automated 
overdraft payment programs, noting a distinction between ad hoc 
overdraft services, which typically involve irregular and infrequent 
occasions on which a bank employee exercises discretion in a specific 
instance about whether to pay an item (so a customer can avoid an NSF 
fee that the payee may impose), and ``risks posed by automated 
overdraft payment programs.'' According to the FDIC guidance, such 
programs ``are established programs [that] are often partially or fully 
computerized, that are used by institutions to determine whether [NSF] 
transactions qualify for overdraft coverage based on pre-determined 
criteria.'' \336\ The Bureau believes the latter formulation is how 
established prepaid overdraft services function and thus that a plan 
exists in these cases.
---------------------------------------------------------------------------

    \336\ FDIC Overdraft Payment Supervisory Guidance at 3.
---------------------------------------------------------------------------

    Having determined that a plan exists, the Bureau evaluated whether 
such a plan satisfies the three prongs necessary to establish the plan 
as an open-end (not home-secured) credit plan. The first prong asks 
whether overdraft services, including those offered in connection with 
prepaid accounts, can be plans under which the creditor reasonably 
contemplates repeated transactions. Particularly to the extent that 
prepaid and deposit account overdraft services are automated, the 
Bureau believes that overdraft programs typically contemplate and 
approve repeated transactions.\337\ Indeed, every prepaid overdraft 
service that charges a fee of which the Bureau is aware contemplates 
and approves repeated transactions.
---------------------------------------------------------------------------

    \337\ As is discussed below, the Bureau intends to exclude 
overdrafts for which no finance charge as defined in Sec.  1026.4 
and no fee described in Sec.  1026.4(c) is charged and repayment is 
not expected by written agreement in more than four installments.
---------------------------------------------------------------------------

    The Bureau then examined the second prong of the definition of 
``open-end credit'' to determine whether the creditor may impose a 
finance charge from time to time on an outstanding unpaid balance. See 
Sec.  1026.2(a)(20)(ii). As noted above, the Bureau believes that 
overdraft service fees and charges on other credit features easily meet 
the general definition of finance charge. With regard to the element 
focusing on whether a finance charge may be computed and imposed from 
time to time on an outstanding balance, the Official Interpretations to 
Regulation Z explain that this provision simply means that there is no 
specific amount financed for the plan for which the finance charge, 
total of payments, and payment schedule can be calculated in advance of 
the usage of the plan. See comment 2(a)(20)-4 (explaining that the 
requirement that a finance charge may be computed and imposed from time 
to time on the outstanding balance means there is no specific amount 
financed for the plan for which the finance charge, total of payments, 
and payment schedule can be calculated and that a plan may meet the 
definition of open-end credit even though a finance charge is not 
normally imposed, provided the creditor has the right, under the plan, 
to impose a finance charge from time to time on the outstanding 
balance). For a credit plan where credit is replenishing, an amount 
financed cannot be calculated for the plan. Such credit plans will meet 
this element if a finance charge may be imposed on the plan. Indeed, a 
plan may meet the definition of open-end credit even though a finance 
charge is not normally imposed, provided the creditor reserves the 
right, under the plan, to impose a finance charge from time to time on 
an outstanding balance. See comment 2(a)(20)-4.
    The Bureau does not anticipate that there will be a specific amount 
financed for a prepaid overdraft service at the time it is established; 
instead, credit extensions may be added from time to time to the 
outstanding balance for the plan, and fees or other finance charges may 
be imposed from time to time in connection with the usage of the plan, 
thus satisfying this criterion. To the extent that such a plan involves 
finance charges but no periodic rate, it may be a charge card, which is 
specifically subject to coverage under Regulation Z. See, e.g., 
1026.2(a)(15)(iii) (defining a ``charge card'' as ``a credit card on an 
account for which no periodic rate is used to compute a finance 
charge'').
    Lastly, the Bureau anticipates that automated overdraft services 
for prepaid accounts generally will be structured such that the credit 
line for the plan will generally replenish to the extent that any 
outstanding balance is repaid, thus satisfying the final prong of the 
definition of open-end credit, that the amount of credit that may be 
extended is generally made available to the extent that any outstanding 
balance is repaid. Comment 2(a)(20)-5 currently provides that this 
criterion means that the total amount of credit that may be extended 
during the existence of an open-end plan is unlimited because available 
credit is generally replenished as earlier advances are repaid. This 
unlimited credit distinguishes open-end credit from a series of 
advances made pursuant to a closed-end credit loan commitment, but it 
does not mean that the creditor must establish a specific credit limit 
for the line of credit or that the credit plan must always be 
replenished to its original amount. The creditor may

[[Page 77208]]

reduce a credit limit or refuse to extend new credit in a particular 
case due to changes in the creditor's financial condition or the 
consumer's creditworthiness, if permitted by Regulation Z; indeed, the 
Bureau believes that this is a quite common practice with respect to 
credit cards. While consumers should have a reasonable expectation of 
obtaining credit as long as they remain current and within any preset 
credit limits, further extensions of credit need not be an absolute 
right in order for the plan to meet the self-replenishing criterion. 
The Bureau believes that overdraft services linked to prepaid accounts 
generally are and will be structured to meet this criterion. Insofar as 
the Bureau has determined that the three prongs of an open-end credit 
plan are met, it finds that an overdraft service on a prepaid account 
is an open-end credit plan much like an overdraft line of credit or 
other similar products linked to prepaid accounts.
Overdraft Services and Other Credit Features on Prepaid Accounts and 
TILA's Definition of a Credit Card
    Having determined that overdraft services, overdraft lines of 
credit, or other similar products linked to prepaid accounts can be 
open-end (not home-secured) credit plans, the Bureau evaluated whether 
such arrangements involve use of a ``credit card'' under Regulation Z. 
TILA section 103(k) defines the term credit card to mean any card, 
plate, coupon book or other credit device existing for the purpose of 
obtaining money, property, labor, or services on credit. 15 U.S.C. 
1602(l). In turn, Sec.  1026.2(a)(15)(i) defines credit card to mean 
any card, plate, or other single credit device that may be used from 
time to time to obtain credit.
    The Bureau believes that prepaid accounts that access overdraft 
services, overdraft lines of credit, or similar products generally meet 
the definition of ``credit card'' and, absent an exemption, generally 
would be subject to the rules in Regulation Z applicable to credit 
cards. As is noted above in the discussion of Regulation E proposed 
1005.2(a)(3), the definition of prepaid account includes certain access 
devices that may not be a physical card. Specifically, the term prepaid 
account would include cards, codes, or other devices capable of being 
loaded with funds and usable at a wide variety of unaffiliated 
merchants or for person-to-person transfers. See proposed Regulation E 
1005.2(b)(3). Thus, the proposed Regulation E definition would include 
physical cards--such as a GPR card--but also would include access 
devices that are solely online or on a mobile phone. With respect to 
Regulation Z, the Bureau similarly intends for ``card, code, or other 
device'' to apply to the panoply of different access devices in 
addition to physical cards on which credit may be extended including 
``hybrid'' cards that may function as both a prepaid account and a 
credit card.
    The Bureau proposes not to extend the exclusions for debit cards 
and account numbers to prepaid accounts. The commentary to the 
definition of ``credit card'' explains that a debit card is not a 
credit card unless there is a credit feature or agreement to extend 
credit, even if the creditor occasionally honors an inadvertent 
overdraft. The Board adopted this commentary to exclude bounce 
protection plans from becoming subject to Regulation Z when they are 
accessed by a debit card, consistent with the exclusion for overdraft 
charges from the definition of finance charge where there is no written 
agreement to extend credit and charge a fee, as described above.\338\ 
With regard to overdraft lines of credit and other open-end (not home-
secured) plans where there is an agreement to extend credit, a debit 
card that can access the credit is a credit card and is subject to the 
credit card provisions in Regulation Z subpart B that implement the 
FCBA, such as the no-offset provision. However, the Board used its TILA 
exception authority to exempt debit cards that access open-end 
overdraft lines of credit from the Credit CARD Act provisions, 
generally set forth in subpart G, because it determined that the 
protections in Regulation E generally apply to debit cards that access 
an overdraft line of credit. In addition, the Board noted that 
overdraft lines of credit were not, at that time, in wide use and that 
creditors issuing such lines of credit generally did not engage in the 
practices addressed by the Credit CARD Act.\339\
---------------------------------------------------------------------------

    \338\ 46 FR 50288, 50293 (Oct. 9, 1981).
    \339\ See 75 FR 7657, 7664 (Feb. 22, 2010); see also Sec.  
1026.2(a)(15)(ii).
---------------------------------------------------------------------------

    The existing commentary to the definition of ``credit card'' also 
excludes an account number (where there is no physical device) from the 
definition of credit card, unless the account number can access an 
open-end line of credit to purchase goods or services. For example, if 
a creditor provides a consumer with an open-end line of credit that can 
be accessed by an account number in order to transfer funds into 
another account (such as an asset account with the same creditor), the 
account number is not a credit card for purposes of Regulation Z. 
However, if the account number can also access the line of credit to 
purchase goods or services (such as an account number that can be used 
to purchase goods or services on the internet), the account number is a 
credit card for purposes of Regulation Z. Relatedly, the commentary 
explains that a ``hybrid'' card--a card that accesses both a credit and 
an asset account (that is, a debit-credit card)--is considered a credit 
card. See comment 2(a)(15)-2.i.B. Thus, there is a scenario in existing 
Regulation Z when the same number (the number of the debit-credit card) 
can access both the credit and the asset account.
    Rather than expanding this existing patchwork approach, the Bureau 
is proposing to treat all credit offered on or in connection with a 
particular prepaid account in the same way (to the extent that the 
credit plan imposes a finance charge or a fee described in Sec.  
1026.4(c) and is not payable in more than four installments)--subject 
to the specific credit card protections in subparts B and G. As is 
noted above, in addition to overdraft services, prepaid accounts may 
also be offered with other types of credit features such as linked 
lines of credit. Although a line of credit accessed by an account 
number that pushes credit into a checking account would not be 
considered a credit card under Regulation Z if the account number 
cannot be used to access an open-end line of credit to purchase goods 
or services, the Bureau believes it is appropriate to treat all lines 
of credit linked to prepaid accounts as credit cards when they are 
linked to a prepaid account.
    Relatedly, the Bureau also believes it appropriate to include as 
credit cards products involving a range of access devices. For example, 
the Bureau intends its proposal to apply if the provider offers a 
credit product in which the consumer has an account number that can 
access the line of credit, and the credit can be deposited directly 
only into the prepaid account (even if there was no physical device to 
access the line of credit).
    The Bureau believes that this is appropriate because of the 
increased protections offered by the credit card rules, discussed 
below, and the unique nature of prepaid accounts. While the existence 
of linked lines of credit and ``push'' credit products associated with 
prepaid accounts today may be limited, the Bureau is concerned that 
were such products not covered by the proposed provisions governing 
credit, they would be offered as a means of evading the requirements 
articulated in this proposal. Thus, as is discussed in more

[[Page 77209]]

detail below, the Bureau's proposal also would cover such credit plans.
    Specifically, the proposal would generally provide that prepaid 
accounts are credit cards under Regulation Z, except where a prepaid 
account can only access credit that is not subject to any finance 
charge or fee described in Sec.  1026.4(c) (such as an application fee 
to apply for credit, late payment fee, over the credit limit fee or 
returned payment fee) and repayment is not expected by written 
agreement in more than four installments. To the extent no periodic 
rate is imposed, such as if an overdraft service charges a flat per 
transaction fee, then the credit product linked to a prepaid account 
would be a charge card. See Sec.  1026.2(a)(15)(iii).
    The Bureau believes that the proposal would provide consumers with 
stronger and more consistent protections than would apply if the Bureau 
extended exemptions for overdraft services on prepaid accounts that 
would exempt them entirely from Regulation Z but did not subject lines 
of credit and products that push credit onto the prepaid account as 
credit cards. Thus, under the proposal, prepaid accounts generally 
would be credit cards when they access a credit feature, and generally 
would be subject to the rules in Regulation Z applicable to credit 
cards. The proposal also would add additional, unique protections to 
Regulation Z for prepaid accounts that are credit cards that access 
overdraft services or credit features.
    Where applicable, the extension of credit card provisions to 
prepaid accounts would mean that a variety of Regulation Z provisions 
would apply, such as enhanced protections for credit cardholders 
pursuant to the FCBA and the Credit CARD Act. Those requirements, in 
tandem with the proposed application of TILA's no-offset provision 
(TILA section 169) to prepaid accounts subject to these credit card 
provisions, and corresponding proposed changes to the compulsory use 
provision in Regulation E Sec.  1005.10(e)(1), would allow consumers to 
retain control over the funds in their prepaid accounts if a credit 
card feature becomes associated with those accounts because they will 
be able to control when and how debts are repaid. See Sec.  
1026.12(d).\340\
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    \340\ This provision implements TILA section 169, which Congress 
added to TILA when it enacted the FCBA. The provision prohibits card 
issuers from taking any action to offset a cardholder's indebtedness 
arising from a consumer credit card transaction against the 
cardholder's funds held with the issuer, unless such action was 
previously authorized in writing by the cardholder in accordance 
with a plan whereby the cardholder agrees to permit the issuer 
periodically to deduct the debt from the cardholder's deposit 
account.
---------------------------------------------------------------------------

    Specifically, proposing to apply TILA's timing and due date 
requirements for periodic statements and the no-offset provision and 
proposing to amend Regulation E's compulsory use provision would, 
respectively, mean that card issuers would have several restrictions. 
First, they would be required to adopt reasonable procedures designed 
to ensure that periodic statements are mailed or delivered at least 21 
days prior to the payment due date disclosed on the periodic statement 
and the due date disclosed must be the same day of the month for each 
billing cycle. Second, card issuers could only move funds automatically 
from an asset account held by the card issuer to the credit card 
account held by the card issuer to pay some or all of the credit card 
debt no more frequently than once per month, such as on the payment due 
date, and only pursuant to the consumer's signed, written agreement 
that the issuer may do so. Third, card issuers must offer consumers a 
means to repay their outstanding credit balances other than automatic 
repayment (such as by means of a transfer of funds from the prepaid 
asset account to the credit account that the consumer affirmatively 
initiates on the prepaid account's online banking Web site).
    In addition, the Bureau proposes that by virtue of treating credit 
features offered on prepaid accounts as open-end credit accessed by a 
credit card, other protections of the Credit CARD Act, mostly 
implemented in subpart G of Regulation Z, would also apply.\341\ Among 
other things, these requirements would require such credit card issuers 
to perform underwriting when opening a credit card account for 
consumers in accordance with the Credit CARD Act's ability-to-pay 
requirements. See Sec.  1026.51(a). Such issuers would also generally 
be required to limit fees (as opposed to periodic interest rates) to 25 
percent of the credit limit during the first year after the consumer 
opens the credit card account (i.e., the credit account linked to the 
consumer's prepaid account could be opened no earlier than thirty 
calendar days after the consumer registered the prepaid account). See 
section-by-section analysis of Sec.  1026.52(a). This limit would apply 
to any per-transaction fees--such as the prototypical ``overdraft 
fee''--that issuers might assess each time they authorize a prepaid 
transaction that accesses the credit account.
---------------------------------------------------------------------------

    \341\ As noted above, under the proposal, a prepaid account 
would not be a credit card if it only accesses credit that is not 
subject to any finance charge as defined in Sec.  1026.4 or any fee 
described in Sec.  1026.4(c) and repayment is not expected in more 
than four installments and thus the provisions discussed herein 
would not apply.
---------------------------------------------------------------------------

Consideration of Extension of Existing Exemptions for Overdraft 
Services on Prepaid Accounts
    In this rulemaking, the Bureau considered the alternative of 
preserving the existing bifurcation in regulatory treatment between 
overdraft services for traditional deposit accounts and other forms of 
credit that may be associated with such accounts, but extending 
traditional deposit account treatment to prepaid accounts. The Bureau 
believes instead that invoking TILA and Regulation Z protections 
prepaid consumers that may use prepaid account overdraft services and 
other credit features is appropriate for several reasons.
    First, the Bureau believes that covering overdraft services offered 
in connection with prepaid accounts under Regulation Z aligns with 
TILA's purpose (TILA section 102(a))--to ``assure a meaningful 
disclosure of credit terms so that the consumer will be able to compare 
more readily the various credit terms available to him and avoid the 
uninformed use of credit, and to protect the consumer against 
inaccurate and unfair credit billing and credit card practices.'' 15 
U.S.C. 1601(a). In addition and as discussed above, the provisions of 
the FCBA and the Credit CARD Act would offer additional protections to 
consumers who use overdraft services and other forms of credit offered 
in connection with prepaid accounts. In addition to the application of 
the FCBA and Credit CARD Act credit card provisions to overdraft 
services accessed by prepaid accounts that would be considered credit 
cards under the proposal, the Bureau believes that regulation of 
prepaid account overdraft services as open-end (not home-secured) 
credit would serve to accomplish the stated purpose of TILA by 
requiring creditors and other persons to explain the terms of overdraft 
services to consumers in the context of Regulation Z, protect consumers 
from high fees during the first year (through Regulation Z's fee 
harvester provision) and from harms arising from various billing and 
improper credit card practices, and give consumers strong tools to 
manage their credit relationships.
    Second, the Bureau believes the Board's justification of the 
existing regulatory approach is much less convincing as applied to 
prepaid accounts, both because the historical justification for 
checking account overdraft services does not apply to

[[Page 77210]]

prepaid accounts and because there are notable differences between how 
prepaid accounts and checking accounts function. In constructing the 
exemption, the Board relied in part on the fact that at that time 
overdraft in the checking account context was determined to be a 
``courtesy'' that enabled consumers to avoid both the embarrassment of 
bouncing checks and the attendant costs. The Board also relied on the 
fact that, at the time, overdraft decisions were made on an ad hoc 
basis; that is no longer true of automated overdraft programs. At the 
time the Board established the Regulation Z exemption, bounce-
protection programs (as overdraft services were known) were necessarily 
check-based because checks and cash were--at that time--consumers' only 
ways of accessing funds in their deposit accounts. Further, a financial 
institution's decision whether to pay a given check that triggered an 
overdraft was at that time necessarily manual, or ad-hoc, because 
computers (and automated credit decision-making) were only in their 
infancy. Typically, a consumer's institution (the ``paying bank,'' 
which is equivalent to the card-issuing bank in a card transaction) 
cannot authorize or decline a purchase by check when the consumer seeks 
to make payment (i.e., while at the merchant). As the Board noted in 
2009, institutions that historically provided overdraft coverage for 
check transactions on an ad-hoc basis often provided a benefit to 
consumers, insofar as paying the check was often a preferable outcome 
to a bounced, returned check or NSF fee; additional fees imposed by 
merchants; and even potential criminal liability for passing bad 
checks.\342\
---------------------------------------------------------------------------

    \342\ 77 FR 59033, 59033 (Nov. 17, 2009); see also generally 
FDIC Overdraft Payment Supervisory Guidance.
---------------------------------------------------------------------------

    However, the account structure and logistics for prepaid accounts 
have never matched those for checking accounts that existed in 1969, 
because overdraft services in the prepaid account context are not 
structured by institutions or considered by consumers to be an 
occasional courtesy to avoid a bounced check. Checking accounts, by 
definition, allow consumers to write checks and present them to payees 
without first receiving authorization from their financial institution. 
Checking accounts also allow incoming debit ACH transactions without 
preauthorization. These types of transactions are relevant because the 
exact timing of the check clearance and incoming ACH process can be 
difficult for the consumer to predict. For instance because sometimes 
it may take several days or longer for a check to be presented and 
funds to be withdrawn from the consumer's account, while other times 
checks may be presented faster. Uncertainty around the timing of check 
and ACH presentment and the substantial negative consequences of 
rejected transactions may lead to overdrafts for traditional accounts, 
but are extremely unlikely for prepaid accounts.
    Indeed, by contrast, virtually all prepaid account transactions are 
preauthorized, which means that the merchant seeks authorization from 
the financial institution before providing goods or services to the 
consumer.\343\ In such cases, the consumer is not at risk of having a 
payment rejected after a transaction has already occurred and the 
consumer will not be subjected to NSF and merchant fees; rather, the 
financial institution can simply reject the transaction before the 
purchase occurs if there are insufficient funds in the account.\344\ 
This is true for point-of-sale transactions as well as online bill pay 
transactions completed via ACH initiated from the prepaid account to 
the biller (or even with mailed, pre-debited checks). Thus, a consumer 
using a prepaid account is less like the checking account customer that 
the Board focused on in creating the exemption for overdraft--a 
consumer being extended a courtesy in order to avoid potentially 
harsher repercussions--and instead is like any other consumer using 
credit to purchase goods or services. To the extent offered, financial 
institutions' ongoing and routine decisions to pay prepaid account 
transactions that will result in the creation of a debt and the 
deferment of payment on that debt function as if they are an extension 
of credit and constitute a credit plan (unless exempted from Regulation 
Z). Insofar as this is how most prepaid cards work, they have been 
distinguishable from traditional checking accounts.
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    \343\ An exception is third-party ACH debits, which could be 
sent without prior authorization. However, an informal review by the 
Bureau of major GPR card programs indicates that most will not 
accept incoming ACH debits or that, by contract, cardholders are not 
permitted to establish them. The Bureau notes that, as currently 
structured, most prepaid products do not allow consumers to write 
checks that are not preauthorized.
    \344\ The Bureau is aware that, in some instances, a transaction 
will be authorized when the account balance is positive but will 
ultimately settle when the account balance is negative, because for 
some types of transactions the final settlement amount may be higher 
than the authorization amount (e.g., at restaurants because tips are 
sometimes added after authorization). However, the Bureau believes 
that such occurrences are rare and generally only for marginal 
amounts rather than full transactions.
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    Third, the Bureau believes that treating prepaid overdraft services 
as open-end credit plans acting as credit cards would provide stronger 
protections that are more closely calibrated to how the industry has 
broadly marketed prepaid products to consumers and how consumers, in 
turn, expect to be able to use the products. As noted above, financial 
institutions deliberately market prepaid accounts to consumers as 
products that are safer and easier to use than comparable products with 
credit features, in particular checking accounts with overdraft. 
Specifically, many companies market prepaid accounts to consumers as 
products that increase consumers' financial control by preventing 
overspending and the incurring of debt.\345\ By control, the Bureau 
believes that these companies mean that prepaid account users can exert 
control by limiting expenditures to the funds loaded onto the prepaid 
account and cannot spend funds they do not have. Financial institutions 
often market prepaid cards as requiring no credit checks, not reporting 
to credit bureaus unpaid debts (of which there are rarely any), and not 
including any credit features. Underscoring this marketing approach, 
many industry commenters to the Bureau's ANPR repeatedly emphasized 
these unique features of prepaid products as a primary reason behind 
their growth in popularity.
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    \345\ See, e.g., NBCPA, What are Prepaid Cards?, http://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx 
(last visited Oct. 28, 2014) (``For many Americans, prepaid cards 
serve as a tool with which to more effectively budget their 
spending. With a prepaid card, consumers avoid the risk of over-
spending or overdraft, thus avoiding the interest, fees and 
potential negative credit score implications of traditional credit 
cards. And for parents, prepaid cards provide tools to maintain 
control over their teens' or college students' spending.''); see 
also Examining Issues in the Prepaid Card Market: Hearing before the 
Subcomm. On Fin. Inst. and Consumer Prot., S. Comm. on Banking, 
Housing and Urban Affairs, 112th Cong. 2 (2012) (Remarks of Dan 
Henry, Chief Executive Officer, NetSpend Holdings, Inc.) (``Our 
customers are typically working Americans who want control . . .'').
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    Many consumers have chosen prepaid cards specifically because the 
cards offer greater spending control in general and do not typically 
offer overdraft services of the same type as commonly found on checking 
accounts in particular. Thus, the prepaid industry has attracted a 
large number of both voluntary and involuntary former checking account 
customers who had their checking account closed. Many prepaid consumers 
previously had a checking account and either lost that

[[Page 77211]]

account or gave up that account due to failure to repay debts or 
related issues.\346\ The Bureau believes that many of these consumers 
lost their checking accounts because they could not handle repeated 
overdraft fees. Those who left voluntarily may also have done so due to 
their difficulty in managing to avoid overdraft fees. Relatedly, the 
Bureau also believes that many of these consumers, and even many 
consumers who continue to maintain separate checking accounts, chose to 
purchase prepaid products because of their promise to allow consumers 
to control their spending. Indeed, many participants in the Bureau's 
consumer testing emphasized control as a primary reason they used 
prepaid cards.\347\ Participants explained that did not want a product 
with overdraft services because they were afraid they would be tempted 
to use such a service and incur debt and fees beyond what they could 
control. As noted above, other studies have similarly found that a 
primary reason consumers use prepaid cards is that they want increased 
control over their finances and want to avoid incurring debt and 
related fees.\348\
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    \346\ 2014 Pew Survey, at 7-8 (Noting both that ``Most prepaid 
card users who have had a checking account in the past have paid 
associated overdraft fees for debit card usage'' and that ``Among 
those prepaid card users who have ever had a bank account, 41 
percent of them say they have closed or lost a checking account 
because of overdraft or bounced check fees.'').
    \347\ See ICF Report at 5.
    \348\ See Bretton Woods, Inc., A Comparative Cost Analysis of 
Prepaid Cards, Basic Checking Accounts and Check Cashing, at 4 
(February 2012), available at http://bretton-woods.com/media/3e145204f3688479ffff832affffd524.pdf (noting that 74 percent of 
prepaid users like the fact they cannot overspend or overdraft the 
most about prepaid cards); 2014 Pew Survey, at 14 ex.12 (noting that 
the top two reasons consumers claim to use prepaid cards related to 
avoiding credit card debt (67 percent) and helping them not spend 
more money than they actually have (66 percent)).
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    Thus, to prevent erosion of what the Bureau believes is a clear 
distinction regarding overdraft services in the current market and in 
the minds of consumers between prepaid accounts and checking accounts 
that offer overdraft services, and to ensure that credit products that 
are associated with prepaid accounts receive consistent treatment 
regardless of their particular structures, the Bureau is proposing to 
adopt stronger protections that would treat various credit features 
associated with prepaid accounts as an open-end credit card product 
subject to Regulation Z. By doing so, the Bureau believes that 
consumers will more clearly know and understand when they are accessing 
credit using a prepaid account and also will benefit from increased 
protections not available for checking accounts. The Bureau is also 
concerned that were the Bureau to permit overdraft services without the 
proposed protections, the approach of marketing prepaid accounts as a 
safe alternative to checking accounts could be confusing to consumers. 
To the extent that the issuer of a prepaid account wants to veer from 
current norms by offering overdraft services or other credit features, 
the Bureau believes that requiring appropriate markers and full 
protections for credit card products, including the Bureau's proposed 
overdraft disclosure requirements in proposed Sec.  1005.18(b) will 
help consumers recognize that they are taking this extra, and for 
prepaid products, perhaps unusual step of accessing credit and to treat 
that credit with appropriate caution. This is in contrast to the 
historical treatment of checking accounts, where overdraft services 
have been common across almost all such accounts and consumers expect 
such services to be offered in connection with checking accounts.
    By labeling overdraft services offered on prepaid products as 
credit subject to the disclosure requirements of Regulation Z, the 
Bureau believes that the resulting product will be better understood 
and managed as credit by consumers to the extent that some prepaid 
accountholders decide they want to access such credit. In addition, by 
not permitting financial institutions to accept applications for an 
overdraft service until 30 calendar days after registration of the 
prepaid account, see proposed Sec.  1005.18(g)(1) and Sec.  
1026.12(h)(1), the Bureau believes it will prevent consumers from being 
pressured to make a decision on overdraft or credit when acquiring the 
prepaid account, such as when they buy a GPR card in a retail store. It 
would also allow consumers time to decide whether the basic prepaid 
card is a good fit for them before deciding whether to layer on a 
credit relationship that may be more difficult to walk away from.
    Fourth, there is evidence that a significant portion of consumers 
with prepaid accounts would particularly benefit from the stronger 
protections that Regulation Z provides. More clearly defined credit 
features will be beneficial in part because of the marketing dynamics 
discussed above and because some consumers have experienced difficult 
managing overdraft services on traditional checking accounts.\349\ In 
general, prepaid consumers are disproportionately unbanked or 
underbanked,\350\ often have limited education, and are often 
unemployed or recipients of public benefits.\351\ Although the size of 
this group is not clear, the Bureau believes that some users of prepaid 
products do vary, in some degree, from users of traditional deposit 
accounts. Thus, the Bureau believes that they may be seeking or 
expecting different features from that of a traditional checking 
account when they use prepaid cards. Moreover, because the costs to buy 
prepaid accounts are lower than for checking accounts--they are often 
easily bought in retail stores for a small sum--the Bureau believes 
that it is likely that this product may continue to attract consumers 
who are relatively new to the financial system over time.\352\
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    \349\ 2014 Pew Survey, at 7-8 (noting both that ``Most prepaid 
card users who have had a checking account in the past have paid 
associated overdraft fees for debit card usage'' and that ``Among 
those prepaid card users who have ever had a bank account, 41 
percent of them say they have closed or lost a checking account 
because of overdraft or bounced check fees.''). Separately, one 
large program manager estimates that 80 percent of its GPR card 
customers earn less than $50,000. See Kate Fitzgerald, Green Dot 
Chief Sees Prepaid Mobile Payments As Company's Next Challenge (May 
7, 2012) http://www.isoandagent.com/news/Green-Dot-Chief-Sees-Prepaid-Mobile-Payments-As-Companys-Next-Challenge-3010590-1.html 
(explaining that ``single mothers in their late 30s and early 40s 
comprise 55 percent of [one major prepaid card company's] target 
market, with most of them earning less than $50,000 annually.''), 
while one study found that 84 percent of GPR card users had incomes 
below the nationwide median. Similarly, others have informed Bureau 
staff that the average credit score of prepaid account users is far 
below average.
    \350\ In its report on unbanked and underbanked consumers, the 
FDIC explained that households are identified as ``unbanked'' if 
they answered ``no'' to the question, ``Do you or does anyone in 
your household currently have a checking or savings account?.'' The 
FDIC further explained that ``underbanked households are defined as 
those households that have a checking and/or a savings account and 
had used non-bank money orders, non-bank check cashing services, 
non-bank remittances, payday loans, rent-to-own services, pawn 
shops, or refund anticipation loans (RALs) in the past 12 months.'' 
See FDIC, 2011 FDIC National Survey of Unbanked and Underbanked 
Households (2011) available at https://www.fdic.gov/householdsurvey/2012_unbankedreport.pdf. For discussion of prepaid consumers' 
background, see Kansas City Fed Study, at 12-13 (although the report 
also notes no correlation due to income or education; possibly due 
to the different types of use by prepaid consumers); available at 
https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf.
    \351\ 2011 FDIC Survey, at 16, 18, 40; see also Nat'l Council of 
La Raza, Perspectives on Prepaid Cards from Low-Income Hispanic Tax 
Filers at 1-2 (2011) available at http://www.nclr.org/images/uploads/publications/perspectives_on_prepaid_cards_(3).pdf.
    \352\ Relatedly, Congress has similarly sought to address such 
services on prepaid accounts. EFTA section 920(a), as implemented in 
Regulation II, limits interchange fees when an overdraft fee may be 
charged on the prepaid card (by, as noted above, carving cards that 
may impose overdraft fees out of the exception from the rule's fee 
caps). While not prohibiting such services outright, the Bureau 
believes that Congress, in differentiating treatment, acted out of 
concern regarding overdraft services on prepaid accounts (vis-
[agrave]-vis prepaid cards that cannot impose overdraft fees).

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[[Page 77212]]

    To the extent some consumers may want to take advantage of credit 
features if offered in connection with their prepaid account, the 
Bureau further believes that its proposed approach would provide these 
consumers with stronger tools and protections that would appropriately 
limit their credit exposure and reduce the risk of some of the harms 
that may be associated with using prepaid accounts for which an 
overdraft service is offered.
    Fifth, unlike with respect to checking accounts where overdraft 
services have been structured to fit a unique and separate regulatory 
regime for several decades, the Bureau is proposing to regulate prepaid 
credit features on a largely blank slate. As noted above, deposit 
accounts and their pricing structures have evolved under compliance 
frameworks that were developed in accordance with existing regulations, 
exceptions to those regulations, and other agencies' guidance. The 
deposit account industry would view any departure as significantly 
disruptive. In contrast, very few prepaid products offer overdraft 
services or other credit features. Most prepaid account programs do not 
have such a feature and, as a result, providers would have to implement 
a new compliance regime in any event were they to decide to add such 
features.
    Similarly, while many have settled expectations that if they write 
a check or authorize a bill payment through a third party for which 
there is insufficient funds; the transactions will be paid rather than 
bounced, the Bureau does not believe that prepaid accountholders expect 
similar treatment because it is so rare for check and bill payment 
services to be offered absent pre-authorization. Implementation costs 
for industry and the risk of disruption to expectations for all 
stakeholders is thus much different in the context of prepaid accounts. 
Indeed, by proposing to act now on prepaid accounts before credit 
features become widespread, the Bureau expects that credit features on 
prepaid accounts will evolve in a more straightforward and consumer-
friendly manner consistent with the general framework and protections 
for credit.
Proposal's Treatment of Overdraft Services is Limited to Prepaid 
Accounts
    The Bureau is proposing to make adjustments to Regulation Z and 
Regulation E that would not extend existing exemptions for overdraft 
services on traditional deposit accounts to overdraft services on 
prepaid accounts, but it is not proposing to alter existing provisions 
that apply to deposit account overdraft, including exemptions for 
overdraft services from Regulation Z and Regulation E's compulsory use 
provision. As described above, the Bureau sees significant differences 
in the underlying accounts and transaction types, the history of 
marketing and market segmentation, and the transaction costs and other 
disruptions that would be involved in shifting to a different 
regulatory framework with respect to checking accounts. Indeed, the 
Bureau is acting at this time to subject prepaid accounts to Regulation 
Z and the compulsory use provisions of Regulation E in part because 
there is no clearly established and predominant regulatory or 
compliance regime applicable to such programs, such that adopting the 
Bureau's proposal would not create significant upheaval in the market.
    The Bureau recognizes that historical, operational and other 
factors have supported a different regulatory approach with respect to 
overdraft in the checking account context than with respect to prepaid 
accounts. The Bureau continues to study deposit account overdraft 
services and will propose any further enhancements to the existing 
regulatory framework that it deems appropriate as part of that separate 
endeavor in accordance with its rulemaking procedures.\353\
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    \353\ See CFPB's Unified Agenda for Spring 2014, available at 
http://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST¤tPub=true&agencyCode=&showStage=active&agencyCd=3170&Image58.x=58&Image58.y=5&Image58=Submit.
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Other Implications of the Bureau's Approach to Prepaid Credit Products
    The detailed discussion below sets forth the Bureau's proposed 
changes to Subparts A, B, and G of Regulation Z to effectuate the 
approach to overdraft services and credit features offered in 
connection with prepaid accounts. The Bureau seeks comment both on its 
general approach to such credit products and to the specific changes 
proposed. In addition, the Bureau seeks comment on certain potential 
implications of its approach, as described immediately below:
    Military Lending Act. As discussed above, the Department of Defense 
(the Department) recently proposed to expand the scope of the coverage 
of its regulation (32 CFR part 232) that implements the MLA to include 
a broad range of open-end and closed-end credit products, including 
open-end (not home secured) credit card accounts that are subject to 
Regulation Z.\354\ Under the MLA, a creditor generally may not apply a 
military annual percentage rate (MAPR) greater than 36 percent in 
connection with an extension of consumer credit to a military service 
member or dependent. For covered credit card accounts, any credit-
related charge that is a finance charge under Regulation Z (as well as 
certain other charges) would be included in calculating the MAPR for a 
particular billing cycle and the MAPR for that billing cycle could not 
exceed 36 percent.\355\ However, the Department's proposal provides 
that a credit card issuer does not have to include in the calculation 
of the MAPR any charge that is a ``bona fide fee'' if the fee is 
``reasonable and customary.'' \356\ The Department has proposed a safe 
harbor that would determine whether fee levels are reasonable and 
customary based on the average amounts charged by large credit card 
issuers for substantially similar fees during the last three 
years.\357\
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    \354\ 79 FR 58602 (Sept. 29, 2014).
    \355\ 79 FR 58602 at 58619.
    \356\ 79 FR 58602 at 58638. See proposed 32 CFR 232.4(d) of the 
Department's proposal, stating that the exclusion the proposal 
provides for a bona fide fee applies only to the extent that the 
charge by the creditor is a bona fide fee and is reasonable and 
customary for that type of fee. The exclusion for bona fide fees 
does not apply to periodic rates. It also does not apply to any 
credit insurance premium, including charges for single premium 
credit insurance, fees for debt cancellation or debt suspension 
agreements, or to any fees for credit related ancillary products 
sold in connection with and either at or before consummation of the 
credit transaction or upon account opening, because those charges 
are expressly included in the definition of ``interest'' in the 
applicable statute (10 U.S.C. 987(i)(3)) and therefore must be 
included in the MAPR calculation.
    \357\ 79 FR 58602 at 58638. See proposed 32 CFR 232.4(d) of the 
Department's proposal.
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    Thus, as with fees for other types of consumer credit extended to 
military service members, fees levied for credit features (including 
overdraft services) on prepaid accounts held by military service 
members or their dependents would, as a result of the Department and 
Bureau proposals in combination (if both proposals are finalized as 
proposed), generally be included in calculating the MAPR for a billing 
cycle unless excluded under the bona fide fee exception. The Bureau 
requests comment on the consequences, if any, from the combined effect 
of the two proposals (were they to be finalized) with respect to 
overdraft services and credit features on prepaid accounts held by 
military service members.

[[Page 77213]]

    Multipurpose Cards and Card Network Rules. The Bureau's approach to 
credit features in connection with prepaid products would result in a 
single plastic card or other access device functioning either as a 
prepaid card or as a credit card, depending on the balance in the asset 
account that the card accesses at the time of a transaction that the 
consumer makes. For example, if the asset account balance is sufficient 
to fund the transaction, the card could function as a prepaid card; if 
not, the card could function as a credit card. The Bureau has proposed 
a number of provisions and sought comment as detailed elsewhere to 
promote consumer understanding, facilitate clear application of the 
various potentially applicable regulatory regimes, and address other 
challenges that may arise due to the multipurpose nature of the card 
product. For example, the Bureau is proposing to amend the provision in 
Regulation Z (Sec.  1026.13(i)) that addresses the relationship between 
the Regulation E and Z error resolution regimes to clarify the 
applicability of those regimes to an extension of credit incident to an 
electronic fund transfer when the consumer's prepaid account is 
overdrawn. See Sec.  1026.13(i) in the section-by-section analysis 
below. The Bureau is also seeking comment on (but not proposing) the 
possibility of requiring additional real-time notifications of 
transactions triggering an overdraft or the accessing of a linked 
credit feature, or requiring real-time opt-in by consumers in order to 
approve each overdraft or other credit transaction. See Sec.  
1005.18(c) in the Regulation E section-by-section analysis above.
    The Bureau seeks comment on these specific amendments and whether 
further amendments or guidance would be appropriate. For instance, 
while there is regulatory precedent for similar multipurpose debit/
credit card products, these cards do not appear to be in wide use 
today. See, e.g., comment Sec.  1026.12(a)(1)-7 (stating that a credit 
feature may be added to a previously issued non-credit card only upon 
the consumer's specific request).\358\ The Bureau also seeks comment on 
consumer and industry experiences with similar multipurpose products 
historically, and whether they may yield useful lessons for further 
refining the Bureau's proposal with regard to prepaid cards.
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    \358\ When the Board amended comment 12(a)(1)-7 in 1999, it 
stated that the revisions clarified the comment's applicability to 
then-recent programs where unsolicited cards were marketed from the 
outset as both stored-value cards and credit cards. See 64 FR 16614, 
16615 (Apr. 6, 1999).
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    Finally, the Bureau notes that card network rules may treat a card 
differently depending on whether it accesses an asset account or a 
credit account. The Bureau's proposal could result in an increase in 
the number of cards that can access both an asset account and a credit 
account, and the Bureau requests comment on any card network rule 
issues that might arise from its proposal to treat most credit plans 
accessed by prepaid cards, for which finance charges are imposed, as 
open-end credit accessed by a credit card under Regulation Z.
Subpart A
Section 1026.2 Definitions and Rules of Construction
2(a) Definitions
Overview of Proposed Changes to Definitions
    As discussed above in the Overview of Regulation Z Proposal section 
and below in the section-by-section analysis of Sec.  1026.4, the 
Bureau proposes several amendments to the definition of ``finance 
charge,'' and commentary for the definitions of ``open-end plan'' and 
``credit card.'' As a result of these proposed changes, a person that 
offers credit plans accessed by prepaid cards, such as overdraft 
services, or certain other credit plans linked to prepaid accounts that 
are accessed by account numbers, where the person charges a finance 
charge for the credit, generally would be extending ``open-end credit'' 
that is accessed by a ``credit card'' and thus would be covered by 
Regulation Z's open-end (not home-secured) rules and credit card rules 
in subparts B and G.\359\ (The term ``prepaid card'' is defined in the 
proposal to mean any card, code, or other device that can be used to 
access a prepaid account as defined under Regulation E, see proposed 
Sec.  1026.2(a)(15)(v) and (vi).) The open-end (not-home secured) rules 
in subpart B include account-opening disclosures, periodic statement 
disclosures, change-in-terms notices, provisions on promptly crediting 
payments, and billing error resolution procedures. The credit card 
rules in subpart B include provisions that restrict the unsolicited 
issuance of credit cards, limit the liability for unauthorized use of 
credit cards, and prohibit the offset of the credit card debt against 
funds held in asset accounts by the card issuer. The credit card rules 
in subpart G include provisions that prohibit credit card issuers from 
extending credit without assessing the consumer's ability to pay and 
restrict the amount of required fees that an issuer can charge during 
the first year after a credit card account is opened. Application of 
the particular rules is discussed further below.
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    \359\ As discussed in more detail in the section-by-section 
analysis of Sec.  1026.2(a)(20), with respect to credit accessed by 
a prepaid card or an account number where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the person, a person would not be a creditor 
that is extending open-end credit where the person is not charging a 
finance charge for the credit. Nonetheless, as discussed in more 
detail in the section-by-section analysis of Sec.  1026.2(a)(17), 
such persons may still be subject to Regulation Z in certain 
circumstances.
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    The proposal would cover credit plans, including overdraft services 
and lines of credit, directly accessed by a prepaid card. This would 
apply where credit is being ``pulled'' by a prepaid card, such as when 
the consumer uses the prepaid card at point of sale to access an 
overdraft plan to fund a purchase. The proposal also would cover credit 
plans that are not accessed directly by a prepaid card but are 
structured as a ``push'' account. Under such a credit plan, a person 
would provide credit accessed by an account number where such 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the person, and cannot be 
deposited directly into another asset account, such as a deposit 
account. For example, such a credit plan may allow a consumer to use an 
account number to request an extension of credit be deposited directly 
into a particular prepaid account specified by the creditor when the 
consumer does not have adequate funds in the prepaid account to cover 
the full amount of a transaction using the prepaid card and the 
consumer is contractually obligated to repay the credit. A credit plan 
where extensions of credit are permitted to be deposited directly only 
into particular prepaid accounts specified by the person would mean 
that the credit plan allows deposits directly into particular prepaid 
accounts specified by the creditor but does not allow the consumer to 
deposit directly extensions of credit from the plan into asset accounts 
other than particular prepaid accounts specified by the creditor. As 
discussed in more detail below, the Bureau believes these types of 
credit plans could act as substitutes for credit plans directly 
accessed by a prepaid card. The Bureau is not, however, intending to 
cover general purpose lines of credit where a consumer has the freedom 
to choose where to deposit directly the credit funds.
    Definition of finance charge. As discussed in more detail in the 
section-

[[Page 77214]]

by-section analysis of Sec.  1026.4, under Regulation Z, the term 
``finance charge'' generally is defined in Sec.  1026.4(a) to mean 
``the cost of consumer credit as a dollar amount.'' It includes any 
charge payable directly or indirectly by the consumer and imposed 
directly or indirectly by the creditor as an incident to or a condition 
of the extension of credit. It generally does not include any charges 
of a type payable in a comparable cash transaction. Currently, certain 
fees or charges are specifically excluded from the term ``finance 
charge,'' such as (1) charges imposed by a financial institution for 
paying items that overdraw an account, unless the payment of such items 
and the imposition of the charge were previously agreed upon in 
writing; and (2) fees charged for participation in a credit plan, 
whether assessed on an annual or other periodic basis. See Sec.  
1026.4(c)(3) and (4).
    The proposal would amend Sec.  1026.4 and its commentary to provide 
that these two exceptions do not apply to credit accessed by a prepaid 
card or by an account number where extensions of credit are permitted 
to be deposited directly only into particular prepaid accounts 
specified by the creditor. In addition, the proposal would make other 
amendments to Sec.  1026.4 and its commentary to provide additional 
clarification and guidance as to what types of fees and charges 
constitute ``finance charges'' related to credit accessed by a prepaid 
card or credit accessed by an account number where extensions of credit 
are permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor. For such credit, any service, 
transaction, activity, or carrying charges imposed on the credit 
account, and any such charges imposed on a prepaid account if that 
charge is related to an extension of credit, carrying a credit balance, 
or credit availability, generally would be a finance charge. See Sec.  
1026.4(a), (b)(2), (c)(3) and (4) and comments 4(a)-4 and 4(b)(2)-1.
    Such charges would include periodic participation fees for the 
credit plan, as well as transaction charges imposed in connection with 
a credit extension. For example, assume a $1.50 transaction charge is 
imposed on the prepaid account for each transaction that is made with 
the prepaid card, including when the prepaid card is used to access 
credit where the consumer has insufficient or unavailable funds in the 
prepaid account at the time of authorization or at the time the 
transaction is paid. The $1.50 transaction charge would be a finance 
charge when the prepaid card accesses credit, notwithstanding that a 
$1.50 transaction charge also is imposed on transactions that solely 
access funds in the prepaid account. The proposal would provide, 
however, that the term finance charge does not include transaction fees 
imposed on the prepaid account where the consumer is only withdrawing 
funds from the prepaid account, fees for opening or holding the prepaid 
account, and other fees, such as cash reload fees and balance inquiry 
fees, that are not imposed on the prepaid account because the consumer 
engaged in a transaction that is funded in whole or in part by credit, 
for holding a credit plan, or for carrying a credit balance.
    As a result of these proposed changes to the definition of finance 
charge and related commentary, a person that is offering credit 
accessed by a prepaid card, or other credit plan linked to prepaid 
accounts that is accessed by an account number as described above, that 
is charging fees that are finance charges would be a ``creditor'' under 
Regulation Z. The term ``creditor'' generally means a person who 
regularly extends consumer credit that is subject to a finance charge 
or is payable by written agreement in more than four installments (not 
including a down payment), and to whom the obligation is initially 
payable, either on the face of the note or contract, or by agreement 
when there is no note or contract. See Sec.  1026.2(a)(17)(i). As 
discussed above, the Bureau is declining to extend provisions that 
exempt financial institutions that offer overdraft services on 
traditional deposit accounts from the definition of creditor to 
financial institutions that offer overdraft services on prepaid 
accounts.
    Definition of ``open-end credit.'' As discussed above in the 
Overview of Regulation Z Proposal section and below in the section-by-
section analysis of Sec.  1026.2(a)(20), the Bureau believes that most 
creditors that are offering credit plans (including overdraft services, 
accessed by a prepaid card, or other credit plans linked to prepaid 
accounts that are accessed by an account number as discussed above) and 
that are charging finance charges for the credit would be creditors 
offering ``open-end credit'' that is not home-secured. Such creditors 
must comply with the open-end (not home-secured) provisions set forth 
in subpart B.
    The term ``open-end credit'' is defined in Sec.  1026.2(a)(20) to 
mean consumer ``credit'' extended by a ``creditor'' under a ``plan'' in 
which (1) the creditor reasonably contemplates repeated transactions; 
(2) the creditor may impose a ``finance charge'' from time to time on 
an outstanding unpaid balance; and (3) the amount of credit that may be 
extended to the consumer during the term of the plan (up to any limit 
set by the creditor) is generally made available to the extent that any 
outstanding balance is repaid. The proposal would amend several of the 
definitions of these terms and provide clarifications and commentary to 
facilitate the classification of credit plans associated with prepaid 
accounts.
    Specifically, the proposal would provide that the term ``credit'' 
under Sec.  1026.2(a)(14) includes an authorized transaction on a 
prepaid account where the consumer has insufficient or unavailable 
funds in the prepaid account at the time of authorization. It also 
would include a paid transaction on a prepaid account where the 
consumer has insufficient or unavailable funds in the prepaid account 
at the time the transaction is paid.
    With respect to the term ``plan,'' the proposal would provide 
additional guidance on when overdraft credit is considered credit 
extended under a plan. In particular, the proposal would provide that 
with respect to credit accessed by a prepaid card or accessed by an 
account number where extensions of credit are permitted to be deposited 
directly only into particular prepaid accounts specified by the 
creditor, a plan means a program where the consumer is obligated 
contractually to repay any credit extended by the creditor. For 
example, for credit accessed by a prepaid card, a plan includes a 
program under which a creditor routinely pays transactions when a 
consumer has insufficient or unavailable funds in a prepaid account and 
the consumer is obligated contractually to repay those transactions. 
Similarly, for credit that is accessed by an account number where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor, a plan includes 
a program under which a creditor routinely will extend credit that is 
deposited directly into particular prepaid accounts specified by the 
creditor and the consumer is obligated contractually to repay the 
credit. In both cases, such programs constitute plans notwithstanding 
that the creditor retains discretion not to extend credit. Except as 
described below, the Bureau believes that most overdraft plans accessed 
by a prepaid card, and other credit plans linked to a prepaid account 
that are accessed by an account number as described above, generally 
will meet the other criteria for open-end credit. See

[[Page 77215]]

the discussion in the Overview of Regulation Z Proposal section and the 
section-by-section analysis of Sec.  1026.2(a)(17) and (a)(20).
    As described in more detail in the section-by-section analysis of 
Sec.  1026.2(a)(17), a person would not be extending open-end credit 
where the person is not charging a finance charge for the credit that 
is accessed by a prepaid card or accessed by an account number as 
described above. Nonetheless, the person could still be subject to 
certain provisions in Regulation Z in certain circumstances, as 
discussed below.
    Definition of ``credit card'' and ``card issuer.'' Regulation Z 
defines the term ``credit card'' in Sec.  1026.2(a)(15)(i) to mean 
``any card, plate, or other single credit device that may be used from 
time to time to obtain credit.'' The term ``card issuer'' is defined in 
Sec.  1026.2(a)(7) to defined to mean ``a person that issues a credit 
card or that person's agent with respect to the card.'' Under the 
proposal, certain devices related to prepaid accounts would be credit 
cards under Sec.  1026.2(a)(15)(i). In particular, the proposal 
provides that a prepaid card that is a single device that may be used 
from time to time to access a credit plan generally is a ``credit 
card'' and the person issuing the card is a ``card issuer.'' As 
discussed above, a prepaid card would be accessing a credit plan when 
the consumer is obligated contractually to repay the credit. The 
proposal provides that a prepaid card would not be a credit card, 
however, where the prepaid card only accesses credit that is not 
subject to any finance charge as defined in Sec.  1026.4 or fee that is 
described in Sec.  1026.4(c) and is not payable by written agreement in 
more than four installments. A person that offers a credit plan that is 
accessed only by prepaid cards that falls within the exclusion to the 
definition of ``credit card'' would be subject solely to the 
requirements under Regulation E. See section-by-section analysis of 
Sec.  1026.2(a)(15)(i).
    Also, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.2(a)(15)(i), the proposal also provides that an 
account number that is not a prepaid card that may be used from time to 
time to access a credit plan that allows deposits directly into 
particular prepaid accounts specified by the creditor would be a credit 
card under Sec.  1026.2(a)(15)(i).
    Definition of ``credit card account under an open-end (not home 
secured) consumer credit plan.'' Certain credit card rules in 
Regulation Z, which generally are set forth in subpart G, apply to card 
issuers with respect to a ``credit card account under an open-end (not 
home secured) consumer credit plan.'' Sec.  1026.1(d)(7). These credit 
card rules include provisions that prohibit credit card issuers from 
extending credit without assessing the consumer's ability to pay and 
restrict the amount of required fees that an issuer can charge during 
the first year after a credit card account is opened. See, e.g., 
Sec. Sec.  1026.5(b)(2)(ii), 1026.7(b)(11), and 1026.51 through 
1026.59.
    Regulation Z defines the term ``credit card account under an open-
end (not home-secured) consumer credit plan'' in Sec.  
1026.2(a)(15)(ii) to mean ``any open-end credit account that is 
accessed by a credit card, except: (A) [a] home-equity plan subject to 
the requirements of Sec.  1026.40 that is accessed by a credit card; or 
(B) [a]n overdraft line of credit that is accessed by a debit card or 
an account number.'' Generally, to be a ``credit card account under an 
open-end (not home-secured) consumer credit plan,'' the credit must be 
``open-end credit'' as defined in Sec.  1026.2(a)(20) that is not home-
secured and the credit must be accessed by a ``credit card'' as defined 
in Sec.  1026.2(a)(15)(i). The Bureau also proposes to revise the 
definitions of ``credit card account under an open-end (not home-
secured) consumer credit plan'' in Sec.  1026.2(a)(15)(ii) and its 
commentary to include an open-end (not home-secured) credit plan 
accessed by a prepaid card that is a credit card or by an account 
number that is a credit card where extensions of credit are permitted 
to be deposited directly only into particular prepaid accounts 
specified by the creditor.
2(a)(7) Card Issuer
    TILA defines the term ``card issuer'' as ``any person who issues a 
credit card, or the agent of such person with respect to such card.'' 
15 U.S.C. 1602(o). Consistent with the TILA definition, Regulation Z 
defines the term ``card issuer'' in Sec.  1026.2(a)(7) as ``a person 
that issues a credit card or that person's agent with respect to the 
card.'' The Regulation further defines the term ``credit card'' in 
Sec.  1026.2(a)(15)(i) to mean ``any card, plate, or other single 
credit device that may be used from time to time to obtain credit.'' 
Card issuers must comply with certain provisions in Regulation Z as 
applicable. See Sec. Sec.  1026.12 and .60; for card issuers offering a 
``credit card account under an open-end (not home-secured) consumer 
credit plan,'' see, e.g., Sec. Sec.  1026.5(b)(2)(ii), .7(b)(11), and 
.51 through .59. In addition, card issuers that extend credit would be 
considered creditors for purposes of Regulation Z. See Sec.  
1026.2(a)(17)(iii) and (iv).
    As discussed in the section-by-section analysis of proposed Sec.  
1026.2(a)(15)(i), proposed comment 2(a)(15)-2.i.F would provide that 
the term ``credit card'' generally includes a prepaid card (as defined 
in proposed Sec.  1026.2(a)(15)(v) to mean any card, code, or other 
device that can be used to access a prepaid account as that term is 
proposed to be defined in Regulation E) that is a single device that 
may be used from time to time to access a credit plan. A person that is 
issuing a prepaid card that is a credit card would be a ``card issuer'' 
under Sec.  1026.2(a)(7).
    Nonetheless, under proposed comment 2(a)(15)-2.i.F, the term credit 
card would not include a prepaid card if the prepaid card only accesses 
credit that is not subject to any finance charge as defined in Sec.  
1026.4 or any fee describe in Sec.  1026.4(c) and is not payable by 
written agreement in more than four installments. See section-by-
section analysis of Sec.  1026.4 for a discussion of the term ``finance 
charge'' and fees described in Sec.  1026.4(c).
    If the prepaid account is accessed only by a prepaid card that does 
not meet the definition of credit card because the card only accesses 
credit that is not subject to any finance charge as defined in Sec.  
1026.4 or fee described in Sec.  1026.4(c) and is not payable by 
written agreement in more than four installments, the person issuing 
the card would not be a ``card issuer'' and the person would not need 
to comply with the credit card rules in Regulation Z. In addition, the 
person in extending credit accessed by such a card would not be a 
``creditor'' under Regulation Z because the person would not be 
charging a finance charge and the credit would not be payable by 
written agreement in more than four installments. See Sec.  
1026.2(a)(17)(i). Thus, the person would not need to comply with the 
disclosure and other requirements in Regulation Z that apply to 
creditors. The person would be subject, however, to the requirements 
under Regulation E. See section-by-section analysis of Sec.  
1026.2(a)(15)(i).
    Given that no finance charges or fees described in Sec.  1026.4(c) 
would be charged in connection with the credit, the Bureau anticipates 
that the credit limit under such plans will be quite low, perhaps $10 
or less. Given the expected-low credit limits and the fact that no 
finance charge or fees described in Sec.  1026.4(c) would be charged 
for this credit, the Bureau believes that it is appropriate to cover 
these credit transactions under Regulation E as incidental to the 
prepaid transaction and exclude prepaid cards that access only this 
type of credit from the

[[Page 77216]]

definition of ``credit card'' for purposes of Regulation Z.
    Consistent with the proposed definition of ``credit card,'' 
proposed comment 2(a)(7)-2 would explain that with respect to credit 
accessed by a prepaid card, a person is not a card issuer if the card 
only accesses credit that is not subject to any finance charge as 
defined in Sec.  1026.4 or fee described in Sec.  1026.4(c) and is not 
payable by written agreement in more than four installments. For 
example, a person is not a card issuer if (1) the prepaid card only 
accesses credit where the person does not impose any finance charge as 
defined in Sec.  1026.4 or fee described in Sec.  1026.4(c); and (2) 
the person expects repayment when funds are deposited into the prepaid 
account. In this case, the prepaid card is not a credit card and the 
person issuing the card is not a card issuer. See proposed comment 
2(a)(15)-2.i.F.
Prepaid Card That Accesses a Credit Plan Offered by a Third Party
    As noted above, under TILA and Regulation Z, the definition of 
``card issuer'' means both a person who issues a credit card as well as 
the person's agent with respect to the card. Comment 2(a)(7)-1 
currently provides guidance on the term ``agent'' for purposes of the 
definition of ``card issuer.'' Specifically, comment 2(a)(7)-1 provides 
that because agency relationships are traditionally defined by contract 
and by state or other applicable law, Regulation Z generally does not 
define agent. Nonetheless, comment 2(a)(7)-1 provides that merely 
providing services relating to the production of credit cards or data 
processing for others does not make one the agent of the card issuer. 
In contrast, comment 2(a)(7)-1 provides that a financial institution 
may become the agent of the card issuer if an agreement between the 
institution and the card issuer provides that the cardholder may use a 
line of credit with the financial institution to pay obligations 
incurred by use of the credit card.
    The proposal would provide specific guidance on the term ``agent'' 
for purposes of Sec.  1026.2(a)(7) where a credit plan offered by a 
third party is accessed by a prepaid card that is a credit card. This 
would apply where credit is being ``pulled'' by a prepaid card that is 
a credit card. In this case, the prepaid card is being used to pull 
credit from a credit plan that is offered by a third party other than 
the prepaid card issuer. Under the proposal, the third party offering 
the credit plan that is accessed by the prepaid card would be 
considered an agent of the prepaid card issuer and would be a card 
issuer for purposes of Sec.  1026.2(a)(7). Specifically, proposed 
comment 2(a)(7)-1.ii would build on the last sentence of the current 
comment and provide that with respect to a prepaid card that is a 
credit card where the card directly accesses a credit plan that is 
offered by a third party, the proposal would specify that a party 
offering the credit plan that is accessed by the card would be an agent 
of the person issuing the prepaid card and thus, would be a card issuer 
with respect to the prepaid card that is a credit card.
    The Bureau notes that current comment 2(a)(7)-1 provides that a 
financial institution may become the agent of the card issuer if an 
agreement between the institution and the card issuer provides that the 
cardholder may use a line of credit with the financial institution to 
pay obligations incurred by use of the credit card. However, the Bureau 
believes that it is important in this context to make clear when there 
is an agent relationship to prevent circumvention of the proposed rules 
applicable to credit card accounts directly accessed by a prepaid card. 
The Bureau is concerned that without the proposed provision, prepaid 
card issuers could structure arrangements with third parties that offer 
open-end credit plans that are accessed directly by the prepaid card to 
avoid an agency relationship under state law. Such a result could 
frustrate the operation of certain consumer protections provided in the 
proposal.
    For example, Sec.  1026.51(a) provides that a card issuer must not 
open a credit card account for a consumer under an open-end (not home-
secured) consumer credit plan, or increase any credit limit applicable 
to such account, unless the card issuer considers the consumer's 
ability to make the required minimum periodic payments under the terms 
of the account based on the consumer's income or assets and the 
consumer's current obligations. In a case where the issuer of the 
prepaid card is not the person offering a credit card account under an 
open-end (not home-secured) consumer credit plan, the responsibilities 
imposed on the card issuer under Sec.  1026.51(a) might be unclear 
since the card issuer will not be the person opening the credit card 
account. Nonetheless, the provision applies to a ``card issuer,'' so it 
is also unclear what responsibilities are imposed on the third party 
given that the third party is not a card issuer. Thus, the proposal 
would specify in proposed comment 2(a)(7)-1.ii that the third party 
offering the credit plan that is accessed directly by the prepaid card 
would be an agent of the person issuing the prepaid card and thus, 
would be a card issuer with respect to that prepaid card. As a result, 
in the example above related to Sec.  1026.51(a), the third party would 
be a ``card issuer'' for purposes of that provision and would be 
required to comply with it. The Bureau also proposes to renumber 
existing comment 2(a)(7)-1 as 2(a)(7)-1.i.
2(a)(14) Credit
    In TILA, the term ``credit'' is defined to mean ``the right granted 
by a creditor to a debtor to defer payment of debt or to incur debt and 
defer its payment.'' 15 U.S.C. 1602(f). Consistent with the definition 
of credit in TILA, under Regulation Z, the term ``credit'' is defined 
in Sec.  1026.2(a)(14) to mean ``the right to defer payment of debt or 
to incur debt and defer its payment.'' A person is subject to certain 
disclosure and other requirements in Regulation Z if the person is a 
creditor. A person is a creditor if the person regularly extends 
consumer ``credit'' that is subject to a finance charge or is payable 
by written agreement in more than four installments (not including a 
down payment), and to whom the obligation is initially payable, either 
on the face of the note or contract, or by agreement when there is no 
note or contract. See Sec.  1026.2(a)(17)(i). The term ``creditor'' 
also includes any card issuer (which is a person that issues credit 
cards or the person's agent) that extends credit even if no finance 
charge is imposed and repayment is not permitted in more than four 
installments. See Sec.  1026.2(a)(17)(iii).
    For the reasons discussed in the Overview of Regulation Z Proposal 
section, the Bureau believes it is reasonable to interpret ``credit'' 
to include when overdrafts are paid in relation to prepaid accounts. 
The proposal provides additional guidance that would express and 
effectuate this interpretation. In particular, proposed comment 
2(a)(14)-3 would provide that credit for purposes of Sec.  
1026.2(a)(14) includes an authorized transaction on a prepaid account 
where the consumer has insufficient or unavailable funds in the prepaid 
account at the time of authorization. It also includes a paid 
transaction on a prepaid account where the consumer has insufficient or 
unavailable funds in the prepaid account at the time the transaction is 
paid. Thus, the definition includes a situation where the consumer has 
sufficient or available funds in the prepaid account to cover the 
amount of the transaction at the time the transaction is authorized, 
but insufficient or unavailable funds in the

[[Page 77217]]

prepaid account to cover the amount of the transaction at the time the 
transaction is paid. As discussed in more detail in the Overview of 
Regulation Z Proposal section, the Bureau believes that plain language 
of the definition of ``credit'' in TILA covers the situation in that a 
consumer makes a transaction which exceeds the funds in the consumer's 
account and a person elects to cover the transaction by advancing funds 
to the consumer which the consumer must repay. Nothing in that part of 
TILA (or elsewhere in the statute) exempts overdraft services, 
including those that may be offered in connection with a prepaid 
account. By authorizing or paying a transaction where the consumer does 
not have sufficient or available funds in the prepaid account to cover 
the amount of the transaction when the transaction is authorized or 
paid, the person is allowing the consumer to incur a debt with the 
person where payment of that debt is not immediate.
    A person that authorizes or pays such transactions would be 
extending credit and would be subject to certain disclosure and other 
requirements in Regulation Z if the person is a creditor. As discussed 
above, a person is a creditor if the person regularly extends consumer 
``credit'' that is subject to a finance charge or is payable by written 
agreement in more than four installments (not including a down 
payment), and to whom the obligation is initially payable, either on 
the face of the note or contract, or by agreement when there is no note 
or contract. See Sec.  1026.2(a)(17)(i). The term ``creditor'' also 
includes any card issuer (which is a person that issues credit cards or 
the person's agent) that extends credit even if no finance charge is 
imposed and repayment is not permitted in more than four installments. 
See Sec.  1026.2(a)(17)(iii). As discussed in more detail in the 
section-by-section analysis of Sec.  1026.4, with respect to credit 
accessed by a prepaid card that is a credit card, or by an account 
number that is a credit card where extensions of credit are permitted 
to be deposited directly only into particular prepaid accounts 
specified by the creditor, a person generally would be charging a 
finance charge for the credit if the person imposes any service, 
transaction, activity, or carrying charges on the credit account, or 
imposes any such charges on a prepaid account if that charge is related 
to an extension of credit, carrying a credit balance, or credit 
availability. See Sec.  1026.4(a), (b)(2), (c)(3) and (4) and comments 
4(a)-4 and 4(b)(2)-1. Such charges would include periodic participation 
fees for the credit plan, and transaction charges imposed in connection 
with a credit extension.
    With respect to credit accessed by a prepaid card that is a credit 
card, or by an account number that is a credit card where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor, a person also would be a 
creditor if the person is a card issuer that extends credit accessed by 
the credit card. With respect to such credit, a person would be a card 
issuer if the person issues (1) a prepaid card (including a prepaid 
card that is solely an account number) that is a single device that may 
be used from time to time to access a credit plan, except if that 
prepaid card only accesses credit that is not subject to any finance 
charge as defined in Sec.  1026.4 or any fee described in Sec.  
1026.4(c) and is not payable by written agreement in more than four 
installments; or (2) an account number that is not a prepaid card that 
may be used from time to time to access a credit plan where extensions 
of credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor, but does not allow the 
consumer to deposit directly extensions of credit from the plan into 
asset accounts other than particular prepaid accounts specified by the 
creditor.
    The Bureau notes that for credit that is being accessed by a 
prepaid card that is a credit card, the creditor would be required to 
disclose credit extensions on the periodic statement under Sec.  
1026.7(b)(2), including a transaction where there are insufficient 
funds in the prepaid account at authorization to cover the amount of 
the transaction. The creditor also would be restricted under the offset 
provision in Sec.  1026.12(d) from automatically applying any deposit 
to the prepaid account to repay the credit card balance. For example, 
for a transaction that is authorized where there are insufficient funds 
in the prepaid account to cover the amount of the transaction, the 
creditor could not use subsequent deposits received on the same day as 
the transaction to repay automatically that credit transaction on the 
credit card account.
    The Bureau generally solicits comment on the definition of credit 
with respect to prepaid accounts. As discussed above, under the 
proposal, credit includes (1) transactions that are authorized where 
the consumer has insufficient or unavailable funds in the prepaid 
account at the time of authorization; and (2) transactions on a prepaid 
account where the consumer has insufficient or unavailable funds in the 
prepaid account at the time the transaction is paid. Such transactions 
are credit regardless of whether the person establishes a separate 
credit account to extend the credit or whether the credit is simply 
reflected as a negative balance on the prepaid account. Nonetheless, 
the Bureau believes that creditors will tend to establish separate 
credit accounts to extend that credit accessed by the prepaid card, 
instead of having the credit balance be reflected as a negative balance 
on the prepaid account, because creditors generally will find that 
separate credit accounts aid compliance with the periodic statement 
requirements in Sec. Sec.  1026.5(b)(2)(ii) and 1026.7(b)(11) and the 
offset provisions in Sec.  1026.12(d)(3) that would apply to credit 
card accounts accessed by prepaid cards. See section-by-section 
analysis of Sec. Sec.  1026.5(b)(2)(ii), 1026.7(b)(11) and 
1026.12(d)(3). The Bureau solicits comment on whether creditors are 
likely to establish separate credit accounts, instead of having the 
credit balance be reflected as a negative balance on the prepaid 
account. The Bureau also solicits comment on any implications for 
compliance depending on how the account is structured (i.e., whether a 
separate credit account is created or whether the credit balance is 
reflected as a negative balance on the prepaid account), and whether 
any differentiation in regulation or guidance would be useful.
    As discussed in more detail in the Overview of Regulation Z 
Proposal section, with respect to overdraft services on checking 
accounts, while a person that is providing overdraft services generally 
would be providing credit under TILA and Regulation Z, the person 
generally does not meet the definition of ``creditor'' for purposes of 
Regulation Z because of certain exclusions to the definition of finance 
charge. See Sec.  1026.4(c)(3). Thus, with respect to overdraft 
services on checking accounts, a financial institution that does not 
agree in writing to pay the items and does not structure the repayment 
of the credit by written agreement in more than four installments would 
not be a ``creditor'' under the general definition of creditor, even if 
the institution charges a fee for paying the overdraft item because the 
fee would not be a ``finance charge.'' In addition, a person does not 
become a creditor by issuing a debit card to access an overdraft 
service. See comment 2(a)(15)-2.ii.A (explaining that the definition of 
``credit card'' provides that a debit card is not a credit card if 
there

[[Page 77218]]

is no credit feature or agreement to extend credit, even if the 
creditor occasionally honors an inadvertent overdraft). The Bureau is 
not proposing to change how overdraft services on accounts other than 
prepaid accounts are treated under Regulation Z.
2(a)(15)
2(a)(15)(i) Credit Card
    In TILA, the term ``credit card'' is defined to mean ``any card, 
plate, coupon book or other credit device existing for the purpose of 
obtaining money, property, labor, or services on credit.'' 15 U.S.C. 
1602(l). Under Regulation Z, the term ``credit card'' is defined in 
Sec.  1026.2(a)(15)(i) to mean ``any card, plate, or other single 
credit device that may be used from time to time to obtain credit.'' 
Current comment 2(a)(15)(i)-2 provides examples of devices that are 
credit cards and devices that are not credit cards. A person that 
issues credit cards or the person's agent is a ``card issuer'' and must 
comply with certain credit card provisions in Regulation Z as 
applicable. See Sec. Sec.  1026.12 and .60; for card issuers offering a 
``credit card account under an open-end (not home-secured) consumer 
credit plan,'' see, e.g., Sec. Sec.  1026.5(b)(2)(ii), .7(b)(11), and 
.51 through .59. Any card issuer that extends credit is also a creditor 
under Regulation Z and must comply with certain disclosure and other 
requirements in Regulation Z, a discussed in the section-by-section 
analysis of Sec.  1026.2(a)(17).
    The proposal would provide guidance on when the following devices 
related to prepaid accounts are ``credit cards:'' (1) Prepaid cards, as 
defined in proposed Sec.  1026.2(a)(15)(v) to mean any card, code, or 
other device that can be used to access a prepaid account as defined in 
Regulation E; and (2) account numbers that may be used from time to 
time to access a credit plan that allows deposits directly only into 
particular prepaid accounts specified by the creditor but do not allow 
consumers to deposit directly extensions of credit from the plan into 
asset accounts other than particular prepaid accounts specified by the 
creditor, as defined in Sec.  1026.2(a)(15)(vii).
    Under the proposal, credit plans, including overdraft services and 
overdraft lines of credit, that are directly accessed by certain 
prepaid cards would be a credit card account under Regulation Z. In 
particular, proposed comment 2(a)(15)-2.i.F would provide that the term 
``credit card'' includes a prepaid card (including a prepaid card that 
is solely an account number) that is a single device that may be used 
from time to time to access a credit plan, except if that prepaid card 
only accesses credit that is not subject to any finance charge as 
defined in Sec.  1026.4 or any fee described in Sec.  1026.4(c) and is 
not payable by written agreement in more than four installments. A 
prepaid card that is solely an account number would be a credit card if 
it satisfies the requirements of proposed comment 2(a)(15)-2.i.F.
    With respect to overdraft services or overdraft lines of credit, 
the prepaid card would be ``pulling'' credit from the credit card 
account where there are insufficient funds in the prepaid account to 
cover the amount of the transaction at authorization or settlement. An 
account where credit is pulled from a credit card account using a 
prepaid card is referred in this supplemental information as a ``pull 
account.''
    As discussed further below in connection with Sec.  
1026.2(a)(15)(vii), the proposal also covers credit plans that are not 
directly accessed by a prepaid card, but are structured as ``push'' 
accounts. Specifically, the proposal would address situations where a 
separate credit plan is accessed by an account number where consumers 
are allowed to deposit directly credit extensions taken under the plan 
into particular prepaid accounts specified by the creditor but would 
not be allowed to deposit directly extensions of credit from the plan 
into asset accounts other than the specified prepaid accounts. Such a 
credit plan would still be covered under the proposal where a consumer 
could access the credit plan by use of checks or in-person withdrawals, 
so long as the credit plan allows deposits directly only into 
particular prepaid accounts specified by the creditor but does not 
allow the consumer to deposit directly extensions of credit into an 
asset account other than specified prepaid accounts. See proposed 
comment 2(a)(15)-5. In referring to account numbers that access credit 
plans linked to prepaid accounts as discussed above, the proposal uses 
the term ``account number where extensions of credit are permitted to 
be deposited directly only into particular prepaid account specified by 
the creditor.'' See proposed Sec.  1026.2(a)(15)(vii). The proposal 
would provide that these credit plans would be credit card accounts 
under Regulation Z. See proposed comment 2(a)(15)-2.i.G.
    The Bureau believes that credit plans will either be structured as 
``pull'' accounts where a prepaid card is used directly to access 
credit from the credit plan or structured as ``push'' accounts where an 
account number is used to access credit that typically is deposited 
directly into the prepaid account. For example, the Bureau does not 
believe that a prepaid card account number would be used to push credit 
into the prepaid account, but instead will only be used to pull credit 
from the credit plan, such as when a consumer uses the prepaid card at 
point of sale or at an ATM to access credit directly. Thus, under the 
proposal, a prepaid card account number would not be an ``account 
number where extensions of credit are permitted to be deposited 
directly only into particular prepaid account specified by the 
creditor,'' as that term is defined in proposed Sec.  
1026.2(a)(15)(vii). Likewise, an account number as defined in proposed 
Sec.  1026.2(a)(15)(vii) would not be used to access funds in the 
prepaid account and thus, would not be a prepaid card under proposed 
Sec.  1026.2(a)(15)(v). The Bureau solicits comment on the distinction 
between a prepaid card account number that is a credit card under 
proposed Sec.  1026.2(a)(15)(v) and comment 2(a)(15)-2.i.F and an 
account number that is a credit card where extensions of credit are 
permitted to be deposited directly only into particular prepaid account 
specified by the creditor as defined in proposed Sec.  
1026.2(a)(15)(vii) and comment 2(a)(15)-2.i.G. The Bureau also solicits 
comment on whether there could be situations where a prepaid card 
account number could be viewed as pushing credit into a prepaid 
account.
    Generally, the proposal would treat credit card accounts that are 
accessed by a prepaid card and credit card accounts that are accessed 
by an account number linked to prepaid accounts as discussed above 
similarly under the rules. Nonetheless, for some provisions, credit 
extensions under these two types of credit card accounts would be 
treated differently. See proposed comments 8(a)-2.ii, 8(b)-1.vi, 12(c)-
5, 12(c)(1)-1.i, 13(a)(3)-2.ii, 13(i)-1 and -4, 52(a)(2)-2 and -3, 
60(b)(4)-3, and 60(b)(8)-4 and -5.
    This proposed difference in treatment generally results from the 
fact that for a credit card account that is accessed by a prepaid card, 
the prepaid card can be used to directly access the credit to purchase 
goods or services. For example, credit accessed by a prepaid card at 
point of sale would be treated as a ``sale credit'' under Sec.  
1026.8(a) because the prepaid card is directly accessing credit to 
purchase goods or services. On the other hand, for a credit card 
account accessed by an account number described in proposed Sec.  
1026.2(a)(15)(vii), credit that is

[[Page 77219]]

extended typically would be deposited into the prepaid account. The 
account number that accesses the credit is not typically viewed as 
directly used to purchase goods or services with the credit. For 
example, credit accessed by an account number linked to a prepaid 
account would be ``nonsale credit'' under Sec.  1026.8(b) because it 
would not be used directly to purchase goods or services.
    The Bureau believes that these types of ``push accounts'' could be 
offered as substitutes for overdraft credit plans accessed by a prepaid 
card, and if they were not covered, creditors could be able to 
circumvent the consumer protections set forth in the proposal. 
Nonetheless, the Bureau is not attempting to cover general lines of 
credit where consumers are not restricted from depositing directly 
credit extensions taken under the plan into asset accounts of their 
choosing, including prepaid accounts. The Bureau believes that those 
types of credit plans are not acting as substitutes for overdraft 
credit plans because these general lines of credit are not designed to 
provide credit in connection with particular prepaid accounts. The 
Bureau solicits comment on this approach, and whether the proposal 
appropriately covers the types of credit plans that may act as 
substitutes for overdraft credit plans accessed by prepaid cards.
    The Bureau also solicits comment on whether there are alternative 
ways to address credit plans that may act as substitutes for overdraft 
credit plans accessed by prepaid cards. For accounts that permit 
deposits directly into accounts other than prepaid accounts specified 
by the creditor, and thus would not be covered above under the 
proposal, the Bureau seeks comment on whether it should attempt to 
cover such accounts when they are being used by agreement to push funds 
to cover specific negative balance purchases. For example, should the 
rule cover the following situation as a push account: where the prepaid 
card issuer and a third-party creditor have an arrangement where the 
prepaid card issuer will notify the consumer that there are 
insufficient funds in the prepaid account to complete a transaction and 
contemporaneously prompt the consumer to transfer funds to complete the 
transaction. The Bureau solicits comment on whether there are other 
types of account structures that the Bureau should consider covering 
under the rule, and if so, whether the account structure should be 
considered a ``push'' account or a ``pull account'' for purposes of the 
rule, given that in some cases, different rules would apply under the 
proposal depending on the how account is structured, as discussed 
above.
    To be a credit card, the prepaid card, or account number that 
accesses an account where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor, must be a single device that may be used from time to 
time to access a credit plan.\360\ Current comment 2(a)(15)-1 
reiterates that a credit card must be usable from time to time. The 
comment also provides that since this involves the possibility of 
repeated use of a single device, checks and similar instruments that 
can be used only once to obtain a single credit extension are not 
credit cards.
---------------------------------------------------------------------------

    \360\ As discussed in the section-by-section analysis of 
proposed Sec.  1026.2(a)(20), under the proposal, a person would be 
extending credit pursuant to a plan where the person pays 
transactions using a prepaid card where there are insufficient funds 
in a prepaid account to fund the transactions and the consumer is 
obligated contractually to repay the credit. In addition, a person 
would be extending credit pursuant to a plan where the person 
extends credit to a consumer where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor and the consumer is obligated 
contractually to repay the credit.
---------------------------------------------------------------------------

    The proposal would revise this comment to provide additional 
guidance on the treatment of preauthorized checks in relation to 
prepaid accounts. As is described above, preauthorized checks are 
checks where by a consumer must seek authorization before presenting 
them for payment. At the time of preauthorization, funds to pay the 
check are deducted from the account and held by the institution until 
the check is presented. The proposal would explain in comment 2(a)(15)-
1 that with respect to a preauthorized check that is issued on a 
prepaid account for which the funds are withdrawn at the time of 
preauthorization using the prepaid account number, the credit would be 
considered obtained using the prepaid account number and not the check. 
Under the proposal, a prepaid account number typically would be a 
credit card unless it qualifies for an exception, as discussed below.
    Nonetheless, even if the prepaid card is a single device that may 
be used from time to time to access a credit plan, the prepaid card 
still would not be a credit card under Sec.  1026.2(a)(15)(i) if the 
prepaid card only accesses credit that is not subject to any finance 
charge as defined in Sec.  1026.4 or fee described in Sec.  1026.4(c) 
and is not payable by written agreement in more than four installments. 
As discussed in the section-by-section analysis of Sec.  1026.4, with 
respect to credit accessed by a prepaid card or credit accessed by an 
account number where extensions of credit are permitted to be deposited 
directly only into particular prepaid accounts specified by the 
creditor, any service, transaction, activity, or carrying charges 
imposed on the credit account, and any such charges imposed on a 
prepaid account if that charge is related to an extension of credit, 
carrying a credit balance, or credit availability, generally would be a 
finance charge. See Sec.  1026.4(a), (b)(2), (c)(3) and (4) and 
comments 4(a)-4 and 4(b)(2)-1. Fees described in Sec.  1026.4(c) that 
are not finance charges include application fees to apply for credit, 
late payment fees, over-the-limit fees, and returned payment fees.
    To the extent that a prepaid card only accesses credit that is not 
subject to any finance charge as defined in Sec.  1026.4 or fee 
described in Sec.  1026.4(c) and is not payable by written agreement in 
more than four installments, the prepaid card would not be a credit 
card. To effectuate the purpose of TILA to promote informed use of 
credit and to facilitate compliance, the Bureau believes it is 
necessary and proper to exercise its exception authority under TILA 
section 105(a), to propose to exclude such prepaid cards from the 
definition of ``credit card'' under TILA section 103(l) and Regulation 
Z Sec.  1026.2(a)(15)(i). 15 U.S.C. 1602(l). If the credit plan is 
accessed only by a prepaid card that does not meet the definition of 
credit card because the card only accesses credit that is not subject 
to any finance charge as defined in Sec.  1026.4 or fee described in 
Sec.  1026.4(c) and is not payable by written agreement in more than 
four installments, the person issuing the card would not be a ``card 
issuer'' and the person would not need to comply with the credit card 
rules in Regulation Z. In addition, the person in extending this type 
of credit would not be a ``creditor'' under Regulation Z because the 
person would not be charging a finance charge and the credit would not 
be payable by written agreement in more than four installments. See 
Sec.  1026.2(a)(17)(i). Thus, the person would not need to comply with 
the disclosure and other requirements in Regulation Z that apply to 
creditors.
    The proposed provision would facilitate compliance by allowing a 
person who is providing such credit to comply only with Regulation E 
with respect to the prepaid account and this credit, instead of also 
complying with Regulation Z with respect to the overdraft credit. The 
Bureau believes

[[Page 77220]]

that the term ``credit card'' was defined broadly in Regulation Z to 
ensure that consumers who obtain access devices that access credit 
receive certain protections, such as receiving periodic statements, 
limits on liability for unauthorized use and billing error resolution 
rights, even if a person in issuing the access device would not have 
met the general definition of creditor in 1026.2(a)(17)(i) because no 
finance charge is imposed and the credit is not payable in more than 
four installments. Such access devices that are not linked to an asset 
account would not receive such protections, such as limits on liability 
for unauthorized use and billing error resolution rights, if the credit 
accessed by these access devices were not covered by Regulation Z. 
Nonetheless, for prepaid cards, the Bureau believes that the proposed 
protections in Regulation E for prepaid cards would be sufficient to 
protect consumers when credit extended under a credit plan accessed by 
a prepaid card is not subject to any finance charge as defined in Sec.  
1026.4 or fee described in Sec.  1026.4(c) and is not payable by 
written agreement in more than four installments.
    Given that no finance charges or fees described in Sec.  1026.4(c) 
would be charged under the credit plan under this exception and that 
the Bureau anticipates that the credit limit under such plans would be 
quite low, perhaps $10 or less, and the credit would not be structured 
to be paid over a significant amount of time, the Bureau believes that 
consumers are unlikely to be become overextended in using this credit 
and incurring substantial fees. Thus, to facilitate compliance, the 
Bureau believes that this type of credit plan is more properly 
regulated under Regulation E as credit incidental to the prepaid card 
transaction. For example, as discussed in more detail in the section-
by-section analysis of Regulation E proposed Sec.  1005.12(a), 
Regulation E's provisions in Sec. Sec.  1005.11 and 1005.18(e) 
regarding a consumer's liability for an unauthorized electronic fund 
transfer and regarding the investigation of errors would apply to 
extensions of this credit. In addition, such credit extensions would be 
disclosed on Regulation E periodic statements if the financial 
institution elects to provide such statements under proposed Sec.  
1005.18(c)(1), or alternatively, would be disclosed on the electronic 
history of the consumer's prepaid account transactions, such as through 
a Web site, that covers at least 18 months preceding the date the 
consumer electronically accesses the account under Regulation E 
proposed Sec.  1005.18(c)(1)(ii).
    The Bureau also notes that the opt-in provision in Regulation E 
Sec.  1005.17 would not apply to credit extended under a credit plan 
accessed by a prepaid card that is not subject to any finance charge as 
defined in Sec.  1026.4 or fee described in Sec.  1026.4(c) and is not 
payable by written agreement in more than four installments. Section 
1005.17 sets forth requirements that financial institutions must follow 
in order to provide ``overdraft services'' to consumers related to 
consumer's accounts. For prepaid accounts, any fees or charges for ATM 
or one-time ``debit card'' transactions (as that term is used in 
Regulation E to generally include prepaid cards; see proposed comment 
1005.2(b)(3)(i)-8) that access an institution's overdraft service would 
be considered ``finance charges'' under the proposal and thus would 
exceed the scope of the proposed exception because it is limited to 
credit on prepaid accounts for which no finance charges or fees 
described in Sec.  1026.4(c) are imposed. The Bureau nevertheless seeks 
comment on whether it should apply Regulation Z to such credit.
    The Bureau notes that the proposal does not provide a similar 
exception for account numbers that are not prepaid cards that may be 
used from time to time to access a credit plan that allows deposits 
directly into particular prepaid accounts specified by the creditor but 
does not allow the consumer to deposit directly extensions of credit 
from the plan into asset accounts other than particular prepaid 
accounts specified by the creditor. See proposed Sec.  
1026.2(a)(15)(vii) and comment 2(a)(15)-2.i.G. Such a credit plan would 
be covered under the proposal even if the credit plan could be accessed 
by use of checks or in-person withdrawals, so long as the credit plan 
is accessed by an account number where extensions of credit are allowed 
to be deposited directly into particular prepaid accounts specified by 
the creditor and the consumer is not permitted to deposit directly 
extensions of credit into an asset account other than particular 
prepaid accounts specified by the creditor. See proposed comment 
2(a)(15)-5. Under the proposal, these account numbers would be credit 
cards regardless of whether credit extended under such credit plans is 
subject to a finance charge or a fee described in Sec.  1026.4(c) or is 
payable by written agreement in more than four installments. The Bureau 
believes that an exception is not appropriate for these types of credit 
plans because not all credit extensions under such credit plans would 
be subject to Regulation E protections if Regulation Z did not apply. 
Although Regulation E would apply to credit extensions that are 
deposited in a prepaid account by use of an electronic fund transfer, 
Regulation E would not apply to extensions of credit that are accessed 
by check or in person withdrawals where the transaction does not 
involve an electronic fund transfer to or from the prepaid account. The 
Bureau also believes that an exception for this type of credit is not 
necessary because creditors that establish a separate credit plan that 
is accessed by an account number that is not a prepaid card typically 
will charge a finance charge or fee described in Sec.  1026.4(c) for 
the credit. The Bureau solicits comment on this approach.
    Under the proposal, a person that issues such an account number 
would be a ``card issuer'' under Sec.  1026.2(a)(7) even if the account 
number only accesses credit that is not subject to a finance charge or 
fee described in Sec.  1026.4(c) and is not payable by written 
agreement in more than four installments. In addition, the person would 
be a ``creditor'' by issuing a credit card that accesses credit that is 
not subject to a finance charge and is not payable by written agreement 
in more than four installments. See Sec.  1026.2(a)(17)(iii). The 
person would be required to comply with rules governing open-end (not 
home-secured) credit plans in subpart B and the credit card rules set 
forth in subpart B. The rules implementing the Credit CARD Act, 
generally set forth in subpart G, would not apply because the person 
would not be charging a finance charge for the credit, and thus, would 
not be extending ``open-end credit.'' For more a detailed discussion, 
see the section-by-section analysis of Sec.  1026.2(a)(17).
Prepaid Cards or Account Numbers That Are Credit Cards
    As discussed above, proposed comment 2(a)(15)-2.i.F would provide 
that the term ``credit card'' includes a prepaid card (including a 
prepaid card that is solely an account number) that is a single device 
that may be used from time to time to access a credit plan, except if 
that prepaid card only accesses credit that is not subject to any 
finance charge as defined in Sec.  1026.4 or any fee described in Sec.  
1026.4(c) and is not payable by written agreement in more than four 
installments. Proposed Sec.  1026.2(a)(15)(vii) and comment 2(a)(15)-
2.i.G would provide that the term ``credit card'' includes an account 
number that is not a prepaid card that may be used from time to time to 
access

[[Page 77221]]

a credit plan that allows deposits directly into particular prepaid 
accounts specified by the creditor but does not allow the consumer to 
deposit directly extensions of credit from the plan into asset accounts 
other than particular prepaid accounts specified by the creditor.
    If a person issues a prepaid card or account number as described 
above that is a credit card, the person would be a ``card issuer'' 
under Sec.  1026.2(a)(7). The person would also be a ``creditor'' if 
the card issuer extends credit accessed by the prepaid card or account 
number as described above. See Sec.  1026.2(a)(17)(iii) and (iv). If 
the card issuer extends open-end credit, the person generally would 
need to comply with the open-end (not home-secured) rules set forth in 
subpart B and the credit card rules set forth in subparts B and G. As 
discussed above in the Overview of Regulation Z Proposal section and 
below in the section-by-section analysis of Sec.  1026.2(a)(20), the 
Bureau believes that most creditors that are offering credit plans, 
including overdraft credit services, accessed by a prepaid card, or 
other credit plans linked to prepaid accounts that are accessed by an 
account number as discussed above, that are charging finance charges 
for the credit would be creditors offering ``open-end credit'' under 
Regulation Z. See the section-by-section analysis of Sec.  
1026.2(a)(17) for a discussion of situations in which a creditor may 
not be offering open-end credit in relation to a prepaid account.
Account Numbers
    Comment 2(a)(15)-2.ii.C currently provides that the term ``credit 
card'' does not include an account number that accesses a credit 
account, unless the account number can access an open-end line of 
credit to purchase goods or services. For example, if a creditor 
provides a consumer with an open-end line of credit that can be 
accessed by an account number in order to transfer funds into another 
account (such as an asset account with the same creditor), the account 
number is not a credit card for purposes of Sec.  1026.2(a)(15)(i). 
However, if the account number can also access the line of credit to 
purchase goods or services (such as an account number that can be used 
to purchase goods or services on the Internet), the account number is a 
credit card for purposes of Sec.  1026.2(a)(15)(i), regardless of 
whether the creditor treats such transactions as purchases, cash 
advances, or some other type of transaction. Furthermore, if the line 
of credit can also be accessed by a card (such as a debit card), that 
card is a credit card for purposes of Sec.  1026.2(a)(15)(i).
    In 2011, the Board adopted comment 2(a)(15)-2.ii.C as part of 
implementing the Credit CARD Act provisions. In the supplemental 
information to the final rule, the Board stated that because most if 
not all credit accounts can be accessed in some fashion by an account 
number, the Board did not believe that Congress generally intended to 
treat account numbers that access a credit account as credit cards for 
purposes of TILA.\361\ However, the Board was concerned that, when an 
account number can be used to access an open-end line of credit to 
purchase goods or services, the Board believed it would be inconsistent 
with the purposes of the Credit CARD Act to exempt the line of credit 
from the protections provided for credit card accounts. For example, 
creditors may offer open-end credit accounts designed for online 
purchases that function like a traditional credit card account but can 
only be accessed using an account number. In these circumstances, the 
Board believed that TILA's credit card protections should apply.
---------------------------------------------------------------------------

    \361\ 76 FR 22948, 22949 (Apr. 25, 2011).
---------------------------------------------------------------------------

    The proposal would revise comment 2(a)(15)-2.ii.C to indicate that 
the comment does not apply to prepaid cards and account numbers 
described in proposed comments 2(a)(15)-2.i.F and G. Comment 2(a)(15)-
2.ii.C generally would not apply to prepaid cards because such cards 
generally could be used to purchase goods or services, even if the 
prepaid card was solely an account number. In addition, as discussed in 
the Overview of Regulation Z Proposal section, the Bureau is concerned 
that if lines of credit that are accessed by an account number are not 
considered credit cards when credit extensions can be deposited 
directly only into particular prepaid accounts specified by the 
creditor, they would be offered as a means of evading the requirements 
articulated in this proposal that apply to credit cards under TILA. 
Thus, the Bureau does not believe that such credit plans should be 
exempted from the definition of credit card and proposes to cover such 
credit plans as credit card accounts.
Technical Revisions
    The proposal also provides a technical revision to accommodate the 
changes discussed above. Specifically, comment 2(a)(15)-2.i.B currently 
provides guidance on when a debit card is a credit card, and the 
comment provides examples of credit cards that include ``a card that 
accesses both a credit and an asset account (that is, a debit-credit 
card).'' Proposed Sec.  1026.2(a)(15)(iv) would define the term ``debit 
card'' for purposes of Regulation Z to mean ``any card, plate, or other 
single device that may be used from time to time to access an asset 
account other than a prepaid account.'' Because the term ``debit card'' 
under the proposal would not include all cards that access asset 
accounts, comment 2(a)(15)-2.i.B would be revised to be consistent with 
the proposed definition of debit card. No substantive changes are 
intended to the current rules for when debit cards are credit cards 
under Sec.  1026.2(a)(15)(i).
2(a)(15)(ii) Credit Card Account Under an Open-end (Not Home-secured) 
Consumer Credit Plan
    Under Regulation Z, the term ``credit card account under an open-
end (not home-secured) consumer credit plan'' is defined in Sec.  
1026.2(a)(15)(ii) to mean ``any open-end credit account that is 
accessed by a credit card, except: (A) [a] home-equity plan subject to 
the requirements of Sec.  1026.40 that is accessed by a credit card; or 
(B) [a]n overdraft line of credit that is accessed by a debit card or 
an account number.'' Certain requirements in the Credit CARD Act, which 
are generally set forth in subpart G, apply to card issuers offering a 
credit card account under an open-end (not home-secured) consumer 
credit plan. See, e.g., Sec. Sec.  1026.5(b)(2)(ii), .7(b)(11), .51 to 
.59.
    Generally, to be a ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' the credit must be ``open-end 
credit'' as defined in Sec.  1026.2(a)(20) and the credit must be 
accessed by a ``credit card'' as defined in Sec.  1026.2(a)(15)(i). As 
discussed above in the Overview of Regulation Z Proposal section and in 
the section-by-section analysis of Sec.  1026.2(a)(20), the Bureau 
anticipates that most credit accessed by a prepaid card would meet the 
definition of ``open-end credit'' if the creditor offering the plan may 
impose a finance charge for the credit.\362\ In addition, under the

[[Page 77222]]

proposal, a prepaid card that is a single device that may be used from 
time to time to access such an open-end credit plan would be a credit 
card. Likewise, the Bureau anticipates that most credit that is 
deposited into a prepaid account where the extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor would meet the definition of ``open-
end credit'' if the creditor offering the plan may impose a finance 
charge for the credit. Also, an account number that may be used from 
time to time to access such an open-end credit plan would be a credit 
card. Thus, an open-end credit plan accessed by a prepaid card that is 
a credit card or an account number that is a credit card (as described 
above) would be a ``credit card account under an open-end (not home-
secured) consumer credit plan.''
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    \362\ As discussed in more detail below in the section-by-
section analysis of Sec.  1026.2(a)(17), a person would not be a 
creditor that is extending open-end credit where the person extends 
credit accessed by a prepaid card but the person is not charging a 
finance charge for the credit. Similarly, a person extending credit 
accessed by an account number where such extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the person also would not be extending open-
end credit if the person is not charging a finance charge for the 
credit. Nonetheless, as discussed in the section-by-section analysis 
of Sec.  1026.2(a)(17), such persons may still be subject to certain 
Regulation Z requirements under certain circumstances.
---------------------------------------------------------------------------

    For the reasons discussed in the Overview of Regulation Z Proposal 
section, the proposal also would clarify that the exception in current 
Sec.  1026.2(a)(15)(ii)(B) does not apply to open-end credit plans 
accessed by a prepaid card or an account number as described above. 
Currently, Sec.  1026.2(a)(15)(ii)(B) provides that the definition of 
``credit card account under an open-end (not home-secured) consumer 
credit plan'' does not include an ``overdraft line of credit that is 
accessed by a debit card or an account number.'' The Bureau notes that 
the proposed definition of ``debit card'' in Sec.  1026.15(a)(2)(iv) 
would exclude a prepaid card. Thus, the exception in Sec.  
1026.2(a)(15)(ii)(B) does not apply to overdraft lines of credit that 
are accessed by a prepaid card. In addition, the proposal would revise 
Sec.  1026.2(a)(15)(ii)(B) to only include the exception for overdraft 
lines of credit accessed by a debit card. The proposal would move the 
exception for overdraft lines of credit that are accessed by account 
numbers from Sec.  1026.2(a)(15)(ii)(B) to proposed Sec.  
1026.2(a)(15)(ii)(C). The proposal also would amend proposed Sec.  
1026.2(a)(15)(ii)(C) and comment 2(a)(15)-4 to provide that the 
exception does not apply to an overdraft line of credit that is 
accessed by an account number where the account number is a prepaid 
card that is a credit card, or the account number is a credit card 
where extensions of credit are permitted to be deposited directly only 
into particular prepaid accounts specified by the creditor.
2(a)(15)(iii) Charge Card
    Under Regulation Z, the term ``charge card'' is defined in Sec.  
1026.15(a)(15)(iii) to mean ``a credit card on an account for which no 
periodic rate is used to compute a finance charge.'' Current comment 
2(a)(15)-3 provides guidance on how the term ``charge card'' is used 
throughout the Regulation. In particular, the current comment provides 
that generally, charge cards are cards used in connection with an 
account on which outstanding balances cannot be carried from one 
billing cycle to another and are payable when a periodic statement is 
received. This comment also explains that under the regulation, a 
reference to credit cards generally includes charge cards. In 
particular, references to credit card accounts under an open-end (not 
home-secured) consumer credit plan in subparts B and G generally 
include charge cards. The term ``charge card'' is, however, 
distinguished from ``credit card'' or ``credit card account under an 
open-end (not home-secured) consumer credit plan'' in Sec. Sec.  
1026.60, 1026.6(b)(2)(xiv), 1026.7(b)(11) and (b)(12), 1026.9(e) and 
(f), 1026.28(d), 1026.52(b)(1)(ii)(C), and Appendices G-10 through G-
13. See also the discussion in Sec.  1026.2(a)(20) relating to charge 
card accounts as open-end credit.
    The Bureau proposes to revise comment 2(a)(15)-3 in a number of 
ways to accommodate the proposed inclusion of some forms of prepaid 
cards as charge cards. First, the existing text of the comment would be 
placed in comment 2(a)(15)-3.i and a new comment 2(a)(15)-3.ii would be 
added. Specifically, proposed comment 2(a)(15)-3.ii would explain that 
a prepaid card is a charge card if it also is a credit card where no 
periodic rate is used to compute the finance charge. Likewise, an 
account number where extensions of credit are permitted to be deposited 
directly only into particular prepaid accounts specified by the 
creditor would be a charge card if it is a credit card where no 
periodic rate is used to compute the finance charge. This proposed 
comment would also explain that unlike other charge cards, such a 
prepaid card or account number that accesses a credit card account 
under an open-end (not home-secured) consumer credit plan would be 
subject to the requirements in Sec.  1026.7(b)(11), which implements 
certain protections in the Credit CARD Act regarding periodic 
statements and payment due dates. See the section-by-section analysis 
of proposed Sec.  1026.7(b). Thus, under Sec.  1026.5(b)(2)(ii), for 
credit card accounts under an open-end (not home-secured) consumer 
credit plan, a card issuer of a prepaid card or account number that 
meets the definition of a charge card because it does not impose a 
finance charge structured as a periodic rate would be required to adopt 
reasonable procedures designed to ensure that (1) periodic statements 
are mailed or delivered at least 21 days prior to the payment due date 
disclosed on the statement pursuant to Sec.  1026.7(b)(11)(i)(A), and 
(2) the card issuer does not treat as late for any purposes a required 
minimum periodic payment received by the card issuer within 21 days 
after mailing or delivery of the periodic statement disclosing the due 
date for that payment.
    Under the proposal, the existing language in comment 2(a)(15)-3 
(which would be redesignated as proposed comment 2(a)(15)-3.i) would be 
revised to be consistent with new proposed comment 2(a)(15)-3.ii and 
the definition of ``charge card.'' Currently, the first sentence of 
comment 2(a)(15)-3 provides that generally, charge cards are cards used 
in connection with an account on which outstanding balances cannot be 
carried from one billing cycle to another and are payable when a 
periodic statement is received. This sentence would be revised to be 
more consistent with the definition of charge card in Sec.  
1026.2(15)(iii) to state that charge cards are credit cards where no 
periodic rate is used to compute the finance charge; no substantive 
change is intended by this proposed revision. The Bureau notes that 
while most charge cards are structured such that the outstanding 
balances cannot be carried from one billing cycle to another and are 
payable when a periodic statement is received, this is not a 
requirement in order for a card to meet the definition of charge card 
in Sec.  1026.2(a)(15)(iii). In addition, the last sentence of the 
existing comment would be revised to cross reference new proposed 
comment 2(a)(15)-3.ii. The Bureau seeks comment on this proposed 
approach to charge cards.
2(a)(15)(iv) Debit Card, 2(a)(15)(v) Prepaid Card, and 2(a)(15)(vi) 
Prepaid Account
    Although Regulation Z and its commentary use the term ``debit 
card,'' that term is not defined. Generally, under the existing 
regulation, this term refers to a card that accesses an asset account. 
See comment 2(a)(15)-2.i.B. Specifically, comment 2(a)(15)-2.i.B 
provides as an example of a credit card: ``A card that accesses both a 
credit and an asset account (that is, a debit-credit card).'' In 
addition, comment 2(a)(15)-2.ii.A provides that the term credit card 
does not include a debit card with no credit feature or agreement, even 
if the creditor occasionally honors an inadvertent overdraft.

[[Page 77223]]

    As discussed in the Overview of Regulation Z Proposal section, 
under the proposal, different rules generally would apply in Regulation 
Z depending on whether credit is accessed by a card or device that 
accesses a prepaid account (which would be defined in proposed Sec.  
1026.2(a)(15)(vi) to match the definition under proposed Regulation E 
Sec.  1005.2(b)(3)) or one that accesses another type of asset account. 
To assist compliance with the regulation, the proposal would define 
``debit card'' for purposes of Regulation Z in Sec.  1026.2(a)(15)(iv) 
to mean ``any card, plate, or other single device that may be used from 
time to time to access an asset account other than a prepaid account.'' 
The proposed definition of ``debit card'' would specify that it does 
not include a prepaid card. Proposed Sec.  1026.2(a)(15)(v) would 
define ``prepaid card'' to mean ``any card, code, or other device that 
can be used to access a prepaid account'' and would define ``prepaid 
account'' in proposed Sec.  1026.2(a)(15)(vi) to mean a prepaid account 
as defined in Regulation E proposed Sec.  1005.2(b)(3). Proposed 
comment 2(a)(15)-6 would provide that the term ``prepaid card'' in 
Sec.  1026.2(a)(15)(v) includes any card, code or other device that can 
be used to access a prepaid account, including a prepaid account number 
or other code. The proposed comment provides that the phrase ``credit 
accessed by a prepaid card'' means any credit that is accessed by any 
card, code or other device that also can be used to access a prepaid 
account.
    The term ``prepaid account'' as defined in proposed Regulation E 
1005.2(b)(3) would not include gift cards, government benefit accounts 
that are excluded under Regulation E Sec.  1005.15(a)(2), employee flex 
cards, and HSA and other medical expense cards. Under current 
Regulation Z and the proposal, these cards would not be credit cards 
unless they were subject to a written agreement to extend credit. 
Nonetheless, the Bureau solicits comment on whether gift cards, 
government benefit accounts that are excluded under Regulation E Sec.  
1005.15(a)(2), employee flex cards, and HSA and other medical expense 
cards should be included within the definition of ``prepaid accounts'' 
for purposes of Regulation Z, even if those accounts would not be 
considered prepaid accounts for purposes of error resolution, 
disclosure, and other purposes under Regulation E. By including these 
accounts into the definition of ``prepaid account'' for purposes of 
Regulation Z, such a card would be a ``prepaid card'' and the card 
would be a ``credit card'' if the card is a single device that may be 
used from time to time to access a credit plan, except if that card 
only accesses credit that is not subject to any finance charge as 
defined in Sec.  1026.4 or any fee described in Sec.  1026.4(c) and is 
not payable by written agreement in more than four installments.\363\ 
As a credit card, the person issuing the card would be a ``card 
issuer'' under Regulation Z. See Sec.  1026.2(a)(7). In addition, the 
person issuing the card would be a ``creditor'' under Regulation Z if 
the person issuing the card extends the credit. See Sec.  
1026.2(a)(17)(iii) and (iv). The specific provisions of Regulation Z 
that the person would need to comply with as a ``card issuer'' and 
``creditor'' would depend on the type of credit that is being extended 
and the type of fees being imposed. See Sec.  1026.2(a)(17)(iii) and 
(iv).
---------------------------------------------------------------------------

    \363\ Conforming changes also might be needed under Regulation E 
if these cards became credit cards under Regulation Z.
---------------------------------------------------------------------------

    The Bureau is unaware of any credit features currently associated 
with such cards. The Bureau solicits comment on current and potential 
credit features that may be offered on these types of cards, the nature 
of potential risks to consumers if credit features were offered on 
these types of cards, and incentives for the industry to offer credit 
features on these types of cards. The Bureau also solicits comment on 
any implications of treating these products as prepaid accounts under 
Regulation Z but not Regulation E.
2(a)(15)(vii) Account Numbers Where Extensions of Credit Are Permitted 
To Be Deposited Directly Only Into Particular Prepaid Accounts 
Specified by the Creditor
    As noted above, the proposal covers credit plans that are not 
accessed directly by a prepaid card, but where a separate credit plan 
is accessed by an account number that is not a prepaid card that allows 
deposits directly into particular prepaid accounts specified by the 
creditor but does not allow the consumer to deposit directly extensions 
of credit from the plan into asset accounts other than particular 
prepaid accounts specified by the creditor.
    A credit plan would still be covered under the proposal where a 
consumer could access the credit plan by use of checks or in-person 
withdrawals, so long as the credit plan allows deposits directly into 
particular prepaid accounts specified by the creditor but does not 
allow the consumer to deposit directly extensions of credit into an 
asset account other than particular prepaid accounts specified by the 
creditor. See proposed comment 2(a)(15)-5. The proposal would provide 
that these credit plans would be credit card accounts under Regulation 
Z.
    The Bureau believes that these types of credit plans could be 
offered as substitutes for overdraft credit plans accessed by a prepaid 
card, and if they were not covered, creditors would be able to avoid 
the consumer protections set forth in the proposal. Thus, the Bureau 
believes it is reasonable to include account numbers that access these 
types of credit products under the definition of credit card. 
Nonetheless, the Bureau is not attempting to cover general lines of 
credit where consumers generally are not restricted from depositing 
directly credit extensions taken under the plan into asset accounts of 
their choosing, including prepaid accounts. The Bureau believes that 
those types of credit plans are not acting as substitutes for overdraft 
credit plans because these general lines of credit are not designed to 
provide credit in relation to particular prepaid accounts. The Bureau 
solicits comment on this approach, and whether the proposal 
appropriately covers the types of credit plans that may act as 
substitutes for overdraft credit plans accessed by prepaid cards.
    In referring to account numbers that access credit plans linked to 
prepaid accounts, the proposal uses the term ``account number where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor.'' Proposed Sec.  
1026.2(a)(15)(vii) defines this term to mean an account number that is 
not a prepaid card that may be used from time to time to access a 
credit plan that allows deposits directly into particular prepaid 
accounts specified by the creditor but does not allow the consumer to 
deposit directly extensions of credit from the plan into asset accounts 
other than particular prepaid accounts specified by the creditor. As 
noted above, these account numbers would be credit cards under the 
proposal. See proposed Sec.  1026.2(a)(15)(vii), comments 2(a)(15)-
2.i.G and -5.
2(a)(17) Creditor
    Certain disclosure requirements and other requirements in TILA and 
Regulation Z generally apply to creditors. Under TILA section 103(g), 
the term ``creditor'' generally is defined to mean ``a person who both 
(1) regularly extends, whether in connection with loans, sales of 
property or services, or otherwise, consumer

[[Page 77224]]

credit which is payable by agreement in more than four installments or 
for which the payment of a finance charge is or may be required, and 
(2) is the person to whom the debt arising from the consumer credit 
transaction is initially payable on the face of the evidence of 
indebtedness or, if there is no such evidence of indebtedness, by 
agreement.'' 15 U.S.C. 1602(g). Also, for purposes of certain 
disclosure provisions in TILA that relate to credit card account-
opening disclosures and periodic statement disclosures, the term 
``creditor'' includes a ``card issuer[] whether or not the amount due 
is payable by agreement in more than four installments or the payment 
of a finance charge is or may be required.'' 15 U.S.C. 1602(g).
    Consistent with TILA, under Regulation Z, the term ``creditor'' is 
defined generally in Sec.  1026.2(a)(17)(i) to include a ``person who 
regularly extends consumer credit that is subject to a finance charge 
or is payable by written agreement in more than four installments (not 
including a down payment), and to whom the obligation is initially 
payable, either on the face of the note or contract, or by agreement 
when there is no note or contract.'' Under Sec.  1026.2(a)(17)(v) and 
comment 2(a)(17)-4, for open-end credit, a person regularly extends 
consumer credit if it had more than 25 accounts outstanding in the 
preceding calendar year. If a person did not meet this numerical 
standard in the preceding calendar year, the numerical standards must 
be applied to the current calendar year. In addition, under Sec.  
1026.2(a)(17)(iii) and (iv), the term ``creditor'' includes a card 
issuer (which is a person that issues a credit card or its agent) that 
extends credit. For purposes of subpart B, a person also is a 
``creditor'' if the person is a card issuer that extends credit that is 
not subject to a finance charge and is not payable by written agreement 
in more than four installments. See Sec.  1026.2(a)(17)(iii). Thus, 
under Regulation Z as generally structured, card issuers that only meet 
this narrow definition of creditor (i.e., extend credit that is not 
subject to a finance charge and is not payable in more than four 
installments) generally are subject to the open-end (not home-secured) 
rules and the credit card rules in subpart B but generally need not 
comply with the credit card rules in subpart G, except for the credit 
card disclosures required by Sec.  1026.60.
    Except as described below, the Bureau's proposal generally would 
apply this existing framework to the prepaid context. Thus, a card 
issuer that extends open-end credit would meet the general definition 
of ``creditor'' because the person charges a finance charge and would 
be subject to the rules governing open-end (not home-secured) credit 
plans in subpart B and the credit card rules set forth in subparts B 
and G. A card issuer that extends closed-end credit, and meets the 
general definition of ``creditor'' because the person charges a finance 
charge or extends credit payable by written agreement in more than four 
installments generally would be subject to the closed-end provisions in 
subpart C and certain open-end disclosure (not home-secured) rules and 
the credit card rules in subpart B. See Sec.  1026.2(a)(17)(iv).
    With respect to account numbers where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor, card issuers that meet only the 
special definition of ``creditor'' because they extend credit accessed 
by the account number where the credit is not subject to a finance 
charge and is not payable by written agreement in more than four 
installments would generally be subject to the rules governing open-end 
(not home-secured) credit plans in subpart B and the credit card rules 
set forth in subpart B, but not the rules implementing the Credit CARD 
Act, generally set forth in subpart G. Although a credit plan accessed 
by such an account number would not be open-end credit because it is 
not subject to a finance charge, the person generally would be subject 
to the provisions in subpart B even if the credit is not subject to any 
fees, including finance charges. See Sec.  1026.2(a)(17)(iii).
    However, the Bureau is clarifying in proposed comment 
2(a)(17)(iii)-2 that Sec.  1026.2(a)(17)(iii) does not apply to a 
person that is extending credit that is accessed by a prepaid card 
where the credit (1) is not subject to a finance charge, (2) is not 
subject to fees described in Sec.  1026.4(c), and (3) is not payable by 
written agreement in more than four installments. As discussed in the 
section-by-section analysis of Sec.  1026.2(a)(15)(i), in this case, 
the prepaid card is not a credit card and therefore the person issuing 
the card is not a card issuer. Prepaid card issuers that satisfy this 
exclusion would still be subject to Regulation E's requirements, such 
as error resolution, and limits on liability for unauthorized use.
    Proposed comment 2(a)(17)(iii)-2 would specify that a person is not 
a creditor where a prepaid card only accesses credit that is not 
subject to any finance charge as defined in Sec.  1026.4 or fee 
described in Sec.  1026.4(c) and is not payable by written agreement in 
more than four installments.
    The Bureau notes, however, that with respect to a credit plan that 
is accessed by a prepaid card, the person would be a card issuer if the 
prepaid card accesses a credit plan that is subject to a fee that is 
not a finance charge that is described in Sec.  1026.4(c), such as a 
fee for applying for a credit plan, a late payment fee, an over-the-
limit fee, or a returned payment fee. In this case, the person would 
not be extending open-end credit because the credit is not subject to a 
finance charge. Nonetheless, the person would be a card issuer under 
Sec.  1026.2(a)(7) and would be a creditor under Sec.  
1026.2(a)(17)(iii). As a result, the person would be required to comply 
generally with the rules governing open-end (not home-secured) credit 
plans in subpart B and the credit card rules set forth in subpart B, 
but not the rules implementing the Credit CARD Act, generally set forth 
in subpart G.
2(a)(20) Open-End Credit
    Under TILA section 103(j), the term ``open-end credit plan'' is 
defined to mean a ``plan under which the creditor reasonably 
contemplates repeated transactions, which prescribes the terms of such 
transactions, and which provides for a finance charge which may be 
computed from time to time on the outstanding unpaid balance.'' See 15 
U.S.C. 1602(j). Under Regulation Z, the term ``open-end credit'' is 
defined in Sec.  1026.2(a)(20) to mean consumer ``credit'' extended by 
a ``creditor'' under a ``plan'' in which (1) the creditor reasonably 
contemplates repeated transactions; (2) the creditor may impose a 
``finance charge'' from time to time on an outstanding unpaid balance; 
and (3) the amount of credit that may be extended to the consumer 
during the term of the plan (up to any limit set by the creditor) is 
generally made available to the extent that any outstanding balance is 
repaid. Thus, to have open-end credit under Regulation Z, there must be 
(1) consumer ``credit;'' (2) that is extended under a ``plan;'' (3) 
where the person extending the credit may impose a ``finance charge'' 
from time to time on an outstanding unpaid balance; (4) the person 
extending the credit is a ``creditor;'' (5) the person extending credit 
reasonably contemplates repeated transactions; and (6) the amount of 
credit that may be extended to the consumer during the term of the plan 
(up to any limit set by the creditor) is generally made available to 
the extent that any outstanding balance is repaid.
    As discussed above in the Overview of Regulation Z Proposal 
section, with narrow exceptions discussed below, the Bureau anticipates 
that most credit accessed by a prepaid card will

[[Page 77225]]

constitute credit extended under a ``credit plan'' and will meet the 
definition of ``open-end credit'' if the creditor offering the plan may 
impose a finance charge for the credit. Likewise, the Bureau 
anticipates that most credit that is deposited into a prepaid account 
where the extensions of credit are permitted to be deposited directly 
only into particular prepaid accounts specified by the creditor will 
constitute credit extended under a ``credit plan'' and will meet the 
definition of ``open-end credit'' if the creditor offering the plan may 
impose a finance charge for the credit.
    The proposal would provide additional guidance on the meaning of 
three terms used in the definition of ``open-end credit:'' (1) 
``credit;'' (2) ``plan;'' and (3) ``finance charge.'' For a discussion 
of the proposed revisions related to the term ``credit,'' see the 
section-by-section analysis of proposed Sec.  1026.2(a)(14) above. The 
term ``plan'' is discussed below. The term ``finance charge'' is 
discussed below and in the section-by-section analysis of Sec.  1026.4. 
Plan
    The term ``plan'' currently is discussed in comment 2(a)(20)-2, 
which provides in relevant part that the term ``plan'' connotes a 
contractual arrangement between the creditor and the consumer. For the 
reasons described in the Overview of Regulation Z Proposal section, the 
proposal would revise comment 2(a)(20)-2 to provide additional guidance 
on what constitutes a plan with respect to credit extended through 
paying overdrafts in connection with prepaid accounts. A new comment 
2(a)(20)-2.ii would be added that would provide that with respect to 
credit accessed by a prepaid card, a plan would mean a program where 
the consumer is obligated contractually to repay any credit extended by 
the creditor. For example, a plan includes a program under which a 
creditor routinely pays transactions when a consumer has insufficient 
or unavailable funds in a prepaid account and the consumer is obligated 
contractually to repay those transactions. Under the proposal, such a 
program constitutes a plan notwithstanding that the creditor retains 
discretion not to pay such transactions, the creditor does not pay 
transactions once the consumer has exceeded a certain amount of credit, 
or the creditor only pays transactions where there were sufficient or 
available funds to cover the amount of the transaction at the time the 
transaction was authorized but not sufficient or available funds to 
cover the amount of the transaction at the time the transaction is 
paid.
    In addition, for the reasons discussed in the Overview of 
Regulation Z Proposal section, a similar new proposed comment 2(a)(20)-
2.iii would be added to provide guidance on when depositing credit 
proceeds into a prepaid account would be considered extending credit 
under a plan. In particular, this proposed comment would provide that 
with respect to credit accessed by an account number where extensions 
of credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor, a plan means a program 
where the consumer is obligated contractually to repay any credit 
extended by the creditor. For example, a plan includes a program under 
which a creditor routinely will extend credit that is deposited 
directly into particular prepaid accounts specified by the creditor and 
the consumer is obligated contractually to repay the credit. Such a 
program constitutes a plan notwithstanding that the creditor retains 
discretion not to extend credit, or the creditor does not extend credit 
once the consumer has exceeded a certain amount of credit. For example, 
a program constitutes a plan where a creditor will routinely extend 
credit that is deposited directly into a particular prepaid account 
specified by the creditor when the consumer requests an extension 
because the consumer does not have adequate funds in the prepaid 
account to cover the full amount of a transaction using the prepaid 
card.
    As discussed in more detail in the Overview of Regulation Z 
Proposal section, with respect to the programs described above, the 
Bureau believes these programs are plans notwithstanding that the 
person offering the program reserves the right not to extend credit on 
individual transactions. The Bureau believes that the person's 
reservation of such discretion in connection with credit extended with 
respect to prepaid accounts does not connote the absence of an open-end 
credit plan. Consumers using overdraft programs, or linked lines of 
credit, in connection with prepaid accounts must agree to repay the 
debt created by an overdraft or advance, indicating that a contractual 
arrangement between the creditor and the consumer exists. The Bureau 
notes that credit card issuers similarly reserve the right to reject 
individual transactions, and thus the Bureau believes that automated 
overdrafts services are comparable.
    To accommodate the proposed changes, the proposal also would make 
several technical revisions to comment 2(a)(20)-2. Specifically, the 
first sentence of the existing language in comment 2(a)(20)-2 would be 
moved to proposed comment 20(a)(20)-2.i, and the remaining language of 
the existing comment would be moved to proposed comment 2(a)(20)-2.iv.
Finance Charge Imposed From Time to Time on an Outstanding Unpaid 
Balance
    In Regulation Z, credit will not meet the definition of ``open-end 
credit'' unless the person extending the credit may impose a ``finance 
charge'' from time to time on an outstanding unpaid balance. Comment 
2(a)(20)-4 provides that the requirement that a finance charge may be 
computed and imposed from time to time on the outstanding balance means 
that there is no specific amount financed for the plan for which the 
finance charge, total of payments, and payment schedule can be 
calculated. This comment also provides that a plan may meet the 
definition of open-end credit even though a finance charge is not 
normally imposed, provided the creditor has the right, under the plan, 
to impose a finance charge from time to time on the outstanding 
balance. The term ``finance charge'' generally is defined in Sec.  
1026.4 to mean ``the cost of consumer credit as a dollar amount'' and 
it includes any charge payable directly or indirectly by the consumer 
and imposed directly or indirectly by the creditor as an incident to or 
a condition of the extension of credit. The term does not include any 
charge of a type payable in a comparable cash transaction.
    The proposal would add 2(a)(20)-4.ii to note that with respect to 
credit accessed by a prepaid card (including a prepaid card that is 
solely an account number) or credit accessed by an account number where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor, any service, 
transaction, activity, or carrying charges imposed on a credit account, 
and any such charges imposed on a prepaid account if that charge is 
related to an extension of credit, carrying a credit balance, or credit 
availability, generally would be a finance charge. See Sec.  1026.4(a), 
(b)(2), (c)(3) and (4) and comments 4(a)-4 and 4(b)(2)-1. In addition, 
proposed comment 2(a)(20)- 4.ii would provide that with respect to that 
credit, such service, transaction, activity or carrying charges would 
constitute finance charges imposed from time to time on an outstanding 
unpaid balance if there is no specific amount financed for the plan for 
which the finance charge, total of payments, and payment schedule can 
be calculated.

[[Page 77226]]

    The Bureau does not anticipate that there will be a specific amount 
financed for credit plans accessed by prepaid cards, or credit plans 
that are linked to prepaid accounts and accessed by account numbers as 
discussed above, at the time the credit plan is established. Instead, 
the Bureau anticipates that the credit lines on these credit plans 
generally will be replenishing. In such cases, an amount financed for 
the plan could not be calculated because the creditor will not know at 
the time the plan is established the amount of credit that will be 
extended under the plan. Thus, to the extent that any finance charge 
may be imposed on such credit plans, the credit plan will meet this 
criterion.
    As discussed in the section-by-section analysis of Sec.  1026.4, 
the Bureau is proposing to expand the types of fees that would be 
finance charges for purposes of credit linked to prepaid accounts. 
Currently, certain fees or charges are specifically excluded from the 
term ``finance charge,'' such as (1) charges imposed by a financial 
institution for paying items that overdraw an account, unless the 
payment of such items and the imposition of the charge were previously 
agreed upon in writing; and (2) fees charged for participation in a 
credit plan, whether assessed on an annual or other periodic basis. See 
Sec.  1026.4(c)(3) and (4). The proposal would amend Sec.  1026.4 and 
its commentary that relates to the definition of ``finance charge'' to 
provide that these two exceptions do not apply to credit accessed by a 
prepaid card or an account number where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor. In addition, the proposal would 
make additional amendments to Sec.  1026.4 and related commentary 
related to credit accessed by a prepaid card or credit accessed by an 
account number where extensions of credit are permitted to be deposited 
directly only into particular prepaid accounts specified by the 
creditor. For such credit, any service, transaction, activity, or 
carrying charges imposed on the credit account, and any such charges 
imposed on a prepaid account if that charge is related to an extension 
of credit, carrying a credit balance, or credit availability, generally 
would be a finance charge. See Sec.  1026.4(a), (b)(2), (c)(3) and (4) 
and comments 4(a)-4 and 4(b)(2)-1. Such charges would include periodic 
participation fees for the credit plan, and transaction charges imposed 
in connection with a credit extension.
    As a result of the proposal to expand the definition of finance 
charge for credit linked to prepaid accounts, the Bureau believes that 
charge card accounts accessed by prepaid cards or account numbers as 
discussed above would be open-end credit when transaction fees, 
participation fees, or other finance charges may be imposed on the 
account. If the Bureau were to read the criterion of open-end credit 
that a finance charge may be imposed time to time on an outstanding 
unpaid balance narrowly, there is a chance that some types of charge 
card accounts offered in connection with prepaid accounts would 
constitute closed-end credit. A person offering such a charge card 
account would be required to comply with the closed-end provisions in 
subpart C as well as certain open-end (not home-secured) rules and the 
credit card rules in subpart B. See Sec.  1026.2(a)(17)(iv). The Bureau 
believes that receiving closed-end disclosures for these types of 
accounts would be confusing to consumers, because the disclosures would 
be different from their other credit card accounts. Where the 
transactions otherwise would seem to fit an open-end plan based on 
repeated transactions and replenishing credit, the Bureau believes that 
consumers would be better protected and better informed if such 
transactions were treated as open-end plans in the same way as their 
other credit card accounts. In addition, with respect to credit 
accessed by prepaid cards, the Bureau believes that complying with the 
closed-end credit rules would be difficult for card issuers (for 
example, at point of sale) because closed-end disclosures specific to 
each credit extension would need to be provided prior to each 
transaction. Thus, the Bureau proposes to retain the current 
interpretation of the finance charge criterion for the term ``open-end 
credit'' which would result in most charge card accounts meeting the 
definition of ``open-end credit'' if a transaction fee, participation 
fee or other finance charge may be imposed on the credit plan. The 
Bureau solicits comment on this approach.
    The Bureau also notes that persons that offer charge card accounts 
where no finance charge is imposed may still be subject to certain 
Regulation Z provisions. See the section-by-section analysis of Sec.  
1026.2(a)(17).
    As a technical revision, the proposal would move the existing 
language of comment 2(a)(20)-4 to proposed comment 20(a)(20)-4.i.
Section 1026.4 Finance Charge
    Under TILA section 106(a), the term ``finance charge'' generally 
provides that ``the amount of the finance charge in connection with any 
consumer credit transaction shall be determined as the sum of all 
charges, payable directly or indirectly by the person to whom the 
credit is extended, and imposed directly or indirectly by the creditor 
as an incident to the extension of credit.'' The finance charge does 
not include charges of a type payable in a comparable cash transaction. 
15 U.S.C. 1605(a).
    Under Regulation Z, the term ``finance charge'' generally is 
defined in Sec.  1026.4(a) to mean ``the cost of consumer credit as a 
dollar amount.'' It includes any charge payable directly or indirectly 
by the consumer and imposed directly or indirectly by the creditor as 
an incident to or a condition of the extension of credit. It does not 
include any charge of a type payable in a comparable cash transaction. 
However, certain fee or charges are specifically excluded from the 
current definition of ``finance charge,'' including (1) charges imposed 
by a financial institution for paying items that overdraw an account, 
unless the payment of such items and the imposition of the charge were 
previously agreed upon in writing; and (2) fees charged for 
participation in a credit plan, whether assessed on an annual or other 
periodic basis. See Sec.  1026.4(c)(3) and (4).
    The proposal would amend Sec.  1026.4 and its commentary that 
relates to the definition of ``finance charge'' in two ways. First, it 
would provide that the exception regarding overdrafts would not apply 
to credit accessed by a prepaid card or by an account number where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor, as discussed 
further below and in the Overview of Regulation Z Proposal section. 
Second, it would provide that the second exception regarding 
participation fees does not apply to credit accessed by prepaid card or 
by an account number where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor. The proposal also would make certain other additional 
amendments to Sec.  1026.4 and related commentary related to credit 
accessed by a prepaid card or credit accessed by an account number 
where extensions of credit are permitted to be deposited directly only 
into particular prepaid accounts specified by the creditor to clarify 
which types of charges are finance charges and which are not. As 
discussed below, this

[[Page 77227]]

portion of the proposal is designed to ensure proposed protections for 
prepaid accounts.
4(a) Definition
    Under Regulation Z, the term ``finance charge'' generally is 
defined in Sec.  1026.4(a) to mean ``the cost of consumer credit as a 
dollar amount.'' It includes any charge payable directly or indirectly 
by the consumer and imposed directly or indirectly by the creditor as 
an incident to or a condition of the extension of credit. It does not 
include any charge of a type payable in a comparable cash transaction. 
Comment 4(a)-4 provides guidance on when transaction charges imposed on 
credit card accounts are finance charges under Sec.  1026.4(a). 
(Transaction charges that are imposed on checking accounts or other 
transaction accounts are discussed in the section-by-section analysis 
of Sec.  1026.4(b).)
    Specifically, comment 4(a)-4 provides that any transaction charge 
imposed on a cardholder by a card issuer is a finance charge, 
regardless of whether the issuer imposes the same, greater, or lesser 
charge on withdrawals of funds from an asset account such as a checking 
or savings account. For example, any charge imposed on a credit 
cardholder by a card issuer for the use of an ATM to obtain a cash 
advance (whether in a proprietary, shared, interchange, or other 
system) is a finance charge regardless of whether the card issuer 
imposes a charge on its debit cardholders for using the ATM to withdraw 
cash from a consumer asset account, such as a checking or savings 
account. In addition, any charge imposed on a credit cardholder for 
making a purchase or obtaining a cash advance outside the United States 
with a foreign merchant, or in a foreign currency, is a finance charge, 
regardless of whether a charge is imposed on debit cardholders for such 
transactions. This comment essentially provides that debit card 
transactions are not considered ``comparable cash transactions'' to 
credit card transactions with respect to transaction charges imposed by 
a card issuer on a credit cardholder when those fees are imposed on the 
credit card account.
    In the supplemental information accompanying the rule that adopted 
this comment, the Board noted the inherent complexity of seeking to 
distinguish transactions that are ``comparable cash transactions'' to 
credit card transactions from transactions that are not.\364\ For 
example, the Board discussed the situation of a transaction fee imposed 
by a card issuer on the credit card account for a cash advance through 
an ATM. A transaction fee for a cash advance through an ATM would not 
always be a finance charge if the ``comparable cash transaction'' 
exception considered fees that are imposed on debit cards offered by 
the credit card issuer in determining whether a transaction fee for a 
cash advance through an ATM imposed on the credit account is a finance 
charge. Instead, whether this fee is a finance charge would depend on 
whether the credit card issuer provides asset accounts and offers debit 
cards on those accounts and whether the fee exceeds the fee imposed for 
a cash advance transaction through an ATM on the asset account. The 
Board believed this type of distinction is not helpful for consumers in 
understanding transaction fees that are imposed on credit card 
accounts. Thus, the Board adopted comment 4(a)-4, which provides that 
any transaction charge imposed on a cardholder by a card issuer is a 
finance charge, regardless of whether the issuer imposes the same, 
greater, or lesser charge on withdrawals of funds from an asset account 
such as a checking or savings account. The Board noted that it was not 
revising comment 4(b)(2)-1, which states that if a checking or 
transaction account charge imposed on an account with a credit feature 
does not exceed the charge for an account without a credit feature, the 
charge is not a finance charge. The Board further noted that comment 
4(b)(2)-1 addresses different situations as comment 4(a)-1, as 
discussed below in the section-by-section analysis of Sec.  
1026.4(b)(2).
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    \364\ 74 FR 5244, 5263 (Jan. 29, 2009).
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    The Bureau proposes to add two new examples to this comment to 
provide guidance on how this comment applies to prepaid cards that are 
credit cards and to account numbers that are credit cards where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor. In particular, 
proposed comment 4(a)-4.iii would provide that any transaction charge 
imposed on a cardholder by a card issuer for credit accessed by a 
prepaid card that also is a credit card is a finance charge regardless 
of whether the card issuer imposes the same, greater or lesser charge 
on the withdrawal of funds from a prepaid account. For example, assume 
a prepaid card issuer charges $15 for each transaction accessing credit 
with a prepaid card. This $15 fee would be a finance charge regardless 
of whether the prepaid card issuer charges the same, greater or lesser 
fee to the consumer to access funds in the prepaid account using the 
prepaid card.
    In addition, proposed comment 4(a)-4.iv would provide that any 
transaction charge imposed on a cardholder by a card issuer for credit 
accessed by an account number that is a credit card where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor is a finance charge 
regardless of whether the card issuer imposes the same, greater or 
lesser charge on the withdrawal of funds from a prepaid account. For 
example, assume a card issuer charges a $15 fee each time a consumer 
uses an account number to access credit that is deposited into a 
prepaid account where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor. This $15 fee is a finance charge regardless of whether 
the card issuer charges the same, greater or lesser fee to the consumer 
to access funds in the prepaid account using a prepaid card.
4(b) Examples of Finance Charges
4(b)(2)
    Section 1026.4(b) provides examples of the types of charges that 
are finance charges, except if those charges are specifically excluded 
under Sec.  1026.4(c) through (e). In particular, Sec.  1026.4(b)(2) 
provides that examples of finance charges generally include service, 
transaction, activity, and carrying charges. However, the Board added a 
partial exception to this example stating that for any charge imposed 
on a checking or other transaction account, such service or transaction 
account charge is only a finance charge to the extent that the charge 
exceeds the charge for a similar account without a credit feature. 
Comment 4(b)(2)-1 similarly provides that a checking or transaction 
account charge imposed in connection with a credit feature is a finance 
charge under Sec.  1026.4(b)(2) to the extent the charge exceeds the 
charge for a similar account without a credit feature. If a charge for 
a checking or transaction account with a credit feature does not exceed 
the charge for an account without a credit feature, the charge is not a 
finance charge under Sec.  1026.4(b)(2).\365\
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    \365\ To illustrate: A $5 service charge is imposed on a 
checking or transaction account with an overdraft line of credit 
(where the institution has agreed in writing to pay an overdraft), 
while a $3 service charge is imposed on an account without a credit 
feature; the $2 difference is a finance charge. (If the difference 
is not related to account activity, however, it may be excludable as 
a participation fee. See the commentary to Sec.  1026.4(c)(4)). As 
another example, assume a $5 service charge is imposed for each item 
that results in an overdraft on a checking or transaction account 
with an overdraft line of credit, while a $25 service charge is 
imposed for paying or returning each item on a similar account 
without a credit feature. The $5 charge is not a finance charge.

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[[Page 77228]]

    The Bureau believes that the Board adopted this partial exception 
to exclude certain overdraft lines of credit from coverage under 
Regulation Z. As discussed in the Overview of Regulation Z Proposal 
section, overdraft lines of credit where a financial institution agrees 
in writing to pay overdrafts and impose a fee generally would be 
subject to Regulation Z if the financial institution is imposing a 
finance charge. Nonetheless, under Sec.  1026.4(b)(2), a person would 
not be imposing a finance charge on an overdraft line of credit if the 
fee for the overdraft is imposed on the checking or transaction account 
and does not exceed the amount of the fee that is imposed on the 
checking or transaction account if the financial institution returns 
the item unpaid (NSF fee) or does not exceed the amount of the fee the 
financial institution would impose if a courtesy overdraft service 
applied to the account instead of an overdraft line of credit. The 
Bureau believes that the Board adopted this partial exception as an 
expansion of the ``comparable cash transaction'' exception to the 
definition of ``finance charge,'' which excludes charges imposed 
uniformly in cash and credit transactions from the definition of 
``finance charge.'' See Sec.  1026.4(a) and comment 4(a)-1; see also 15 
U.S.C. 1605(a).
    For the reasons discussed in the Overview of Regulation Z Proposal 
section, the Bureau proposes not to extend this partial exclusion to 
credit extended in connection with a prepaid account. The proposal 
would add proposed Sec.  1026.4(b)(2)(ii), and proposed comment 
4(b)(2)-1.ii through .iv, to clarify that prepaid accounts are not 
subject to this partial exception from the definition of finance 
charge. Specifically, the proposed language would provide that any 
charge imposed in connection with an extension of credit, for carrying 
a credit balance, or for credit availability is a finance charge where 
that fee is imposed on a prepaid account in connection with credit 
accessed by a prepaid card or accessed by an account number where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor, regardless of 
whether the creditor imposes the same, greater or lesser charge on the 
withdrawal of funds from the prepaid account, to have access to the 
prepaid account, or when credit is not extended.
    To illustrate, assume a $15 transaction charge is imposed on the 
prepaid account each time a consumer uses a prepaid card or an account 
number described above to access an open-end credit plan. The $15 
charge is a finance charge regardless of whether the creditor imposes 
the same, greater or lesser charge to withdraw funds from the prepaid 
account. As another example, assume a $1.50 transaction charge is 
imposed on the prepaid account for each transaction that is made with 
the prepaid card, including when the prepaid card is used to access 
credit where the consumer has insufficient or unavailable funds in the 
prepaid account at the time of authorization or at the time the 
transaction is paid. The $1.50 transaction charge is a finance charge 
when the prepaid card accesses credit, notwithstanding that a $1.50 
transaction charge also is imposed on transactions that solely access 
funds in the prepaid account. As a third example, assume a $5 monthly 
service charge is imposed on the prepaid account for the availability 
of an open-end plan that is accessed by a prepaid card or an account 
number described above. The $5 monthly service charge is a finance 
charge regardless of whether the creditor imposes the same, greater or 
lesser monthly service charge to hold the prepaid account.
    Proposed comment 4(b)(2)-1.iii would provide that examples of 
charges imposed on a prepaid account in connection with an extension of 
credit, for carrying a credit balance, or for credit availability 
include (1) transaction fees for credit extensions; (2) fees for 
transferring funds from a credit account to a prepaid account; (3) a 
daily, weekly, or monthly (or other periodic) fee assessed each period 
a prepaid account is in ``overdraft'' status, or would be in overdraft 
status but for funds supplied by a linked line of credit; (4) a daily, 
weekly, or monthly (or other periodic) fee assessed each period a line 
of credit accessed by a prepaid card or account number described in 
Sec.  1026.4(b)(2)(ii) has an outstanding balance; and (5) 
participation fees or other fees that the consumer is required to pay 
for the issuance or availability of credit.
    Proposed comment 4(b)(2)-1.iv would provide that proposed Sec.  
1026.4(b)(2)(ii) would not apply to transaction fees imposed on the 
prepaid account that are imposed only on transactions that solely 
access funds in the prepaid account (and are not imposed on 
transactions that either are funded in whole or in part from credit), 
fees for opening or holding the prepaid account, and other fees, such 
as cash reload fees and balance inquiry fees, that are not imposed on 
the prepaid account because the consumer engaged in a transaction that 
is funded in whole or in part by credit, for holding a credit plan, or 
for carrying a credit balance. These fees would not be considered 
charges imposed on a prepaid account in connection with an extension of 
credit, for carrying a credit balance, or for credit availability even 
if there are not sufficient funds in the prepaid account to pay the 
fees at the time they are imposed on the prepaid account. Nonetheless, 
any negative balance on the prepaid account, whether from fees or other 
transactions would be a credit extension and if a fee is imposed for 
such credit extension, the fee would be a finance charge under Sec.  
1026.4(b)(2)(ii). For example, if a cash-reload fee is imposed on the 
prepaid account, there are not sufficient funds in the prepaid account 
to pay the fee at the time it is imposed on the prepaid account, and an 
additional charge is imposed on the prepaid account for this credit 
extension, the additional charge would be a transaction charge imposed 
on a prepaid account in connection with an extension of credit and 
would be a finance charge under Sec.  1026.4(b)(2)(ii).
    The Bureau believes that this approach is most reasonable and 
consistent with the general definition of finance charge because where 
a prepaid account lacks sufficient funds to pay a transaction 
completely, a transaction fee imposed in the course of processing the 
transaction with credit funds is payable directly or indirectly by the 
consumer as an incident to or condition of the extension of credit. 
That is why comment 4(a)-4 for credit card transactions covers 
transaction charges, regardless of whether the issuer imposes the same, 
greater, or lesser charges on withdrawals on funds from an asset 
account.
    As discussed above, the Bureau believes that the Board based the 
partial exemption in Sec.  1026.4(b)(2) on the comparable cash 
transaction exception, which excludes charges imposed uniformly in cash 
and credit transactions from the definition of ``finance charge.'' The 
Bureau believes that the Board expanded this exception in connection 
with asset accounts to include situations where a consumer is using a 
cash-like product, such as a debit card that is accessing an asset 
account. The Bureau further believes that it is reasonable not to 
expand the comparable cash transaction exception in connection with 
prepaid accounts, for the reasons discussed below. In retail 
transactions, the comparable cash

[[Page 77229]]

transaction to which the credit transaction is compared could only 
include retail transactions where the goods or services are paid for 
with ``cash'' as opposed to being paid for by a check or a prepaid card 
that accesses funds in a checking or transaction account. When a 
consumer pays for goods or services with ``cash,'' the consumer does 
not pay these fees. Therefore, the Bureau believes that the 
``comparable cash'' exception is reasonably interpreted not to apply to 
these types of fees that are imposed on prepaid accounts with respect 
to credit extended in connection with prepaid accounts, as described 
above. First, the Bureau believes that the best approach with respect 
to credit extended in connection with prepaid accounts is to provide a 
clear line about which fees that are imposed on the prepaid account are 
finance charges, rather than basing that decision on the fees that a 
prepaid card issuer charges to access the funds in the prepaid account 
or to hold the account. Otherwise, the same type of fee, such as a 
transaction or service charge imposed in connection with an extension 
of credit, for carrying a credit balance, or for credit availability 
will not always be a finance charge for each prepaid account, but 
instead would depend on the other fees that are charged on that 
particular prepaid account. This may make it more difficult for 
compliance purposes to determine whether a fee is a finance charge.
    The Bureau also believes that it is necessary to include in the 
definition of finance charge fees that are imposed on the prepaid 
account if those fees are in connection with an extension of credit, 
for carrying a credit balance, or for credit availability. Otherwise, a 
person could avoid the protections set forth in the proposal by 
charging fees for credit on the prepaid account rather than on the 
credit account. The Bureau believes that the proposed approach will 
ease compliance and make it easier for consumers to compare total costs 
of accessing credit.
    The proposal would cause issuers who are trying to fit within 
certain exceptions to the regime to waive certain transaction fees in 
connection with overdraft transactions. For example, if a financial 
institution wants to take advantage of the exception from Regulation Z 
where a credit plan is accessed by a prepaid card and the credit plan 
only allows extension of credit that are not subject to a finance 
charge or fees subject to Sec.  1026.4(c) and are not payable by 
written agreement in more than four installments, the financial 
institution would need to waive transaction fees where the transaction 
is funded in whole or in part by credit. For example, assume a $1.50 
transaction charge is imposed on the prepaid account for each 
transaction that is made with the prepaid card, including when the 
prepaid card is used to access credit where the consumer has 
insufficient or unavailable funds in the prepaid account at the time of 
authorization or at the time the transaction is paid. The $1.50 
transaction charge is a finance charge when the prepaid card accesses 
credit, notwithstanding that a $1.50 transaction charge also is imposed 
on transactions that solely access funds in the prepaid account. In 
this case, the prepaid card issuer would need to waive the $1.50 
transaction charge on any transaction that accesses credit. Otherwise, 
the $1.50 transaction fee charged for a transaction that accesses 
credit would be a finance charge. The Bureau believes that the cost 
imposed in waiving fees would be outweighed by benefits to consumers in 
understanding the costs of credit transactions.
    The Bureau believes the best approach is to treat such fees 
consistent with the provision in comment 4(a)-4 for transaction fees 
imposed on credit card accounts. This means that fees that are imposed 
to access the funds in a prepaid account or to hold the prepaid account 
are not relevant in deciding whether transaction or service charges 
imposed on a prepaid account for credit are ``finance charges'' under 
Sec.  1026.4(a). However, the Bureau seeks comment on this approach and 
its benefit and costs for consumers, industry, and alternative 
approaches if any.
    For the reasons discussed in the Overview of Regulation Z Proposal 
section, to preserve the existing rules so that they remain applicable 
to other types of credit, the Bureau proposes to move the existing rule 
to Sec.  1026.4(b)(2)(i) and move the existing language in comment 
4(b)(2)-1 to proposed comment 4(b)(2)-1.i.
4(c)
    Section 1026.4(c) provides a list of certain charges that are 
excluded from the definition of finance charge under Sec.  1026.4. The 
charges listed in Sec.  1026.4(c) include (1) Application fees charged 
to all applicants for credit, whether or not credit is actually 
extended; (2) Charges for actual unanticipated late payment, for 
exceeding a credit limit, or for delinquency, default, or a similar 
occurrence; (3) Charges imposed by a financial institution for paying 
items that overdraw an account, unless the payment of such items and 
the imposition of the charge were previously agreed upon in writing; 
and (4) Fees charged for participation in a credit plan, whether 
assessed on an annual or other periodic basis. As discussed in more 
detail below, the proposal would provide that the following charges are 
not excluded from the definition of finance charge in connection with 
credit accessed by prepaid card, or credit accessed by account numbers 
where extensions of credit are permitted to be deposited directly only 
into particular prepaid accounts specified by the creditor: (1) Charges 
imposed by a financial institution for paying items that overdraw an 
account, unless the payment of such items and the imposition of the 
charge were previously agreed upon in writing; and (2) Fees charged for 
participation in a credit plan, whether assessed on an annual or other 
periodic basis.
4(c)(3)
    Section 1026.4(c)(3) provides that the term ``finance charge'' does 
not include charges imposed by a financial institution for paying items 
that overdraw an account, unless the payment of such items and the 
imposition of the charge were previously agreed upon in writing. As 
discussed above in the Overview of Regulation Z Proposal section, the 
Board developed this exception to the term ``finance charge'' in order 
to carve out fees imposed by financial institutions for checks or other 
items that overdraw an account so that ad hoc overdraft plans would not 
be subject to Regulation Z. As discussed in the Overview of Regulation 
Z Proposal section, the Bureau intends generally that, under its 
proposal, Regulation Z will apply to credit accessed by prepaid cards 
or by an account number where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor. Thus, the Bureau proposes to revise Sec.  1026.4(c)(3) to 
specify that this provision does not apply to credit accessed by a 
prepaid card or by an account number where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor. As a result, charges imposed by a 
financial institution for paying items that overdraw a prepaid account 
will be finance charges even if the payment of the item and the 
imposition of the charge were not previously agreed upon in writing, 
and the financial institution extending the credit represented by the 
overdraft will be a creditor.

[[Page 77230]]

4(c)(4)
    Section 1026.4(c)(4) provides that the term ``finance charge'' does 
not include fees charged for participation in a credit plan, whether 
assessed on an annual or other periodic basis. Comment 4(c)(4)-1 
explains that the participation fees described in Sec.  1026.4(c)(4) do 
not necessarily have to be formal membership fees, nor are they limited 
to credit card plans. The provision applies to any credit plan in which 
payment of a fee is a condition of access to the plan itself, but it 
does not apply to fees imposed separately on individual closed-end 
transactions. The fee may be charged on a monthly, annual, or other 
periodic basis; a one-time, non-recurring fee imposed at the time an 
account is opened is not a fee that is charged on a periodic basis, and 
may not be treated as a participation fee.
    The Bureau proposes to amend Sec.  1026.4(c)(4) to provide that 
this exception does not apply to credit accessed by a prepaid card or 
to credit accessed by an account number where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor. The Bureau believes that this 
exception is not dictated by TILA's definition of ``finance charge.'' 
Rather, the Board added this exception to Sec.  1026.4(c)(4) in 1981 
based on an interpretation letter that the Board has previously 
issued.\366\ In the interpretation letter, the Board excluded annual 
fees for membership in a credit plan from the definition of ``finance 
charge'' because these fees are not imposed incident or as a condition 
to any specific extension of credit.\367\ Nonetheless, the Bureau 
believes that the term ``finance charge'' in TILA is broad enough to 
reasonably include periodic fees for participation in a credit plan 
under which a consumer may obtain credit because those fees would be 
``incident to the extension of credit.'' Without paying the periodic 
fees for access to the credit plan, the consumer could not use the 
credit plan to access credit.
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    \366\ 46 FR 20848, 20855 (Apr. 7, 1981).
    \367\ 36 FR 16050 (Aug. 19, 1971).
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    As discussed in the Overview of Regulation Z Proposal section, the 
Bureau intends generally to cover credit accessed by a prepaid card, or 
by an account number where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor, as ``open-end credit'' under Regulation Z. The Bureau 
believes these credit plans should be ``open-end credit'' even if the 
only fees charged for the plan are annual or other periodic fees for 
participation in the credit plan. See the section-by-section analysis 
of Sec.  1026.2(a)(20) for a discussion of the finance charge criterion 
for the definition of ``open-end credit.'' The Bureau believes that 
annual or other periodic fees that are charged for participation in 
credit plans linked to prepaid accounts (as discussed above) could be 
significant costs to consumers, even if interest or transaction fees 
are not charged with respect to the plan, and thus the protections in 
Regulation Z that apply to open-end credit, including those in subpart 
G, should apply to credit plans linked to prepaid accounts as discussed 
above that charge an annual or other periodic fee to access the plan 
and otherwise meet the definition of ``open-end credit.''
    The Bureau especially believes that the protections in Regulation Z 
subpart G that generally apply to open-end credit that is accessed by a 
credit card would be beneficial to consumers for such credit plans. For 
example, Sec.  1026.51 prohibits credit card issuers from extending 
credit without assessing the consumer's ability to pay, with special 
rules regarding the extension of credit to persons under the age of 21. 
In addition, Sec.  1026.52(a) restricts the amount of fees (including 
annual or other periodic fees to access the plan) that an issuer can 
charge during the first year after an account is opened, such that the 
fees generally cannot exceed 25 percent of the initial credit limit. 
These provisions would provide important protections to consumers to 
help ensure that consumers accessing credit pla