[Federal Register Volume 81, Number 225 (Tuesday, November 22, 2016)]
[Rules and Regulations]
[Pages 83934-84387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24503]
[[Page 83933]]
Vol. 81
Tuesday,
No. 225
November 22, 2016
Part II
Book 2 of 2 Books
Pages 83933-84388
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); Final Rule
Federal Register / Vol. 81 , No. 225 / Tuesday, November 22, 2016 /
Rules and Regulations
[[Page 83934]]
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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: Final rule; official interpretations.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau or CFPB)
is issuing this final rule to create comprehensive consumer protections
for prepaid accounts under Regulation E, which implements the
Electronic Fund Transfer Act; Regulation Z, which implements the Truth
in Lending Act; and the official interpretations to those regulations.
The final rule modifies general Regulation E requirements to create
tailored provisions governing disclosures, limited liability and error
resolution, and periodic statements, and adds new requirements
regarding the posting of account agreements. Additionally, the final
rule regulates overdraft credit features that may be offered in
conjunction with prepaid accounts. Subject to certain exceptions, such
credit features will be covered under Regulation Z where the credit
feature is offered by the prepaid account issuer, its affiliate, or its
business partner and credit can be accessed in the course of a
transaction conducted with a prepaid card.
DATES: This rule is effective on October 1, 2017, except for the
addition of Sec. 1005.19(b), which is delayed until October 1, 2018.
FOR FURTHER INFORMATION CONTACT: Jane Raso, Yaritza Velez, and Shiri
Wolf, Counsels; Kristine M. Andreassen, Krista Ayoub, and Marta I.
Tanenhaus, Senior Counsels, Office of Regulations, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
Regulation E implements the Electronic Fund Transfer Act (EFTA),
and Regulation Z implements the Truth in Lending Act (TILA). On
November 13, 2014, the Bureau issued a proposed rule to amend
Regulations E and Z, which was published in the Federal Register on
December 23, 2014 (the proposal or the proposed rule).\1\ The Bureau is
publishing herein final amendments to extend Regulation E coverage to
prepaid accounts and to adopt provisions specific to such accounts, and
to generally expand Regulation Z's coverage to overdraft credit
features that may be offered in conjunction with prepaid accounts. The
Bureau is generally adopting the rule as proposed, with certain
modifications based on public comments and other considerations as
discussed in detail in part IV below. This final rule represents the
culmination of several years of research and analysis by the Bureau
regarding prepaid products.
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\1\ 79 FR 77102 (Dec. 23, 2014). See also Press Release, CFPB,
CFPB Proposes Strong Federal Protections for Prepaid Products (Nov.
13, 2014), available at http://www.consumerfinance.gov/newsroom/cfpb-proposes-strong-federal-protections-for-prepaid-products. The
Bureau had previously published an advance notice of proposed
rulemaking (Prepaid ANPR) that posed a series of questions for
public comment about how the Bureau might consider regulating GPR
cards and other prepaid products. 77 FR 30923 (May 24, 2012).
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Scope. The final rule's definition of prepaid accounts specifically
includes payroll card accounts and government benefit accounts that are
currently subject to Regulation E. In addition, it covers accounts that
are marketed or labeled as ``prepaid'' that are redeemable upon
presentation at multiple, unaffiliated merchants for goods or services,
or that are usable at automated teller machines (ATMs). It also covers
accounts that are issued on a prepaid basis or capable of being loaded
with funds, whose primary function is to conduct transactions with
multiple, unaffiliated merchants for goods or services, or at ATMs, or
to conduct person-to-person (P2P) transfers, and that are not checking
accounts, share draft accounts, or negotiable order of withdrawal (NOW)
accounts.
The final rule adopts a number of exclusions from the definition of
prepaid account, including for gift cards and gift certificates;
accounts used for savings or reimbursements related to certain health,
dependent care, and transit or parking expenses; accounts used to
distribute qualified disaster relief payments; and the P2P
functionality of accounts established by or through the United States
government whose primary function is to conduct closed-loop
transactions on U.S. military installations or vessels, or similar
government facilities.
Pre-acquisition disclosures. The final rule establishes pre-
acquisition disclosure requirements specific to prepaid accounts. Under
the final rule, financial institutions must generally provide both a
``short form'' disclosure and a ``long form'' disclosure before a
consumer acquires a prepaid account. The final rule provides guidance
as to what constitutes acquisition for purposes of disclosure delivery;
in general, a consumer acquires a prepaid account by purchasing,
opening, or choosing to be paid via a prepaid account. The final rule
offers an alternative timing regime for the delivery of the long form
disclosure for prepaid accounts acquired at retail locations and by
telephone, provided certain conditions are met. For this purpose, a
retail location is a store or other physical site where a consumer can
purchase a prepaid account in person and that is operated by an entity
other than the financial institution that issues the prepaid account.
The short form disclosure sets forth the prepaid account's most
important fees and certain other information to facilitate consumer
understanding of the account's key terms and comparison shopping among
prepaid account programs. The long form disclosure, on the other hand,
provides a comprehensive list of all of the fees associated with the
prepaid account and detailed information on how those fees are
assessed, as well as certain other information about the prepaid
account program. The final rule also adopts specific content, form, and
formatting requirements for both the short form and the long form
disclosures.
The first part of the short form contains ``static'' fees, setting
forth standardized fee disclosures that must be provided for all
prepaid account programs, even if such fees are $0 or if they relate to
features not offered by a particular program. The second part provides
information about some additional types of fees that may be charged for
that prepaid account program. This includes a statement regarding the
number of additional fee types the financial institution may charge
consumers; they must also list the two fee types that generate the
highest revenue from consumers (excluding certain fees, such as those
that fall below a de minimis threshold) for the prepaid account program
or across prepaid account programs that share the same fee schedule.
The final part of the short form provides certain other key
information, including statements regarding registration and Federal
Deposit Insurance Corporation (FDIC) deposit or National Credit Union
Administration (NCUA) share insurance eligibility, and whether an
overdraft credit feature may be offered in conjunction with the
account. In addition, the final rule requires that short form
disclosures for payroll card accounts and government benefit
[[Page 83935]]
accounts include, at the top of the form, a statement regarding
alternative wage or benefit payment options.
The long form disclosure, in contrast, sets forth in a table all of
the prepaid account's fees and their qualifying conditions, as well as
certain other information about the prepaid account program. This
includes, for example, more detailed information regarding FDIC or NCUA
insurance eligibility and a separate disclosure for the fees associated
with any overdraft credit feature that may be offered in conjunction
with the prepaid account.
The final rule includes several model short form disclosures that
offer a safe harbor to the financial institutions that use them,
provided that the model forms are used accurately and appropriately.
The final rule also includes one sample long form disclosure as an
example of how financial institutions might choose to structure this
disclosure.
The final rule also includes requirements to disclose certain
information such as any purchase price or activation fee outside, but
in close proximity to, the short form disclosure; disclosures required
to be printed on the prepaid card itself; and short form and long form
disclosure requirements for prepaid accounts with multiple service
plans.
The final rule requires financial institutions to provide pre-
acquisition disclosures in a foreign language if the financial
institution uses that same foreign language in connection with the
acquisition of a prepaid account in certain circumstances. The
financial institution also must provide the long form disclosure in
English upon a consumer's request and on its Web site where it
discloses this information in a foreign language.
Access to account information. The final rule adopts an alternative
to Regulation E's periodic statement requirement that permits financial
institutions to make available to consumers certain methods for
accessing information about their prepaid accounts in lieu of sending
periodic statements. The final rule also adopts a requirement that
financial institutions provide summary totals of the fees they have
assessed against the prepaid account on a monthly and annual basis.
Limited liability and error resolution, including provisional
credit. The final rule extends Regulation E's limited liability and
error resolution requirements to all prepaid accounts, regardless of
whether the financial institution has completed its consumer
identification and verification process with respect to the account,
but does not require provisional credit for unverified accounts. Once
an account has been verified, the financial institution must comply
with the provisional credit requirements, for both errors that occur
prior to and after account verification, within the provisional credit
timeframe.
Submission and posting of prepaid account agreements. Under the
final rule, prepaid account issuers must submit their prepaid account
agreements to the Bureau. The final rule also requires that prepaid
account issuers publicly post on their own Web sites prepaid account
agreements that are offered to the general public. Financial
institutions must make any agreements not posted on their own Web sites
available upon request for consumers who have prepaid accounts under
those agreements.
Remittance transfers. The final rule makes several revisions to the
rules governing remittance transfers in subpart B of Regulation E that
are intended to continue the current application of those rules to
prepaid products. Specifically, they clarify that for prepaid accounts
other than payroll card accounts and government benefit accounts, the
location of these accounts does not determine where funds are being
sent to or from for purposes of application of the rules in subpart B.
They also clarify that the temporary exception allowing insured
institutions to use estimates when providing certain disclosures does
not apply to prepaid accounts, unless the prepaid account is a payroll
card account or government benefit account.
Overdraft credit features. The final rule amends Regulations E and
Z generally to regulate prepaid accounts that offer overdraft credit
features. Specifically, the final rule generally covers under
Regulation Z's credit card rules any credit feature offered in
conjunction with a prepaid account where the credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner
and credit can be accessed in the course of a transaction conducted
with the prepaid card to obtain goods or services, obtain cash, or
conduct P2P transfers. The final rule generally requires that such
credit features be distinct from the asset portion of the prepaid
account--structured as a separate credit account or a credit sub-
account to the asset account--to facilitate transparency and compliance
with various Regulation Z requirements. The final rule uses the term
``hybrid prepaid-credit card'' to refer to a prepaid card that can
access both an overdraft credit feature that is subject to the
Regulation Z credit card rules and the asset portion of a prepaid
account.
An issuer may not extend credit via a negative balance on the
prepaid account except in several limited circumstances where the
credit is incidental and the issuer generally does not charge credit-
related fees for that credit; in these circumstances, the incidental
credit is not subject to Regulation Z. These exceptions for incidental
credit cover situations where the issuer has a general established
policy and practice of declining to authorize transactions when the
consumer has insufficient or unavailable funds to cover the transaction
but credit is nonetheless extended as a result of so-called ``force
pay'' transactions, transactions that will not take the account
negative by more than $10 (i.e., a de minimis ``purchase cushion''), or
certain transactions that are conducted while incoming deposits to the
prepaid account are pending.
The final rule's provisions regarding hybrid prepaid-credit cards
are largely housed in new Regulation Z Sec. 1026.61. To effectuate
these provisions and provide compliance guidance to industry, the final
rule also amends certain other existing credit card provisions in
Regulation Z. The final rule does not adopt the proposal's provisions
that would have made certain account numbers into credit cards where
the credit could only be deposited directly to particular prepaid
accounts specified by the creditor.
The final rule subjects overdraft credit features accessible by
hybrid prepaid-credit cards to various credit card rules under
Regulation Z. For open-end products, this includes rules restricting
certain fees charged in the first year after account opening,
limitations on penalty fees, and a requirement to assess a consumer's
ability to pay. In addition, the final rule requires issuers to wait at
least 30 days after a prepaid account is registered before soliciting a
consumer to link a covered credit feature to the prepaid account and to
obtain consumer consent before linking such a credit feature to a
prepaid account. The final rule permits issuers to deduct all or a part
of the cardholder's credit card debt automatically from the prepaid
account or other deposit account held by the card issuer no more
frequently than once per month, pursuant to a signed, written
authorization by the cardholder to do so, and requires that issuers
allow consumers to have at least 21 days to repay the debt incurred in
connection with using such features. It also amends the compulsory use
provision under Regulation E so that prepaid account issuers are
prohibited from requiring
[[Page 83936]]
consumers to set up preauthorized electronic fund transfers (EFTs) to
repay credit extended through an overdraft credit feature accessible by
a hybrid prepaid-credit card.
Effective date. The final rule generally becomes effective on
October 1, 2017. Financial institutions are not required to pull and
replace prepaid account packaging materials prepared in the normal
course of business prior to that date that do not comply with the final
rule's disclosure requirements. The final rule also contains several
additional provisions addressing notices of certain changes in terms
and updated initial disclosures as a result of this final rule taking
effect in certain circumstances, and for rolling compliance with
certain access to account information requirements if financial
institutions do not have readily accessible the data necessary to
comply with the final rule's requirements as of October 1, 2017. The
requirement that issuers submit their prepaid account agreements to the
Bureau pursuant to Sec. 1005.19(b) becomes effective on October 1,
2018, as described in Sec. 1005.19(f).
II. Background
A. Prepaid Financial Products
Prepaid products--in various forms--have been 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.\2\ Among other things,
the study found that the number of prepaid card payments reached 9.2
billion transactions in 2012 (up from 5.9 billion in 2009).\3\
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\2\ 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://www.frbservices.org/files/communications/pdf/general/2013_fed_res_paymt_study_detailed_rpt.pdf.
\3\ Id. at 37.
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The U.S. market for prepaid products can largely be categorized
into two general market segments: Closed-loop and open-loop products.
The total amount of funds loaded onto open-loop and closed-loop prepaid
products has grown significantly, from approximately $358 billion in
2009 to approximately $594 billion in 2014.\4\ A consumer or other
authorized party can add funds to both closed-loop and open-loop
prepaid products; however, typically, consumers can only use funds
stored on closed-loop prepaid products at designated locations (e.g.,
at a specific merchant or group of merchants in the case of certain
gift cards; within a specific transportation system in the case of
transit cards). In contrast, consumers have more options with respect
to how to spend funds held on open-loop prepaid products, because
transactions made with these products are typically run on payment
network rails (often through point-of-sale (POS) terminals, ATM
networks, or both).\5\ As discussed below, a general purpose reloadable
(GPR) card is one type of reloadable, open-loop prepaid product. Other
open-loop products are used by third parties to distribute funds to
consumers, including payroll cards, cards for the disbursement of
student loans or insurance proceeds, and cards used to disburse Federal
and non-needs based State and local government benefits.\6\
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\4\ Mercator Advisory Group, Twelfth Annual U.S. Prepaid Cards
Market Forecasts, 2015-2018, at 8 (Dec. 2015) (Mercator 12th Annual
Market Forecasts).
\5\ Payment networks include Visa, MasterCard, American Express,
and Discover; ATM networks include NYCE, PULSE, STAR, and Cirrus.
\6\ As noted in the proposal, certain prepaid products are not
reloadable. See 79 FR 77102, 77104 (Dec. 23, 2014).
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Closed-loop and open-loop prepaid products are regulated by at both
the Federal and State level. Regulation E, for example, currently
contains protections for consumers who use payroll card accounts and
certain government benefit accounts, as well as consumers who use
certain gift cards and similar products.\7\ However, the status of GPR
cards and certain other newer prepaid products such as digital and
mobile wallets is less clear under existing regulation. As discussed in
greater detail throughout this notice, this final rule imposes a
comprehensive regulatory regime for prepaid accounts to ensure that
consumers who use them receive consistent protections. This part II.A
provides a condensed discussion of the detailed background information
contained in the proposal, which the Bureau considered and relied on in
preparing this final rule.\8\
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\7\ See Sec. Sec. 1005.18, 1005.15, and 1005.20, respectively.
\8\ See 79 FR 77102, 77103-77112 (Dec. 23, 2014).
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General Purpose Reloadable Cards
A GPR card is one of the most common and widely available forms of
open-loop prepaid products. GPR cards, which can be purchased at retail
locations as well as directly from financial institutions, can be
loaded with funds through a variety of means and can be used to access
loaded funds at POS terminals and ATMs, online, and often through other
mechanisms as well. Accordingly, they increasingly can be used as
substitutes for traditional checking accounts.\9\
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\9\ Throughout the supplementary information for this final
rule, the term checking account generally also refers to credit
union share draft accounts.
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The prevalence of GPR cards has grown rapidly. According to
estimates by the Mercator Advisory Group, the amount of funds loaded
onto GPR cards grew from under $1 billion in 2003 to nearly $65 billion
in 2012.\10\ 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 Mercator
Advisory Group further projects that the total dollar value loaded onto
GPR cards will grow annually by 5 percent through 2019, when it will
exceed $117 billion.\11\
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\10\ Mercator Advisory Group, Eleventh Annual U.S. Prepaid Cards
Market Forecasts, 2014-2017, at 13 (Nov. 2014).
\11\ Mercator Advisory Group, Thirteenth Annual U.S. Open-Loop
Prepaid Cards Market Forecasts, 2016-2019, at 9 (Sept. 2016)
(Mercator 13th Annual Market Forecasts).
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The Bureau notes that the top five GPR card programs (as measured
by the total number of cards in circulation) have maximum balance
amounts that vary significantly.\12\ To the extent that the cards have
a maximum balance cap, the range is between $2,500 and $100,000.\13\
One of these top five GPR card programs does not have a maximum balance
amount, but does have a monthly cash deposit limit of $4,000.\14\
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\12\ See First Annapolis, Chase Enhances Competitive Positioning
of Liquid (Sept. 2015), available at http://www.firstannapolis.com/articles/chase-enhances-competitive-positioning-of-liquid; see also
American Express Serve[supreg] Prepaid Card Cardholder Agreement,
available at https://serve.com/intuit/pdf/ServeTemp_Card_Agreement.pdf.
\13\ See Green Dot Card Cardholder Agreement, available at
https://www.greendot.com/content/docs/Legacy(4-2012).pdf; see also
American Express Serve[supreg] Prepaid Card Cardholder Agreement,
available at https://serve.com/intuit/pdf/ServeTemp_Card_Agreement.pdf.
\14\ See Chase Liquid Agreement, available at https://www.chase.com/content/dam/chasecom/en/debit-reloadable-cards/documents/chase_liquid_terms_conditions.pdf.
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Virtual GPR cards. Prepaid products are not all tied to a physical
card or device. Some may exist only electronically; these virtual
products are accessible and usable online or at a physical location
through a mobile device such as a smartphone. To use these ``virtual
GPR cards,'' consumers receive an account number or other information
that they can then use to make purchases using a mobile application or
other means. The use of GPR prepaid products not linked to a
[[Page 83937]]
physical card or device to store and transfer funds via the internet,
text, or mobile phone application appears to be growing.\15\
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\15\ See, e.g., Mercator Advisory Group, Consumers and Prepaid:
Rising Use, Especially by Mobile, at 16-18 (Dec. 2014).
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GPR Card Functionality
Consumers generally purchase or acquire GPR cards at retail
locations, over the telephone, or online. When buying a GPR card at a
retail location, consumers typically pay an up-front purchase fee. A
GPR card is usually loaded by the retailer at the time of purchase with
funds provided by the consumer. Some GPR cards purchased at retail are
activated at the time of purchase so that the card can be used
immediately for POS purchases and potentially certain other types of
transactions; other cards require the consumer to contact the financial
institution or program manager online or by phone to activate the card
before it can be used. However, in order to take advantage of all of
the GPR card's features, including to make ATM withdrawals and to be
able to reload the card, consumers are generally required to contact
the financial institution or program manager in order to register the
card. (Many financial institutions combine the activation and
registration process for GPR cards.) After registration, financial
institutions often send a permanent card embossed with the consumer's
name that, once activated, replaces the temporary card the consumer
acquired from the retailer. The process for acquiring GPR cards
directly from the financial institution or program manager online or by
telephone tends to be more streamlined; financial institutions
typically do not charge an up-front purchase fee and registration is
completed during the acquisition process before the consumer is mailed
a physical card.
Registration is driven both by Bank Secrecy Act (BSA) \16\
requirements and by the financial institution's desire to establish
full communications and an ongoing relationship with its customers. In
order for financial institutions to satisfy the BSA's Customer
Identification Program (CIP) requirements, financial institutions
typically require consumers 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) as part of
the registration process.\17\ The financial institution or program
manager uses the information to verify the consumer's identity. If the
consumer's identity cannot be verified, the card is not considered
registered; the consumer can typically spend down the card balance at
POS but cannot withdraw funds at an ATM and cannot reload the card.
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\16\ See, in part, 31 U.S.C. 5311 et seq. See also 31 CFR
chapter X.
\17\ See Bd. of Governors of the Fed. Reserve Sys., Fed. Deposit
Ins. Corp., Nat'l Credit Union Admin., Office of the Comptroller of
the Currency, Fin. Crimes Enforcement Network, Interagency Guidance
to Issuing Banks on Applying Customer Identification Programs to
Holders of Prepaid Access Cards (Mar. 21, 2016), available at http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160321a1.pdf.
Among other things, the guidance clarified that a financial
institution's CIP should apply to GPR cardholders if the GPR card is
issued by the financial institution.
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GPR cards can generally be reloaded through a variety of means,
including direct deposit of wages, pensions, or government benefits;
cash reloads conducted at, for example, retail locations designated by
the card issuer or program manager,\18\ or by purchasing a ``reload
pack'' at retail; transfer from another prepaid account, or a checking
or savings account; or deposit of a check at a participating check-
cashing outlet or via remote deposit capture.\19\ Consumers can
typically obtain cash from their GPR cards via ATM withdrawals, bank
teller transactions, or by electing to obtain cash back from merchants
through POS transactions using a personal identification number (PIN).
Additionally, consumers can typically make purchases with their GPR
cards wherever the payment network brand appearing on the card is
accepted. A number of GPR card programs also offer an online bill pay
function, which sometimes has a fee associated with it. Consumers can
typically obtain updates regarding their GPR card's account balance
(and, for some programs, recent transaction activity) via toll-free
telephone calls to the financial institution or program manager, text
messages, email alerts, the program's Web site or mobile application,
at ATMs, or by requesting written account histories sent by mail. 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 also incur fees to obtain balance information at ATMs.
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\18\ See, e.g., Green Dot Card Cardholder Agreement, available
at https://www.greendot.com/content/docs/CardholderAgreement-Legacy(4-2012).pdf.
\19\ The Bureau understands some financial institutions permit
consumers to reload GPR cards via paper checks mailed to the
financial institution or program manager.
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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
a 2012 study of consumer use of prepaid products by the Federal Reserve
Bank of Philadelphia, the Bureau believes average cardholder costs for
GPR and payroll cards range from approximately $7 to $11 per month,
depending on the type and distribution channel of the account.\20\ In a
2014 report, The Pew Charitable Trusts (Pew) estimated that the median
consumer using one of the 66 major GPR cards it examined would be
charged approximately $10 to $30 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.\21\ 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.\22\
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\20\ Stephanie Wilshusen et al., Consumers' Use of Prepaid
Cards: A Transaction-Based Analysis, at 39 (Fed. Reserve Bank of
Phila., Discussion Paper, 2012), available at http://www.philadelphiafed.org/consumer-credit-and-payments/payment-cards-center/publications/discussion-papers/2012/D-2012-August-Prepaid.pdf
(2012 FRB Philadelphia Study). 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.
\21\ The Pew Charitable Trusts, Consumers Continue to Load Up on
Prepaid Cards, at 39 (Feb. 2014), available at http://www.pewtrusts.org/en/research-and-analysis/reports/2014/02/06/consumers-continue-to-load-up-on-prepaid-cards (2014 Pew Study).
\22\ 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, with cash withdrawals accounting for about one-
third to one-half of the funds taken off a product, depending on the
product. The study also concluded that prepaid cards are used primarily
to purchase nondurable goods and noted that many of the products
studied were also used to pay bills.\23\
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\23\ Id.
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The types of consumers who use GPR cards and their reasons for
doing so vary. For consumers who lack access to more established
products such as bank accounts and credit cards, GPR cards can be
appealing because they are subject to less up-front screening by
financial institutions. While CIP requirements for checking and savings
[[Page 83938]]
accounts apply to GPR cards as well, banks and credit unions generally
review information about prospective checking and savings account
customers obtained from specialized reporting agencies that can reveal
a prior history of involuntary account closure, unsatisfied balances,
and other issues with prior account use. Even where financial
institutions do not intend to provide overdraft services to a consumer,
they may be motivated to evaluate potential checking account customers
for credit risk more closely than for prepaid customers. For example,
check deposits may be a more prevalent feature of checking accounts
than prepaid accounts and, because a deposited check can be returned
unpaid (in contrast to a cash deposit or load), a check deposit may
present credit risk to a financial institution. With respect to credit
cards, approvals are generally contingent on a consumer successfully
navigating an underwriting process to determine whether an applicant is
an appropriate credit risk. In contrast, most financial institutions do
not engage in screening or underwriting GPR customers (aside from CIP)
because the product involves little credit risk.
In light of these distinctions, it is not surprising that consumers
who lack access to more established financial products such as bank
accounts and credit cards consistently make up a sizeable segment of
the consumer base that uses GPR cards on a regular basis. For example,
a 2014 Pew survey found that 41 percent of prepaid card users did not
have a checking account, and that 26 percent of the consumers in this
group believed that they would not be approved for a checking
account.\24\ It also found that prepaid card users were much more
likely to use an alternative financial product or service, such as a
payday loan, compared to consumers in the general population (40
percent vs. 25 percent).\25\ The survey also found that 33 percent of
monthly users of open-loop prepaid products have never had a credit
card.\26\ A 2015 Pew survey suggested that unbanked prepaid card users
tended to be less knowledgeable than consumers with bank accounts about
whether their prepaid card had FDIC insurance and about liability
limits if their card is lost or stolen.\27\
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\24\ The Pew Charitable Trusts, Why Americans Use Prepaid Cards:
A Survey of Cardholders' Motivations and Views, at 7, 14 (Feb.
2014), available at http://www.pewtrusts.org/~/media/legacy/
uploadedfiles/pcs_assets//prepaidcardssurveyreportpdf.pdf (2014 Pew
Survey). It appears that the prepaid products discussed in the
report included GPR cards, payroll cards, and government benefit
cards. The report excluded closed-loop prepaid products.
\25\ Id. at 9.
\26\ See Id. 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 applications denied.
\27\ The Pew Charitable Trusts, Banking on Prepaid: Survey of
Motivations and Views of Prepaid Card Users, at 10-12 (June 2015),
available at http://www.pewtrusts.org/en/research-and-analysis/reports/2015/06/banking-on-prepaid (2015 Pew Survey).
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Consistent with Pew's findings, a 2013 survey by the FDIC found
that approximately 33 percent of those who reported using a prepaid
card in the 30 days prior to being surveyed were unbanked.\28\ More
broadly, the survey found that 19.7 percent of underbanked and 27.1
percent of unbanked households, as well as 33 percent of previously
banked households,\29\ reported having used such cards (compared with
12 percent reported use in the entire population).\30\ The FDIC also
found that while GPR card usage among all households had 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 to 27.1 percent in 2013.\31\ The FDIC survey
also found that prepaid card users were more likely than the general
population to be young, single mothers, or disabled, and to have
incomes below $50,000; they were less likely than the general
population to be homeowners, white, have college degrees, and to be
employed.\32\
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\28\ See Fed. Deposit Ins. Corp., 2013 FDIC National Survey of
Unbanked and Underbanked Households, at 31 (Oct. 2014), available at
https://www.fdic.gov/householdsurvey/2013report.pdf (2013 FDIC
Survey). The FDIC survey found, generally, that there are
approximately 30 million unbanked and underbanked households in the
United States. Like Pew, the FDIC found that unbanked and
underbanked consumers are more likely than the general population to
use open-loop prepaid products such as GPR cards. Id. at 4.
\29\ Previously banked households are households that had a bank
account in the past. The FDIC survey treats these households as a
subset of unbanked households. 2013 FDIC Survey at 29.
\30\ Id.
\31\ Id.
\32\ 2013 FDIC Survey at 46-47.
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For consumers with access to traditional financial products and
services, GPR cards may be appealing as a limited-use product instead
of as a transaction account substitute.\33\ For example, 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.\34\ 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 to
help them better manage their funds. For example, a family might budget
a fixed amount each month for dining out and put those funds on a GPR
card, or parents may provide a GPR card, as opposed to a credit card
for example, to a child at college to control the child's spending. Pew
has found that the majority of both unbanked and banked GPR card users
would like their cards to have a feature allowing them to put some of
their card balances into savings and a budgeting tool that would track
their spending in different categories automatically and alert them if
they overspent.\35\
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\33\ 2014 Pew Survey at 7. It found that 59 percent of prepaid
card users also have a checking account and that most prepaid card
users also have experience using credit cards, with almost half
having used a credit card in the past year.
\34\ See, e.g., 2014 Pew Survey at 1, 13.
\35\ 2015 Pew Survey at 7.
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Additionally, for both unbanked and banked consumers, the desire to
avoid overdraft services associated with checking accounts appears to
motivate many consumers to choose GPR cards over checking accounts. The
2015 Pew Survey reports that most GPR prepaid card users would rather
have a purchase denied than overdraft their accounts and incur an
overdraft fee.\36\ Its 2014 survey found that 41 percent of prepaid
users have closed or lost a checking account due to overdraft fees or
bounced check fees.\37\ As discussed further below, in contrast to
checking overdraft fees, which are often $35 per item,\38\ GPR cards
generally are not offered with an overdraft service nor other credit
features, and the few exceptions appear to involve smaller fees.\39\
Indeed, the Bureau has observed that many GPR cards are advertised as a
``safe'' or ``secure'' alternative to a
[[Page 83939]]
checking account precisely because they do not offer overdraft
services.
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\36\ Id.
\37\ 2014 Pew Survey at 8.
\38\ As part of this rulemaking, the Bureau calculated the
median checking account overdraft fee charged as of July 2014 among
the 50 largest U.S. banks ranked by consumer checking balances at
$35 per item. Nearly all banks 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 banks have
higher overdraft fees that apply after a certain number of overdraft
occurrences. However, the Bureau's analysis considered only the
lowest-tier fees a consumer would encounter if de minimis or other
policies do not preclude a fee. For banks that charge different
amounts in different regions, Bureau staff considered pricing for
the region where the bank is headquartered.
\39\ See, e.g., 2014 Pew Study at 4, 9-10.
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Based on the Bureau's market research and analysis, the Bureau
believes that consumer acceptance of GPR cards will grow. It also
believes that some consumers that currently use GPR cards may
increasingly find that they no longer want or need to have traditional
financial products and services such as a checking account or a credit
card in addition to their GPR card as these products continue to
evolve. 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 the ability to write checks
using pre-authorized checks. Similarly, many GPR programs allow third
parties to credit the GPR card account via ACH (e.g., through direct
deposit) and in more limited circumstances, to debit the GPR card
account via ACH. 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
smart 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. The 2015 Pew Survey found that for
both unbanked and banked GPR card users, more than half monitor their
account balances through online access.\40\ Lastly, as discussed above,
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.
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\40\ 2015 Pew Survey at 13.
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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.\41\ Nevertheless,
various factors continue to negatively affect consumers' ability to
make meaningful comparisons.\42\ Because card packaging is generally
designed to be sold in retail stores, the ``J-hook package'' is no
larger than 4 inches by 5.25 inches.\43\ Thus, card packages have
limited space in which to explain their product and disclose key
features. Consumer groups have also criticized GPR product providers
for making comparison shopping challenging by, for example, using
different terms to describe similar fees and providing consumers with
incomplete information about fees.\44\ In addition to the size
limitations on GPR card packaging, certain other aspects of purchasing
GPR cards in retail settings may also pose obstacles to comparison
shopping. For example, some retail locations may only offer one or a
few types of GPR cards.\45\ Some stores may only display prepaid
products behind a register, requiring a consumer to ask to see each
product individually, and stores may display GPR cards with or near
closed-loop products such as prepaid cellular phone plan cards or gift
cards. Store personnel may not be sufficiently familiar with the
different products to respond accurately to consumer questions. When
consumers are purchasing a GPR card along with groceries and
convenience items, general time pressures may cause consumers to make
decisions quickly and ask fewer questions.
---------------------------------------------------------------------------
\41\ See, e.g., Fed. Reserve Bank of St. Louis, Cards, Cards and
More Cards: The Evolution to Prepaid Cards, Inside the Vault, at 1,
2 (Fall 2011), 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.''). See also 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.'').
\42\ 2014 Pew Survey at 5, 6.
\43\ 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.
\44\ See, e.g., Consumer Reports, Prepaid Cards: How They Rate
2014, at 5 (Nov. 2014), available at https://consumersunion.org/wp-content/uploads/2014/11/Prepaid_Cards_How_They_Rate_2014.pdf.
\45\ Prepaid card providers can establish exclusive marketing
arrangements that may prevent competitors' cards from being sold in
the same store. See, e.g., Press Release, Blackhawk Network,
Blackhawk Network, Safeway and Blackhawk extend exclusive prepaid
card distribution agreement through 2019 (Mar. 7, 2014), available
at http://blackhawknetwork.com/blackhawk-comments-on-parent-company-safeways-spin-off-announcement/. The press release announced that
Blackhawk Network Holdings, Inc., a major prepaid product provider,
extended its exclusive distribution arrangement with Safeway Inc.
through 2019.
---------------------------------------------------------------------------
All of these factors mean that consumers often purchase a card and
load initial funds on it before they have an opportunity to review the
full terms and conditions. Retail locations often cannot refund the
cash loaded onto the card, and the Bureau believes that few consumers
are likely to realize that refunds may be available from the GPR card
programs. Thus, it is likely far more typical that consumers would
spend down the funds initially loaded onto a GPR card and then discard
it if they find it to be unsatisfactory as a long-term product.
However, monthly maintenance fees may continue to accrue on spent-down
cards. Moreover, the 2015 Pew Survey suggests that it can be
particularly difficult for unbanked GPR card users to disentangle
themselves from their cards. For example, Pew reported that more than
40 percent of unbanked GPR card users put their wages on their GPR
cards through direct deposit and approximately 75 percent of them
reload their cards regularly.\46\
---------------------------------------------------------------------------
\46\ 2015 Pew Survey at 5.
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Structure of Typical GPR Card Programs
GPR cards are generally provided by combinations of entities
working together rather than by a single, vertically integrated entity
operating all aspects of the GPR card program. Although a consumer may
only interact with a single entity or limited number of entities, the
Bureau believes that the presence of many different companies 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 a business partner, than those associated
with a traditional vertically integrated checking or savings account
program. The Bureau discusses the various entities that may be involved
in a typical GPR card program below.
Entities involved in a typical GPR card program. One of the most
important entities involved in a GPR card program is the prepaid card
issuer, which is typically either a depository institution or credit
union. Some of the major payment card networks' rules require that GPR
cards bearing their brand be issued by banks or credit unions, although
one payment card network that issues its own cards does so through a
non-bank entity. Issuers also typically manage the underlying accounts
that hold funds loaded onto the cards. Some banks and credit unions are
actively involved in all aspects of their GPR card programs, serving as
program manager as well as issuer. Other banks and credit unions act as
issuers and provide sponsorship into specific payment card networks,
but work with a non-bank entity that serves as the program manager.
Program managers are generally responsible for designing, managing,
marketing, and operating GPR card programs. The Bureau understands that
variations in issuers' roles can be driven by the extent to which the
program manager performs particular services by itself, as well as
[[Page 83940]]
due to the particular features of a specific GPR card program.\47\
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\47\ 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 offer prepaid accounts (typically as a convenience to their
customers or members).
---------------------------------------------------------------------------
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.\48\ Some program managers may exercise
substantial control over and responsibility for GPR card programs. For
example, some program managers maintain the databases that contain
cardholder account and transaction histories. They also approve and
decline transactions.\49\ 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.\50\
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\48\ See Fumiko Hayashi & Emily Cuddy, General Purpose
Reloadable Prepaid Cards: Penetration, Use, Fees, and Fraud Risks,
at 6 (Fed. Reserve Bank of Kan. City, Working Paper No. RWP 14-01,
Feb. 2014), available at https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf (2012 FRB Kansas City Study).
\49\ Id.
\50\ Id. See also Aite Group LLC, Prepaid Debit Card Realities:
Cardholder Demographics and Revenue Models, at 17 (Nov. 2013).
---------------------------------------------------------------------------
Program managers often contract with other third-party service
providers to perform specific functions for a GPR card program. To
produce, market, and sell GPR cards, program managers often work with
manufacturers that are responsible for printing and assembling the
cards and associated packaging. 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, payment processors often provide many of the back-office
processing functions associated with initial account opening (including
those related to transitioning from temporary to permanent cards),
transaction authorization and 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. Prepaid products including GPR cards differ
from traditional checking or savings accounts 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 NCUA pass-through
share insurance.
Revenue generation. The Bureau understands that GPR cards typically
generate revenue through the up-front purchase price paid by the
consumer where applicable, the assessment of various monthly
maintenance and/or transactional fees, and interchange fees collected
from merchants by the payment networks. The 2012 FRB Philadelphia Study
found that interchange fees paid by a merchant or acquiring bank for
the purpose of compensating an issuer for its involvement in prepaid
programs account for more than 20 percent of issuer revenues in GPR
programs and almost 50 percent of revenues in payroll program.\51\ The
Bureau understands that in most cases, publicly available details of
how revenue is distributed and expenses are accounted among entities
involved in the GPR card supply chain is sparse, although as discussed
above, program managers generally reap the bulk of the revenue from GPR
card programs. The Bureau believes that allocation of revenue and
expenses likely varies across programs.
---------------------------------------------------------------------------
\51\ 2012 FRB Philadelphia Study at 6.
---------------------------------------------------------------------------
Prepaid Products Distributed and Funded by Third Parties
Consumers may also receive network-branded open-loop prepaid
products from third parties such as employers, student aid sources,
insurance companies, and government agencies that disburse funds to
consumers by loading the funds into such accounts. These prepaid
products are thus taking the place of distributions to the consumer via
paper check, direct deposit into a traditional checking or savings
account, or cash. The following discussion highlights some of the most
common or fastest growing open-loop prepaid products onto which funds
are loaded that are distributed to consumers by third parties.
Payroll cards. Payroll cards are the most common example of prepaid
products used by third parties to distribute funds to consumers. In
2013, over 5 million payroll cards were issued, and $30.6 billion was
loaded onto them.\52\ According to the Mercator Advisory Group, payroll
cards make up the second largest segment in the U.S. open-loop prepaid
product market.\53\ The total amount of funds loaded onto payroll cards
is expected to grow on average 6 percent each year through 2019, when
it will reach $44.6 billion.\54\ While direct deposit into consumer
accounts remains the most popular form of wage distribution
overall,\55\ the number of consumers who receive their wages on payroll
cards surpassed the number of consumers paid by paper checks for the
first time in 2015, and an estimated 12.2 million workers are expected
to receive their wages on payroll cards by 2019, compared to an
estimated 2.2 million workers who are expected to get paper checks.\56\
---------------------------------------------------------------------------
\52\ See Mercator Advisory Group, Eleventh Annual U.S. Prepaid
Cards Market Forecasts, 2014-2017, at 32 (Nov. 2014).
\53\ Mercator 13th Annual Market Forecasts at 28. The payroll
card segment, as measured by the Mercator Advisory Group, is made up
of wages paid to employees and 1099 workers using an employer-
provided prepaid card.
\54\ Id. at 29.
\55\ Aite Group LLC, Checkmate: U.S. Payroll Cards Trump Paper
Checks, at 5 (Apr. 2015) (reporting that according to the American
Payroll Association, 90 percent of all employees currently receive
their pay through direct deposit to checking accounts).
\56\ Id. at 6.
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An employer generally works with a financial institution to set up
a payroll card program. Among other things, the financial institution
issues the payroll cards and holds the funds loaded into the payroll
card accounts. Section 1005.10(e)(2) of Regulation E prohibits
financial institutions and employers from requiring consumers to agree
to have their compensation distributed via a payroll card as a
condition of employment. As discussed in greater detail below, the
Bureau is finalizing specific disclosure requirements as part of the
short form disclosure, to make clear Sec. 1005.10(e)(2)'s
applicability to payroll card accounts. Where employees choose to
participate in a payroll card program, the employer will provide the
employee with a network-branded prepaid card issued by the employer's
financial institution partner that
[[Page 83941]]
accesses a subaccount assigned to the individual employee. 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, and may also be able to obtain cash back at 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 to receive wages for employees who may lack a
traditional banking relationship, and that unbanked consumers may find
the cards to be 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. Nonetheless, within the last 10 years,
there have been increasing concerns raised about payroll cards, with
specific focus on potentially harmful fees and practices associated
with them. These problematic practices may impact low-income consumers
disproportionately, as it has been reported that payroll cards are
especially prevalent in industries that have many low-wage, hourly
workers.\57\
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\57\ Nat'l Consumer L. Ctr., Rating State Government Payroll
Cards, at 5 (Nov. 2015), available at http://www.nclc.org/images/pdf/pr-reports/payroll-card-report.pdf.
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As explained in greater detail below, the Bureau issued a guidance
bulletin in September 2013 to remind employers that they cannot require
their employees to receive wages on a payroll card and to explain 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.\58\ Although it appears that certain industry stakeholders have
worked to develop industry standards incorporating and building upon
the guidance given in the bulletin,\59\ 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.\60\ 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.\61\
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\58\ CFPB Bulletin 2013-10, Payroll Card Accounts (Regulation E)
(Sept. 12, 2013), available at http://www.consumerfinance.gov/f/201309_cfpb_payroll-card-bulletin.pdf.
\59\ 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/.
\60\ See, e.g., N.Y. St. Att'y Gen., Labor Bureau, The Impact of
Payroll Cards on Low-Wage Workers, available at http://www.ag.ny.gov/pdfs/Pinched%20by%20Plastic.pdf.
\61\ See, e.g., http://paycard.americanpayroll.org/compliance-regulations (listing the various State regulations that apply to
payroll cards).
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The Bureau additionally believes that payroll card accounts raise
transparency issues beyond those addressed by its payroll card accounts
guidance bulletin. Employers may offer a payroll card account when an
employee starts employment, when it is likely that the question of how
the employee is to be paid will be one of many 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. The
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. Employees who want to
complete their hiring paperwork in a single setting may not take the
opportunity to comparison shop. Separately, some industry observers
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, for instance by
creating incentives to increase the fees on payroll card products.
Campus cards. Federal law permits Federal financial aid to be
disbursed to students via prepaid products.\62\ A number of colleges
and universities partner with banks and program managers to market and
often disburse student financial aid proceeds into network-branded
open-loop prepaid products that are endorsed by those colleges and
universities, as a potential alternative to direct deposit into a
student or parent's existing checking account, prepaid account, or
other means of disbursement. The total amount of funds loaded in the
open-loop campus card segment grew by 15 percent in 2015, to $2.72
billion, and is forecasted to have an average annual growth rate of 10
percent through 2019, when it is forecasted to reach $3.98 billion.\63\
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\62\ See 34 CFR 668.164(c)(2) (treating certain Federal student
aid payments disbursed via ``an account that underlies a stored-
value card'' as direct payments to a student or parent).
\63\ Mercator 13th Annual Market Forecasts at 16. These figures
include campus cards used by colleges and universities, as well as
K-12 institutions.
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Similar to payroll card accounts, some have raised concerns about
the ways in which students are encouraged to obtain an endorsed prepaid
product and with the potential incentives created by 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 banks and program
managers to provide debit and prepaid card services for students,
approximately 20 percent of such agreements were for prepaid cards.\64\
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.\65\
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\64\ U.S. Gov't Accountability Office, GAO-14-91, College Debit
Cards, Actions Needed to Address ATM Access, Student Choice,
Transparency, a Report to the Chairman, Committee on Health,
Education, Labor, and Pension, U.S. Senate, at 8 (Feb. 2014),
available at http://www.gao.gov/assets/670/660919.pdf. The GAO found
that the rest of the agreements were for debit cards.
\65\ Id. at 9.
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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.\66\ 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.\67\ As discussed in greater detail below, the U.S. Department of
Education (ED) issued a final rule in October 2015 that addresses a
number of concerns with campus cards that the GAO described in its
report.
---------------------------------------------------------------------------
\66\ 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.
\67\ Id.
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Government benefit cards. Government entities also distribute
[[Page 83942]]
various funds onto prepaid products by partnering with financial
institutions and program managers. In its latest annual report to
Congress on the prevalence of prepaid card use in Federal, State, and
local government-administered payment programs, the Board reports that
a number of government entities now mandate that recipients receive
payments electronically, through either a prepaid card or direct
deposit.\68\ The Board reported that government offices distributed
$150 billion through prepaid cards in 2015.\69\ The Federal government
and various State governments may use prepaid products to distribute
government benefits such as Social Security payments,\70\ unemployment
insurance benefits,\71\ and child support payments, as well as a
distinct set of disbursements called needs-tested benefits.
---------------------------------------------------------------------------
\68\ Bd. of Governors of the Fed. Reserve Sys., Report to the
Congress on Government Administered, General-Use Prepaid Cards, at 3
(July 2016), available at http://www.federalreserve.gov/publications/other-reports/files/government-prepaid-report-201607.pdf (2016 FRB Government Prepaid Cards Report).
\69\ Id. at 1.
\70\ The U.S. Department of the Treasury (Treasury) has
established the Direct Express program for the distribution of
government benefits such as Social Security payments.
\71\ See, e.g., Nat'l Consumer Law Ctr., 2013 Survey of
Unemployment Compensation Prepaid Cards, at 3, 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 unemployment compensation payments).
---------------------------------------------------------------------------
Most States offer a choice at least between direct deposit to a
traditional checking or savings account or a prepaid product for the
receipt of unemployment insurance benefits. However, the Bureau is
aware that, in the recent past, several States have required the
distribution of at least the first payment of such benefits onto
prepaid cards.
State and local government programs for distributing needs-tested
benefits are typically referred to as electronic benefit transfer (EBT)
programs. 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). According to the Board, State
agencies administering SNAP disbursed approximately $69 billion onto
EBT cards in 2015.\72\ As noted below in the discussion of relevant
law, Regulation E does not apply to EBT programs.\73\
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\72\ 2016 FRB Government Prepaid Cards Report at 5.
\73\ EFTA section 904(d)(2)(B); Sec. 1005.15(a)(2).
---------------------------------------------------------------------------
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.\74\ The features of and fees charged in
connection with these cards may vary.
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\74\ See, e.g., Navy Cash/Marine Cash, (http://fms.treas.gov/navycash/index.html) and Eagle Cash, (https://www.fiscal.treasury.gov/fsservices/gov/pmt/eagleCash/eagleCash_home.htm). 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.
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Other open-loop prepaid cards distributed and funded by third
parties. Open-loop prepaid cards are also used by some insurance
providers to pay certain insurance claims such as claims related to a
property or casualty loss and for emergency payments designed to help
consumers get through immediate problems.\75\ During the Bureau's pre-
proposal 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 who may be unable to use or
access traditional checking or savings accounts. The Mercator Advisory
Group reports that the total amount loaded onto insurance cards is
expected to grow at a rate of 3 percent per year through 2019, when
loads are expected to exceed $13 billion.\76\
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\75\ Mercator 12th Annual Market Forecasts at 28.
\76\ Mercator 13th Annual Market Forecasts at 26. The insurance
category in the report measures funds loaded onto prepaid cards for
disbursements of insurance settlements and for emergency payments.
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Similarly, taxpayers may direct tax refunds onto prepaid cards
provided by tax preparers or arranged by government entities. These
cards are typically open-loop and may or may not be reloadable. 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.\77\ 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.\78\
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\77\ See, e.g., Ventra Card, https://www.ventrachicago.com/ (the
city of Chicago's mass transit card has reloadable open-loop
features). See also SEPTA, http://www.septa.org/key/ (the city of
Philadelphia announced that its mass transit card will also have
reloadable open-loop features).
\78\ As discussed in greater detail below in the section-by-
section analysis of Sec. 1005.2(b)(3)(ii), the final rule excludes
from the definition of prepaid account those accounts that are
directly or indirectly established through a third party and loaded
only with qualified disaster relief payments.
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As evidenced by the discussions above in connection with payroll
and campus cards, prepaid products loaded by third parties can raise a
number of consumer protection concerns. Some of these issues appear to
be largely the same as GPR cards on items such as the lack of clear,
consistent disclosures about fees and other important terms and
conditions. Consumers may use these products as their primary
transaction accounts, particularly when the products are loaded with
all of the consumers' incoming funds (e.g., wages, unemployment
benefits, student loan proceeds). 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.
However, the Bureau believes that some consumer issues may be
heightened or unique to particular categories of prepaid products
loaded by third parties. For example, in selecting a GPR card, the
consumer is making a distinct purchase decision; while some sales
channels may be more convenient than others for comparison shopping,
the consumer is in any event focused on the transaction as a standalone
decision. Where a prepaid product is being provided to a consumer by a
third party, however, the consumer may be deciding whether to accept
the prepaid product in the course of another activity (such as starting
a new job or school term, or dealing with a catastrophic event).
Consumers may not understand the extent to which they can reject the
product being offered, may not have a practicable option to comparison
shop under the circumstances if they do not already have a transaction
account to serve as an alternative, and may have concerns about
upsetting an employer or other third party by rejecting the option. In
addition, where there are revenue sharing arrangements in place, the
third party may have a financial incentive to select a product offering
with higher fees and to structure the sign-up process in a way that
tends to increase participation. Further, the
[[Page 83943]]
Bureau understands many of the prepaid accounts that are loaded by
third parties 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
A consumer may keep cash, debit and credit cards, GPR cards, and
gift cards in a physical wallet or purse. ``Digital wallets'' and
``mobile wallets'' (i.e., digital wallets that a consumer could access
using a mobile device such as a smartphone) similarly store one or more
of the consumer's payment credentials electronically.\79\ These payment
credentials may be accessed by the consumer through a Web site or
mobile application. The Bureau understands that some, but not all,
digital and mobile wallets allow a consumer to store funds in them
directly or by funding a prepaid product, and draw down the stored
funds. A 2015 survey by the Board suggests that digital wallets serve
as an important funding source for mobile payments (i.e., consumer
payment for goods and services using mobile phones). The survey
reported that 15 percent of mobile payment users reported that they
used an account at a non-financial institution such as PayPal to fund
their payments.\80\
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\79\ Aite Group LLC, Money Goes Mobile (May 2014).
\80\ Bd. of Governors of the Fed. Reserve Sys., Consumers and
Mobile Financial Services 2015, at 17 (Mar. 2015), available at
http://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201503.pdf (2015 FRB Consumers and Mobile
Financial Services Survey). The survey was updated in 2016. The
percentage of mobile payment users reported that they used an
account at a non-financial institution such as PayPal to fund their
payments appears to have held steady at 16 percent. See Bd. of
Governors of the Fed. Reserve Sys., Consumers and Mobile Financial
Services Survey 2016, at 17 (Mar. 2016), available at http://www.federalreserve.gov/econresdata/and-mobile-financial-services-report-201603.pdf (2016 FRB Consumers and Mobile Financial Services
Survey).
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Digital and mobile wallets have been marketed as allowing consumers
to electronically transmit funds in multiple settings. Currently, such
wallets can be used by a consumer for online purchases,\81\ payments at
brick-and-mortar retailers through, for example, contactless
communication at the point of sale,\82\ as well as person-to-business
(i.e., bill pay) and P2P transfers.\83\ The Bureau understands that
there may be significant variations in how funds are held in digital
and mobile wallets and how payments are processed by such wallets. It
also understands that payment processing by digital and mobile wallets
is evolving quickly. For instance, some such wallets provide methods
for accessing the ACH system to make a payment. A consumer might use
such a digital or mobile wallet to pay for an online purchase, and the
wallet would facilitate 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 or mobile wallet
either by the consumer or the wallet provider, and then transferred to
the ultimate payee. For example, it may be possible for a consumer to
maintain a positive balance in the digital or mobile wallet through
transfers from sources such as a bank account, a credit, debit, or
prepaid card, or a P2P transfer. The consumer's digital or mobile
wallet balance may be held in the name of the wallet provider. The
Bureau expects that variations of digital and mobile wallets will
continue to grow and observes that the methods described herein are a
few of the funding options available in the current market. As
discussed above, the application of EFTA and Regulation E to digital
and mobile wallets has been less clear than the application of the
statute and the regulation to prepaid products such as payroll card
accounts and government benefit accounts.\84\
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\81\ See, e.g., Visa Checkout Terms of Service, https://secure.checkout.visa.com/pages/terms?country=VUS&locale=en.
\82\ See, e.g., Google Wallet Terms of Service, https://wallet.google.com/termsOfService?type=BUYER&gl=US.
\83\ See, e.g., Boost Mobile Wallet Terms of Service, https://boostmobile.wipit.me/legal/terms.aspx.
\84\ Law360, PayPal Customers Take Another Stab at $3.2M Class
Deal (Sept. 10, 2015), available at http://www.law360.com/articles/701403/paypal-customers-take-another-stab-at-3-2m-class-deal. The
class action was brought by PayPal customers to sue PayPal for,
among other things, alleged violations of EFTA in managing the
customers' accounts.
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Credit Features, Overdraft Programs, and Prepaid Products
As described briefly above, most prepaid products as currently
offered and marketed do not generally 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,\85\ a linked line of credit,\86\ access to a
deposit advance product,\87\ or other method of accessing formal credit
features in connection with a prepaid product.\88\ 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.\89\ Prepaid account
[[Page 83944]]
balances can nonetheless be taken negative under certain limited
circumstances, however. Specifically, so-called ``force pay''
transactions can occur when the prepaid account issuer either does not
receive a request to authorize a transaction in advance or the final
transaction amount is higher than the authorized amount, and the
prepaid account issuer is required by card network rules to pay the
transaction even though there are insufficient or unavailable funds in
the prepaid account to cover the transaction at settlement. In such
circumstances, prepaid issuers generally are not charging credit-
related fees to consumers in connection with force pay transactions.
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\85\ As discussed further below, overdraft services evolved in
the context of checking accounts from ad hoc, discretionary programs
in which financial institutions would sometimes cover particular
transactions that would otherwise overdraw a checking account as a
courtesy to the consumer rather than return the transaction and
subject the consumer to a not sufficient-funds fee, merchant fees,
and other negative consequences from bounced checks. Overdraft
services fees are generally imposed on a per-transaction basis, and
the financial institution takes the balance owed as soon as
additional funds are deposited into the account. As explained below,
the Board exempted overdraft services from regulation under TILA and
Regulation Z, unless the payment of items that overdraw an account
and the imposition of the charges for paying such items were
previously agreed upon in writing. 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 from the consumer before imposing overdraft
fees on ATM and one-time debit card transactions. See Sec.
1005.17(b).
\86\ 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 a 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 TILA 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.
\87\ 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, Payday and Deposit Advance Products: A White
Paper of Initial Data Findings (Apr. 24, 2013), available at http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf;
see also FDIC and OCC Final Guidance on Supervisory Concerns and
Expectations Regarding Deposit Advance Products, 78 FR 70552 and 78
FR 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.
\88\ 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.
\89\ See, e.g., Network Branded Prepaid Card Ass'n, Prepaid Card
Benefits, http://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx (last visited Oct. 1, 2016) (``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, C.E.O., NetSpend Holdings, Inc.) (``Our
customers are typically working Americans who want control. . .
.'').
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As also discussed above, according to the 2014 Pew Survey, 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.\90\ The survey also reported that a slight majority of
participants stated that one of the major reasons that they use prepaid
products is that those products help those consumers control their
spending.\91\ Similarly, the Bureau's own focus groups also found that
many consumers choose prepaid products because the products help them
control their spending.\92\
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\90\ 2014 Pew Survey at 1.
\91\ Id. 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).
\92\ ICF Int'l, ICF Report: Summary of Findings: Design and
Testing of Prepaid Card Fee Disclosures, at 5 (Nov. 2014), available
at http://files.consumerfinance.gov/f/201411_cfpb_summary-findings-design-testing-prepaid-card-disclosures.pdf (ICF Report I).
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It also appears that many consumers specifically seek to acquire
prepaid products that do not offer overdraft 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. As discussed above, 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.\93\ Relatedly, the survey reported that prepaid products
are often used by consumers who cannot obtain a checking account due to
bad credit or other issues.\94\ 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.\95\
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\93\ 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'').
\94\ Id. at 8 (noting that 34 percent of prepaid consumers who
ever had a checking account say they have closed a checking account
themselves because of overdraft or bounced check fees, and 21
percent say they have had a financial institution close their
account because of overdraft or bounced check fees.
\95\ See ICF Report I at 5; see also 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).
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Apart from consumers' reasons for favoring prepaid products,
regulatory factors may also have discouraged prepaid product providers
from offering overdraft credit features in connection with their
products. The Bureau understands that some prepaid issuers have
received guidance from their prudential regulators that has deterred
these financial institutions from allowing prepaid cards they issue to
offer overdraft 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
offering of deposit advance products in connection with prepaid
accounts.\96\ Further, while a number of industry commenters to the
Prepaid ANPR expressed interest in offering overdraft 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. In addition, as discussed further below, the Bureau
understands that a Dodd-Frank Act provision affecting interchange fees
on prepaid products with overdraft features seems to have further
discouraged activity.\97\ The Board found that among prepaid cards
provided to consumers pursuant to government-administered payment
programs, virtually all revenue from overdraft fees disappeared in
2014.\98\
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\96\ 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.
\97\ The debit card interchange restrictions and exemptions
thereto are discussed in greater detail in part II.B below.
\98\ See Bd. of Governors of the Fed. Reserve Sys., Report to
the Congress on Government Administered, General-Use Prepaid Cards,
at 9 (July 2015), available athttp://www.federalreserve.gov/publications/other-reports/files/government-prepaid-report-201507.pdf (2015 FRB Government Prepaid Cards Report). See also 2016
FRB Government Prepaid Cards Report at 8.
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The Bureau understands that currently, credit features are
generally not being offered on prepaid accounts. When they are offered,
the Bureau understands that they are typically structured as overdraft
services,\99\ which in some ways appear less expensive as well as more
consumer friendly in other respects than their checking account
analogs.\100\ For example, the programs charge a per transaction fee
each time the consumer incurs an overdraft (e.g., one program charges
$15), although the fees tend to be lower than those charged for
overdraft services on checking accounts (median fee as of July 2014 was
$35).\101\ Along these lines, one recent study found that for consumers
who overdraft, under the currently available programs, GPR cards are
significantly less costly than checking accounts. For these consumers,
the study found that the average total cost of checking accounts per
month ranged between $86 and $112, while GPR cards' monthly costs
ranged between $38 and $57.\102\ In addition, some
[[Page 83945]]
programs will waive the overdraft fee if the consumer repays the
overdraft quickly (e.g., within 24 hours) or if the amount by which the
account is negative is only for a nominal amount (e.g., $5 or $10).
Further, some programs may 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 impose ``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.
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\99\ The Bureau is aware of one prepaid account program where a
linked credit service is structured as a line of credit.
\100\ See Ctr. for Fin. Services Innovation, CFSI Prepaid
Industry Scorecard: Assessing Quality in the Prepaid Industry with
CFSI's Compass Principles, at 11 (March 2014), available at http://www.cfsinnovation.com/CMSPages/GetFile.aspx?guid=b596e5ee-41fe-4d30-82e7-a9cbf407a716 (2014 CFSI Scorecard) (noting that only two in a
survey of 18 GPR programs representing 25 percent of the market
currently offers an opt-in overdraft service); CFPB, Study of
Overdraft Programs: A White Paper of Initial Data Findings, at 14
(June 2013), available at http://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf (CFPB Overdraft White
Paper) (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.
\101\ As part of this rulemaking, 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.
\102\ Fumiko Hayashi et al., Driver of Choice? The Cost of
Financial Products for Unbanked Consumers, at 20 (Fed. Reserve Bank
of Kan. City, Working Paper No. 15-15, Nov. 2015), available at
https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp15-15.pdf
(the authors assumed that a consumer who overdrafts makes at most
one overdraft transaction in a day and each overdraft transaction
results in four consecutive days of negative balance in the
consumer's account).
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Revenue from overdraft services does not appear to have
significantly influenced the pricing structure of prepaid products
overall, as has happened with traditional checking accounts as
discussed further below. Indeed, as noted 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, 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.\103\ As a result,
banks and credit unions have developed checking accounts to have low
(or sometimes no) up-front costs, to add services such as online bill
pay \104\ at no additional cost, and to rely on ``back end'' fees such
as per transaction overdraft fees and non-sufficient funds (NSF) fees
to maintain profitability. The Bureau believes that 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 payment networks.\105\
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\103\ According to information supplied to the Bureau as part of
its large bank overdraft study and reported in the CFPB 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.
\104\ Such bill pay services may include not only electronic
payments through the ACH network, but also manual generation of
checks authorized through the bank or credit union's online bill pay
portal. Id at 12.
\105\ For example, in both 2013 and 2014, one major program
manager derived approximately 60 percent of its operating revenue
from cash-reload fees and interchange fees. See Green Dot Corp.,
2014 Annual Report, at 29 (2015), available at http://phx.corporate-ir.net/phoenix.zhtml?c=235286&p=irol-reportsAnnual; see also Green
Dot Corp., 2015 Annual Report, at 30 (2016), available at http://phx.corporate-ir.net/phoenix.zhtml?c=235286&p=irol-reportsAnnual.
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The Bureau understands that program managers of prepaid products
with overdraft credit features have structured their products to comply
with Regulation E's rules regarding overdraft services. Specifically,
the Bureau understands that providers of overdraft programs on GPR and
payroll card accounts purport to provide a disclosure similar to Model
Form A-9 in appendix A to Regulation E.\106\ Model Form A-9 is a model
consent form that a financial institution may use to obtain a
consumer's opt-in to overdraft services for a fee for one-time debit
card or ATM transactions.\107\
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\106\ The Bureau understands that prepaid 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.
\107\ As discussed in greater detail below, the Bureau reviewed
publicly available account agreements for prepaid products that
appeared to meet the Bureau's proposed definition of the term
``prepaid account'' and found that some programs' agreements stated
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 CFPB, Study of Prepaid Account Agreements, at 24-25
(Nov. 2014), available at http://files.consumerfinance.gov/f/201411_cfpb_study-of-prepaid-account-agreements.pdf (Study of
Prepaid Account Agreements). However, the Bureau does not believe
such fees are typically charged.
---------------------------------------------------------------------------
The Bureau understands that prepaid products with overdraft credit
features generally offer such features only to those consumers that
meet specified criteria, such as evidence of the receipt 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 the
provider will claim such funds for the purpose of repaying the
overdraft.
B. Existing Regulation of Prepaid Products
Various Federal and State regulations apply to prepaid products.
With respect to Federal regulation, there are several Federal
regulatory regimes, including those regarding consumer protection,
receipt of Federal payments, interchange fees, financial crimes, and
Federal student aid disbursement, that apply to some or all types of
prepaid products. Some of the most relevant applicable Federal laws and
regulations include EFTA and Regulation E; Treasury's rule governing
the receipt of Federal payments on prepaid cards; \108\ the Board's
Regulation II on debit card interchange and routing; \109\ the
Financial Crime Enforcement Network's (FinCEN) prepaid access rule;
\110\ and ED's Cash Management Regulation.\111\
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\108\ 75 FR 80335 (Dec. 22, 2010).
\109\ 12 CFR part 235.
\110\ 76 FR 45403 (July 29, 2011).
\111\ 80 FR 67126 (Oct. 30, 2015).
---------------------------------------------------------------------------
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, as
discussed in greater detail below, both the FDIC and the NCUA have set
criteria regarding how prepaid products may qualify for, as applicable,
pass-through deposit (or share) insurance. In addition, the Office of
the Comptroller of the Currency (OCC) has a bulletin that provides
guidance to depository institutions under its supervision with respect
to how to assess and manage the risks associated with prepaid access
programs.\112\ However, as the Bureau noted in the proposal, it
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 EFTA and Regulation E.
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\112\ 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/-27.html.
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EFTA and Related Provisions in 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.''
EFTA's primary objective is ``the provision of individual consumer
rights.'' \113\ Congress also empowered the Board to promulgate
regulations
[[Page 83946]]
implementing EFTA.\114\ 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.\115\
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\113\ See Public Law 95-630; 92 Stat. 3728 (1978).
\114\ EFTA section 904(a).
\115\ Public Law 111-203, section 1084, 124 Stat. 2081 (2010)
(codified at 15 U.S.C. 1693a et seq.). See also Dodd-Frank Act
section 1061(b); 12 U.S.C. 5581(b).
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The regulations first promulgated by the Board to implement EFTA
now reside in subpart A of Regulation E.\116\ These rules provide a
broad suite of protections to consumers who make 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.\117\ 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.\118\ 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.\119\
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\116\ 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 described as residing in 12 CFR part 1005
originally were contained in 12 CFR part 205.
\117\ Sec. 1005.3(b)(1).
\118\ 44 FR 18468, 18480 (Mar. 28, 1979).
\119\ Sec. 1005.2(b)(1).
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For covered accounts, Regulation E mandates that consumers receive
certain initial disclosures, in writing and in a form that the consumer
can keep.\120\ 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.\121\
Regulation E also sets forth substantive provisions on error resolution
and imposes limits on a consumer's liability for unauthorized
EFTs.\122\ Moreover, Regulation E contains, among other things,
provisions specific to periodic statements (which generally must be
provided in writing),\123\ the issuance of access devices,\124\
preauthorized EFTs and compulsory use,\125\ overdraft services,\126\
and ATM disclosures.\127\
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\120\ Sec. 1005.4(a)(1).
\121\ See generally Sec. 1005.7(b).
\122\ See Sec. Sec. 1005.6 and 1005.11.
\123\ Sec. 1005.9(b).
\124\ Sec. 1005.5. 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).
\125\ Sec. 1005.10.
\126\ Sec. 1005.17.
\127\ Sec. 1005.16. Since the transfer of authorities, the
Bureau has amended Regulation E in two substantive respects. First,
the Bureau added consumer protections to Regulation E in new subpart
B for certain international fund transfers. Sec. Sec. 1005.30
through 1005.36. Additionally, the Bureau amended Regulation E with
respect to certain rules pertaining to ATM fee notices. 78 FR 18221
(Mar. 26, 2013).
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As discussed in greater detail in the proposal,\128\ between 1994
and 2010, the Board amended Regulation E a number of times to add
consumer protection for certain prepaid and other stored-value
products. First, the Board adopted consumer protections in the mid
1990s for accounts used to distribute benefits for Federally-
administered government benefit programs and non-needs tested State and
local government benefit programs, such as employment-related
ones.\129\ As noted in the proposal, the Board's original rule included
needs-tested State and local electronic benefit transfer programs
(e.g., benefits such as those provided under SNAP and the Aid to
Families with Dependent Children program),\130\ but Congress
subsequently enacted legislation that 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.''
\131\ The Board issued updated rules in 1997.\132\
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\128\ 79 FR 77102, 77113-14 (Dec. 23, 2014).
\129\ See current Sec. 1005.15.
\130\ 59 FR 10678 (Mar. 7, 1994).
\131\ Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, Public Law 104-193, 110 Stat. 2105
(1996).
\132\ 62 FR 43467 (Aug. 14, 1997).
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In the mid 2000s, the Board expanded Regulation E to provide
specific protections for prepaid products that are payroll card
accounts established by an employer for providing an employee's
compensation on a regular basis.\133\ The Payroll Card Rule, among
other things, brought payroll card accounts within the definition of
account in Sec. 1005.2(b).\134\ The Board also tailored certain
general Regulation E requirements to the payroll context. For example,
the Board allowed providers of payroll card accounts to avoid the
general requirement to provide written periodic statements, 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)).\135\ Related provisions in Sec. 1005.18(c) modify
other requirements of Regulation E with respect to payroll card
accounts, including 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.
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\133\ 71 FR 51437, 51438 (Aug. 30, 2006). The Board proposed the
rule in 2004. 69 FR 55996 (Sept. 17, 2004). The Payroll Card Rule is
codified in Sec. 1005.18.
\134\ 71 FR 51437, 51438 (Aug. 30, 2006).
\135\ See Sec. 1005.18(b).
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More recently, the Board adopted a rule in 2010 to implement
certain sections of the Credit Card Accountability Responsibility and
Disclosure Act of 2009 (Credit CARD Act) \136\ applicable to gift
cards, gift certificates, and certain types of general-use prepaid
cards that are marketed or labeled as gift cards (the Gift Card
Rule).\137\ Although the Credit CARD Act explicitly gave the Board the
discretionary authority to apply the majority of Regulation E's
protections, including provisions regarding periodic statements,
liability for unauthorized transactions, and error resolution to
covered products,\138\ the Board chose only to implement specific
statutory provisions governing expiration dates and dormancy or
inactivity fees.\139\
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\136\ Public Law 111-24, 123 Stat. 1734 (2009).
\137\ Sec. 1005.20.
\138\ Credit CARD Act section 401; EFTA section 915(d)(1). The
Gift Card Rule only covers certain general-use prepaid cards.
Consistent with the Credit CARD Act, 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
Credit CARD Act, 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).
\139\ Id.
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The Board considered whether to regulate GPR cards under EFTA and
Regulation E several times, both in the course of promulgating these
other amendments and independently. For example, when the Board
initiated
[[Page 83947]]
rulemaking in 1996 to amend its 1994 rule on government benefit
accounts to exclude needs-tested programs, it took notice that prepaid
cards (at the time referred to as stored-value cards) were beginning to
be used by more consumers. The Board explained its belief that facts
supported the determination that ``accounts'' under Regulation E would
include stored-value accounts and sought comment on whether to adopt
rules specific to prepaid financial products (other than government
benefit accounts) pursuant to its authority under EFTA and noted
pending legislation in Congress that would address stored-value
cards.\140\ 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.\141\ The Board implemented the directive
and published its findings in March 1997. It found, among other things,
that the market for stored-value products was evolving rapidly and was
not yet ripe for regulation.\142\ The Board did not finalize its 1996
proposal on stored-value.
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\140\ 61 FR 19696 (May 2, 1996); H.R. 2520, 104th Cong., Sec.
443; S. 650, 104th Cong., Sec. 601 (1995). Among the provisions
considered in the 1996 proposal on stored-value, the Board proposed
to extend Regulation E's error resolution provisions to stored-value
accounts and provide a periodic statement alternative for such
accounts similar to what was adopted for government benefit cards in
1994. The Board also noted pending legislation in Congress that
would address stored-value cards.
\141\ Public Law 104-208, 110 Stat. 3009 (1996).
\142\ 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.
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The Board again considered whether to regulate stored value cards
in the course of issuing the Payroll Card Rule, but decided to focus
solely on payroll card accounts because at that time they were more
often used as transaction account substitutes than were other types of
prepaid products.\143\
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\143\ 71 FR 51437, 51441 (Aug 30, 2006). Taking stock of the
market 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.'' Id. 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.'' 71 FR 1473, 1475 (Jan. 10, 2006). At the time, the
Board viewed GPR cards as ``generally designed to make one-time or a
limited number of payments to consumers and . . . not intended to be
used on a long-term basis.'' Id.
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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).\144\ 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, must be set up to meet the requirements for FDIC
or NCUA pass-through insurance, and must not have an attached line of
credit or loan feature that triggers automatic repayment from the card
account. Additionally, 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.\145\
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\144\ 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.
\145\ 31 CFR 210.5(b)(5)(i).
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Based on Bureau research and as explained in the proposal, the
Bureau believes that many GPR card providers have chosen to structure
their prepaid products generally to comply with the FMS Rule, rather
than tailoring compliance only for those accounts that actually receive
Federal payments.\146\ For example, if, prior to the FMS Rule, a
prepaid provider did not maintain error resolution procedures with
respect to its prepaid products (or maintained procedures different
from Regulation E's error resolution regulations), the provider had to
either adjust its processes to provide consumers who receive Federal
payments with Regulation E's error resolution rights or ensure that
their prepaid products do not receive Federal payments. Rather than
provide two different error resolution regimes for individual
customers, many providers have opted to apply the same procedures to
all cards on their systems.
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\146\ In issuing the FMS Rule, Treasury noted that it expected
prepaid card issuers to comply with the FMS Rule (and thus provide
Regulation E payroll card protections) to ensure that their products
remain eligible to receive Federal payments. 75 FR 80335, 80338
(Dec. 22, 2010).
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Pass-Through Deposit (or Share) Insurance
Both the FDIC and NCUA have special rules regarding how the deposit
or share insurance they provide generally applies to funds loaded onto
prepaid products that are held in pooled accounts at banks and credit
unions, as applicable.\147\ In the case of the FDIC, 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.\148\ First,
the account records of the insured depository institution must disclose
the existence of the agency or custodial relationship.\149\ 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).150 151
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\147\ FDIC deposit insurance generally 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). See, e.g., http://www.fdic.gov/deposit. The FDIC also has resources for consumers
about pass-through deposit insurance for prepaid cards. See
fdic.gov/deposit/deposits/prepaid.html. The NCUA administers the
National Credit Union Share Insurance Fund (NCUSIF) for the purpose
of providing insurance to protect deposits of credit union members
of insured credit unions. See, e.g., http://www.ncua.gov/DataApps/Pages/SI-NCUA.aspx.
\148\ FDIC General Counsel Opinion No. 8, Insurability of Funds
Underlying Stored Value Cards and Other Nontraditional Access
Mechanisms, 73 FR 67155 (Nov. 13, 2008), internal citations omitted.
\149\ This requirement can be satisfied by opening the account
under a title such as the following: ``ABC Company as Custodian for
Cardholders.'' See id. at 67157.
\150\ Id.
\151\ The FDIC has also issued guidance on the application of
requirements for brokered deposits as applied to prepaid cards. See,
e.g., FDIC, Identifying, Accepting and Reporting Brokered Deposits
Frequently Asked Questions (updated June 2016), available at https://www.fdic.gov/news/news/financial/2016/fil16042b.pdf.
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Similarly, NCUA regulations generally require that the details of
the existence of a relationship which may provide a basis for
additional insurance and the interest of other parties in the account
must be ascertainable either
[[Page 83948]]
from the records of the credit union or the records of the member
maintained in good faith and in the regular course of business.\152\
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\152\ 12 CFR 745.2(c)(2).
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The Bureau believes that most prepaid products subject to this
final rule are set up to be eligible for FDIC or NCUA pass-through
insurance. As discussed in greater detail below in the section-by-
section analysis of Sec. 1005.18(b)(2)(xi), this final rule requires a
financial institution to indicate on the short form disclosure required
pursuant to Sec. 1005.18(b)(2) whether a prepaid account is eligible
for FDIC or NCUA pass-through insurance.
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.\153\ The statute also addresses prepaid cards
that operate on debit card networks. Specifically, 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 proportional to the cost incurred by the issuer.
The statute also provides certain exemptions from the interchange fee
limitations for certain cards, including in section 920(a)(7)(A) an
exemption for general-use reloadable prepaid (and debit) cards provided
to a consumer pursuant to government-administered payment programs and
for certain GPR 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. Thus, interchange fees for transactions made
with prepaid cards meeting the criteria for the statutory exemptions
are generally not subject to the fee restrictions of EFTA section
920(a). However, the statute also provides a carveback that rescinds
the exemption if certain fees, such as an overdraft fee, may be charged
with respect to a card listed in section 920(a)(7)(A). There is no such
carveback for the cards of issuers with total assets below $10 billion,
however. The statute uses the same definition of general-use prepaid
card as the Credit CARD Act.\154\ 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.\155\
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\153\ 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/-/media/richmondfedorg/publications/research/economic_quarterly/2012/q3/pdf/wang.pdf.
\154\ EFTA section 920(c)(2)(B).
\155\ 76 FR 43394 (July 20, 2011); 76 FR 43478 (July 20, 2011);
amended by 77 FR 46258 (Aug. 3, 2012).
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FinCEN's Prepaid Access Rule
FinCEN, a bureau of the Treasury, regulates prepaid products
pursuant to its mission to safeguard the financial system from illicit
use, combat money laundering, and promote national security through the
collection, analysis, and dissemination of financial intelligence and
strategic use of financial authorities. 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).\156\
The rule regulates prepaid access in a number of ways, including
requiring providers or sellers 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. The customer identification and verification
requirements for providers and sellers of prepaid access under this
rule are largely similar to the CIP requirements for banks and credit
unions. These BSA requirements are similar to those that apply to other
categories of money services businesses.\157\ However, consumer
protection is not the focus of FinCEN's rules.
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\156\ 76 FR 45403 (July 29, 2011). 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).
\157\ 76 FR 45403, 45419 (July 29, 2011).
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Department of Education's Cash Management Regulations
ED, among other things, regulates the disbursement of Federal
financial aid by colleges and universities. In October 2015, it adopted
a final rule that amends its cash management regulations by setting
forth new criteria that apply to colleges that partner with vendors to
distribute Title IV funds and/or sponsor or directly market accounts to
their students.\158\ Among other things, the rule prohibits colleges
and universities that receive Federal financial aid from requiring
students or parents to open a certain account into which student aid
funds are deposited. Additionally, colleges and universities must
provide students with a list of account options that the student may
choose from to receive the student's aid disbursement. Each option must
be presented neutrally and the student's preexisting bank account must
be listed as the first and most prominent option with no account
preselected. Further, the final rule bans point-of-sale and overdraft
fees on accounts, including prepaid card accounts, that are directly
marketed to students by a financial institution with which the
student's college or university has an arrangement to disburse Federal
financial aid on behalf of the post-secondary institution. Moreover,
the final rule requires that college-sponsored accounts provide
students with reasonable access to surcharge-free ATMs and deposit
insurance.
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\158\ 80 FR 67126 (Oct. 30, 2015).
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As discussed in greater detail in the Prepaid Proposal and noted
above, some colleges and universities partner with third parties to
disburse financial aid proceeds into network-branded open-loop prepaid
products endorsed by the colleges and universities, and questions have
been raised about revenue sharing between the colleges and universities
and these third parties.\159\ Indeed, in its final rule, ED stated its
belief that the new regulations are warranted because of the numerous
concerns that have been raised about the practices of certain colleges
and universities and third parties with respect to the distribution of
Federal student aid. These practices include implying to students that
they must sign up for certain accounts to receive Federal student aid
and charging students onerous, confusing, or unavoidable fees in order
to access student aid funds or otherwise use the account.\160\
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\159\ See 79 FR 77102, 77109 (Dec. 23, 2014).
\160\ See, e.g., 80 FR 67126, 67129, 67179 (Oct. 30, 2015).
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[[Page 83949]]
State Laws
As discussed in greater detail in the proposal, 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. For example, in 2013,
Illinois imposed pre-acquisition, on-card, and at-the-time-of-purchase
disclosure requirements on ``general-use reloadable prepaid cards.''
\161\ Also 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.\162\
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\161\ IL SB 1829 (2013), Public Act 098-0545, codified at 205
Ill. Comp. Stat. 616/10 and 616/46. The Illinois law defines
``general use reloadable card'' as, among other things, issued for
consumer use; can be reloaded; is open-loop; and not marketed or
labeled as a gift card or gift certificate. 205 ILCS 616/10.
\162\ CA A 1820 (2013), ch. 557, codified at Cal. Unemp. Ins.
Code Sec. 1339.1 and Cal. Welf. & Inst. Code Sec. 11006.2. Similar
to the FMS Rule, this law includes provisions requiring that, among
other things, such accounts to be set up to be eligible for pass-
through deposit or share insurance, not be attached to any credit or
overdraft feature that is automatically repaid from the account
after delivery of the payment, and compliance not only with the
Payroll Card Rule (or other rules subsequently adopted under EFTA
that apply to prepaid card accounts). See also CA A 2252 (2014), ch.
180, codified at Cal. Fam. Code Sec. 17325 (extending similar
protections to cards used for distribution of child support
payments).
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Further, many States have money transmitter laws that may apply to
prepaid product providers. The laws vary by State but generally require
a company to be licensed and to post a surety bond to cover
accountholder losses if it becomes insolvent. Most States further
require that the companies hold high-grade investments to back the
money in customer accounts. But as noted in the proposal, 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.\163\
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\163\ See, e.g., The Pew Charitable Trusts, Imperfect
Protection--Using Money Transmitter Laws to Insure Prepaid Cards
(Mar. 2013), available at http://www.pewtrusts.org/~/media/legacy/
uploadedfiles/pcs_assets/2013/.pdf.
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C. Existing Regulation of Credit Products and Overdraft Services
Offered in Connection With Transaction Accounts
As discussed further below, this final rule sets forth certain
requirements that apply to overdraft credit features offered in
connection with prepaid accounts. In crafting a regime to apply to
credit accessed by prepaid cards, the Bureau has been conscious of
existing regimes for regulating overdraft lines of credit (where there
is a written agreement to pay overdrafts) generally under TILA and its
implementing Regulation Z and overdraft services in the context of
checking accounts (where there is no written agreement to pay
overdrafts) under EFTA and Regulation E. Such overdraft services are
exempt from Regulation Z but subject to certain parts of Regulation E.
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 TILA 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,'' to ``avoid the uninformed use of
credit,'' and ``to protect the consumer against inaccurate and unfair
credit billing and credit card practices.'' \164\ TILA defines 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.\165\
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\164\ 15 U.S.C. 1601(a).
\165\ 15 U.S.C. 1602(f). The term creditor in Regulation Z, set
forth in Sec. 1026.2(a)(17)(i), 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.
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Congress has amended TILA on several occasions to provide consumers
using certain types of credit products with additional protections. The
Fair Credit Billing Act (FCBA),\166\ enacted in 1974, added a number of
substantive protections for consumers who use open-end credit \167\ or
use credit cards subject to TILA.\168\ 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,\169\ 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.\170\ 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.\171\ In 1988, Congress amended TILA through
the Fair Credit and Charge Card Disclosure Act, which required issuers
of credit cards and charge cards to provide certain disclosures at the
time of application and solicitation.\172\
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\166\ Public Law 93-495, 88 Stat. 1511 (1974).
\167\ 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).
\168\ Public Law 93-495, 88 Stat. 1511 (1974).
\169\ 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
the model forms in appendix G-10 to Regulation Z and must set forth
certain fees, interest rates, transaction charges, and other
required charges.
\170\ See Sec. 1026.2(a)(15)(i).
\171\ See Gardner v. Montgomery County Teachers Fed. Credit
Union, 864 F.Supp.2d 410 (D. Md. 2012) (providing an overview of the
FCBA's no offset provision).
\172\ A charge card is a credit card on an account for which no
periodic rate is used to compute a finance charge. Sec.
1026.2(a)(15)(iii).
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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.\173\ The Credit CARD Act, which amended TILA and EFTA,
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
[[Page 83950]]
year after an account is opened, and limits both the instances in which
issuers can charge ``back-end'' penalty fees when a consumer makes a
late payment or exceeds his or her credit limit and the amount of such
fees. Additionally, the Credit CARD Act restricts the circumstances
under which issuers can increase interest rates on credit card accounts
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.
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\173\ Public Law 111-24, 123 Stat. 1734 (2009).
---------------------------------------------------------------------------
Although EFTA does not generally focus on credit issues, Congress
provided a specific credit-related protection in that statute. 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.'' \174\
A preauthorized EFT is an EFT 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, to repay 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 where there is a written agreement
to pay overdrafts generally are subject to certain disclosure
requirements under Regulation Z and certain provisions of the FCBA. The
Board, however, exempted overdraft lines of credit from the compulsory
use provision, as discussed in more detail below). The Board also
exempted overdraft lines of credit accessed by a debit card from the
Credit CARD Act provisions.\175\
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\174\ EFTA section 913(1). As implemented in Regulation E, this
provision (Sec. 1005.10(e)(1)) 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.''
\175\ 75 FR 7658 (Feb. 22, 2010).
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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 check transactions for which consumers lacked
funds in their deposit accounts rather than to return the transactions
and subject consumers to a 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 when it enacted TILA, the Board in issuing Regulation
Z in 1969 carved financial institutions' overdraft programs (also then
commonly known as ``bounce protection programs'') out of the new
regulation.\176\ 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. Specifically, the Board
exempted informal bounce protection programs but subjected overdraft
lines of credit to Regulation Z when the creditor imposes a finance
charge.\177\
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\176\ 34 FR 2002 (Feb. 11, 1969). See also, 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) (providing 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).
\177\ 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).
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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.\178\ 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.\179\ 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.'' \180\
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\178\ Public Law 96-221, sec. 601, 94 Stat. 132; 45 FR 80648
(Dec. 5, 1980).
\179\ 45 FR 80648, 80657.
\180\ 46 FR 20848, 20855 (Apr. 7, 1981).
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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 EFTs. 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.\181\ In adopting this
exception, 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.'' \182\
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\181\ See Sec. 1005.10(e)(1).
\182\ 46 FR 2972, 2973 (Jan. 13, 1981).
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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
[[Page 83951]]
using the major payment networks (and thus most merchants could accept
them).\183\ 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.\184\ These debit cards offered
acceptance at all merchants that honored payments from the major
payment networks, such as internet retailers.\185\
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\183\ See R. Borzekowski et al., Consumers' Use of Debit Cards:
Patterns, Preferences, and Price Response, at 2 (Fed. Reserve Board,
Apr. 2006), available at http://www.federalreserve.gov/pubs/feds/2006/200616/200616pap.pdf (noting that, as of 2006, ``[a]nnual 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 U.S. 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.
\184\ Fumiko Hayashi, The New Debit Card Regulations: Initial
Effects on Networks and Banks, Fed. Reserve Bank of Kan. City Econ.
Rev., at 83 chart 2 (4th quarter 2012), available at https://www.kansascityfed.org/publicat/econrev//12q4Hayashi.pdf. 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).
\185\ See generally CFPB Overdraft White Paper at 11-17
(explaining growth of debit card transactions from consumers'
deposit accounts).
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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.\186\ 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 chances 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).\187\ Over time, revenue from overdraft increased and
began to influence significantly the overall pricing 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 with no monthly fees) as discussed above.\188\
---------------------------------------------------------------------------
\186\ Id. at 16.
\187\ Id. at 11-12.
\188\ Id. at 16-17.
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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 OCC released an interpretive letter
expressing concern about overdraft protection services.\189\ The letter
noted that overdrafts are 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.\190\
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\189\ Office of the Comptroller of the Currency, Interpretive
Letter No. 914, 3rd Party Program, (Aug. 3, 2001), available at
http://www.occ.gov/static/interpretations-and-precedents/sep01/int914.pdf.
\190\ Id.
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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.\191\ The Board did not modify
the Regulation Z exemptions when it issued final rules in 2003,\192\
but proposed revisions to Regulation DD (which implements the Truth in
Savings Act (TISA)) 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.\193\ 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.\194\
---------------------------------------------------------------------------
\191\ 67 FR 72618, 72620 (Dec. 6, 2002).
\192\ 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).
\193\ 69 FR 31760 (June 7, 2004).
\194\ Id. at 31761.
---------------------------------------------------------------------------
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 annual
percentage rate (APR) that is calculated based on overdraft fees
without corresponding benefits to consumers in better understanding the
costs of credit. The Board noted that consumer advocates stated that
overdraft services compete with traditional credit products--open-end
lines of credit, credit cards, and short-term closed-end loans--all of
which are covered under TILA and Regulation Z and provide consumers
with the cost of credit expressed as a dollar finance charge and an
APR. The Board explained that these commenters believed TILA
disclosures would enhance consumers' understanding of the cost of
overdraft services and their ability to compare costs of competing
financial services. 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.\195\
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\195\ 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.
Id. 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
[[Page 83952]]
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.\196\ The purpose
of the Joint Guidance was to assist insured banks in the responsible
disclosure and administration of overdraft programs. The agencies were
concerned that the banks failed to clearly disclose the terms and
conditions of the programs, including the fees associated with them and
that consumers might have been misled.\197\
---------------------------------------------------------------------------
\196\ 70 FR 9127 (Feb. 24, 2005) (Joint Guidance). The Office of
Thrift Supervision also issued guidance on overdraft protection
programs. See 70 FR 8428 (Feb. 18, 2005).
\197\ 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.'' \198\ 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.'' \199\
This guidance remains in effect.
---------------------------------------------------------------------------
\198\ Id. at 9128.
\199\ 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 NCUA and the now-defunct Office of Thrift
Supervision proposed to exercise their authority under section 5 of the
Federal Trade Commission Act (FTC Act) \200\ 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.\201\ 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 the year to
date.\202\ The Board finalized portions of the Regulation DD proposal
in January 2009.\203\ In addition, although the three agencies did not
finalize their FTC Act proposal, the Board ultimately adopted an opt-in
requirement for ATM and one-time debit card transactions under
Regulation E in late 2009.
---------------------------------------------------------------------------
\200\ 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 Insurance 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.
\201\ 73 FR 28904 (May 19, 2008).
\202\ 73 FR 28730 (May 19, 2008).
\203\ 74 FR 5584 (Jan. 29, 2009). Specifically, this rule
required, among other things, all banks 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 accounts in
Regulation E,\204\ 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.''
\205\ The rule did not discuss GPR cards, which as noted above, the
Board had not expressly subjected to Regulation E coverage.
---------------------------------------------------------------------------
\204\ 74 FR 59033 (Nov. 17, 2009).
\205\ Id. at 59037.
---------------------------------------------------------------------------
Following the adoption of the Board's overdraft opt-in rule, the
FDIC expanded on the previously issued Joint Guidance via a Financial
Institution Letter to reaffirm its existing supervisory expectations
with respect to overdraft payment programs generally and provide
specific guidance with respect to automated overdraft payment
programs.\206\ 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.\207\ The OCC withdrew
this proposed guidance in 2013.\208\
---------------------------------------------------------------------------
\206\ Fed. Deposit Ins. Corp., FIL-81-2010, Overdraft Payment
Programs and Consumer Protection Final Overdraft Payment Supervisory
Guidance (Fin. Inst. Letter, Nov. 24, 2010), available at https://www.fdic.gov/news/news//2010/fil10081.html.
\207\ 76 FR 33409 (June 8, 2011). The Office of Thrift
Supervision also proposed supplemental guidance on overdraft
protection programs. 75 FR 22681 (Apr. 29, 2010).
\208\ 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. In early 2012,
the Bureau issued a Request For Information 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.\209\ In response, the Bureau received over 1,000 comments.
The Bureau 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 the CFPB Overdraft White
Paper, noted above, and a data point in July 2014.\210\ The Bureau is
engaged in pre-rule making activities to consider potential regulation
of overdraft services on checking accounts.\211\ As part of its
preparations, the Bureau has begun consumer testing initiatives related
to the opt-in process set forth in current Regulation E.\212\
---------------------------------------------------------------------------
\209\ 77 FR 12031 (Feb. 28, 2012).
\210\ See CFPB, Data Point: Checking Account Overdraft (July
2014), available at http://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf.
\211\ See CFPB, Spring 2016 Rulemaking Agenda (May 2016),
available at http://www.consumerfinance.gov/about-us/blog/spring-2016-rulemaking-agenda/.
\212\ Id.
---------------------------------------------------------------------------
Other Relevant Federal Regulatory Activity
In addition, several 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, permits Federal
payments to be deposited onto a prepaid product only if the product is
not attached to a line of credit or loan agreement under which
repayment from
[[Page 83953]]
the account is triggered upon delivery of the Federal payments, among
other conditions.\213\ The preamble 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.\214\ The Treasury FMS Rule does not,
however, directly address the permissibility of overdraft services.
---------------------------------------------------------------------------
\213\ See 31 CFR 210.5(b)(5)(i)(C).
\214\ 75 FR 80335 (Dec. 22, 2010).
---------------------------------------------------------------------------
Second, as discussed above, the Board's Regulation II generally
caps interchange fees that may be imposed on debit card transactions.
Regulation II provides an exemption from the fee restrictions for cards
provided pursuant to a Federal, State, or local government-administered
payment program and for certain reloadable prepaid cards.\215\ However,
Regulation II 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.\216\ EFTA and Regulation II
provide a separate, blanket exemption for cards of 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.\217\
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\215\ See 12 CFR 235.5(b) through (d).
\216\ 12 CFR 235.5(d)(1).
\217\ See EFTA section 920(a)(6)(A) and 12 CFR 235.5(a).
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Third, as discussed above in part II.B, ED's cash management
regulation bans point-of-sale and overdraft fees on accounts, including
prepaid card accounts, that are directly marketed to students by a
financial institution with which the student's college or university
has an arrangement to disburse Federal financial aid on behalf of the
post-secondary institution.\218\
---------------------------------------------------------------------------
\218\ See generally 80 FR 67126 (Oct. 30, 2015).
---------------------------------------------------------------------------
Separately, in 2015, the Department of Defense (DOD) issued a final
rule \219\ amending its regulation \220\ that implements the Military
Lending Act (MLA).\221\ Under the MLA, a creditor generally may not
apply a military APR (MAPR) greater than 36 percent in connection with
an extension of consumer credit to a military service member or
dependent.\222\ The final rule expands the types of consumer credit
covered by the regulation that implements the MLA so that it is now
more consistent with the types of consumer credit covered by TILA,
subject to certain statutory exemptions set forth in the MLA. Because
overdraft services are exempted from Regulation Z, they are also
exempted from the regulation that implements the MLA.\223\
Additionally, although the DOD proposed that 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 for a particular billing
cycle, and the MAPR for that billing cycle could not exceed 36 percent,
the final rule provides a two-year exemption for credit extended in a
credit card account under an open-end (not home-secured) consumer
credit plan.\224\
---------------------------------------------------------------------------
\219\ 80 FR 43560 (July 22, 2015). The DOD issued a related
interpretive rule in August 2016. See 81 FR 58840 (Aug. 26, 2016).
\220\ 32 CFR part 232.
\221\ 10 U.S.C. 987 et seq.
\222\ 10 U.S.C. 987(b).
\223\ 80 FR 43560, 43580 (July 22, 2015).
\224\ 32 CFR 232.13.
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D. Other Payments-Related Bureau Actions
The Bureau has handled approximately 5,600 prepaid card complaints
as of August 1, 2016.\225\ Concerns have included issues related to
accessing funds loaded on the prepaid cards, unauthorized transactions,
fees, and error resolution.\226\ 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.\227\
The Bureau sought information on how mobile technologies are impacting
economically vulnerable consumers with limited access to traditional
banking systems. The Bureau received approximately 48 comments in
response to this request for information, and published a summary of
the comments in November 2015.\228\ Among other things, the summary
noted that the comments indicated a significant increase in the use of
virtual prepaid products (prepaid products accessed via computer or on
a mobile device without a physical card) by underserved consumers
(i.e., low-income, unbanked, underbanked, and economically vulnerable
consumers).
---------------------------------------------------------------------------
\225\ While this number reflects complaints since July 11, 2011,
the Bureau did not officially begin accepting consumer complaints
about prepaid products until July 2014. See Press Release, CFPB,
CFPB Begins Accepting Consumer Complaints on Prepaid Cards and
Additional Nonbank Products (July 21, 2014), available at http://www.consumerfinance.gov/newsroom/cfpb-begins-accepting-consumer-complaints-on-prepaid-cards-and-additional-nonbank-products.
\226\ See, e.g., CFPB Monthly Complaint Report, at 11-12 (Mar.
2016), available at http://files.consumerfinance.gov/f/201603_cfpb_monthly-complaint-report-vol-8.pdf (the monthly report
included a section on prepaid card complaints).
\227\ 79 FR 33731 (June 12, 2014).
\228\ CFPB, Mobile Financial Services--A Summary of Comments
from the Public on Opportunities, Challenges, and Risks for the
Underserved (Nov. 2015), available at http://files.consumerfinance.gov/f/201511_cfpb_mobile-financial-services.pdf.
---------------------------------------------------------------------------
In August 2014, the Bureau issued a consumer advisory on virtual
currencies that discussed the risks to consumers posed by them.\229\ At
the same time, the Bureau also began accepting consumer complaints
regarding virtual currencies. In the proposal, the Bureau stated that
its analysis with respect to virtual currencies and related products
and services was ongoing. The proposal did not resolve specific issues
with respect to the application of either existing regulations or the
proposed rule to virtual currencies and related products and
services.\230\ Nonetheless, the Bureau received some comments on
whether the Bureau should regulate virtual currency products and
services under this final rule. These comments are discussed in greater
detail in the section-by-section analysis of Sec. 1005.2(b) below.
---------------------------------------------------------------------------
\229\ 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.
\230\ 79 FR 77102, 77133 (Dec. 23, 2014).
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III. Summary of the Rulemaking Process
The Bureau undertook several years of research, analysis, and other
outreach before issuing this final rule. As noted above, the Bureau
issued the Prepaid ANPR in 2012, 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.
The Bureau received over 220 comments on the Prepaid ANPR.\231\
Industry commenters, including banks and credit unions, prepaid program
managers, payment networks and
[[Page 83954]]
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. The Bureau evaluated
the comments received in response to the Prepaid ANPR in its
preparation of the proposed rule.
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\231\ The comments can be reviewed at http://www.regulations.gov/#!documentDetail;D=CFPB-2012-0019-0001.
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The Bureau conducted extensive and significant additional outreach
and research following the Prepaid ANPR as part of its efforts to study
and evaluate prepaid products. The Bureau's pre-proposal outreach
included meetings with industry, consumer groups, and non-partisan
research and advocacy organizations. The Bureau also conducted market
research, monitoring, and related actions 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 the Bureau's market monitoring efforts. Further, the
Bureau obtained information directly from consumers through focus
groups and consumer testing. Additionally, as noted above, the Bureau
studied publicly available account agreements for prepaid products that
appear to meet the Bureau's proposed definition of the term ``prepaid
account'' that involved Bureau staff reviewing of numerous prepaid
products' terms and conditions 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. The Bureau's consumer testing and Study of Prepaid Account
Agreements are discussed in greater detail below.
To prepare this final rule, the Bureau considered, among other
things, feedback provided in response to the Prepaid ANPR, feedback
provided to the Bureau prior to the issuance of its proposal, including
information gathered during consumer testing, interagency
consultations, and feedback provided in response to the proposed rule,
and additional consumer testing.
A. Pre-Proposal and Post-Proposal Consumer Testing
The Bureau conducted both pre-proposal and post-proposal
qualitative testing of prepaid account prototype disclosure forms with
prepaid card users to inform the Bureau's design and development of the
model and sample forms included in the final rule. The prototypes
included forms that could be used in the context of GPR cards, payroll
and government benefits cards, and for prepaid account programs with
multiple service plans. The Bureau engaged and directed a third-party
vendor selected by competitive bid, ICF International (ICF), to
coordinate this qualitative consumer testing. ICF prepared a report
memorializing the consumer testing after both pre-proposal and post-
proposal testing in, respectively, ICF Report I and ICF Report II.\232\
The qualitative testing was conducted in accordance with OMB Control
Number 3170-0022.
---------------------------------------------------------------------------
\232\ See ICF Report I, and ICF Int'l, Final Report of Findings:
Post-Proposal Testing of Prepaid Card Disclosures (Oct. 2015),
available at http://files.consumerfinance.gov/f/201510_cfpb_report-findings-testing-prepaid-card-disclosures.pdf (ICF Report II).
---------------------------------------------------------------------------
Pre-proposal testing consisted of (1) four informal focus groups to
gather in-depth information about how consumers shop for prepaid cards
and the factors they consider when acquiring such products and (2)
three rounds of one-on-one interviews to see how consumers interact
with the prototype forms developed by the Bureau and use them in
comparison shopping exercises. The focus groups were held in Bethesda,
Maryland in December 2013; each lasted approximately 90 minutes and
included eight to 10 participants. Each of the three rounds of one-on-
one interviews lasted approximately 60 to 75 minutes, included nine or
10 participants each, and took place in early 2014 in Baltimore,
Maryland; Los Angeles, California; and Kansas City, Missouri.
The findings from the focus groups, as well as responses to the
Bureau's ANPR (see the section-by-section analysis of Sec. 1005.18(b)
below) and other outreach activities, strongly influenced the Bureau's
decision to develop and propose a pre-acquisition disclosure regime
that includes both an easily digestible ``short form'' disclosure
highlighting key fees and features of a prepaid account program in a
standardized format apt for comparison shopping that could fit on
existing packaging material used to market prepaid products on J-hooks
in retail locations and a ``long form'' disclosure containing a
comprehensive list of fees and other information germane to the
purchase and use of the prepaid account program. Pre-proposal one-on-
one testing allowed the Bureau to experiment with various structures
and content to arrive at an optimal design.
Post-proposal testing, which consisted of two rounds of one-on-one
interviews, had the same goals as pre-proposal interviews but with the
added goal of further refining the proposed model and sample short form
and long form disclosures. This further refinement was based on the
response of testing participants to changes to the prototypes resulting
from the Bureau's own internal review as well as public comments
received in response to the proposed rule. Each one-on-one interview
lasted approximately 75 minutes and took place in Arlington, Virginia
in July 2015 and Milwaukee, Wisconsin in August 2015 with 9 and 11
participants, respectively.
Eighty-nine consumers participated in the pre- and post-proposal
testing, representing a range of ages, races, and education
levels.\233\ All testing was conducted in English, but each round
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). Several participants had experience with
payroll or government benefits cards in addition to or in lieu of GPR
cards.
---------------------------------------------------------------------------
\233\ For a detailed discussion of the methodology used in the
consumer testing, including participant selection, see,
respectively, ICF Report I at 2-4 and ICF Report II at 4.
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Focus group findings highlights. Few focus group participants
reported doing any formal comparison shopping before purchasing a
prepaid card in a retail store. Furthermore, only about half of
participants indicated that they learned about the fees associated with
their prepaid cards prior to purchase; a few of them reported learning
about a card's fees post-acquisition only 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. Based on these finding and the Bureau's outreach
more generally, the Bureau developed several ``short form'' and ``long
form'' prototype disclosure forms to test with participants in the
individual interview segment of the consumer testing.
Individual interviews findings highlights. In both pre- and post-
proposal consumer testing, 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 also 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 the testing. The Bureau used
this feedback to make
[[Page 83955]]
iterative changes, as necessary, to the form design for the next round
of testing.
In the first round of pre-proposal testing, the Bureau tested short
form disclosures that variably included: (1) A ``top-line'' of four
fees displayed more prominently than the other fees, (2) fees grouped
together by category, or (3) fees listed without including either the
top-line or fee categories. Generally, participants were able to
understand the basic fee information presented in all of the prototype
disclosure forms. However, many participants expressed a preference for
a form that is both easy to read and that prominently displays the most
important fee information. These participants also said they believed
that prototype forms that included a ``top line'' disclosure of certain
fees met these objectives.
The Bureau also focused on developing and testing a short form that
did not disclose all the variations for each fee and full explanations
of the conditions under which those variations could be incurred. 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 prototype
forms in the first round of testing included a system with sets of
multiple asterisks to indicate additional information was available for
fees that could vary in amount. Many participants, however, failed to
notice the text associated with the asterisks or struggled to
accurately connect the various symbols with the appropriate fees.
To improve comprehension, the Bureau introduced forms in the second
round of testing that only included a single symbol linked to one line
of explanatory text indicating all of the fees that might vary on the
form. This modification appeared to increase the frequency with which
participants noticed the language associated with the symbol, and thus,
the frequency with which participants noticed that fees could vary also
increased. In the third round of testing, in addition to reviewing
additional short form disclosure 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.
During its pre-proposal testing, the Bureau posted a blog on its
Web site that included two of the prototype short form disclosure
designs used during the second round of testing \234\ and invited the
public to provide feedback on the prototypes, including suggestions for
improvement. 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 for the ensuing round of pre-proposal consumer
testing as well as for the model forms included in the proposed rule.
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\234\ 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/.
---------------------------------------------------------------------------
Post-proposal testing consisted of two rounds of one-on-one
interviews intended to further refine the model and sample forms
published in the proposed rule. In addition to general refinement of
the text and design of the proposed short form and long form
disclosures, the Bureau tested new elements introduced as a result of
internal Bureau analysis and stakeholder input from comments to the
proposal and post-proposal ex-parte communications.\235\
---------------------------------------------------------------------------
\235\ For more detailed discussion of post-proposal testing, see
ICF Report II and the specific section-by-section analysis of the
particular disclosure elements below.
---------------------------------------------------------------------------
Post-proposal testing of the overall design integrity and
effectiveness of the disclosures confirmed participants' general
ability to navigate and understand the short and long form disclosures.
Nearly all participants were able to successfully identify all fees on
the short form disclosure when asked whether the prepaid account had
such a fee.\236\ Further, when asked about a fee that did not appear on
or with the short form disclosure, almost all participants referred to
the long form disclosure and were able to successfully find the
information for which they were looking.\237\ Also, when comparing
short forms for two different hypothetical prepaid account programs,
most participants were able to compare fees between forms and reach an
informed decision as to which card would be best for their
circumstances.\238\ This was true even when one of the forms described
a prepaid card with a more complex, multiple fee plan structure.\239\
With regard to the requirement to disclose the highest fee in the short
form disclosure, continued refinement in post-proposal testing of the
asterisk system to alert consumers of when the fee amount could be
lower resulted in increased participant comprehension with almost all
participants correctly applying the text to fees with an asterisk, and
fewer misapplications of the text to fees without an asterisk.\240\
---------------------------------------------------------------------------
\236\ See ICF Report II at 5.
\237\ Id. at 7.
\238\ Id. at 5.
\239\ Id.
\240\ Id. See also the section-by-section analysis of Sec.
1005.18(b)(3)(i) below.
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Post-proposal testing of a statement regarding overdraft and credit
generally showed participants correctly understood that they would not
necessarily be offered credit or overdraft by the prepaid provider,
would have to wait 30 days to get the feature, and might be charged
fees for the feature.\241\ Testing of a statement regarding FDIC
insurance coverage generally showed participants understood whether or
not the prepaid card offered such insurance and that insurance coverage
was a positive feature, although less than half were able to accurately
explain against what FDIC insurance would protect them.\242\ The
testing of two versions of language at the top of the short form
disclosure for payroll cards and government benefits cards explaining
that other methods were also available for potential card recipients to
receive their wages or benefits indicated that participants who saw
this language generally understood they did not have to accept payment
on the card.\243\ Testing also revealed that neither version affected
whether or not participants said they would be interested in receiving
wages or benefits via the card.\244\
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\241\ Id. at 6, 14-15, and 24-25. See also the section-by-
section analysis of Sec. 1005.18(b)(2)(x) below.
\242\ Id. at 7. See also the section-by-section analysis of
Sec. 1005.18(b)(2)(xi) below.
\243\ Id. at 7. See also the section-by-section analysis of
Sec. 1005.18(b)(2)(iv)(A) below.
\244\ Id.
---------------------------------------------------------------------------
Post-proposal testing indicated the effectiveness of the removal or
addition of some disclosure elements from the proposed short form
disclosures that the Bureau is adopting in this final rule. For
example, in an attempt to streamline the short form with a single
disclosure for like fees, when testing participants were presented with
a single fee for ATM withdrawals, as opposed to separate fees for both
``in-network'' and ``out-of-network'' withdrawals, all participants
seemed to understand that the amount of this fee would not depend on
whether the cardholder used an in-network or out-of-network ATM.\245\
Also, the testing of the addition of a second symbol (a dagger symbol
([dagger]), in addition to the asterisk discussed above) linked to a
statement about situations in which the monthly fee would be waived or
discounted revealed that most
[[Page 83956]]
participants saw the dagger and were able to link it to the appropriate
statement.\246\
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\245\ Id. at 5. See also the section-by-section analysis of
Sec. 1005.18(b)(3)(iii) below.
\246\ Id. at 5. See also the section-by-section analysis of
Sec. 1005.18(b)(3)(ii) below.
---------------------------------------------------------------------------
Results from the focus groups and one-on-one testing conducted by
the Bureau and ICF in pre- and post-proposal consumer testing,
fortified with a variety of forms of stakeholder input and the Bureau's
own research and analysis, led the Bureau to its final disclosure
requirements and the design of the model and sample forms contained in
this final rule.
B. Study of Prepaid Account Agreements
To determine current industry practices with respect to existing
compliance with Regulation E and other features and protections
currently offered by prepaid products and to inform its understanding
of the potential costs and benefits of extending various Regulation E
protections to prepaid accounts, the Bureau conducted a study of 325
publicly available account agreements for prepaid products that
appeared to meet the Bureau's proposed definition of the term ``prepaid
account,'' and published the results in the Study of Prepaid Account
Agreements concurrently with the Bureau's issuance of the proposal.
The study contains the Bureau's analysis of 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 NCUA pass-through insurance; and general disclosure of fees. The
agreements the Bureau analyzed included GPR card program agreements
(including GPR cards marketed for specific purposes, such as travel or
receipt of tax refunds, or for specific users, such as teenagers or
students), payroll cards agreements, agreements for cards used for the
distribution of certain government benefits, and agreements for similar
card programs. The Bureau also included agreements for prepaid products
specifically used for P2P transfers that appeared to be encompassed by
the proposal's definition of prepaid account. The Bureau did not
include gift, incentive and rebate card programs, health spending
account and flexible spending account programs, and needs-tested State
and local government benefit card programs in the study, because the
Bureau proposed to exclude such products from the rulemaking. As
discussed in greater detail in the proposal, the Bureau cautioned that
its agreement collection was neither comprehensive nor complete. In
addition, the study was not intended to be relied upon as an assessment
of legal issues, including actual compliance with current Regulation E
provisions that apply to payroll card accounts or cards used for the
distribution of certain government benefits, the FMS Rule, or the
proposal.\247\
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\247\ 79 FR 77102, 77123 (Dec. 23, 2014).
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C. The Bureau's Proposal
In November 2014, the Bureau released for public comment a notice
of proposed rulemaking regarding Regulations E and Z that proposed
comprehensive consumer protections for prepaid accounts. The proposal
was published in the Federal Register in December 2014.\248\ Although
prepaid products are among the fastest growing types of payment
instruments in the United States, with certain limited exceptions
prepaid products have not been subject to the existing Federal consumer
regulatory regime in Regulation E that provides consumer disclosures,
error resolution, and protection from unauthorized transfers.\249\
---------------------------------------------------------------------------
\248\ 79 FR 77102 (Dec. 23, 2014).
\249\ See generally 12 CFR part 1005.
---------------------------------------------------------------------------
The Bureau proposed to establish a new definition of ``prepaid
account'' within Regulation E and adopt comprehensive consumer
protection rules for such accounts. The proposal would have extended
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 ATMs or for 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 proposal also would have modified Regulation E, as it would
pertain to prepaid accounts, in several key respects. First, the
proposal would have required financial institutions to make certain
disclosures available to consumers before a consumer acquires a prepaid
account. These disclosures would have taken two forms, whether provided
orally, in writing, or electronically. The first would have been a
short form highlighting key fees that the Bureau believed to be most
important for consumers to know about prior to acquisition. The second
would have been a long form setting forth all of the prepaid account's
fees and the conditions under which those fees could be imposed. In
certain circumstances, the proposed rule would have provided an
exception for financial institutions that offered prepaid cards for
sale over the phone or in retail stores that would have allowed 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 after a consumer had acquired the prepaid account.
To facilitate compliance, the proposal contained new model forms and
sample forms, as well as revisions to existing Regulation E model forms
and model clauses. The use of the model forms would have established a
safe harbor for compliance with the short form disclosure requirement.
In addition, with certain modifications, the proposed rule would
have extended 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 have allowed
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 covered at least 18 months; and (3) a
written history of account transactions that covered at least 18 months
upon request. For all prepaid accounts, the proposed rule would have
required 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 proposed rule would have modified Regulation E to
adopt error resolution and limited liability provisions specific to
prepaid accounts. 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 proposal would have
extended these consumer protections to registered prepaid accounts,
with modifications to the timing requirements for reporting
unauthorized transfers and errors when a financial institution followed
the periodic statement alternative described above.
[[Page 83957]]
In addition, the proposed rule would have required 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 new and amended agreements to the Bureau on a quarterly basis
for posting on a Web site maintained by the Bureau.
The proposed rule would have also revised various other provisions
in subparts A and B of Regulation E. With respect to subpart A, the
proposed amendments included a revision that would have made clear
that, similar to payroll card accounts, a consumer could not be
required to establish an account with a particular institution for
receipt of government benefits. Additionally, the Bureau proposed 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 proposed certain conforming
and streamlining changes to the official interpretations that would not
have affected the substance of the interpretations.
Overdraft Services and Certain Other Credit Features
The proposed rule would have modified Regulations Z and E to
address the treatment of overdraft services and certain other credit
features offered in connection with prepaid accounts.
Regulation Z. The proposal would have amended Regulation Z so that
prepaid account issuers that offered prepaid accounts with overdraft
services and certain other credit features and charged a fee for the
service (such as interest, transaction fees, annual fees, or other
participation fees) generally would have become subject to Regulation
Z's credit card rules and disclosure requirements for open-end (not
home-secured) consumer credit plans. In addition, the proposed rule
would have revised Regulation Z so that its credit card rules have
applied to separate lines of credit linked to prepaid accounts. The
proposed rule would have also required an issuer to obtain an
application or request from a consumer before adding overdraft credit
features to a prepaid account and would have prohibited the issuer from
adding such features until at least 30 calendar days after a consumer
registered the prepaid account. Moreover, the proposed rule would have
amended Regulation Z 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 an overdraft service or credit feature. The proposed rule
would have also prevented an issuer from automatically deducting
overdraft amounts from the next deposit to the prepaid account, such as
cash loads or direct deposits, to repay and replenish the credit line.
Regulation E. The proposed rule would have revised Regulation E to
include disclosures about overdraft services and certain other credit
features that could be linked to prepaid accounts in the short form and
long form disclosures. The proposed rule also would have provided that
the compulsory use prohibition would apply to overdraft services and
certain other credit features linked to prepaid accounts. Prepaid
account issuers would have been prohibited from requiring consumers to
set up preauthorized EFTs to repay credit extended through an overdraft
service or credit feature. Lastly, the proposed rule would have amended
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 proposed rule would have provided that with certain exceptions,
the effective date for the requirements set forth in a final rule would
be nine months after publication in the Federal Register. The exception
would have been 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.
Requests To Extend the Comment Period
The Bureau set the length of the comment period on the proposal at
90 days from the date on which it was published in the Federal
Register. The proposal was published on December 23, 2014, thus making
March 23, 2015 the last day of the comment period. A number of members
of Congress and two national trade associations representing prepaid
product providers submitted written requests that asked the Bureau
extend the 90-day comment period by an additional 60 days. The requests
indicated that additional time would enable industry to evaluate the
proposal in a more thorough manner. The Bureau believes that the 90-day
comment period set forth in the proposed rule gave interested parties a
sufficient amount of time to consider the proposal and prepare their
responses, and thus did not extend the comment period beyond March 23,
2015. However, as discussed below, the Bureau considered ex parte
comments submitted after the deadline as part of its deliberations.
D. Feedback Provided to the Bureau
The Bureau received over 65,000 comments on the proposal during the
comment period. Approximately 150 comments were unique, detailed
comment letters representing diverse interests. These commenters
included consumer advocacy groups; national and regional industry trade
associations; prepaid industry members including issuing banks and
credit unions, program managers, payment networks, and payment
processors; digital wallet providers; virtual currency companies; non-
partisan research and advocacy organizations; members of Congress;
State and local government agencies; and individual consumers.
Approximately 6,000 consumers submitted comments generally
supporting the availability of overdraft services for prepaid products
(approximately 1,000 of which were form comments). Approximately 56,000
form comments were submitted by individual consumers as part of a
comment submission campaign organized by a national consumer advocacy
group, generally in support of the proposal--particularly related to
limited liability and the requirement to assess consumers' ability to
pay before offering credit attached to prepaid cards.\250\ These form
comments also urged the Bureau to go further in certain respects;
requesting, among other things, that the Bureau add additional
information to its proposed disclosure forms and require that funds
loaded into prepaid accounts be FDIC insured. Several hundred of these
56,000 comments contained additional remarks from consumer commenters,
though many of these were outside the scope of this rulemaking.
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\250\ The Bureau typically does not post form letters containing
identical comments to the docket. Rather, the Bureau generally posts
a single example of the form letter to the docket. Form letter
comments that contain some customization from the sender are all
posted to the docket.
---------------------------------------------------------------------------
In addition, the Bureau also considered comments received after the
comment period closed via approximately 65 ex parte submissions,
[[Page 83958]]
meetings, and telephone conferences.\251\ Materials on the record,
including ex parte submissions and summaries of ex parte meetings and
telephone conferences, are publicly available at http://www.regulations.gov. Relevant information received is discussed below
in the section-by-section analysis and subsequent parts of this notice,
as applicable. The Bureau considered all the comments it received
regarding the proposal, made certain modifications, and is adopting the
final rule as described part V below.
---------------------------------------------------------------------------
\251\ See also CFPB Bulletin 11-3, CFPB Policy on Ex Parte
Presentations in Rulemaking Proceedings (2011), available at http://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemaking.pdf.
---------------------------------------------------------------------------
IV. Legal Authority
The Bureau is issuing this final rule pursuant to its authority
under EFTA, the Dodd-Frank Act, and TILA, as discussed in this part IV
and throughout the section-by-section analyses of the final rule in
part V below.
A. The 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 EFT 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 EFT
service,\252\ notices of certain changes to account terms or
conditions,\253\ provision of written documentation to consumers
regarding EFTs,\254\ error resolution,\255\ consumers' and financial
institutions' liability for unauthorized EFTs,\256\ and compulsory use
of EFTs.\257\
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\252\ EFTA section 905(a).
\253\ EFTA section 905(b).
\254\ EFTA section 906.
\255\ EFTA section 908.
\256\ EFTA sections 909 and 910.
\257\ EFTA section 913.
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With respect to disclosures provided prior to opening an account,
EFTA section 905(a) states that the terms and conditions of EFTs
involving a consumer's account shall be disclosed at the time the
consumer contracts for an EFT service, in accordance with regulations
of the Bureau. EFTA section 904(b) 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 EFTs by utilizing readily
understandable language. As discussed in the section-by-section
analysis below, the final rule's pre-acquisition disclosure
requirements (including those in final Sec. 1005.18(b)) are adopted
pursuant to the Bureau's authority under EFTA sections 904(a), (b),
905(a), and its adjustments and exceptions authority under EFTA section
904(c).
As amended by the Dodd-Frank Act, EFTA section 904(a) authorizes
the Bureau to prescribe regulations 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.'' \258\ 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 EFTs 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.'' \259\ As discussed in the section-by-section analyses below,
the Bureau is adopting amendments to Regulation E, including with
respect to the definition of account, limited liability, procedures for
resolving errors, access to account information, and prepaid accounts
that may offer an overdraft credit feature, pursuant to the Bureau's
authority under, as applicable, EFTA sections 904(a) and (c).
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\258\ EFTA section 902(b).
\259\ See S. Rept. No. 95-1273, at 26 (Oct. 4, 1978).
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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.\260\ 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 part VII below for a discussion
of the Bureau's standards for rulemaking under Dodd-Frank Act section
1022(b)(2).
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\260\ 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).
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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. Section 1022(c)(3) provides that the Bureau shall publish not
fewer than one report of significant findings of its monitoring in each
calendar year and may make public such information obtained by the
Bureau under this section as is in the public interest.\261\ 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. As
discussed in the section-by-section analysis below, new Sec. 1005.19
is adopted pursuant to the Bureau's authority under Dodd-Frank Act
sections 1022(c) and 1032(a), as well as its authority under EFTA
sections 904 and 905. It requires submission of prepaid account
agreements to the Bureau. It also requires that financial institutions
disclose such agreements on their Web sites.
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\261\ Dodd-Frank Act section 1022(c)(3).
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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
[[Page 83959]]
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
this final 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 ICF Report I and ICF Report II.
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.\262\
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\262\ Dodd-Frank Act section 1032(b)(2).
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As discussed in more detail below, certain portions of this final
rule are adopted pursuant to the Bureau's disclosure authority under
Dodd-Frank Act 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.\263\
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\263\ 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.\264\ 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 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.\265\
Closed-end credit is credit that does not meet the definition of open-
end credit.\266\
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\264\ TILA section 103(f); 15 U.S.C. 1602(f); Sec.
1026.2(a)(14); 15 U.S.C. 1602(f).
\265\ Sec. 1026.2(a)(20).
\266\ Sec. 1026.2(a)(10).
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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.\267\ 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.\268\ The term ``creditor'' also includes a card issuer, which
is a person or its agent that issues credit cards, when that person
extends credit accessed by the credit card.\269\ 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.\270\
In addition to being subject to the general rules of TILA and
Regulation Z applicable to all creditors, 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.\271\
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\267\ TILA section 103(g); 15 U.S.C. 1602(g); Sec.
1026.2(a)(17)(i).
\268\ TILA section 106(a); 12 U.S.C. 1605(a); Sec. 1026.4.
\269\ TILA section103(g); 15 U.S.C. 1602(g); Sec.
1026.2(a)(17)(iii) and (iv).
\270\ Sec. 1026.2(a)(15). As noted above, under Regulation Z, a
charge card is a credit card on an account for which no periodic
rate is used to compute a finance charge. Sec. 1026.2(a)(15)(iii).
\271\ See generally Sec. Sec. 1026.5(b)(2)(ii)(A),
1026.7(b)(11), 1026.12, and 1026.51 through 1026.60.
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TILA section 105(a). As amended by the Dodd-Frank Act, TILA section
105(a) \272\ 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's 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.'' \273\ Thus, strengthened
competition among financial institutions is a goal of TILA, achieved
through the effectuation of TILA's purposes.
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\272\ 15 U.S.C. 1604(a).
\273\ TILA section 102(a).
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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)
[[Page 83960]]
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).\274\
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\274\ 15 U.S.C. 1602(bb).
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For the reasons discussed in this notice, the Bureau is adopting
amendments to Regulation Z with respect to certain prepaid accounts
that are associated with overdraft credit features to carry out TILA's
purposes and is adopting 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
this final rule pursuant to its authority under TILA section
105(a),\275\ 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.
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\275\ As discussed further in the section-by-section analysis of
Regulation Z Sec. 1026.60(b), the Bureau also relies on TILA
section 127(c)(5) for the requirements in the final rule for
additional disclosures provided on or with charge card applications
and solicitations.
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V. Section-by-Section Analysis
Regulation E
Subpart A--General
Overview of the Bureau's Approach to Regulation E
As discussed above in part III.C, the Bureau proposed to amend
Regulation E, which implements EFTA, along with the official
interpretations thereto. The proposal would have created comprehensive
consumer protections for prepaid financial products by expressly
bringing such products within the ambit of Regulation E as prepaid
accounts. In addition, the proposal would have created several new
provisions specific to such accounts.
After consideration of the feedback received at every stage of the
rulemaking process (in response to the Prepaid ANPR, in the course of
developing the proposal, and since issuing the proposal) as well as
multiple rounds of consumer testing, and interagency consultations, the
Bureau is adopting this same general approach in the final rule, with
some modifications, as discussed herein.
The Bureau's rationale for its approach in the final rule, and its
response to specific comments addressing each of the proposed revisions
and additions, are discussed in greater detail in the section-by-
section analyses that follow.
Comments Received on the Bureau's Proposed Approach Generally
In addition to comments regarding specific sections of the
proposal, the Bureau received comments addressing more generally its
proposed approach to regulating prepaid accounts under Regulation E.
Consumer group commenters largely praised the Bureau for proposing to
add protections for prepaid accounts. They pointed to what they
described as a gap in regulatory protection relating to GPR cards, and
noted the importance of additional protections for this product
segment, especially in light of what they characterized as increased
consumer usage and increased complexity of product offerings in the GPR
card market. In particular, following a high-profile service disruption
affecting a particular issuer and thousands of its prepaid
accountholders, several consumer groups submitted a joint letter
commending the Bureau for its proposal to extend Regulation E to all
prepaid accounts. The letter suggested that, had Regulation E applied
uniformly to all prepaid accounts at the time of the incident,
consumers may have had more and better tools at their disposal to
address the incident. In addition to generally commending the Bureau
for proposing a rule that, in their view, would provide necessary
protections for prepaid account consumers that consumers of other
account types already have, consumer group commenters voiced general
support for specific key portions of the Bureau's proposal, in
particular the standardization of prepaid account disclosures,
extending Regulation E's limited liability and error resolution
provisions to prepaid accounts, and regulating credit features offered
in connection with prepaid accounts.
Most consumer group commenters, however, urged the Bureau to go
farther by finalizing additional protections beyond those that were
proposed. Specifically, several consumer groups urged the Bureau to ban
or limit specific fees generally or to do so for specific products. For
example, commenters argued that the Bureau should ban or limit balance
inquiry fees, fees for making customer service calls, declined
transaction or NSF fees, card replacement fees, inactivity fees,
maintenance fees, legal process fees, research fees, and account
closing fees. Still other commenters argued that the Bureau should ban
all fees on cards used by correctional facilities to distribute funds
to formerly-incarcerated individuals, or that it should ban or limit
all fees for withdrawing salary or wages, or insurance, tax, or student
financial aid funds, especially in cases where the cardholder has no
choice but to receive those funds on a prepaid account.
Consumer group commenters also sought certain prohibitions
unrelated to fees. For example, a number of consumer groups asked the
Bureau to prohibit forced arbitration and class action ban clauses in
prepaid account agreements. One consumer group urged the Bureau to
limit financial institutions' ability to place holds on account funds
while a transaction clears. Other consumer groups urged the Bureau to
require that additional features be offered in connection with prepaid
accounts. For example, a number of consumer groups asked the Bureau to
consider requiring, or at least encouraging, financial institutions to
offer linked savings accounts in connection with prepaid accounts, and
a coalition of consumer groups urged the Bureau to require that
consumers' prepaid account usage be reported to the credit reporting
agencies.\276\
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\276\ In the Prepaid ANPR, the Bureau sought input and data on
the efficacy of certain other features that are or could be offered
in connection with prepaid accounts, including linked savings
features and credit-building features whereby consumers' transaction
history may be reported to credit reporting agencies. Based on the
ANPR comments received, as well as its understanding of the state of
the market, the Bureau stated its belief that it would not be
appropriate to take further action on those issues in the context of
the proposal. Nonetheless, the Bureau solicited additional input and
data on these issues.
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While most commenters, including industry groups, did not object to
the general concept of bringing prepaid products within the ambit of
Regulation E, many industry commenters voiced concern about the overall
level of burden that would be imposed by the proposal on entities that
issue or act as service providers for issuers of prepaid accounts. This
includes some trade associations, issuing banks and credit unions,
program managers, and others, as well as a member of Congress, who
argued that the overall burdens of the proposal would be
disproportionate to what they viewed as limited benefits. Some of these
commenters argued in particular that the rule was unnecessary because
most issuers of GPR cards are already following Regulation E. A subset
of these commenters, including an issuing bank, a law firm writing on
[[Page 83961]]
behalf of a coalition of prepaid issuers, and a payment network, argued
that the proposed rule would over-burden industry because it was
impractical or impossible to comply with, overly complex, highly
prescriptive, or overly broad. These and other commenters, including
industry trade associations, issuing banks, and a payment network,
argued further that financial institutions would respond to these
additional burdens by either exiting the market, reducing their product
offerings, or raising prices, all of which, they said, have the
potential to reduce overall consumer choice in the prepaid marketplace.
Some of these commenters expressed concern particularly about the
impacts of the rule on digital wallets and other emerging products.
Some commenters, including a program manager, industry trade
associations, an issuing bank, and the law firm writing on behalf of a
coalition of prepaid issuers, also argued that the burdens imposed by
the rule were not justified by the intended consumer benefits or by the
Bureau's desire to remedy what the commenters viewed as relatively
minor or hypothetical consumer harms.
Commenters urged the Bureau to exclude specific types of entities
from coverage under the rule. In particular, a number of industry
commenters noted the unique burdens they believed the rule would place
on small banks and credit unions, while a subset of these commenters,
including an issuing credit union, trade associations representing
banks and credit unions, and a program manager, argued that the Bureau
should exempt these smaller institutions from the rule altogether. By
contrast, one industry trade association urged the Bureau to take
additional steps to supervise and enforce against non-depository
financial institutions in the prepaid market, such as by issuing a rule
under section 1024 of the Dodd-Frank Act,\277\ arguing that without
direct oversight from the Bureau, these non-depository players would be
unfairly advantaged by lower compliance costs.
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\277\ Under section 1024 of the Dodd-Frank Act, the Bureau is
authorized to supervise certain non-bank covered persons for
compliance with Federal consumer financial laws and for other
purposes. Under section 1024(a)(1)(B) of the Dodd-Frank Act, for
certain markets, the supervision program generally will apply only
to ``larger participant[s]'' of these markets. The Bureau has
defined larger participants in several markets and is considering
issuing additional regulations to define further the scope of the
Bureau's non-bank supervision program.
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Summary of the Bureau's Approach To Regulating Prepaid Accounts Under
Regulation E
The Bureau has considered these general comments and has made
certain modifications to the rule, as discussed in detail in the
section-by-section analyses that follow, to calibrate carefully with
regard to burden concerns. The major provisions of the final rule are
organized as follows: Sec. 1005.2(b)(3) adds the term prepaid account
to the general definition of account in Regulation E and sets forth a
definition for that term, revised from the proposal for clarity and
with some additional exclusions. Comment 10(e)(2)-2 clarifies that the
existing prohibition on compulsory use in Sec. 1005.10(e)(2) prohibits
a government agency from requiring consumers to receive government
benefits by direct deposit to any particular institution. Section
1005.15, which includes preexisting provisions applicable to government
benefit accounts, also includes new provisions setting forth and
clarifying the application of several provisions of revised Sec.
1005.18 (concerning disclosures, access to account information, error
resolution and limited liability requirements, and overdraft credit
features) to government benefit accounts.
Section 1005.18 contains the bulk of the final rule's specific
requirements for prepaid accounts. Section 1005.18(a) states that
prepaid accounts must comply with subpart A of Regulation E, except as
modified by Sec. 1005.18. Section 1005.18(b)(1) sets forth that, in
general, both the short form and long form disclosures must be provided
before a consumer acquires a prepaid account. For prepaid accounts sold
at retail locations, however, a financial institution may provide the
long form disclosure after acquisition so long as the short form
contains information enabling the consumer to access the long form by
telephone and on a Web site. A similar accommodation is made for
prepaid accounts acquired orally by telephone. Section 1005.18(b)(2)
contains the general content requirements for the short form
disclosure, while Sec. 1005.18(b)(3) addresses specific short form
requirements related to disclosure of variable fees and third-party
fees, as well as treatment of finance charges on overdraft credit
features offered in connection with a prepaid account. Section
1005.18(b)(4) contains the content requirements for the long form
disclosure. Section 1005.18(b)(5) requires that certain additional
information be disclosed outside but in close proximity to the short
form, including the purchase price and activation fee, if any, for the
prepaid account. Section 1005.18(b)(6) contains requirements regarding
the form of the pre-acquisition disclosures, including specific
requirements applicable when disclosures are provided in writing,
electronically, or orally by telephone. Section 1005.18(b)(7) sets
forth formatting requirements for the short form and long form
disclosures generally, as well as formatting requirements for payroll
card accounts and prepaid accounts that offer multiple service plans in
particular. Section 1005.18(b)(8) requires that fee names and other
terms must be used consistently within and across the disclosures
required by final Sec. 1005.18(b). Section 1005.18(b)(9) requires
financial institutions to provide pre-acquisition disclosures in
foreign languages in certain circumstances.
Next, Sec. 1005.18(c) addresses access to account information
requirements for prepaid accounts. It states that a financial
institution is not required to provide periodic statements if it makes
available to the consumer balance information by telephone, at least 12
months of electronic account transaction history, and upon the
consumer's request, at least 24 months of written account transaction
history. Periodic statements and account transaction histories must
disclose the amount of any fees assessed against the account, and must
display a summary total of the amount of all fees assessed by the
financial institution against the consumer's prepaid account for the
prior calendar month and for the calendar year to date. Section
1005.18(d) sets forth alternative disclosure requirements for both the
initial disclosures and annual error resolution notices for financial
institutions that provide information under the periodic statement
alternative in Sec. 1005.18(c).
Section 1005.18(e) clarifies that prepaid accounts must generally
comply with the limited liability provisions in existing Sec. 1005.6
and the error resolution requirements in Sec. 1005.11, with some
modifications. Specifically, the final rule extends Regulation E's
limited liability and error resolution requirements to all prepaid
accounts, regardless of whether the financial institution has completed
its consumer identification and verification process with respect to
the account, but does not require provisional credit for unverified
accounts. Section 1005.18(f) contains certain other disclosure
requirements, such as a requirement that the initial disclosures
required by Sec. 1005.7 include
[[Page 83962]]
all of the information required to be disclosed in the long form and
specific disclosures that must be provided on prepaid account access
devices. Finally, Sec. 1005.18(h) sets forth a general effective date
of October 1, 2017 for most of the final rule, with some specific
accommodations related to disclosures and account information. Among
other things, the final rule permits financial institutions to continue
distributing prepaid account packaging material that was manufactured,
printed, or otherwise produced prior to the effective date provided
certain conditions are met.
Section 1005.19 contains the requirements for submitting prepaid
account agreements to the Bureau and for posting the agreements to the
Web site of the prepaid account issuer. Section 1005.19(a) provides
certain definitions specific to Sec. 1005.19. Section 1005.19(b)(1)
requires an issuer to make submissions to the Bureau no later than 30
days after an issuer offers, amends, or ceases to offer any prepaid
account agreement. Sections 1005.19(b)(2) and (3) set forth the
requirements for the submission of amended agreements and the
notification of agreements no longer offered. Sections 1005.19(b)(4)
and (5) provide de minimis and product testing exceptions to the
submission requirement. Section 1005.19(b)(6) sets forth the form and
content requirements for prepaid account agreements submitted to the
Bureau. Section 1005.19(c) generally requires an issuer to post and
maintain on its publicly available Web site prepaid account agreements
that are offered to the general public. Section 1005.19(d) requires
issuers to provide consumers with access to their individual prepaid
account agreements either by posting and maintaining the agreements on
their Web site, or by promptly providing a copy of the agreement to the
consumer upon request. Section 1005.19(f) provides a delayed effective
date of October 1, 2018 for the requirement to submit prepaid account
agreements to the Bureau.
The final rule also adds provisions to Regulation E that supplement
and complement the final rule amendments to Regulation Z regarding
overdraft credit features offered in connection with a prepaid account.
As discussed below in the section-by-section analyses under Regulation
Z, the final rule generally applies the Regulation Z credit card rules
to overdraft credit features that can be accessed in the course of a
transaction with the prepaid card where such credit features are
provided by the prepaid account issuer, its affiliate, or its business
partner. The final rule generally requires that such overdraft credit
features be structured as separate sub-accounts or accounts, distinct
from the prepaid asset account. Under the final rule, a prepaid card
that can access such an overdraft credit feature is defined as a
``hybrid prepaid-credit card,'' and the overdraft credit feature is
defined as a ``covered separate credit feature.'' Related modifications
to Regulation E include a revision to Sec. 1005.10(e)(1) that
prohibits issuers from requiring consumers to set up preauthorized EFTs
to repay credit extended through a covered separate credit feature
accessible by a hybrid prepaid-credit card. Section 1005.12(a)
clarifies whether Regulation E or Regulation Z governs the issuance of
a hybrid prepaid-credit card, and a consumer's liability and error
resolution rights with respect to transactions that occur in connection
with a prepaid account with a covered separate credit feature. Section
1005.17 clarifies that a covered separate credit feature accessible by
a hybrid prepaid-credit card is not an ``overdraft service'' as that
term has been defined under Regulation E in connection with checking
accounts. Finally, Sec. 1005.18(g) requires a financial institution to
provide the same account terms, conditions, and features on a prepaid
account without a covered separate credit feature that it provides on
prepaid accounts in the same prepaid account program that have such a
credit feature, except that the financial institution may impose higher
fees or charges on a prepaid account with such a credit feature.
In finalizing these provisions, the Bureau has carefully considered
the general comments summarized above expressing concerns about the
Bureau's proposal to extend Regulation E coverage to prepaid accounts.
The Bureau believes that comments opposing this approach generally fell
into three categories. First, some commenters argued that the potential
burden and risk to financial institutions of formally subjecting their
prepaid account programs to Regulation E requirements would not produce
substantial benefits for consumers because, among other reasons, many
programs (particularly those for GPR cards) are already generally
operated in compliance with the requirements for payroll cards in
Regulation E. Second, some commenters were concerned that the
rulemaking would define prepaid accounts broadly to include digital
wallets and other emerging products, thereby chilling innovation in the
payments market. Third, some commenters were primarily concerned about
the burden and complexity of specific portions of the proposal. The
Bureau has carefully considered the potential benefits and costs with
regard to each of these sub-issues in deciding to finalize the rule.
As discussed in greater detail below in connection with the
definition of prepaid account in Sec. 1005.2(b)(3) that shapes the
scope of coverage under the final rule, the Bureau believes that there
is substantial benefit to consumers in subjecting prepaid accounts to
Regulation E coverage even if some issuers are already generally in
compliance. The Bureau notes that those issuers who are in fact in
compliance will face a substantially lesser implementation burden than
those who are not, as discussed in part VII below. Moreover, the Bureau
believes that consumer protections are clearer and more effective when
companies are accountable for complying with them as a matter of law,
rather than by the choice or discretion of individual issuers. Indeed,
the Bureau agrees with the consumer group commenters who asserted that
uniform coverage of prepaid accounts under Regulation E will better
equip and empower consumers to work with financial institutions to
address problems with their prepaid accounts.
As discussed in greater detail in connection with Sec.
1005.2(b)(3) below, the Bureau has carefully evaluated the benefits and
costs of extending Regulation E to digital wallets and other similar
products, as well as to government benefit accounts, payroll card
accounts, GPR cards, and other types of prepaid products. The Bureau
recognizes that there is some need for tailoring of particular
provisions for prepaid accounts in certain circumstances, and has made
revisions to various specific requirements to address such nuances. For
example, the Bureau has revised proposed Sec. 1005.19(c) such that the
final rule does not require issuers to post on their publicly-available
Web sites account agreements that are not offered to the general
public, such as those for government benefit and payroll card accounts.
Nevertheless, the Bureau believes that there is substantial value to
both consumers and financial institutions in promoting consistent
treatment where logical and appropriate across products. The Bureau has
considered the possibility that providers might pass on increased costs
to consumers or be more cautious in developing additional products or
features, as discussed in part VII below, and believes that such
concerns are relatively modest.
[[Page 83963]]
Likewise, the Bureau acknowledges industry's concerns about the
volume of information financial institutions will have to disclose
under the final rule's pre-acquisition disclosure regime, and the
potential redundancies between the short form and long form
disclosures. The Bureau continues to believe, however, that there is
clear consumer benefit to ensuring consumers have access to both of
these disclosures pre-acquisition because the disclosures play crucial
but distinct roles. The Bureau designed and developed the short form
disclosure to provide a concise snapshot of a prepaid account's key
fees and features that is both easily noticeable and digestible by
consumers. The Bureau believes that the overall standardization of the
short form disclosure will facilitate consumers' ability to comparison
shop among prepaid account programs. On the other hand, the Bureau also
recognizes that providing only a subset of a prepaid account program's
fee information on the short form might not provide all consumers with
the information they need to make fully-informed acquisition decisions
in all cases. For this reason, the final rule also requires the long
form disclosure to be provided as a companion disclosure to the short
form, offering a comprehensive repository of all of a prepaid account's
fees and the conditions under which those fees could be imposed, along
with certain other key information about the prepaid account. The
Bureau notes that, under the alternative timing regime for disclosures
provided in a retail location or by phone, a financial institution may
provide the long form disclosure after acquisition so long as the short
form contains information enabling the consumer to access the long form
by telephone and on a Web site. In sum, the short form and the long
form disclosures together provide consumers with an overview of the key
information about the prepaid account and an unabridged list of fees
and conditions and other important information about the account.
The Bureau has also considered concerns about burden and complexity
both with regard to specific elements of the proposal and regarding
coverage and compliance more broadly, and has made numerous adjustments
to more finely calibrate the final rule to promote compliance and a
smooth implementation process, as discussed in more detail with regard
to individual provisions in the section-by-section analyses that
follow. At the outset, the Bureau notes that the fact that a
significant majority of these products are already substantially in
compliance with existing Regulation E provisions applicable to payroll
card accounts will reduce implementation burdens considerably.
Furthermore, the Bureau notes that several provisions of the final rule
have been adjusted to take more careful account of current industry
practices, and as such should not require significant changes to
existing procedures. For example, the Bureau has specifically clarified
the timing of acquisition requirements for purposes of delivering pre-
acquisition disclosures in final comment 18(b)(1)(i)-1 for payroll card
accounts and prepaid accounts generally, and in final comments 15(c)-1
and -2 for government benefit accounts. These revisions are consistent
with what the Bureau believes to be the current practices of many
employers and government agencies and therefore should not require
significant modifications to current procedures.
The Bureau also has incorporated certain burden-reducing measures
to address various concerns raised by commenters about the burden on
industry they asserted would result from the proposed pre-acquisition
disclosure regime. These burden-alleviating modifications include the
various changes to the additional fee types disclosures, including
disclosure of two fees rather than three; a de minimis threshold; and
reassessment and updating required every 24 months rather than 12.
Other measures in the final rule that reduce burden include permitting
reference in the short form disclosure for payroll card accounts (and
government benefit accounts) to State-required information and other
fee discounts and waivers pursuant to final Sec.
1005.18(b)(2)(xiv)(B); permitting disclosure of the long form within
other disclosures required by Regulation E pursuant to final Sec.
1005.18(b)(7)(iii); and flexible updating of third-party fees in the
long form disclosure pursuant to Sec. 1005.18(b)(4)(ii).
As another example, the Bureau has modified the periodic statement
alternative in Sec. 1005.18(c)(1)(ii) to require at least 12 months of
electronic account transaction history (instead of 18 months as
proposed), which commenters explained many financial institutions
already make available; the Bureau therefore believes any changes
needed to comply with that portion of the rule for most financial
institutions should be minimal. Likewise, implementing changes to
provide at least 24 months of written account transaction history upon
request pursuant to final Sec. 1005.18(c)(1)(iii) should also not be
problematic because the Bureau understands financial institutions
generally retain several years of account transaction data in archived
form. Relatedly, final Sec. 1005.18(c)(5) requires financial
institutions to provide a summary total of the fees assessed against
the consumer's prepaid account for the prior calendar month and
calendar year to date, but not summary totals of all deposits to and
debits from a consumer's prepaid account as proposed.
Similarly, regarding the prepaid account agreement posting
requirement, the Bureau believes the modification in final Sec.
1005.19(c) to require issuers to post on their publicly-available Web
sites only the agreements that are offered to the general public will
reduce the number of agreements prepaid account issuers must post. In
addition, this is generally consistent with the types of agreements
that issuers post to their Web sites already, thus reducing the burden
associated with this requirement relative to the proposal. Likewise,
the Bureau believes that the revision in final Sec. 1005.19(b)(1) to
submit agreements to the Bureau on a rolling basis (instead of
quarterly) should reduce the burden of the submission requirement on
issuers relative to the proposal.
The Bureau has also given substantial thought to ways in which it
can facilitate industry's implementation process for this final rule.
For example, the Bureau has extended the general effective date of the
rule from the proposed nine months following the publication of the
rule in the Federal Register to approximately 12 months following the
Bureau's issuance of this final rule. The Bureau has also eliminated
the proposed requirement to pull and replace non-compliant prepaid
account access devices and packaging materials after the effective
date, which the Bureau believes obviates commenters' concerns about the
environmental impact and cost of retrieving and destroying old
packaging. The Bureau is also providing native design files for print
and source code for web-based disclosures for all of the model and
sample forms included in the final rule for the convenience of the
prepaid industry and to help reduce development costs.\278\ The Bureau
also believes the accommodation set forth in new Sec. 1005.18(h)(3)
for financial institutions that do not have readily available the data
necessary to comply in full with the periodic statement alternative or
summary totals of fees requirements as of October 1, 2017
[[Page 83964]]
should provide financial institutions with the additional flexibility
in preparing for this final rule's effective date. Finally, the Bureau
believes the delayed effective date of October 1, 2018 set forth in new
Sec. 1005.19(f)(2) for the prepaid account agreement submission
requirement, as well as the other modifications made to the posting
requirement in final Sec. 1005.19, as discussed above, should help
alleviate the time pressures prepaid account issuers might otherwise
face when complying with those provisions.
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\278\ These files are available at www.consumerfinance.gov/prepaid-disclosure-files.
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In addition to these specific modifications to the rule to reduce
burden to industry relative to the proposal, the Bureau is committed to
working with industry to facilitate the transition process through
regulatory implementation support and guidance, including by developing
and providing a compliance guide to covered entities.\279\
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\279\ Under section 212 of the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA), for each rule or group of
related rules for which an agency is required to prepare a final
regulatory flexibility analysis under 5 U.S.C. 605(b), the Bureau is
required to publish a small entity compliance guide. As set forth in
part VIII below, the Bureau has certified that this rule does not
require a final regulatory flexibility analysis. Accordingly, the
Bureau is not required under SBREFA to publish a small entity
compliance guide, but nonetheless intends to do so to assist
industry with implementation and compliance.
Regulatory implementation materials related to this final rule
are available at http://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/prepaid.
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In light of the modifications the Bureau has made to the rule as
proposed, as well as the benefits of the final rule to consumers, the
Bureau does not believe that further modifications to its general
approach of regulating prepaid accounts under Regulation E--that is,
beyond those specific modifications discussed in the following section-
by-section analyses--are warranted. Nor does it believe that it would
be appropriate to exempt from the final rule entire categories of
financial institutions, as some commenters writing on behalf of smaller
banks and credit unions suggested. The Bureau notes, however, that to
the extent smaller banks or credit unions merely sell prepaid accounts
issued by other entities, they are not covered financial institutions
under Regulation E, since they do not satisfy either part of the
definition of financial institution (i.e., they do not hold prepaid
accounts, nor do they issue prepaid accounts and agree with consumers
to provide EFT services in connection with prepaid accounts).\280\ As
such, while some of the required changes may be implemented by third-
party service providers, such as program managers or processors, the
burden of and liability for complying with this final rule would
generally fall on the financial institution that issues the prepaid
accounts, not on the banks or credit unions selling those products.
Moreover, to help alleviate some of the burdens anticipated by smaller
banks and credit unions in this situation with respect to disclosures,
the Bureau has expanded the alternative timing regime for pre-
acquisition disclosures that applies to prepaid accounts acquired in
person to apply to any retail location, not just a retail store--under
the final rule, therefore, banks and credit unions that sell other
financial institutions' prepaid accounts in their branches will be able
to provide the long form disclosure after acquisition, provided they
comply with the requirements set forth in final Sec.
1005.18(b)(1)(ii).
---------------------------------------------------------------------------
\280\ See Sec. 1005.2(i).
---------------------------------------------------------------------------
With respect to the comment requesting the Bureau to increase its
supervisory authority over non-depository financial institutions in the
market for prepaid accounts, the Bureau notes that this final rule's
requirements apply equally to depositories and non-depositories alike.
The Bureau will continue to monitor the markets, and may consider
future rulemakings aimed at defining larger participants in this or
other relevant markets, pursuant to its authority under section 1024 of
the Dodd-Frank Act.
With respect to specific requests made by consumer groups for
additional requirements or prohibitions, the Bureau notes that many of
the requests go significantly beyond the scope of what the Bureau
contemplated in the proposed rule. Specifically, requests to ban
certain fees, either in general or in the context of particular types
of cards, are outside the scope of this rulemaking, and as such, the
Bureau declines to include any such blanket fee bans in the final rule.
Nonetheless, the Bureau recognizes commenters' concerns regarding
financial institutions' fee practices, particularly with respect to
practices that disproportionately impact vulnerable populations, such
as formerly incarcerated individuals, and will continue to monitor
these practices going forward. Likewise, the final rule does not
address financial institutions' practices with respect to placing holds
on funds pending clearance of a transaction.\281\
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\281\ The Bureau notes that the U.S. transition from magnetic
strip to EMV chip payment cards is expected to reduce the incidence
of card-related fraud. As such, account holds related to fraud
prevention may likewise reduce in amount or frequency.
---------------------------------------------------------------------------
The request that the Bureau ban arbitration or class action waivers
in prepaid account agreements is also outside the scope of this
rulemaking. The Bureau notes, however, that if finalized as proposed,
the Bureau's recent Arbitration Agreements NPRM would prohibit covered
providers of certain consumer financial products and services from
using an arbitration agreement to bar the consumer from filing or
participating in a class action with respect to the covered consumer
financial product or service.\282\
---------------------------------------------------------------------------
\282\ 81 FR 32830 (May 24, 2016). The proposal would also
facilitate monitoring of consumer arbitrations by requiring
providers to report certain information to the Bureau in connection
with individual arbitration proceedings.
---------------------------------------------------------------------------
Finally, with respect to consumer group commenters' requests that
the Bureau require or encourage financial institutions to add savings
or credit building features to prepaid accounts, the Bureau agrees with
commenters that such features can be beneficial to consumers. Linked
savings programs, for instance, may allow participating consumers to
better manage their current spending and set aside funds for planned or
unexpected expenses. Nevertheless, the Bureau does not believe it would
be appropriate to mandate one at this juncture. The Bureau will
continue to encourage financial institutions to expand their offerings
in this area, in such a way as to provide protections and opportunities
for consumers.\283\
---------------------------------------------------------------------------
\283\ See also Press Release, CFPB, CFPB Project Catalyst Study
Finds Savings Offers Double the Number of Consumers Saving (Sept.
29, 2016), available at http://www.consumerfinance.gov/about-us/newsroom/cfpb-project-catalyst-study-finds-savings-offers-double-number-consumers-saving/.
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Other Regulation E Subpart A Provisions Applicable to Prepaid Accounts
The Bureau explained in the proposal that unless as otherwise
provided under the proposed rule, the requirements of current subpart A
of Regulation E would extend to prepaid accounts in the same manner
they currently apply to payroll card accounts. This aspect of the
proposal is adopted as proposed.
A law firm commenter representing a coalition of prepaid issuers
asserted that the Bureau should permit financial institutions to
provide all required disclosures related to prepaid accounts
electronically regardless of whether a financial institution complies
with the Electronic Signatures in Global and National Commerce Act (E-
Sign Act),\284\ which generally requires consumer consent and a
demonstration that the
[[Page 83965]]
consumer can receive materials electronically before written
disclosures can be delivered electronically.
---------------------------------------------------------------------------
\284\ 15 U.S.C. 7001 et seq.
---------------------------------------------------------------------------
In general, the Bureau believes that existing Sec. 1005.4(a)(1)
should apply to prepaid accounts. Section 1005.4(a)(1) permits the
electronic delivery of disclosures required pursuant to subpart A of
Regulation E, subject to compliance with the consumer consent and other
applicable provisions of the E-Sign Act. However, the final rule
permits financial institutions to provide the short form and long form
disclosures electronically without E-Sign consent for prepaid accounts
that are acquired electronically, including via a mobile device, to
ensure that consumers receive relevant disclosure information at the
appropriate time. During the pre-acquisition time period for prepaid
accounts, the Bureau believes that it is important for consumers who
decide to go online to acquire a prepaid account to see the relevant
disclosures in electronic form. The Bureau believes that many consumers
may decide whether to acquire a particular prepaid account after doing
research online, and that if they are not able to see disclosures on
the prepaid account program's Web site, they cannot make an informed
acquisition decision. But the fact that the consumer has used the Web
site once to acquire the account does not mean that the consumer
intends to receive all disclosures later in the account relationship
via Web site, absent a formal process by which the consumer is informed
of and consents to that delivery method. And with accounts acquired
through other means, the Bureau similarly believes it is important that
consumers have an opportunity to consent to electronic delivery of
disclosures in general. Accordingly, the Bureau declines to permit
financial institutions to provide all required disclosures related to
prepaid accounts electronically regardless of whether a financial
institution complies with the E-Sign Act.
Finally, current Sec. 1005.10(c) provides that a consumer can
revoke authorization of preauthorized EFTs orally or in writing. If the
consumer gives the stop payment request orally, a financial institution
may require the consumer to then give written confirmation, or else the
oral stop payment order will cease to bind the financial institution. A
consumer group commenter requested that the Bureau clarify that
consumers can revoke their authorization of preauthorized EFTs in
writing, electronically, or orally in any manner, as long as the method
provides a consumer's creditor with reasonable notice and opportunity
to act. The Bureau declines to modify Sec. 1005.10(c) in this way, as
doing so would be outside of the scope of this rulemaking insofar as
any such clarification would presumably apply to all Regulation E
accounts, not just prepaid accounts.
The Bureau notes that among the other various Regulation E
provisions that will apply to prepaid accounts are the limitations on
the unsolicited issuance of an access device in existing Sec. 1005.5
and the requirement in existing (Sec. 1005.13) to retain records that
evidence compliance with the requirements of EFTA and Regulation E.
Section 1005.2 Definitions
2(b) Account
2(b)(2) Bona Fide Trust Account
The current definition of account in Regulation E includes an
exception for bona fide trust accounts.\285\ To accommodate the
proposed definition for the term prepaid account and a proposed
adjustment to the definition of payroll card account, the Bureau
proposed to renumber the exception for bona fide trust accounts as
Sec. 1005.2(b)(2) without any substantive changes to the exception.
The Bureau did not receive any comments on this portion of the proposal
and is finalizing this change as proposed. As explained in the
proposal, to accommodate this 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.
---------------------------------------------------------------------------
\285\ See existing Sec. 1005.2(b)(3).
---------------------------------------------------------------------------
2(b)(3) Prepaid Account
The Bureau's Proposal
The Bureau proposed several changes to Sec. 1005.2(b), as
discussed below. In sum, these changes would have created a broad new
defined term, ``prepaid account,'' as a subcategory of the definition
of ``account'' in existing Sec. 1005.2(b)(1), and thus subject to
Regulation E. As discussed in detail in the proposal, existing Sec.
1005.2(b)(1) defines an ``account'' generally 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.
EFTA and existing Regulation E contain explicit provisions applying
specifically to payroll card accounts, as well as accounts used for the
distribution of government benefits in existing Sec. Sec. 1005.18 and
1005.15, respectively. Gift cards, although not included in the Sec.
1005.2(b) definition of account, are addressed specifically in Sec.
1005.20. The Board, in adopting rules to include payroll card accounts
within the ambit of Regulation E, explicitly stated 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.\286\ As a result, some regulators, the prepaid industry, and
others had interpreted Regulation E as not applying to various types of
prepaid products that are not payroll card accounts, accounts used for
the distribution of government benefits, or gift cards.\287\
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\286\ 71 FR 51437, 51441 (Aug. 30, 2006).
\287\ 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 not already specifically identified in Regulation E
could or should be covered by the regulation. It first considered the
applicability of EFTA to prepaid products. EFTA, among other things,
governs transactions that involve an EFT 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.'' \288\ Insofar as the statute defines account broadly to
include any other asset account and for the other reasons discussed
below, the Bureau believed it was reasonable to interpret ``account''
in EFTA to include prepaid accounts. Thus, it proposed 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 proposed to
modify the definition of ``account'' under Sec. 1005.2(b) to create a
specific sub-definition for prepaid account.
---------------------------------------------------------------------------
\288\ EFTA section 903(2), 15 U.S.C. 1693a(2).
---------------------------------------------------------------------------
The Bureau believed that proposing to apply Regulation E to prepaid
accounts was appropriate for several reasons. First, it concluded that
consumers' use of prepaid products had evolved significantly since
2006, when the Board last examined the issue in the course of its
payroll card account
[[Page 83966]]
rulemaking. The Bureau noted that a substantial number of consumers
could and do use prepaid accounts that involve substantial sums of
money, in part because many have wages and/or benefits loaded onto
prepaid cards through direct deposit.\289\ In addition, consumers use
prepaid cards for a variety of purposes, including making purchases,
paying bills, and receiving payments.\290\ Indeed, the Bureau noted
that some consumers without other transaction accounts depend on
prepaid cards to meet all of their payment account needs.\291\ As a
result, the Bureau believed that such products should be considered
consumer asset accounts subject to EFTA and Regulation E.
---------------------------------------------------------------------------
\289\ See, e.g., Fed. Deposit Ins. Corp., 2013 FDIC National
Survey of Unbanked and Underbanked Households, at 55 (Oct. 2014),
available at https://www.fdic.gov/householdsurvey/2013report.pdf
(2013 FDIC Survey) (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).
\290\ 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).
\291\ See, e.g., id. (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).
---------------------------------------------------------------------------
Second, the Bureau concluded that inclusion aligned appropriately
with the purposes of EFTA. The legislative history of EFTA indicates
that Congress's primary goal was to protect consumers using EFT
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.
Likewise, in the proposal, the Bureau stated its belief that it was
appropriate to establish such a framework for prepaid accounts, because
doing so would benefit both consumers and providers.\292\
---------------------------------------------------------------------------
\292\ 79 FR 77102, 77127 (Dec. 23, 2014).
---------------------------------------------------------------------------
In addition, were it to finalize the proposal, the Bureau believed
that consumers would be better able to assess the risks of using
prepaid products. Indeed, the Bureau was concerned that because prepaid
cards could 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. The Bureau stated its belief that the proposal, if
finalized, would serve to make those protections more consistent and
eliminate a regulatory gap.
With these considerations in mind, the Bureau proposed to bring a
broad range of prepaid products within the ambit of Regulation E and
also proposed to modify certain substantive provisions of Regulation E
as appropriate for different types of prepaid accounts. To facilitate
this, the Bureau proposed to add a definition of ``prepaid account,''
the specifics of which are discussed in greater detail in the section-
by-section analyses that follow, to the existing definition of
``account'' in Sec. 1005.2(b). In sum, the proposed definition would
have created a broad general umbrella definition for prepaid accounts
that are issued on a prepaid basis or loaded with funds thereafter and
are usable to conduct transactions with merchants or at an ATM, or
usable to facilitate P2P transfers. The definition would not have
depended on whether such accounts were reloadable or non-reloadable.
Payroll card accounts and government benefit accounts would have been
subsumed within the broader definition, though still enumerated as
specific subcategories for purposes of tailoring certain substantive
rules. The Bureau noted that while not all prepaid products covered by
the proposed definition could or would be used as full and ongoing
transaction account substitutes, it was concerned that to try to carve
out very specific types of products that were, or could be, used for
short-term limited purposes would create substantial complexity and
could result in consumer confusion as to what protections would apply
to otherwise indistinguishable products. The proposed definition would
have excluded accounts that were already subject to Regulation E.\293\
---------------------------------------------------------------------------
\293\ Id. at 77127-28.
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Comments Received
As with the comments the Bureau received in response to the ANPR,
most commenters to the proposal (industry, consumer advocacy groups,
and others) did not object to the general concept of bringing prepaid
products within the ambit of Regulation E.\294\ While there were some
concerns from industry and others, discussed in more detail below,
about exactly which types of prepaid products the Bureau might subject
to Regulation E, most commenters favored inclusion of GPR cards. Among
other reasons, several industry 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.
---------------------------------------------------------------------------
\294\ A trade association representing credit unions asserted
that the Bureau lacked the statutory authority to extend Regulation
E to GPR cards. The commenter argued that, because Congress
expressly exempted GPR cards from the provisions of the Credit CARD
Act that apply to gift cards, the Bureau lacks the authority to
extend the requirements of all of Regulation E to prepaid cards
absent a statutory amendment to EFTA to define ``account'' to
include prepaid cards. The Bureau disagrees. The provisions in the
Credit CARD Act that apply to gift cards were specific requirements
that Congress mandated for the unique context of gift cards. These
provisions do not take away from the Bureau's authority and
discretion to regulate accounts more generally under EFTA as a
whole, and the Bureau believes that ``account'' is reasonably
interpreted to include prepaid accounts.
---------------------------------------------------------------------------
A number of industry commenters, however, took issue with the
Bureau's proposal to define prepaid account more broadly than just GPR
cards. A number of these commenters, including program managers, a
trade association, and a law firm writing on behalf of a coalition of
prepaid issuers, stated that the scope of the proposal's coverage was a
significant departure from the Bureau's Prepaid ANPR, which they noted
focused exclusively on GPR cards and like products. A number of
commenters, including trade associations and an issuing bank, urged the
Bureau to focus its rulemaking on products that could be used in the
same ways as traditional transaction accounts. The commenters
contrasted such products, which they contended include GPR cards, with
products that have limitations on use, such as non-reloadable cards or
so-called reload packs, which are cards that can only be used to load
funds onto GPR cards. According to the commenters, products that had
limited uses or functions were generally characterized by a more
limited relationship between the issuer and consumer, which made these
types of products inherently riskier--from a fraud-prevention
perspective--and less profitable to financial institutions than GPR
cards. The commenters asserted that if these more limited product types
were covered under the definition of prepaid account, the cost of
adding Regulation E protections may cause issuers of those products to
discontinue offering them. A number of trade associations advocated
that the Bureau specifically exclude non-reloadable cards for these
reasons. Similarly, these and other commenters urged the Bureau to
exclude reload packs.
Other industry commenters objected to the Bureau's decision to
cover ``innovative'' payment products, such as
[[Page 83967]]
digital wallets capable of storing funds, mobile and electronic
payments, mobile applications, and other products that were being or
may one day be developed. A digital wallet provider argued for an
explicit exemption for digital wallets, which it defined as card, code,
or other device that is capable of accessing two or more payment
credentials for purposes of making payment for goods and services at
multiple unaffiliated merchants. According to the commenter, digital
wallets and GPR cards should not be encompassed within the same
regulatory regime because they have fundamentally different consumer
use cases and functionalities, and as such are not viewed by consumers
as interchangeable. For example, the commenter asserted, in contrast
with GPR cards, digital wallets are used primarily to access payment
credentials, not funds. The commenter further stated that, to the
extent digital wallets store funds, such funds are almost always loaded
onto the wallets as a result of a P2P transaction, not because the
accountholder purposefully loads the wallet with funds for future use.
In addition, the commenter argued, digital wallets do not present the
same risks as prepaid accounts--specifically, digital wallets charge
lower fees than GPR cards and do not offer overdraft features.
Other commenters, including an issuing bank, several industry trade
associations, a think tank, and a group of members of Congress, argued
that if the Bureau's prepaid accounts rule applied to such products, it
would stifle growth and innovation by imposing a one-size-fits-all
regime on a diverse and evolving market. These commenters advocated
that the Bureau take an incremental approach to broadening the
definition of prepaid account by including GPR cards in this final
rule, and reevaluating the possible addition of other products at a
later time.
A subset of these commenters, joined by a number of additional
trade associations, a payment network, and an issuing bank, argued that
the proposed definition was ambiguous and vague. Specifically, these
commenters argued that the proposed definition did not draw a
sufficiently clear line between accounts that were already covered by
Regulation E--namely, demand deposit (checking) accounts, savings
accounts, and other consumer asset accounts--and accounts that would
newly be covered as prepaid accounts. These commenters expressed
concern that under the proposed definition certain accounts could
qualify as both prepaid accounts subject to the augmented Regulation E
requirements of the proposal and traditional bank accounts (or other
consumer asset accounts) subject to existing Regulation E requirements.
Relatedly, other commenters stated that certain prepaid account issuers
already considered their products covered under Regulation E as
consumer asset accounts. As a result, commenters asserted, essentially
identical products could be subject to different consumer protection
regimes, resulting in inconsistent consumer protections for similar
products and heightened compliance risk stemming from industry's
uncertainty regarding which regime their products fall under. These
commenters urged the Bureau to create a clearer demarcation between
prepaid accounts and other types of accounts. Specifically, commenters
proposed that the Bureau add greater clarity by limiting the definition
of prepaid account. They had various suggestions for how to limit the
definition, including, inter alia, limiting it to GPR cards, accounts
that can only be accessed by a physical card, accounts that are
marketed and labeled as prepaid accounts, accounts held by a financial
institution in an omnibus (or pooled) account structure, or accounts
featuring some combination of these characteristics.
Consumer groups likewise 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 their prepaid
products lack certain protections offered by other transaction
accounts. The consumer groups diverged from industry commenters,
however, by largely supporting the breadth of the Bureau's proposed
definition. A number of groups agreed with the Bureau's decision to
include both reloadable and non-reloadable accounts in the proposed
definition, arguing that the focus of the definition should be on how
the account is used, not on how it is loaded. A think tank argued that
consumer usage supported covering non-reloadable cards, noting that
one-third of prepaid account users in its survey do not reuse their
account after the initial amount of funds was depleted. A number of
consumer groups advocated that the Bureau expand the proposed
definition further to include specific types of non-reloadable cards
loaded by third parties, such as student loan disbursement cards and
prison release cards. Other consumer groups argued that a broad
definition was necessary to accommodate new and changing products.
These commenters supported the Bureau's decision to cover mobile and
virtual payment systems, arguing that, as payment systems evolve, it
was important not to adopt a narrow definition that would permit
evasion.
Some commenters also urged the Bureau to expand the scope of the
definition of government benefit account so that it applied to more
categories of government benefit programs. Those comments and the
Bureau's response thereto are discussed in greater detail in the
section-by-section analysis of Sec. 1005.15(a) below.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing the rule
to define the term ``account'' under Regulation E to include a
``prepaid account,'' while making several revisions to the proposed
definition of prepaid account, as summarized below and discussed in
greater detail in the section-by-section analyses that follow. EFTA
section 903(2) defines an account broadly 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.'' 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. In general, the Bureau declines to
narrow the scope of the proposed definition to cover, for example, only
GPR cards, reloadable accounts, or cards that otherwise function as
transaction account substitutes, as some commenters had requested.
As it stated in the proposal, the Bureau recognizes that not all
types of prepaid products lend themselves to permanent use as
transaction account substitutes. Nevertheless, the Bureau continues to
believe that the features of non-GPR card prepaid products as well as
the ways consumers can and do use those products warrant Regulation E
protection and that the prepaid regime provided in this final rule is
the most appropriate regime to apply. Consumers can receive significant
disbursements of funds--such as tax refunds or pay-outs of home
insurance proceeds--on non-reloadable prepaid cards. They can then use
such cards for a variety of purposes, including making purchases and
paying bills, for which error resolution and other Regulation E
protections could be important.\295\ Indeed, even though some
[[Page 83968]]
types of prepaid cards may not be reloadable, consumers who lack other
transaction accounts may depend entirely on such cards to meet their
payment account needs, at least until the cards are spent down.\296\
Likewise, consumers increasingly use digital wallets to conduct daily
financial transactions for which Regulation E protections are
important. The Bureau is not convinced by the argument that digital
wallets used in this fashion are fundamentally dissimilar to other
types of prepaid accounts. Indeed, to the extent that they are used to
access funds the consumer has deposited into the account in advance,
the Bureau believes digital wallets operate very much like a prepaid
account. The Bureau notes that the fact that digital wallets currently
on the market may not charge usage fees, as one commenter asserted, may
not hold true in the future, especially if these products become more
widely used and the features and services offered broaden.\297\
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\295\ See, e.g., 2013 FDIC Survey at 34 (finding that for all
households that used prepaid debit cards in the last 12 months, 47.6
percent did so to pay for everyday purchases or to pay bills and
31.8 percent did so to receive payments).
\296\ See, e.g., id. (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).
\297\ The same commenter argued in the alternative that, if
digital wallets were not explicitly exempted from the definition of
prepaid account, they be exempted from the pre-acquisition
disclosure regime. That request, and the Bureau's response to it,
are discussed in greater detail below.
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The Bureau is thus finalizing a definition of prepaid account that
covers a range of products including GPR cards, as well as other
products that may not be used as transaction account substitutes, such
as certain non-reloadable accounts and digital wallets. The Bureau
recognizes that the scope of the final rule's coverage extends beyond
the types of accounts that were the primary focus of in the Prepaid
ANPR, as some commenters remarked. The Bureau notes, however, that the
ANPR also asked broader questions regarding the potential definitional
scope for a prepaid rulemaking. While an ANPR is not a required part of
the rulemaking process under the Administrative Procedures Act, the
over 220 comments received in response helped inform the scope the
Bureau's proposal. The Bureau notes in addition, and in response to
comments from consumer groups, that the final rule's definition is
broad enough to cover prepaid accounts used by consumers in various
scenarios and for various purposes, so long as those accounts meet the
specific provisions of the definition, as set forth below. This would
include, for example, student loan disbursement cards and prison
release cards that meet the other criteria set forth in the definition.
At the same time, the Bureau appreciates commenters' concerns that
the single broad proposed umbrella definition could have created too
much uncertainty as to treatment of products that were already subject
to Regulation E prior to this rulemaking, and their concern that
certain additional narrow categories of products should be excluded
from the definition due to various unique circumstances. The Bureau has
considered various avenues for addressing these concerns, including, as
suggested by commenters, limiting coverage under the final rule to only
GPR cards or to accounts held by a financial institution in an omnibus
(or pooled) structure. As set forth in greater detail below, the Bureau
has decided to add further clarity to the proposed definition by adding
a reference to the way the account is marketed or labeled, as well as
to the account's primary function. The Bureau is not finalizing a
definition that would limit coverage to only GPR cards, as stated
above, because it continues to believe that the features of non-GPR
card prepaid products as well as the ways consumers can and do use
those products warrant Regulation E protection. In addition, the Bureau
declines to limit coverage under the definition to accounts held in a
pooled account structure, because the Bureau believes that the
characteristics that make an account a prepaid account should not be
dependent on the product's back-office infrastructure.
In addition to minor changes to streamline the definition and
sequence of the regulation, the Bureau has reorganized the structure of
the definition and added certain wording to the final rule that is
designed to more cleanly differentiate products that are subject to
this final rule from those that are subject to general Regulation E.
First, to streamline the definition and to eliminate redundancies, the
Bureau is omitting the phrase ``card, code, or other device, not
otherwise an account under paragraph (b)(1) of this section, which is
established primarily for personal, family, or household purposes''
from final Sec. 1005.2(b)(3)(i). Second, the Bureau is clarifying the
scope of the definition by adding a reference to the way the account is
marketed or labeled, as well as to the account's primary function.
Under the final definition, therefore, an account is a prepaid account
if it is a payroll card account or government benefit account; or it is
marketed or labeled as ``prepaid,'' provided it is redeemable upon
presentation at multiple, unaffiliated merchants for goods or services
or usable at ATMs; or it meets all of the following criteria: (a) It is
issued on a prepaid basis in a specified amount or not issued on a
prepaid basis but capable of being loaded with funds thereafter; (b)
its primary function is to conduct transactions with multiple,
unaffiliated merchants for goods or services, or at ATMs, or to conduct
P2P transfers; and (c) it is not a checking account, share draft
account, or NOW account.
The final rule also contains several additional exclusions from the
definition of prepaid account for: (1) Accounts loaded only with funds
from a dependent care assistance program or a transit or parking
reimbursement arrangement; (2) accounts that are directly or indirectly
established through a third party and loaded only with qualified
disaster relief payments; and (3) the P2P functionality of accounts
established by or through the U.S. government whose primary function is
to conduct closed-loop transactions on U.S. military installations or
vessels, or similar government facilities. Other than these
clarifications and exclusions discussed herein, the Bureau does not
intend the changed language in the final rule to significantly alter
the scope of the proposed definition of the term prepaid account.
2(b)(3)(i)
Proposed Sec. 1005.2(b)(3)(i) would have defined the term prepaid
account as a card, code, or other device, not otherwise an account
under Sec. 1005.2(b)(1), that was established primarily for personal,
family, or household purposes, and that satisfied three additional
criteria as to how the account was loaded and used, as laid out in
proposed Sec. 1005.2(b)(3)(i)(A) through (C), which are discussed
separately below. This proposed definition of prepaid account was based
on the formulation for the definition of general-use prepaid card in
the Gift Card Rule (Sec. 1005.20). Proposed comment 2(b)(3)(i)-1 would
have clarified that for purposes of subpart A of Regulation E, except
for Sec. 1005.17 (requirements for overdraft services), the term
``debit card'' also included a prepaid card. Proposed comment
2(b)(3)(i)-2 would have explained that proposed Sec. 1005.2(b)(3)
applied only to cards, codes, or other devices that were acquired by or
provided to a consumer primarily for personal, family, or household
purposes. For further guidance interpreting the phrase ``card, code, or
other device,'' proposed comment 2(b)(3)(i)-2 would have
[[Page 83969]]
referred to existing comments 20(a)-4 and -5.
The Bureau received comment from an industry trade association
asserting that defining a prepaid account as a ``card, code, or other
device'' may conflate the actual covered account with the access device
that the consumer can use to transact or withdraw from that account.
Upon further consideration, the Bureau has revised Sec.
1005.2(b)(3)(i) to remove the phrase ``card, code, or other device,''
so that the definition does not conflate the access device that may be
used to access the underlying account with the account itself. The
Bureau intends the definition of prepaid account to cover the account
itself, not the device used to access it.
The Bureau has also removed the reference to the prepaid account
being an account that is ``not otherwise an account under paragraph
(b)(1) of this section.'' As discussed below, the prepaid account
definition's interaction with the existing definition of account in
Regulation E is now addressed in other paragraphs of final Sec.
1005.2(b)(3)(i)(D). Specifically, excluded from the definition of
prepaid account by new Sec. 1005.2(b)(3)(i)(D)(3) are checking
accounts, share draft accounts, and NOW accounts, while commentary to
final Sec. 1005.2(b)(3)(i) clarifies that other types of accounts,
such as savings accounts, are excluded from the definition of prepaid
account because they do not have the same primary functions.
The Bureau has revised comment 2(b)(3)(i)-1 to state that for
purposes of subpart A of Regulation E, unless where otherwise
specified, the term debit card also includes a prepaid card. The Bureau
has removed the proposed reference to Sec. 1005.17 in this paragraph,
as the Bureau's revisions to Sec. 1005.17, discussed below, have
rendered its reference here unnecessary.
Finally, the Bureau has also removed the phrase ``established
primarily for personal, family, or household purposes'' from the
definition of prepaid account. Upon further consideration, the Bureau
believes that phrase is unnecessary here as it already appears in the
main definition of account in Sec. 1005.2(b)(1), and prepaid accounts
are expressly included as a subcategory within that broader definition.
The Bureau has likewise removed proposed comment 2(b)(3)(i)-2, which
would have provided guidance with respect to the meaning of
``established primarily for personal, family, or household purposes.''
2(b)(3)(i)(A)
As discussed above, the proposed rule would have created a broad
general definition of prepaid account that hinged in significant part
on how the account could be loaded and used, as set forth in proposed
Sec. 1005.2(b)(3)(i)(A) through (C). Rather than relying on a single
broad umbrella definition, the Bureau has concluded in response to
commenters' concerns about ambiguity as to the scope of coverage that
it would provide greater clarity to specify several types of products
that are included within the general definition of prepaid account, and
then specify an additional, narrower category for the balance of
covered products by reference to those products' functionality.
Accordingly, the final rule has been reorganized to list the specific
categories of products first. The reorganization is not intended to
substantively alter the scope of the proposed prepaid account
definition's coverage.
Final Sec. 1005.2(b)(3)(i)(A) defines the first such category,
payroll card accounts. As discussed above, Regulation E currently
contains provisions specific to payroll card accounts and defines such
accounts.\298\ Insofar as the Bureau was generally proposing to adapt
existing payroll card account rules to prepaid accounts in Sec.
1005.18 (which currently addresses only payroll card accounts), payroll
card accounts would have been subsumed within the broad general
definition of prepaid account. Nevertheless, the Bureau believed that
because there are certain provisions of Regulation E that would remain
specific to payroll card accounts, it was appropriate to propose to
maintain the term payroll card account as a standalone sub-definition
of prepaid account. Specifically, proposed Sec. 1005.2(b)(3)(ii) would
have provided that the term ``prepaid account'' included a ``payroll
card account,'' and would have restated the existing payroll card
account definition.
---------------------------------------------------------------------------
\298\ See existing Sec. 1005.2(b)(2).
---------------------------------------------------------------------------
In addition, the Bureau proposed to renumber existing comment 2(b)-
2, which concerns certain employment-related cards not covered as
payroll card accounts, as comment 2(b)(3)(ii)-1. The Bureau proposed to
add to comment 2(b)(3)(ii)-1 an explanation that would have clarified
that, while 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 definition of that term in proposed Sec.
1005.2(b)(3) were satisfied. Similar to existing comment 2(b)-2,
proposed comment 2(b)(3)(ii)-1 would have also stated that all
transactions involving the transfer of funds to or from a payroll card
account or prepaid account were covered by the regulation, even if a
particular transaction involved payment of a bonus, other incentive-
based payment, or reimbursement, or the transaction did not represent a
transfer of wages, salary, or other employee compensation.
The Bureau did not receive any comments on this portion of the
proposal, and as such, is finalizing the regulatory text and commentary
largely as proposed, with minor modifications in the commentary for
clarity and consistency with terms used elsewhere in this final
rule.\299\ To accommodate several substantive changes to the definition
of prepaid account, however, the Bureau has renumbered several sub-
sections of Sec. 1005.2(b)(3), including Sec. 1005.2(b)(3)(ii) and
its related commentary. Under the new numbering scheme, proposed Sec.
1005.2(b)(3)(ii) is now final Sec. 1005.2(b)(3)(i)(A) and proposed
comment 2(b)(3)(ii)-1 is accordingly renumbered as comment 2(b)(3)(i)-
2.
---------------------------------------------------------------------------
\299\ The Bureau received several comments from industry
requesting that the Bureau maintain a separate section for payroll
card accounts, rather than treat payroll card accounts in Sec.
1005.18, which, as the Bureau proposed, will become the general
prepaid account section. Those comments, and the Bureau's response
to them, are summarized in the section-by-section analysis of Sec.
1005.18(a) below.
---------------------------------------------------------------------------
2(b)(3)(i)(B)
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 stated its belief in
the proposal that given the other modifications to Regulation E
proposed therein, it was 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
proposed to have Sec. 1005.2(b)(3)(iii) state that the term
[[Page 83970]]
prepaid account includes a government benefit account, as defined in
existing Sec. 1005.15(a)(2).
The Bureau did not receive any comments on this portion of the
proposal.\300\ Consistent with its overall approach in specifying
particular product types that are ``prepaid accounts'' before defining
an additional, narrower category for the balance of covered accounts,
the Bureau is finalizing the proposed language concerning government
benefit accounts as Sec. 1005.2(b)(3)(i)(B) without any other changes.
Relatedly, as discussed in the section-by-section analysis of Sec.
1005.2(b)(3)(ii)(E) below, the Bureau has added an exclusion from the
definition of government benefit accounts for accounts used to
distribute needs-tested benefits in a program established by under
State or local law or administered by a State or local agency. That
exclusion is part of the existing definition of government benefit
account in Sec. 1005.15(a)(2), and the Bureau believes it should be
repeated as part of final Sec. 1005.2(b)(3).
---------------------------------------------------------------------------
\300\ Comments received recommending that the Bureau expand the
reach of the term government benefit account, and the Bureau's
response thereto, are discussed in the section-by-section analysis
of Sec. 1005.15(a) below.
---------------------------------------------------------------------------
2(b)(3)(i)(C)
As noted above, several commenters requested that the Bureau revise
the proposed definition of prepaid account to add greater certainty as
to the scope of coverage. One commenter, a trade association,
specifically suggested that the Bureau modify the definition to only
apply to products that are expressly marketed and labeled as
``prepaid.'' The Bureau agrees that the addition of a provision
focusing on marketing and labeling would provide greater clarity. The
Bureau believes that all or most GPR cards are currently marketed or
labeled as ``prepaid,'' either on the packaging or display of the card
or in related advertising. As such, the Bureau believes that most, if
not all, GPR cards will qualify as prepaid accounts under this
provision of the definition. In addition, the Bureau believes that, in
order to prevent consumer confusion and conform to consumer
expectations, accounts that are marketed or labeled as ``prepaid''
should be accompanied by the same disclosures and protections that
consumers will expect prepaid accounts to provide pursuant to this
final rule.
The Bureau is thus adopting new Sec. 1005.2(b)(3)(i)(C) to define
as a prepaid account an account that is marketed or labeled as
``prepaid.'' The Bureau understands, however, that there are certain
products that are intended for specific, limited purposes--for example,
prepaid phone cards--that may use the term ``prepaid'' for marketing or
labeling purposes, but which the Bureau did not intend to include under
the definition of prepaid account by function of this prong. The Bureau
is clarifying, therefore, that in order to qualify as a prepaid account
under the ``marketed or labeled'' prong, an account must also be
redeemable upon presentation at multiple, unaffiliated merchants for
goods or services or usable at ATMs. Accordingly, although products
such as prepaid phone cards are marketed or labeled as ``prepaid,''
they would not qualify as prepaid accounts under this prong because
they are not redeemable at multiple, unaffiliated merchants or usable
at ATMs.
To clarify the meaning of ``marketed or labeled,'' the Bureau is
also adopting new comment 2(b)(3)(i)-3. That comment, which draws on
similar existing commentary to Regulation E concerning the marketing
and labeling of gift cards,\301\ clarifies that the term ``marketed or
labeled as `prepaid' '' means promoting or advertising an account using
the term ``prepaid.'' For example, an account is marketed or labeled as
prepaid if the term ``prepaid'' appears on the access device associated
with the account or the access device's packaging materials, or on a
display, advertisement, or other publication to promote purchase or use
of the account. The comment further clarifies that an account may be
marketed or labeled as prepaid if the financial institution, its
service provider, including a program manager, or the payment network
on which an access device for the account is used, promotes or
advertises, or contracts with another party to promote or advertise,
the account using the label ``prepaid.'' Finally, the comment clarifies
that a product or service that is marketed or labeled as prepaid is not
a ``prepaid account'' if it does not otherwise meet the definition of
account in Sec. 1005.2(b)(1).
---------------------------------------------------------------------------
\301\ See comment 20(b)(2)-2.
---------------------------------------------------------------------------
2(b)(3)(i)(D)
Final Sec. 1005.2(b)(3)(i)(D) contains a descriptive, general
definition of the term ``prepaid account'' that largely preserves the
structure of the proposed definition, with an increased focus on the
account's functionality for greater clarity. The provision builds on
elements of proposed Sec. 1005.2(b)(3)(i)(A) and (B), which focused on
whether an account was issued to a consumer on a prepaid basis or was
capable of being loaded with funds thereafter and whether the account
was redeemable upon presentation at multiple, unaffiliated merchants
for goods or services, usable at ATMs, or usable for P2P transfers. To
constitute a prepaid account under final Sec. 1005.2(b)(3)(i)(D), an
account must satisfy all three of the prongs of final Sec.
1005.2(b)(3)(i)(D)(1) through (3), which are discussed in turn below.
2(b)(3)(i)(D)(1)
The Bureau's Proposal
Proposed Sec. 1005.2(b)(3)(i)(A) would have defined 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
expanded 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),\302\ by also including a prepaid product that was ``not
issued on a prepaid basis but capable of being loaded with funds
thereafter.''
---------------------------------------------------------------------------
\302\ 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.''
---------------------------------------------------------------------------
As it explained in the proposal, the Bureau sought to ensure that
accounts that are not loaded at acquisition are nonetheless eligible to
be prepaid accounts. The Bureau proposed this approach to address
concerns that prepaid providers could restructure existing products to
avoid coverage by the proposed rule if they were to separate account
acquisition from initial funding. In addition, the Bureau believed the
proposed provision would have ensured that consumers who used prepaid
accounts received the protections in the 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 have clarified that to be
``issued on a prepaid basis,'' a prepaid account had to be loaded with
funds when it was first provided to the consumer for use. For example,
if a consumer purchased a prepaid account and provided funds that were
loaded onto a card at the time of purchase, the prepaid account would
have been issued on a prepaid basis. A prepaid account offered for sale
in a
[[Page 83971]]
retail store would not have been issued on a prepaid basis until it was
purchased by the consumer.
Proposed comment 2(b)(3)(i)-4 would have explained that a prepaid
account that was not issued on a prepaid basis but was capable of being
loaded with funds thereafter included a prepaid card issued to a
consumer with a zero balance to which funds could be loaded by the
consumer or a third party subsequent to issuance. This would not have
included a product that could never store funds, such as a digital
wallet that only held payment credentials for other accounts.
Proposed comment 2(b)(3)(i)-5 would have clarified that to satisfy
proposed Sec. 1005.2(b)(3)(i)(A), a prepaid account would have to
either be issued on a prepaid basis or be capable of being loaded with
funds. This would have meant that the prepaid account had to be capable
of holding funds, rather than merely acting as a pass-through vehicle.
For example, if a product was only capable of storing a consumer's
payment credentials for other accounts but was incapable of having
funds stored on it, such a product would not have been a prepaid
account. However, if a product allowed a consumer to transfer funds,
which could be stored before the consumer designated a destination for
the funds, the product would have satisfied proposed Sec.
1005.2(b)(3)(i)(A).
With these examples, the Bureau sought to make clear that it did
not intend to extend the proposed definition of prepaid account to a
product that could 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 have been
considered a prepaid account under the proposed rule. If, however, a
digital wallet allowed a consumer to store funds in it directly, then
the digital wallet would have been a prepaid account if the other
criteria of the proposed definition were also met. Finally, proposed
comment 2(b)(3)(i)-6 would have provided that prepaid accounts did not
have to be reloadable by the consumer or a third party.
Comments Received
As discussed above, some industry commenters urged the Bureau to
limit the final rule to those products that could be reloaded by a
consumer, arguing that such products were more likely to act as
transaction account substitutes. Those comments are summarized in the
section-by-section analysis of Sec. 1005.2(b)(3) above. In short,
these commenters argued that, to the extent the Bureau was seeking to
create a uniform regulatory regime for like products, non-reloadable
products did not function like other accounts already covered by
Regulation E and thus should be excluded from coverage. They noted, for
example, that non-reloadable cards were not generally accompanied by an
expectation of a continued relationship between the financial
institution and the consumer. In addition, these commenters argued,
such accounts were largely used as a substitute for cash, such that
adding disclosure and other substantive requirements to these cards
would add unnecessary complexity that would far outweigh consumer
expectations or needs with respect to these products. Commenters also
noted that with respect to many types of non-reloadable cards, such as
cards used to disburse insurance claim proceeds or tax refunds,
consumers did not in fact have a choice with respect to which card they
received. Comparison shopping in such circumstances, they argued, was
unhelpful. Finally, with respect to the Bureau's proposed rationale
that including non-reloadable accounts in the definition of prepaid
account would help prevent evasion, a trade association stated that
they believed that such evasion was unlikely, and further argued that
the Bureau could address this risk through the adoption of an anti-
evasion provision specifically aimed at preventing financial
institutions from morphing their products to avoid coverage under this
rule.
With respect to the clarification in proposed comment 2(b)(3)(i)-5
that the prepaid account definition only covered accounts that were
capable of holding funds (rather than just acting as a pass-through),
several commenters, including issuing banks, a payment network, a
digital wallet provider, and a consumer group, agreed with the proposed
approach. These commenters asserted that, to the extent a digital
wallet was simply acting as a pass-through of credentials for accounts
that were already protected under Regulation E (or other regulations),
consumers using those digital wallets were already receiving sufficient
protections. As stated in the section-by-section analysis of Sec.
1005.2(b)(3) above, other commenters objected to the Bureau's decision
to cover digital wallets under the rule in any respect.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing the
general content of proposed Sec. 1005.2(b)(3)(i)(A), renumbered as
Sec. 1005.2(b)(3)(i)(D)(1), with minor edits to streamline the
language. Specifically, final Sec. 1005.2(b)(3)(i)(D)(1) defines a
prepaid account, in part, as an account that is issued on a prepaid
basis in a specified amount or not issued on a prepaid basis but
capable of being loaded with funds thereafter. In addition, the Bureau
is finalizing proposed comments 2(b)(3)(i)-3, -4, -5, and -6,
renumbered as comments 2(b)(3)(i)-4, -5, -6, and -7, largely as
proposed, with some minor revisions for clarity.
The Bureau continues to believe 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. The Bureau notes that 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 funds. 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,\303\ consumers may use these products as
transaction account substitutes for a substantial period of time even
when consumers cannot reload the cards themselves, and thus such
products should be similarly protected. In addition, while it is true
that non-reloadable products are distinct from transaction accounts (to
the extent that the funds will eventually be spent down in their
entirety and the account abandoned), while the accounts are in use,
they may be used to conduct a significant portion of a consumer's
transactions or hold a substantial portion of a consumer's funds, and
as such the Bureau believes that they warrant the protections of
Regulation E, including error resolution in particular. Furthermore,
the Bureau believes that extending protections to all broadly usable
prepaid accounts is necessary to avoid consumer confusion as to what
protections apply to similar accounts. Finally, the Bureau remains
concerned that, if it were to exclude non-reloadable cards from the
definition of prepaid account, a financial institution could evade the
Bureau's rulemaking on prepaid accounts by issuing non-reloadable cards
repeatedly to the same consumer, such as to provide repeated
disbursements (e.g., providing a new student loan disbursement card
each semester). The Bureau does not believe
[[Page 83972]]
that an anti-evasion provision is the optimal method for dealing with
this concern; rather, the Bureau is concerned that, at this time, such
a provision would in fact cause some uncertainty without addressing all
other concerns.
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\303\ See 71 FR 51437, 51441 (Aug. 30, 2006).
---------------------------------------------------------------------------
The Bureau also is not persuaded by commenters' objections to the
Bureau's proposal to cover digital wallets that can hold funds under
the definition of prepaid account. The Bureau continues to believe that
digital wallets that can hold funds operate in large part in a similar
manner to physical or online prepaid accounts--a consumer can load
funds into the account, spend the funds at multiple, unaffiliated
merchants (or conduct P2P transfers), and reload the account once the
funds are depleted. Accordingly, the Bureau believes that consumers who
transact using digital wallets deserve the same protections as
consumers who use other prepaid accounts. Indeed, as with other prepaid
accounts, a consumer's digital wallet could fall victim to erroneous or
fraudulent transactions. In addition, while the Bureau understands that
most digital wallets available today do not typically charge many fees
(with few exceptions, such as, for example, foreign exchange fees in
certain circumstances or a fee for having funds from the account issued
to the consumer in the form of a check), it is impossible to rule out
that existing or new digital wallet providers will charge such fees in
the future. If fees do become standard in this space, consumers ought
to know what those fees are and when they will be imposed.
2(b)(3)(i)(D)(2)
The Bureau's Proposal
The next part of the Bureau's proposed definition of prepaid
account would have addressed 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.\304\ While store gift
cards and gift certificates can be used at only a single merchant or an
affiliated group of merchants,\305\ a general-use prepaid card is
defined in part under the Gift Card Rule as redeemable upon
presentation at multiple, unaffiliated merchants for goods or services
or usable at ATMs.\306\ The Bureau proposed to add Sec.
1005.2(b)(3)(i)(B), which would have stated that to qualify as a
prepaid account, the card, code or other device had to be redeemable
upon presentation at multiple, unaffiliated merchants for goods or
services, usable at ATMs, or usable for P2P transfers. Proposed comment
2(b)(3)(i)-7 would have referred 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.\307\
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\304\ See 75 FR 16580, 16588 (Apr. 1, 2010).
\305\ See Sec. 1005.20(a)(1)(ii) and (2)(ii).
\306\ Sec. 1005.20(a)(3)(ii).
\307\ The Gift Card Rule provides 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 believed it was appropriate to limit the definition of
prepaid account to those products that consumers could use at multiple,
unaffiliated merchants for goods or services, at ATMs, or for P2P
transfers. The Bureau noted in the proposal that 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 the Bureau's rulemaking
on prepaid accounts is to provide comparable coverage for products with
comparable functionality--in this case traditional debit cards and
prepaid cards--the Bureau believed it was appropriate to structure the
proposed definition in a way that products with similar features had
the protections afforded by Regulation E. Pursuant to the proposed
definition, therefore, a prepaid account would have been an account
that was 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.
Next, the Bureau recognized that prepaid products were also growing
in popularity as a vehicle for consumers to transmit payments to each
other or to businesses. The Bureau noted that an increasing number of
products allowed 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. The Bureau proposed to add new comment
2(b)(3)(i)-8 to further explain when accounts capable of P2P transfers
were prepaid accounts. Specifically, the comment would have explained
that a prepaid account capable of P2P transfers was an account that
allowed a consumer to send funds to another consumer or business. As
the comment made clear, an account could qualify as a prepaid account
if it permitted P2P transfers even if it was 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
have been a P2P transfer if it could have only been used to make
payments to the merchant or affiliated group of merchants on whose
behalf the card was issued.
Comments Received
The only specific aspect of proposed Sec. 1005.2(b)(3)(i)(B) on
which the Bureau received comment concerned its decision to include
products that could only be used to facilitate P2P transfers. A number
of consumer groups and a trade association voiced support for the
Bureau's decision to include such products in the proposal. Other
industry commenters who commented on the issue either opposed coverage
of products usable for P2P transfers or requested that the Bureau adopt
specific carve-outs from this prong of the definition. A digital wallet
provider urged the Bureau to exclude P2P products from the definition
of prepaid account, arguing that P2P functionality is more similar to a
closed-loop payment system than to open-loop GPR cards. Two industry
trade associations and a law firm writing on behalf of a coalition of
prepaid issuers argued that regulation of products used solely to
facilitate P2P transfers would be premature, and could limit future
development of innovative products, to the detriment of consumers. An
issuing bank, a program manager, and a commenter representing non-bank
money transfer providers noted that products used to facilitate P2P
transfers could be interpreted to include products or services offered
by State-licensed money transmitters, which they said are already
covered under existing regulations. They argued that to avoid
duplicative and potentially inconsistent regulation, the Bureau should
specifically exclude any product or service that is subject to State or
Federal money transmitter laws.
As described above, the Bureau also received a number of more
general comments urging greater clarity to distinguish what existing
products are subject to general Regulation E from those subject to the
Bureau's final rule governing prepaid accounts.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.2(b)(3)(i)(B) largely as proposed, but with refinements to limit
the scope to accounts whose primary function is among those
specifically listed. To
[[Page 83973]]
accomplish this change, the Bureau has removed the phrase ``is
redeemable upon presentation at'' and replaced it with ``whose primary
function is,'' to clarify that, in order to qualify as a prepaid
account under this portion of the definition, an account must be more
than merely capable of being used in the ways specified. Finally, as
part of its overall reordering of Sec. 1005.2(b)(3), the Bureau has
renumbered proposed Sec. 1005.2(b)(3)(i)(B) as final Sec.
1005.2(b)(3)(i)(D)(2). Specifically, final Sec. 1005.2(b)(3)(i)(D)(2)
defines a prepaid account, in part, as an account whose primary
function is to conduct transactions with multiple, unaffiliated
merchants for goods or services, or at ATMs, or to conduct P2P
transfers.
The Bureau has considered the comments regarding the
appropriateness of extending the definition of prepaid account to
products that can only be used for P2P transfers, and has decided to
finalize its decision to include such products in the definition of
prepaid account. The Bureau continues to believe that the structure and
usage of P2P products warrants their inclusion in the final rule.
Unlike many limited-use prepaid products that have acceptance limited
to a restricted location (such as at merchants located on a college
campus or in a mall), P2P products do not have such a limitation.
Indeed, as the Bureau noted in the proposal, insofar as a P2P product
could 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 could use these
products to pay anyone with funds stored in the account, the Bureau
continues to believe that they should be included in the definition of
prepaid account. Accordingly, the Bureau declines to exclude such
products from coverage under the final rule. The Bureau is therefore
finalizing the reference to P2P transfers in Sec.
1005.2(b)(3)(i)(D)(2), and finalizing proposed comment 2(b)(3)(i)-8,
renumbered as comment 2(b)(3)(i)-10, largely as proposed.
The Bureau has also revised proposed Sec. 1005.2(b)(3)(i)(B),
renumbered as Sec. 1005.2(b)(3)(i)(D)(2), to more clearly delineate
the distinction between accounts that are covered by existing
Regulation E and accounts that are covered under the new definition of
prepaid account. Specifically, the Bureau has refocused the definition
to apply only to accounts ``whose primary function is to conduct''
transactions with multiple, unaffiliated merchants or at ATMs, or P2P
transfers. (In addition, as discussed below, the Bureau is adding a new
prong, Sec. 1005.2(b)(3)(i)(D)(3), to explicitly exclude checking
accounts, share draft accounts, and NOW accounts from the residual
definition of prepaid accounts.) The Bureau is aware that many types of
accounts, including accounts already covered by Regulation E, may be
capable of being used for the above functions. The Bureau is therefore
concerned that the language used in proposed Sec. 1005.2(b)(3)(i)(B)
could be over-inclusive, contributing to the uncertainty raised by some
commenters regarding which accounts are covered under which provisions
of Regulation E.
The Bureau intends its change here to narrow the definition of
prepaid account to focus on products whose primary function for
consumers is to provide general capability to use loaded funds to
conduct transactions with merchants, or at ATMs, or to conduct P2P
transfers, while excluding products that only provide such capability
incidental to a different primary function. For example, the primary
function of a traditional brokerage account is to hold funds so that
the consumer can conduct transactions through a licensed broker or
firm, not to conduct transactions with multiple, unaffiliated merchants
for goods or services, or at ATMs, or to conduct P2P transfers.
Similarly, the primary function of a savings account is to accrue
interest on funds held in the account; such accounts restrict the
extent to which the consumer can conduct general transactions and
withdrawals.\308\
---------------------------------------------------------------------------
\308\ See, e.g., the Board's Regulation D, 12 CFR 204.2(d)
(defining a savings deposit as a deposit or account with respect to
which the depositor may be required by the depository institution to
give written notice of an intended withdrawal or a deposit or
account from which the depositor is permitted or authorized to make
no more than six transfers and withdrawals, or a combination of such
transfers and withdrawals, per calendar month or statement cycle).
---------------------------------------------------------------------------
To provide greater clarity about this intended interpretation, the
Bureau is making minor wording revisions to Sec. 1005.2(b)(3)(i)(D)(2)
and related commentary to accommodate the ``primary function''
approach, and is adding a comment with several illustrative examples of
when an account satisfies the ``primary function'' prong of final Sec.
1005.2(b)(3)(i)(D). New comment 2(b)(3)(i)-8 clarifies that, to qualify
as a prepaid account, an account's primary function must be to provide
consumers with general transaction capabilities, including by enabling
consumers to use loaded funds to conduct the transactions enumerated in
Sec. 1005.2(b)(3)(i)(D)(2), and that accounts that provide such
capabilities only incidentally are excluded from the definition, and as
such are not prepaid accounts as defined by final Sec. 1005.2(b)(3).
The comment provides examples of accounts that provide the enumerated
transactional capabilities only incidentally--specifically, brokerage
accounts and savings accounts, where a consumer deposits money, for
example, with a financial institution for the primary purpose of
conducting transactions with the institution (e.g., to conduct trades
in a brokerage account) rather than with third parties. The comment
then provides several examples for additional guidance. New comment
2(b)(3)(i)-8.i clarifies that an account's primary function is to
enable a consumer to conduct transactions with multiple, unaffiliated
merchants for goods or services, or at ATMs, or to conduct P2P
transfers, even if it also enables a third party to disburse funds to a
consumer. For example, a prepaid account that conveys tax refunds or
insurance proceeds to a consumer meets the primary function test if the
account can be used, e.g., to purchase goods or services at multiple,
unaffiliated merchants.
Next, new comment 2(b)(3)(i)-8.ii clarifies that whether an account
satisfies final Sec. 1005.2(b)(3)(i)(D) is determined by reference to
the account, not the access device associated with the account. An
account satisfies final Sec. 1005.2(b)(3)(i)(D) even if the account's
access device can be used for other purposes, e.g., as a form of
identification. Such accounts may include, for example, a prepaid
account used to disburse student loan proceeds via a card device that
can be used at unaffiliated merchants or to withdraw cash from an ATM,
even if that access device also acts as a student identification card.
New comment 2(b)(3)(i)-8.iii clarifies that, where multiple
accounts are associated with the same access device, the primary
function of each account is determined separately. The comment goes on
to clarify that one or more accounts can satisfy final Sec.
1005.2(b)(3)(i)(D) even if other accounts associated with the same
access device do not. This commentary is intended to address situations
where two or more separate ``wallets'' or ``purses'' are associated
with the same access device. It provides the specific example of a
student identification card, which may act as an access device
associated with two separate accounts: An account used to conduct
transactions with multiple, unaffiliated merchants for goods or
services, and an account used to conduct closed-loop
[[Page 83974]]
transactions on campus. The comment clarifies that the account used to
conduct transactions with multiple, unaffiliated merchants for goods or
services satisfies final Sec. 1005.2(b)(3)(i)(D), even though the
account used to conduct closed-loop transactions does not.
Next, new comment 2(b)(3)(i)-8.iv clarifies that an account
satisfies final Sec. 1005.2(b)(3)(i)(D) if its primary function is to
provide general transaction capability, even if an individual consumer
does not in fact use it to conduct multiple transactions. For example,
the fact that a consumer may choose to withdraw the entire account
balance at an ATM or transfer it to another account held by the
consumer does not change the fact that the account's primary function
is to provide general transaction capability. The Bureau is including
this comment to clarify that an account's primary function is not
determined by how frequently an individual consumer chooses to use the
account for a given function. This clarification aligns with the
Bureau's decision, discussed in the section-by-section analysis of
Sec. 1005.2(b)(3) above, to cover under the final rule as prepaid
accounts those products that do not necessarily act as transaction
account substitutes. For example, the Bureau understands that some
consumers who receive funds from third parties--such as tax refunds or
insurance proceeds--via prepaid accounts may not always transact with
the accounts on an ongoing basis, opting instead to withdraw the funds
from the account in their entirety after acquisition or transfer them
to another account. Pursuant to new comment 2(b)(3)(i)-8.iv, these
consumer's accounts would still meet the ``primary function'' prong set
forth in final Sec. 1005.2(b)(3)(i)(D)(2).
Finally, new comment 2(b)(3)(i)-8.v states the corollary of the
general rule set forth in Sec. 1005.2(b)(3)(i)(D)(2). Specifically, it
explains that an account whose primary function is other than to
conduct transactions with multiple, unaffiliated merchants for goods or
services, or at ATMs, or to conduct P2P transfers, does not satisfy
final Sec. 1005.2(b)(3)(i)(D). The comment goes on to provide the
example of an account whose only function is to make a one-time
transfer of funds into a separate prepaid account as an account that
would not qualify as a prepaid account under this prong of the
definition. Such accounts could include, for example, so-called reload
packs, which several industry commenters urged the Bureau to exclude
from coverage under the final rule. In contrast to non-reloadable
prepaid cards, which can be used to make purchases or other
transactions, reload packs can only be used to transfer funds into
prepaid accounts.
The Bureau is also adopting proposed comment 2(b)(3)(i)-7,
renumbered as comment 2(b)(3)(i)-9, which cross-references comments
20(a)(3)-1 and -2 for guidance on the meaning of the term redeemable
upon presentation at multiple, unaffiliated merchants.
2(b)(3)(i)(D)(3)
As discussed in greater detail in the section-by-section analyses
of Sec. 1005.2(b)(3) and (3)(i)(C) above, the Bureau received several
comments requesting that it revise the proposed definition of prepaid
account to provide a clearer line between accounts that were already
covered by the existing definition of account in Sec. 1005.2(b) and
accounts that would be covered by the newly created prepaid account
definition. A number of commenters, including a payment network and an
industry trade association, noted a specific lack of clarity with
respect to products that could arguably qualify as both. To illustrate,
they noted that some prepaid accounts offer preauthorized check-writing
capability, while some checking accounts allow consumers to transact
using the ACH routing number or online passcode. These commenters asked
the Bureau to resolve this ambiguity.
As set forth in the section-by-section analyses of Sec.
1005.2(b)(3)(i)(C) and (D)(2) above, the Bureau is finalizing several
changes to the proposed definition of prepaid account to provide a
clearer delineation between accounts that are covered by Regulation E
generally and accounts that will be covered as prepaid accounts. In
addition to those changes, the Bureau is also adding a third prong to
Sec. 1005.2(b)(3)(i)(D). Pursuant to final Sec.
1005.2(b)(3)(i)(D)(3), only accounts that are not otherwise a checking
account, a share draft account, or a NOW account will qualify as a
prepaid account. For purposes of this element, the Bureau does not
consider the capability to issue preauthorized checks to qualify an
account as checking, share draft, or NOW accounts. The Bureau notes
that it intended to exclude checking and other demand deposit accounts
from the proposed definition of prepaid account by including the phrase
``not otherwise an account under paragraph (b)(1) of this section.''
The Bureau acknowledges, however, that its proposed approach did not
sufficiently resolve the potential ambiguity referenced by commenters.
The Bureau believes that its express reference in final Sec.
1005.2(b)(3)(i)(D)(3) to the account not being a checking, share draft,
or NOW account, together with the primary function test in final Sec.
1005.2(b)(3)(i)(D)(2), more directly address these concerns.
2(b)(3)(ii)
The next portion of the final definition of prepaid account
includes several express exclusions from that definition. In addition
to the exclusions included in the proposed rule, the Bureau is adding
exclusions for (1) accounts loaded only with funds from a dependent
care assistance program or a transit or parking reimbursement
arrangement; (2) accounts that are directly or indirectly established
through a third party and loaded only with qualified disaster relief
payments; and (3) the P2P functionality of accounts established by or
through the U.S. government whose primary function is to conduct
closed-loop transactions on U.S. military installations or vessels, or
similar government facilities. The Bureau notes that, to the extent
certain accounts were already covered as accounts under existing
Regulation E generally, these exclusions do not change that, and only
exclude from the definition of prepaid account.
2(b)(3)(ii)(A)
Proposed Sec. 1005.2(b)(3)(iv) would have addressed prepaid
products established in connection with certain health care and
employee benefit programs. Specifically, the proposed provision would
have stated that the term prepaid account did not include a health
savings account, flexible spending account, medical savings account, or
a health reimbursement arrangement. Proposed comment 2(b)(3)(iv)-1
would have defined these terms by referencing existing provisions in
the Internal Revenue Code. Specifically, the Bureau proposed to define
``health savings account'' as a health savings account as defined in 26
U.S.C. 223(d); ``flexible spending account'' as a cafeteria plan which
provides health benefits or a health flexible spending arrangement
pursuant to 26 U.S.C. 125; ``medical savings account'' as an Archer MSA
as defined in 26 U.S.C. 220(d); and ``health reimbursement
arrangement'' as 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 believed that, while these health care and employee
benefit accounts could, in some ways, be similar to other types of
prepaid
[[Page 83975]]
accounts, coverage under Regulation E was not necessary at this time.
Specifically, the Bureau noted that these products typically come with
limits on the amount of funds that could be loaded on to them, the
methods for loading, and numerous restrictions on where, when, and how
those funds could be spent.
The Bureau received several comments in response to this aspect of
the proposal. Several consumer groups opposed the exclusion, noting
that the accounts at issue can hold large amounts of money that
consumers use over long periods of time. These commenters noted further
that these types of accounts especially warrant error resolution
protections since--according to the commenters--healthcare billing is
notoriously error-prone. In addition, these commenters asserted that
compliance should not be overly burdensome for issuers of these types
of accounts, since many of the underlying benefit programs already
provide consumers with error resolution protections.
By contrast, industry commenters, including issuing banks and
credit unions, trade associations representing both financial
institutions and employers, a payment network, and a program manager,
expressed support for the proposed exclusions, and urged the Bureau to
expand them further to include additional categories of similar
employer-sponsored compensation programs. Specifically, several
commenters urged the Bureau to add exclusions for accounts used to
disburse parking, transit, dependent care, and wellness benefits. They
argued that these programs are similar in several key respects to the
types of programs the Bureau excluded from the definition of prepaid
account in the proposal. For example, they explained that these
accounts are typically funded from the employer's general assets, not
by consumers, and as such they belong to the employer rather than the
consumer. They argued further that these accounts do not warrant
coverage under the rule because they are not consumer asset accounts in
the sense that their use is highly restricted and, for certain types of
programs, the funds held in them are notional, rather than actual, in
nature. A subset of these commenters also urged the Bureau to
reconsider referring to specific sections of the Internal Revenue Code
when specifying the types of programs that would qualify for the
exclusion, noting that the Code's numbering may change in the future.
For the reasons set forth herein, the Bureau is finalizing
exclusions for health savings accounts, flexible spending arrangements,
medical savings accounts, and health reimbursement arrangements in
proposed Sec. 1005.2(b)(3)(iv), renumbered as Sec.
1005.2(b)(3)(ii)(A). The Bureau is likewise finalizing proposed comment
2(b)(3)(iv)-1, renumbered as 2(b)(3)(ii)-1. The Bureau is persuaded
that accounts used to disburse funds related to these programs are
fundamentally different from other prepaid accounts covered by the
final rule. As stated in the proposal, these products are governed by
the terms of their plans and related regulations, such that, for
example, health savings accounts and medical savings accounts can
typically only be used to pay for qualified medical expenses. The
Bureau believes that the limited use of funds under such arrangements
distinguish them from consumer transaction accounts. As such, the
Bureau believes such accounts are appropriately excluded from the rule.
The Bureau believes that the term account is reasonably interpreted not
to include these types of products or, in the alternative, to further
the purposes of EFTA; the Bureau believes it is necessary and proper to
exercise its authority under EFTA section 904(c) to finalize an express
exclusion in final Sec. 1005.2(b)(3)(ii)(A).
The Bureau has also considered the comments requesting that
additional categories of employer-sponsored compensation be added to
the exclusion in Sec. 1005.2(b)(3)(ii)(A). The Bureau agrees that, to
the extent other programs exist that are significantly similar to
health savings accounts, flexible spending arrangements, medical
savings accounts, and health reimbursement arrangements, those programs
should also be excluded from the rule for the same reasons.
Accordingly, the Bureau is expanding the exclusion to encompass
accounts associated with other employer-sponsored benefit arrangements,
namely, accounts used to disburse funds from a dependent care
assistance program or a transit or parking reimbursement arrangement.
The Bureau is adding a reference to these additional program types in
final Sec. 1005.2(b)(3)(ii)(A) and the Internal Revenue Code sections
that reference them in final comment 2(b)(3)(ii)-1. The Bureau is
finalizing that comment with references to the relevant Internal
Revenue Code sections because it believes that specificity will help
ensure that the exclusions remain limited in scope, and because it
believes that the clarity provided by such specificity outweighs the
potential difficulty that may occur in the event the numbering scheme
of the Internal Revenue Code changes.
The Bureau is otherwise finalizing Sec. 1005.2(b)(3)(ii)(A) and
comment 2(b)(3)(ii)-1 as proposed. The Bureau notes, in response to
commenters that requested that it add an exclusion for employee
wellness programs, that such programs are likely excluded from the rule
under the exclusion for loyalty, award, or promotional gift cards. That
exclusion applies to loyalty, award, or promotional gift cards, as
defined in Sec. 1005.20(a)(4) and (b). Existing comment 20(a)(4)-1.vi
lists incentive programs through which an employer provides cards to
employees to encourage employee wellness as a type of loyalty, award,
or promotional gift card.
2(b)(3)(ii)(B)
Several commenters, including a payment network, an issuing bank,
several industry trade associations, and a national relief
organization, urged the Bureau to add a separate exclusion for accounts
used to distribute disaster relief funds. Most notably, the national
relief organization noted that the accounts used to distribute the
funds, as well as the funds themselves, are the property of the relief
organization, not the consumer, which makes these accounts distinct
from other consumer asset accounts the Bureau proposed to cover.
Commenters argued that such accounts are different because consumers
who receive these accounts cannot shop for them, and tend to use them
for a short period of time without reloading--in most cases, the trade
association commenter noted, the cards will expire if not used within
60 days. The payment network argued that the proposed pre-acquisition
disclosure requirements would delay consumers' receipt of relief funds
in the wake of tragic events. In addition, commenters noted that these
accounts rarely feature any of the fees that would be required to be
disclosed on the proposed short form. Accordingly, these commenters
asserted, covering these accounts under the Bureau's final rule on
prepaid accounts would increase the cost of providing them to consumers
in need for the sake of disclosures that are neither necessary nor
useful to those consumers. The national relief organization, which uses
prepaid cards to disburse disaster relief funds in some circumstances,
noted further that the proposed disclosure requirements in conjunction
with the packaging replacement requirements in proposed Sec.
1005.18(h) would render much of its prepaid card inventory useless. A
consumer group commenter, by
[[Page 83976]]
contrast, argued that disaster relief cards should not be excluded so
long as they are used in the same way as other prepaid accounts--i.e.,
as open-loop accounts used to make purchases at multiple, unaffiliated
merchants.
The Bureau agrees that the nature of these accounts--such as, for
example, the fact that the underlying funds are owned by the relief
organization, rather than the consumer--warrant their exclusion from
the rule. The Bureau believes that such an exclusion is further
warranted because, on balance, the burden of requiring these accounts
to comply with the requirements of this final rule outweighs the
potential utility of those requirements to consumers who have had the
misfortune of experiencing a disastrous event. The Bureau does not
believe it would be appropriate at this time to place such additional
burdens on providers. Accordingly, 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 finalize an express exclusion in new Sec.
1005.2(b)(3)(ii)(B) for accounts that are established directly or
indirectly by a third party and loaded only with qualified disaster
relief payments. This express exclusion will protect consumers by
ensuring that they have quick access to crucial funds provided by
disaster relief organizations in the wake of tragic events. The Bureau
is also adding new comment 2(b)(3)(ii)-2 to clarify that the exclusion
is limited to funds made available through a qualified disaster relief
program, as that term is defined in the Internal Revenue Code.\309\
---------------------------------------------------------------------------
\309\ See 26 U.S.C. 139(b) (defining ``qualified disaster relief
payment'' as, generally, any amount paid to or for the benefit of an
individual to reimburse or pay reasonable and necessary expenses
incurred as a result of, or for the repair or rehabilitation of
property necessitated by, a qualified disaster).
---------------------------------------------------------------------------
2(b)(3)(ii)(C)
The Bureau received a request through the interagency consultation
process to expressly exempt from the prepaid account definition certain
accounts, currently marketed under the brand names Eagle Cash and Navy
Cash/Marine Cash, that are primarily used by members of the armed
forces to conduct closed-loop transactions on military property.
According to the request, these accounts allow servicemembers to
conduct closed-loop transactions in forward-deployed environments, such
as an army base or a naval vessel, where cash is inconvenient and other
commercially available payments technologies are unavailable. These
accounts sometimes offer a P2P feature that allows users to transfer
loaded funds to other accountholders from the closed-loop ``purse'' of
the account, but such functionality, the Bureau understands, is
incidental to the primary closed-loop function of the account.
The Bureau agrees that accounts whose primary function is to
facilitate closed-loop transactions by members of the armed forces in
forward-deployed environments are sufficiently distinguishable and
unique to warrant a narrow, express exclusion from the final rule.
Accordingly, 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 finalize an express
exclusion in new Sec. 1005.2(b)(3)(ii)(C) for the P2P transfer
functionality of an account established or through the United States
government whose primary function is to conduct closed-loop
transactions on U.S. military installations or vessels, or similar
government facilities. This express exclusion will protect
servicemember consumers by ensuring that they have access to a
convenient and well-established payment method at a time when alternate
payment methods such as cash or bank accounts may not be available for
operational reasons. The Bureau notes that this is a narrow exclusion
intended to accommodate a specific set of closed-loop products that are
used in unique circumstances, such as on military vessels or bases, or
similar government facilities (e.g., embassies or consulates) in remote
locations. The Bureau notes further that, to the extent that such
accounts offer an open-loop capability that allows the consumer to
conduct transactions at multiple, unaffiliated merchants for goods or
services, that functionality would not be covered by this exclusion.
2(b)(3)(ii)(D)
The Bureau's Proposal
Regulation E's gift card provisions cover some prepaid products
that also could fall within the proposed definition of prepaid account.
In particular, Sec. 1005.20 contains provisions applicable to gift
certificates, store gift cards, and general-use prepaid cards.\310\ 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 in Sec. 1005.20(b)(2) 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. The Bureau proposed to add
Sec. 1005.2(b)(3)(i)(C), which would have provided that a prepaid
account was 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.
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\310\ 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).
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The Bureau believed that having to apply both the existing gift
card regulatory requirements and the proposed prepaid account
requirements could adversely impact the gift card market. The Bureau
further expressed concern that if the requirements of the proposed rule
were applied to gift cards, it was possible that those requirements, in
the context of the typical gift card, could confuse consumers.
Relatedly, the Bureau noted that, because most gift cards are not
reloadable, not usable at ATMs, and not open loop, consumers were less
likely to use gift cards as transaction account substitutes. Finally,
the Bureau was concerned that, were it to impose provisions for access
to account information and error resolution, and create limits on
consumers' liability for unauthorized EFTs, the cost structure of gift
cards could change dramatically, since, unlike other types of prepaid
products, many gift cards do not typically offer these protections. The
Bureau noted in the proposal that the exemption in the Gift Card Rule
for general-use prepaid cards applies to products that are reloadable
[[Page 83977]]
and not marketed or labeled as gift cards or gift certificates.\311\
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\311\ See Sec. 1005.20(b)(2).
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By contrast, the Bureau proposed to exclude from the definition of
prepaid account only such general-use prepaid products that were both
marketed and labeled as gift cards or gift certificates. The Bureau was
concerned that, absent this approach, some products it intended to
cover in the proposal may be inadvertently excluded due to occasional
or incidental marketing activities. For example, comment 20(b)(2)-2
describes, in part, a network-branded GPR 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 have been
considered to be both marketed and labeled as a gift card or gift
certificate and thus would have been covered by the proposed definition
of prepaid account. Proposed comment 2(b)(3)(i)-9 would have explained
this distinction.
Comments Received
A number of issuing banks, a digital wallet provider, and an
industry trade association submitted comments in support of the
proposed exclusion for gift cards. Two trade association commenters
urged the Bureau to expand the exclusion to also cover rebate or refund
cards used by retailers or other businesses as part of their
merchandise return or reimbursement programs. In addition, a program
manager and a payment network objected to the Bureau's decision to
exclude only those GPR products that were both marketed and labeled as
gift cards. These commenters urged the Bureau to exclude any prepaid
product that was subject to the Gift Card Rule, regardless of how it
was marketed or labeled. They argued that any card subject to the Gift
Card Rule was likely to be limited in function and therefore did not
warrant coverage by a rule aimed at protecting transaction account
substitutes. In the same vein, they argued that the burden of complying
with the proposal would far outweigh the benefit to consumers for these
products, and could effectively remove these products from the
marketplace. In addition, the payment network noted that the fact that
some prepaid products could be subject to both the proposal and the
Gift Card Rule could confuse consumers and create regulatory ambiguity
for industry.
Two consumer group commenters, by contrast, opposed this proposed
exclusion. One group urged the Bureau to cover network-branded, open-
loop reloadable gift cards loaded with at least $500, while the other
urged the Bureau to cover reloadable gift cards with a balance of at
least $250, each arguing that a card that is loaded with more than
those amounts poses a higher consumer risk associated with unauthorized
transactions.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing proposed
Sec. 1005.2(b)(3)(i)(C) and proposed comment 2(b)(3)(i)-9, renumbered
as Sec. 1005.2(b)(3)(ii)(D) and comment 2(b)(3)(ii)-3, respectively,
with technical revisions to conform internal references to reordering
elsewhere in the final rule. Gift certificates and gift cards do not
meet the Bureau's definition of prepaid accounts, as they typically
cannot be used with multiple, unaffiliated merchants. With regard to
general-use prepaid cards that are both marketed and labeled as a gift
card or gift certificate, the Bureau believes it is necessary and
proper to finalize this exclusion pursuant to its authority under EFTA
section 904(c) to further the purposes of EFTA to provide a framework
to establish the rights, liabilities, and responsibilities of prepaid
account consumers.
After consideration of the comments, the Bureau remains convinced
that subjecting this general category of products to both the Gift Card
Rule and the requirements of this final rule would place a significant
burden on industry without a corresponding consumer benefit. On the
other hand, the Bureau continues to believe that the gift card
exclusion should not extend to products that consumers may use as or
confuse with transaction account substitutes, even if such products are
also covered by the Gift Card Rule. To illustrate, the Bureau
understands that some consumers may use multiple non-reloadable cards
as transaction accounts to pay important household expenses like
utilities and groceries, spending them down and discarding them when
the funds are depleted. These cards may be subject to the Gift Card
Rule because they are not reloadable and thus do not qualify for the
GPR card exclusion in Sec. 1005.20(b)(2). However, if these cards are
not labeled or marketed as gift cards, it is possible that consumers
will unwittingly acquire these cards thinking that they carry the same
protections as other prepaid accounts under this final rule. As
previously stated, the Bureau believes consumers who use non-reloadable
prepaid products in this way deserve the same protections as consumers
who use GPR cards. Further, the Bureau believes that consumers
generally understand the protections associated with, and limitations
of, gift cards to the extent they are labeled as such. Accordingly, the
Bureau declines to expand the proposed exclusion for accounts that are
both marketed and labeled as gift cards to accounts that are labeled or
marketed as gift cards, as some industry commenters suggested. The
Bureau notes that in the gift card provisions of the Credit CARD Act,
Congress expressly granted to the Board (now to the Bureau) authority
to determine the extent to which the individual definitions and
provisions of EFTA or Regulation E should apply to general-use prepaid
cards, gift certificates, and store gift cards.\312\
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\312\ Public Law 111-24, 123 Stat. 1734, 1754 (2009); EFTA
section 915(d)(1)(B); 15 U.S.C. 1693l-1(d)(1)(B).
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The Bureau has considered the comments asserting that coverage
under both the Prepaid and Gift Card Rules will cause consumer
confusion and regulatory ambiguity. However, the Bureau understands
that, currently, prepaid issuers consciously avoid marketing and
labeling their products in such a way as would cause such products to
be covered under the Gift Card Rule. As such, the Bureau believes that,
in practice, very few products that are subject to the Gift Card Rule
will also qualify as prepaid accounts under this final rule.
Finally, the Bureau declines to expressly expand the exclusion for
accounts that are both marketed and labeled as gift cards to rebate
cards, as two commenters suggested. The Bureau believes such an express
exclusion would be unnecessary, since such programs are generally
excluded from the rule under the exclusion for loyalty, award, or
promotional gift cards, as defined in Sec. 1005.20(a)(4) and (b).
Existing comment 20(a)(4)-1.iii lists rebate programs operated or
administered by a merchant or product manufacturer that can be redeemed
for goods or services.
2(b)(3)(ii)(E)
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. Existing Sec. 1005.15(a)(2)
[[Page 83978]]
defines a government benefit ``account'' to exclude accounts for
distributing needs-tested benefits in a program established under State
or local law or administered by a State or local agency. The Bureau
proposed to have Sec. 1005.2(b)(3)(iii) state that the term prepaid
account included a government benefit account, as defined in existing
Sec. 1005.15(a)(2), but did not repeat the exclusion in Sec.
1005.15(a)(2) for State and local needs-tested benefit programs as part
of the definition of prepaid account in proposed Sec. 1005.2(b)(3). To
make clear that accounts excluded from the definition of government
benefit account in Sec. 1005.15(a)(2) are also excluded from the
general definition of prepaid account in Sec. 1005.2(b)(3), and
pursuant to its authority under EFTA section 904(d) to further the
purposes of EFTA to provide a framework to establish the rights,
liabilities, and responsibilities of prepaid account consumers, the
Bureau is finalizing new Sec. 1005.2(b)(3)(ii)(E) to explicitly
exclude accounts established for distributing needs-tested benefits in
a program established under State or local law or administered by a
State or local agency, as set forth in Sec. 1005.15(a)(2).
Virtual Currency
As noted in part II.D above, the Bureau received a number of
comments on whether the Bureau should regulate virtual currency
products and services under this final rule. Commenters included banks,
a digital wallet provider, a virtual currency exchange, industry trade
associations, consumer advocacy groups, a law firm representing a
coalition of prepaid issuers, and a non-governmental virtual currency
policy organization.
Industry commenters had mixed reactions to whether the Bureau
should regulate virtual currency products and services. Two trade
association commenters representing banks stated that the proposed
definition of ``prepaid account'' should be modified to expressly
include accounts funded or capable of being funded with virtual
currencies and submitted a definition of virtual currency they urged
the Bureau to adopt. They asserted that virtual currencies are
``funds'' under EFTA, and coverage is needed to ensure consumers get
the kind of protections they would have if they used other comparable
but closely regulated traditional payment systems and products. They
further asserted that virtual currency products and systems pose
greater risks to consumers than traditional payment products and
systems funded with fiat currency.
These trade association commenters further asserted their belief
that, with few exceptions, regulating prepaid accounts funded in
virtual currencies would be consistent with the Bureau's goal of
providing comprehensive consumer protections for prepaid products. With
respect to the exceptions, the commenters suggested that it was
unnecessary to regulate virtual currencies that can only be used (1) at
a specific merchant or defined group of affiliated merchants; (2)
within online gaming platforms with no market or application outside of
those platforms; or (3) as part of a customer affinity or rewards
program. They asserted that their suggested carve outs are similar to
the proposed exclusions for certain store gift cards and for loyalty,
award, or promotional gift cards, in the proposed definition of prepaid
account.
On the other hand, a diverse group of industry commenters and a
non-governmental virtual currency policy organization commenter urged
the Bureau to expressly provide in the final rule that it does not
apply to virtual currency products and services. Commenters expressed
concern that regulation would be premature, thus potentially stifling
innovation. Several commenters highlighted the low rate of consumer
adoption of virtual currency products and services. Commenters also
asserted that the Bureau has not adequately studied the virtual
currency industry, and that regulations developed for GPR cards are
unsuitable to apply to virtual currency products and services because
of the differences between such products and services and GPR cards.
A law firm commenting on behalf of a coalition of prepaid issuers
and a virtual currency trade association commented that they supported
the Bureau's desire to ensure consumer protection rules are applied
consistently across different industries that share similar
functionalities. However, neither commenter supported regulating
virtual currency products and services in the context of the prepaid
rulemaking. The law firm commenter asserted that it was premature to
regulate virtual currency products and services, and that adopting
regulations to apply to virtual currency products and services would
impose significant regulatory burden on such products and services and
also stifle innovation. It further suggested that the Bureau adopt the
approach the Board took with respect to the regulation of prepaid cards
generally. It asserted that despite the Board's decision to not extend
the coverage of its Payroll Card Rule to GPR cards, issuers of GPR
cards have nonetheless applied consumer protection comparable to those
established in that rule. The trade association commenter asserted that
the Bureau should address virtual currencies in a separate rulemaking.
Consumer group commenters generally urged the Bureau to regulate
those virtual currency products and services that are used by or
marketed to consumers. Specifically, two consumer group commenters
stated that the Bureau was right to develop rules that, they believed,
anticipated the increasing role of virtual currencies. One urged the
Bureau to extend the definition of account to include virtual currency
wallets, stating that such extension would be appropriate because it is
important for consumer protection rules to be in place before consumer
adoption of such wallets becomes widespread, and the application of
Regulation E to virtual currency wallets could incent virtual currency
wallet providers to ensure that the funds consumers put into virtual
currency wallets are adequately protected (to the extent they are not
already doing so). Another consumer group commenter asserted that as
long as virtual currencies are used for consumer purposes, consumers
need protection. It observed that current virtual currency systems lack
such protections and highlighted the lack of protection in the areas of
limited liability, dispute rights, and error resolution. However, one
consumer group commenter opposed regulating virtual currency products
and services as prepaid accounts. The commenter stated that it did not
believe that accounts that convert fiat money into stored value in a
form that is not fiat currency should be classified as prepaid
accounts, because the funds in those accounts would be protected once
they are converted back into fiat currency.
As discussed above, the Bureau stated in the proposal that the
Bureau's analysis is ongoing with respect to virtual currencies and
related products and services. The proposed rule did not resolve
specific issues with respect to the application of either existing
regulations or the proposed rule to virtual currencies and related
products and services. Accordingly, although the Bureau received some
comments addressing virtual currency products and services, the Bureau
reiterates that application of Regulation E and this final rule to such
products and services is outside of the scope of this rulemaking.
However, the Bureau notes that as part of its broader administration
and enforcement of the enumerated consumer financial protection
statutes and title X of the Dodd-Frank Act, the Bureau continues to
analyze the nature
[[Page 83979]]
of products or services tied to virtual currencies.
Section 1005.4 General Disclosure Requirements; Jointly Offered
Services
4(a)(1) Form of Disclosures
Existing Sec. 1005.4(a)(1) sets forth general requirements for
disclosures required by Regulation E. Among other things, it provides
that the disclosures must be clear and readily understandable. Existing
comment 4(a)-1 explains that there are no particular rules governing
type size, number of pages, or the relative conspicuousness of various
terms in the disclosures. As discussed in greater detail below, the
short form and long form disclosures under final Sec. 1005.18(b) are
subject to the specific formatting requirements, including prominence
and size requirements, that are set forth in final Sec. 1005.18(b)(7).
Similarly, remittance transfers subject to subpart B of Regulation E
are also subject to specific formatting requirements set forth in
existing Sec. 1005.31(c). Accordingly, the Bureau is adopting a
conforming change to comment 4(a)-1 to clarify that Sec. Sec.
1005.18(b)(7) and 1005.31(c) are exceptions to this general principle
explained in comment 4(a)-1.
Section 1005.10 Preauthorized Transfers
10(e) Compulsory Use
10(e)(1) Credit
In the discussion below of the Bureau's final changes to Regulation
Z, the Bureau explains in detail its approach to the regulation of
credit offered in connection with prepaid accounts. (That discussion
provides an overall explanation of the Bureau's approach in this
rulemaking to credit offered in connection with prepaid accounts,
including with respect to changes to Regulation E, the details of which
are set forth below.)
As discussed in more detail in the section-by-section analysis of
Regulation Z Sec. 1026.61 below, the Bureau is adopting a new
definition of ``hybrid prepaid-credit card'' in new Regulation Z Sec.
1026.61 which sets forth the circumstances in which a prepaid card is a
credit card under Regulation Z.\313\ A prepaid card that is a hybrid
prepaid-credit card as defined in new Regulation Z Sec. 1026.61 is a
credit card under final Regulation Z Sec. 1026.2(a)(15)(i). See also
new Regulation Z Sec. 1026.61(a)(1) and new Regulation Z comment
2(a)(15)-2.i.F. As set forth in new Regulation Z Sec. 1026.61(a)(1), a
prepaid card that is not a ``hybrid prepaid-credit card'' is not a
credit card for purposes of Regulation Z. See also new Regulation Z
comment 2(a)(15)-2.ii.D.
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\313\ Throughout the section-by-section analyses of Regulations
E and Z, the term ``hybrid prepaid-credit card'' refers to a hybrid
prepaid-credit card as defined in new Regulation Z Sec. 1026.61.
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As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section and in more detail in the section-by-section
analysis of Regulation Z Sec. 1026.61 below, the Bureau generally
intends to cover under Regulation Z overdraft credit features offered
in connection with prepaid accounts where the credit features are
offered by the prepaid account issuer, its affiliates, or business
partners. New Regulation Z Sec. 1026.61(b) generally requires that
such credit features be structured as separate sub-accounts or
accounts, distinct from the prepaid asset account, to facilitate
transparency and compliance with various Regulation Z requirements. New
Regulation Z Sec. 1026.61(a)(2)(i) provides that a prepaid card is a
``hybrid prepaid-credit card'' with respect to a separate credit
feature if the card meets the following two conditions: (1) The card
can be used from time to time to access credit from the separate credit
feature in the course of authorizing, settling, or otherwise completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers; and (2) the separate credit
feature is offered by the prepaid account issuer, its affiliate, or its
business partner. New Regulation Z Sec. 1026.61(a)(2)(i) defines such
a separate credit feature accessible by a hybrid prepaid-credit credit
as a ``covered separate credit feature.'' Thus, the hybrid prepaid-
credit card accesses both the covered separate credit feature and the
asset feature of the prepaid account, and the hybrid prepaid-credit
card is a credit card under Regulation Z with respect to the covered
separate credit feature.
As discussed in the section-by-section analysis of Regulation Z
Sec. 1026.61 below, the Bureau also has decided to exclude prepaid
cards from being covered as credit cards under Regulation Z when they
access certain specified types of credit. First, under new Regulation Z
Sec. 1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit
card with respect to a separate credit feature that does not meet both
of the conditions above, for example, where the credit feature is
offered by an unrelated third party that is not the prepaid account
issuer, its affiliate or its business partner. Such credit features are
defined as ``non-covered separate credit features,'' as discussed in
the section-by-section analysis of Regulation Z Sec. 1026.61(a)(2)
below. Under new Regulation Z Sec. 1026.61(a)(4), a prepaid card also
is not a hybrid prepaid-credit card when the prepaid card accesses
incidental credit in the form of a negative balance on the asset
account where the prepaid account issuer generally does not charge
credit-related fees for the credit.\314\ A prepaid card is not a hybrid
prepaid-credit card under new Regulation Z Sec. 1026.61 or a credit
card under final Regulation Z Sec. 1026.2(a)(15)(i) when it accesses
credit from these types of credit features. For more detailed
explanations of when prepaid cards are not credit cards under
Regulation Z, see the section-by-section analyses of Regulation Z Sec.
1026.61(a)(2) and (4) below.
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\314\ Throughout the section-by-section analyses of Regulations
E and Z, the term ``incidental credit'' is used to refer to credit
that meets the conditions of new Regulation Z Sec. 1026.61(a)(4).
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As part of the Bureau's approach to the regulation of credit
offered in connection with prepaid accounts, the Bureau's final rule
revises the compulsory use provision of Regulation E, existing Sec.
1005.10(e)(1), to make clear that it applies to covered separate credit
features accessible by hybrid prepaid-credit cards as defined in new
Regulation Z Sec. 1026.61. The Bureau also is providing guidance to
explain that incidental credit described in new Regulation Z Sec.
1026.61(a)(4) is exempt from the compulsory use provisions in
Regulation E, similar to checking overdraft services.
EFTA's compulsory use provision, EFTA section 913(1),\315\
prohibits any person from conditioning the extension of credit to a
consumer on the consumer's repayment by means of preauthorized EFTs. As
implemented in Regulation E, existing 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 EFTs, 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 existing 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 EFT is defined in existing Sec. 1005.2(k) to mean an EFT
authorized in advance to recur at substantially regular intervals.
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\315\ 15 U.S.C. 1693k(1).
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Congress enacted the compulsory use provision to prevent financial
[[Page 83980]]
institutions that are creditors from mandating repayment of credit by
future preauthorized EFTs. 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 debts, as a creditor could compel the consumer to grant
the creditor preauthorized transfer access to the consumer's asset
account as a condition for agreeing to provide credit to that consumer.
In adopting what is now existing 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).\316\
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\316\ 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 credit plans] 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.'').
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The Bureau's Proposal
The Bureau proposed certain modifications to the compulsory use
provision. In particular, the proposal would have provided that the
provision's exception for overdraft credit plans would not have
extended to overdraft credit plans accessed by prepaid cards that are
credit cards under Regulation Z. Specifically, the proposal would have
amended existing Sec. 1005.10(e)(1) to provide that the exception for
overdraft plans from the compulsory use provision does not apply to 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. Thus, under the proposal, the compulsory use provision in
proposed Sec. 1005.10(e)(1) would have applied to overdraft credit
plans accessed by prepaid cards that are credit cards under Regulation
Z.
Under the proposal, existing comment 10(e)(1)-2 related to the
exception for overdraft credit plans would have been amended to explain
that this exception 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 Sec. 1026.2(a)(15)(i).
The proposal would have added comment 10(e)(1)-3 to provide
guidance on how the prohibition in proposed Sec. 1005.10(e)(1) would
have applied to credit extended under a credit plan that is a credit
card account accessed by a prepaid card under Regulation Z as discussed
above. Specifically, proposed comment 10(e)(1)-3 would have explained
that under proposed 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.
Proposed comment 10(e)(1)-3 also would have provided that the
prohibition in proposed Sec. 1005.10(e)(1) would have applied 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
proposed 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.
Under Regulation Z proposed comment 2(a)(15)-2.i.F, a prepaid card
would not have been a credit card under Regulation Z where 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), and is not payable by written agreement
in more than four installments. Proposed comment 10(e)(1)-3 would have
cross-referenced Regulation Z Sec. 1026.2(a)(15)(i), proposed 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,
under the proposal, the prohibition in proposed Sec. 1005.10(e)(1)
would not have applied to credit extended in connection with a prepaid
account under an overdraft credit plan that is not a credit card
account. Under the proposal, an overdraft credit plan would not have
been a credit card account if it would have been 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 also would have explained the
connection between the prohibition in proposed Sec. 1005.10(e)(1) on
the compulsory use of preauthorized EFT to repay credit extended under
a credit plan accessed by prepaid cards that are credit cards under
existing Regulation Z Sec. 1026.2(a)(15)(i) and proposed comment
2(a)(15)-2.i.F, and the prohibition on offsets by credit card issuers
in proposed Regulation Z Sec. 1026.12(d). Under existing 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, a card issuer
generally would not have been prohibited 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 under a plan that
is authorized in writing by the cardholder, so long as the creditor
does not make such deductions to the plan more frequently than once per
calendar month. Therefore, a card issuer for such credit card accounts
would have been prohibited under proposed Regulation Z Sec.
1026.12(d)(3) 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 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, EFTs pursuant to a plan described
in Regulation Z Sec. 1026.12(d)(3) would have been preauthorized EFTs
under existing Sec. 1005.2(k) because such EFTs would be authorized in
advance to recur periodically (but could not recur more frequently than
once per calendar month). Proposed comment 10(e)(1)-3.i thus would have
explained that proposed 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
[[Page 83981]]
account is accessed by an access device for a prepaid account.
As a technical revision, the proposal also would have moved
existing guidance in existing comment 10(e)(1)-1 related to when
financial institutions may provide incentives to consumers to agree to
automatic repayment plans to a new proposed comment 10(e)(1)-4; no
substantive changes were intended.
Comments Received
A trade association and an issuing bank urged the Bureau not to
adopt the proposed changes to the compulsory use exception in
Regulation E for overdraft credit plans that are accessed by prepaid
cards that are credit cards under Regulation Z. These commenters
asserted that allowing financial institutions to recoup overdraft
balances from incoming credits to the account is the only way for those
institutions to mitigate the credit risk caused by overdrafts. These
commenters suggested that the Bureau's proposed compulsory use and
offset prohibitions, for example, would effectively deny consumers the
ability to access short-term credit in connection with prepaid
accounts. These concerns about the rule's impact on small-dollar credit
are discussed in more detail below in the Overview of the Final Rule's
Amendments to Regulation Z section.
Nonetheless, other industry trade associations representing credit
unions agreed with the Bureau's proposal not to extend the overdraft
credit plan exception in the compulsory use provision in existing Sec.
1005.10(e)(1) to overdraft credit plans accessed by prepaid cards that
are credit cards under Regulation Z.
One consumer group likewise supported the Bureau's proposal not to
exempt from the compulsory use provision in existing Sec.
1005.10(e)(1) overdraft credit plans that are accessed by prepaid cards
that are credit cards under Regulation Z. This commenter stated that
giving consumers control over how and when to repay overdraft credit
would protect consumers that hold prepaid cards that are credit cards
under Regulation Z and give creditors incentives to consider whether
those consumers have the ability to pay credit that will be extended
under such overdraft credit plans. This commenter also noted that the
exemption from the compulsory use provision for overdraft credit plans
is not statutory.
The Final Rule
Covered separate credit features accessible by hybrid prepaid-
credit cards. For the reasons set forth herein, the Bureau is
finalizing Sec. 1005.10(e)(1) as proposed with certain revisions to be
consistent with provisions in new Regulation Z Sec. 1026.61 for when a
prepaid card is a credit card under Regulation Z.\317\ Specifically,
the Bureau has modified existing Sec. 1005.10(e)(1) to provide that
the overdraft credit plan exception in existing Sec. 1005.10(e)(1)
does not apply to a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in new Regulation Z Sec.
1026.61. As discussed above, under the final rule, a covered separate
credit feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Regulation Z Sec. 1026.61(a)(4)).
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\317\ The Regulation Z proposal would have provided 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 a credit
plan that allows deposits directly only into particular prepaid
accounts specified by the creditor. Proposed Sec. 1005.10(e)(1)
would have provided that the compulsory use provision's general
prohibition against conditioning the extension of credit to a
consumer on the consumer's repayment by means of preauthorized EFTs
would have applied to credit card accounts under Regulation Z
accessed by such account numbers. Proposed comments 10(e)(1)-2 and -
3 would have provided additional guidance on how proposed Sec.
1005.10(e)(1) would have applied to these credit card plans accessed
by these account numbers. For the reasons set forth in the section-
by-section analysis of Regulation Z Sec. 1026.2(a)(15)(i) below,
the final rule does not adopt the provisions related to the account
numbers that would have made these account numbers into credit cards
under Regulation Z. Thus, the provisions in proposed Sec.
1005.10(e)(1) and proposed comments 10(e)(1)-2 and -3 in connection
with these account numbers have not been adopted.
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Consistent with the intent of the proposal, the Bureau has revised
existing comment 10(e)(1)-2 which relates to the exception for
overdraft credit plans. The final rule has moved existing comment
10(e)(1)-2 to new comment 10(e)(1)-2.i and revised it to provide that
the exception for overdraft credit plans in final Sec. 1005.10(e)(1)
applies to overdraft credit plans other than for a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined in
new Regulation Z Sec. 1026.61. Proposed comment 10(e)(1)-3 would have
referenced guidance on when a prepaid card would not have been a credit
card under Regulation Z as proposed, such that the overdraft exception
in proposed Sec. 1005.10(e)(1) would have still applied to credit
accessed by those prepaid cards. The final rule moves this guidance to
final comment 10(e)(1)-2.ii and revises it as discussed below.
In addition, the Bureau is finalizing the other guidance in
proposed comment 10(e)(1)-3, renumbered as new comment 10(e)(1)-3.i,
with revisions to be consistent with new Regulation Z Sec. 1026.61.
Specifically, final comment 10(e)(1)-3.i explains that under final
Sec. 1005.10(e)(1), creditors may not require by electronic means on a
preauthorized, recurring basis repayment of credit extended under a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in new Regulation Z Sec. 1026.61. Consistent with the
proposal, final comment 10(e)(1)-3.i also clarifies that the
prohibition in final Sec. 1005.10(e)(1) applies to any credit extended
under such a credit feature, including preauthorized checks. Final
comment 10(e)(1)-3.i also cross-references new Regulation Z Sec.
1026.61 and new comment 61(a)(1)-3, which provide guidance related to
the credit extended under a covered separate credit feature by use of a
preauthorized check on the prepaid account.
Also, the Bureau has moved the guidance in proposed comment
10(e)(1)-3.i to new comment 10(e)(1)-3.ii and has revised it to be
consistent with new Regulation Z Sec. 1026.61. New comment 10(e)(1)-
3.ii explains the connection between the prohibition in final Sec.
1005.10(e)(1) on the compulsory use of preauthorized EFTs to repay
credit extended under a covered separate credit feature accessible by a
hybrid prepaid-credit card, as defined in Regulation Z Sec. 1026.61,
and the prohibition on offsets by credit card issuers in final
Regulation Z Sec. 1026.12(d). Specifically, new comment 10(e)(1)-3.ii
provides that under existing 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 final Regulation Z Sec. 1026.12(d)(3), with respect to
covered separate credit features accessible by hybrid prepaid-credit
cards as defined in new Regulation Z Sec. 1026.61, a card issuer
generally is not prohibited 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 under a plan that is
authorized in writing by the cardholder, so long as the card issuer
does not make such deductions to the plan more frequently than once per
calendar month. A card issuer therefore is prohibited under final
Regulation Z Sec. 1026.12(d)(3) from automatically deducting all or
part of the cardholder's
[[Page 83982]]
credit card debt from a covered separate credit feature from a deposit
account (such as a prepaid account) held with the card issuer on a
daily or weekly basis, or whenever deposits are made to the deposit
account. In Regulation E, final Sec. 1005.10(e)(1) provides a
complementary prohibition on the card issuer from requiring payment
from a deposit account (such as a prepaid account) of credit card
balances of a covered separate credit feature accessible by a hybrid
prepaid-credit card by electronic means on a preauthorized, recurring
basis.
Consistent with the proposal, as a technical revision, the Bureau
has moved 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
change is intended.
Consistent with the statutory text and purposes of EFTA, the Bureau
is not extending the exception for overdraft credit plans currently in
Sec. 1005.10(e)(1) to covered separate credit features accessible by
hybrid prepaid-credit cards as defined in new Regulation Z Sec.
1026.61. The purposes of EFTA are to establish the rights, liabilities,
and responsibilities of consumers participating in EFT systems and to
provide individual consumer rights.\318\ Further, EFTA's legislative
history states that the EFTA compulsory use provision is designed to
assure that ``EFT develops in an atmosphere of free choice for the
consumer.'' \319\ The Bureau believes its final rule, which does not
extend Regulation E's existing exception for overdraft credit plans to
covered separate credit features accessible by hybrid prepaid-credit
cards, should ensure that consumers have choice when deciding whether
and how to link their prepaid accounts to covered separate credit
features accessible by hybrid prepaid-credit cards and have control
over the funds in their prepaid accounts if and when such a link is
established.
---------------------------------------------------------------------------
\318\ See EFTA section 902(b); 15 U.S.C. 1693(b).
\319\ See Senate Report No. 95-915 at 16 (1978).
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As discussed in greater detail in the section-by-section analyses
of Regulation Z Sec. Sec. 1026.5(b)(2)(ii), 1026.7(b)(11), and
1026.12(d) below, the Bureau also believes that not extending the
exception for overdraft credit plans to covered separate credit
features accessible by hybrid prepaid-credit cards is consistent with
the purposes of and provisions in TILA. In particular, TILA section 169
prohibits offsets by credit card issuers.\320\ In addition, TILA
sections 127(b)(12) and (o) require that for credit card accounts under
an open-end consumer credit plan, payment due dates--which must be the
same date each month--must be disclosed on the Regulation Z periodic
statement.\321\ In addition, TILA section 163 provides that, for credit
card accounts under an open-end consumer credit plan, a card issuer
must adopt reasonable procedures designed to ensure that: (1) Periodic
statements for those accounts are mailed or delivered at least 21 days
prior to the payment due date disclosed on the Regulation Z statement
as discussed above; and (2) the card issuer does not treat as late for
any purpose a required minimum periodic payment received by the card
issuer within 21 days after mailing or delivery of the Regulation Z
periodic statement disclosing the due date for that payment.\322\
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\320\ 15 U.S.C. 1666h(a); see also Regulation Z Sec.
1026.12(d).
\321\ 15 U.S.C. 1637(b)(12) and (o); see also Regulation Z Sec.
1026.7(b)(11)(i)(A).
\322\ 15 U.S.C. 1666b; see also Regulation Z Sec.
1026.5(b)(2)(ii)(A).
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In particular, the Bureau believes that the revisions to existing
Sec. 1005.10(e)(1) complement the offset prohibition and the periodic
statement requirements in Regulation Z by helping to ensure that
consumers do not lose access to prepaid account funds and lose the
ability to prioritize repayment of debts, one of the main purposes of
EFTA section 913(1), as implemented by final Sec. 1005.10(e)(1). The
Bureau is concerned that absent these protections, with respect to
covered separate credit features accessible by hybrid prepaid-credit
cards, some card issuers might attempt to avoid the TILA offset
prohibition by requiring that all or part of the cardholder's credit
card debt under the covered separate credit feature 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 its revisions to the compulsory use
provision, financial institutions might require that prepaid account
consumers set up automated payment plans to repay the credit card debt
under the covered separate credit feature and set the payment due date
each month to align with the expected date of incoming deposits to the
prepaid account. The Bureau believes that this type of payment
arrangement would undermine the purposes of EFTA section 913(1), as
implemented by final Sec. 1005.10(e)(1), which is designed to help
ensure that consumers do not lose access to account funds and lose the
ability to prioritize repayment of debts. Thus, the Bureau does not
believe that it is appropriate to extend the exception for overdraft
credit plans to covered separate credit features accessible by hybrid
prepaid-credit cards.
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 this final rule
consumers would still be allowed to choose to make payments on the
covered separate credit features on an automatic basis once per month
if they find it beneficial to do so. The Bureau also believes that
certain credit card rules in Regulation Z that apply under the final
rule to covered separate credit features accessible by hybrid prepaid-
credit cards that are credit card accounts under an open-end (not home-
secured) consumer credit plan will help consumers avoid late payments
and excessive late fees with respect to their covered separate credit
features. For example, as discussed above, under the final rule, card
issuers would be required, under final Regulation Z Sec.
1026.5(b)(2)(ii)(A)(1), to adopt reasonable procedures to ensure that
Regulation Z periodic statements for covered separate credit features
accessible by hybrid prepaid-credit cards that are credit card accounts
under an open-end (not home-secured) consumer credit plan are mailed or
delivered at least 21 days prior to the payment due date disclosed on
the periodic statement. The Bureau believes this will help ensure that
consumers have sufficient time after receiving a periodic statement for
such a covered separate credit feature accessible by a hybrid prepaid-
credit card to make a payment on that credit feature. Also, as
discussed in more detail in the section-by-section analyses of
Regulation Z Sec. Sec. 1026.52(b) and 1026.55 below, with respect to
covered separate credit features accessible by hybrid prepaid-credit
cards that are credit card accounts under an open-end (not home-
secured) consumer credit plan, card issuers are limited in the
circumstances in which they could increase interest rates for late
payments and are limited in the amount of late fees they could charge
to consumers who pay late, as set forth in final Regulation Z
Sec. Sec. 1026.52(b) and 1026.55.
Credit features not accessible by hybrid prepaid-credit cards. As
discussed above, the final rule moves existing comment 10(e)(1)-2 to
new comment 10(e)(1)-2.i and revises it to provide that the exception
for overdraft
[[Page 83983]]
credit plans in final Sec. 1005.10(e)(1) applies to overdraft credit
plans other than for a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Regulation Z Sec. 1026.61.
Proposed comment 10(e)(1)-3 would have referenced guidance on when a
prepaid card would not have been a credit card under Regulation Z as
proposed, such that the overdraft exception in proposed Sec.
1005.10(e)(1) would have still applied to credit accessed by those
prepaid cards. As explained in more detail below, the final rule moves
this guidance to final comment 10(e)(1)-2.ii and revises it.
As discussed in the section-by-section analysis of Regulation Z
Sec. 1026.61 below, the Bureau has decided to exclude prepaid cards
from being covered as credit cards under Regulation Z when they access
certain specified types of credit. First, under new Regulation Z Sec.
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card
with respect to a ``non-covered separate credit feature,'' which means
that the separate credit feature either (1) cannot be accessed in the
course of a prepaid card transaction to obtain goods or services,
obtain cash, or conduct P2P transfers, or (2) is offered by an
unrelated third party that is not the prepaid account issuer, its
affiliate, or its business partner. Second, under new Regulation Z
Sec. 1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit
card when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Regulation Z Sec.
1026.61 or a credit card under final Regulation Z Sec.
1026.2(a)(15)(i) when it accesses credit from these types of credit
features. For more detailed explanations of when prepaid cards are not
credit cards under Regulation Z, see the section-by-section analyses of
Regulation Z Sec. 1026.61(a)(2) and (4) below.
New comment 10(e)(1)-2.i provides that the exception for overdraft
credit plans in final Sec. 1005.10(e)(1) applies to overdraft credit
plans other than for a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Regulation Z Sec. 1026.61.
The final rule also adds new comment 10(e)(1)-2.ii to provide
additional guidance on the application of the exception in Sec.
1005.10(e)(1) with respect to the circumstances described above in
which a prepaid card is not a credit card when the prepaid card
accesses incidental credit in the form of a negative balance on the
asset account where the prepaid account issuer generally does not
charge credit-related fees for the credit. Specifically, new comment
10(e)(1)-2.ii provides that credit extended through a negative balance
on the asset feature of a prepaid account that meets the conditions of
Regulation Z Sec. 1026.61(a)(4) is considered credit extended pursuant
to an overdraft credit plan for purposes of Sec. 1005.10(e)(1). Thus,
the exception for overdraft credit plans in Sec. 1005.10(e)(1) applies
to this credit.
A credit feature that does not qualify as a covered separate credit
feature under new Regulation Z Sec. 1026.61 because it cannot be
accessed in the course of a prepaid card transaction to obtain goods or
services, obtain cash, or conduct P2P transfers would be subject to the
compulsory use rule under final Sec. 1005.10(e)(1); the exception to
final Sec. 1005.10(e)(1) does not apply because such a credit product
is not an overdraft line of credit or overdraft service. The Bureau
also does not believe that the exception to Sec. 1005.10(e)(1) would
be invoked with regard to a credit feature that does not qualify as a
covered separate credit feature under new Regulation Z Sec. 1026.61
because it is offered by an unrelated third party, since that unrelated
third party will typically not be aware that the consumer had chosen to
link the credit feature to his or her prepaid account.
10(e)(2) Employment or Government Benefit
The Bureau's Proposal
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 EFTs 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.\323\
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\323\ In September 2013, the Bureau reiterated the applicability
of Regulation E's prohibition on compulsory use for payroll card
accounts. 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. 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. Id. at 3.
---------------------------------------------------------------------------
No parallel comment currently exists with respect to the
application of the compulsory use provision to the distribution of
government benefits. In the proposal, the Bureau noted that questions
had arisen as to whether the compulsory use prohibition applied to
prepaid cards used to distribute non-needs tested government benefits.
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.'' To provide
greater clarity, the Bureau proposed to add comment 10(e)(2)-2, which
would have stated that a government agency could not require consumers
to receive government benefits by direct deposit to any particular
institutions. The comment would have also stated that a government
agency could, alternatively, require recipients to receive their
benefits via direct deposit, so long as the recipient could choose
which institution would receive the deposit, or provide recipients with
a choice of having their benefits deposited at a particular institution
or receiving their benefits via another means.
The Bureau sought comment on whether a financial institution
complies with the compulsory use prohibition if it provides the first
payment to a benefit recipient on a government benefit card and, at
that same time, provides information on how to divert or otherwise
direct future payments to an account of the consumer's choosing. In
addition, the Bureau sought comment on whether a similar restriction on
compulsory use 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.
Comments Received
Requests to clarify whether certain enrollment methods comply with
Sec. 1005.10(e)(2). Two commenters--a program manager of government
benefit cards and a State government agency--generally objected to the
Bureau's proposal to clarify the application of compulsory use to
government agencies. They argued that government agencies should be
allowed to require that consumers receive their benefit payments on a
prepaid card of the agency's choosing, since doing so allows the
agencies to save money by outsourcing the disbursement process and
preventing fraud related to false benefits claims. These commenters
[[Page 83984]]
urged the Bureau to remove proposed comment 10(e)(2)-2. In the
alternative, the program manager, along with a payment network and
several other State government agency commenters, urged the Bureau to
clarify that a covered person complies with Sec. 1005.10(e)(2) by
providing the first payment to a government benefit recipient on a
prepaid card and, at that time, providing information to the recipient
on how to divert or otherwise direct future payments to an account of
the his or her choosing. According to these commenters, this enrollment
method would allow the financial institution or other person to adopt a
single, streamlined on-boarding process for beneficiaries, while still
providing consumers with a real--if delayed--choice on how to receive
their payments. One State government agency argued that, if the Bureau
did not adopt the requested clarification allowing agencies to
unilaterally disburse funds onto prepaid cards, the Bureau should delay
the rule's effective date with respect to government benefit accounts
to allow the agencies to identify and implement the most economical and
efficient means of complying with the compulsory use prohibition.
Other commenters, including issuing banks, program managers, trade
associations, a payment network, and an employer that disburses
compensation via payroll card accounts, asked the Bureau to address
situations--for both government benefit accounts and payroll card
accounts--where the consumer is provided a choice but does not make a
selection. Specifically, these commenters asked the Bureau to confirm
in the final rule that a financial institution or other person complies
with the compulsory use prohibition by providing a consumer with two or
more alternative methods for receiving funds, and, if the consumer
fails to affirmatively select from among the available methods within a
prescribed period of time, disbursing the consumer's payment to a pre-
selected, default enrollment method, such as a payroll card account or
government benefit account. According to these commenters, this method
of enrollment is standard practice among many employers and government
benefit programs, and is in fact permitted under some State laws.
Mandating changes to these existing practices, they argued, would
require costly system changes.
Several consumer group commenters, by contrast, urged the Bureau to
clarify that a financial institution or other person that unilaterally
enrolls a consumer in a payroll card account or government benefit
account program violates the compulsory use prohibition, regardless of
whether the person only disburses the consumer's initial payment onto
that card or provides the consumer with information about how to divert
future payments to an account of the consumer's choosing. In general,
these commenters argued that an automatic, unilateral disbursement of a
first payment onto a prepaid card is tantamount to a condition that the
consumer have an account with a particular institution in order to
receive his or her salary or government benefit, in violation of the
compulsory use prohibition. Moreover, these commenters argued, default
options are ``sticky,'' meaning that once consumers are enrolled in one
payment method, they are unlikely to go through the effort to un-enroll
or otherwise direct payments to another account. In other words, the
commenters asserted, a consumer who continues to receive payments to a
payroll card account or government benefit account after being
unilaterally enrolled in that card program has not made an affirmative
choice to be paid that way. A nonprofit organization representing the
interests of restaurant workers provided the Bureau with survey results
showing that more than a quarter of employees at a particular
restaurant company who responded to the organization's survey reported
that they were never told that they had options other than a payroll
card account by which to receive their wages. With regards to the
possibility of a financial institution's use of a default enrollment
method where consumers are provided with a choice of payment method but
fail to communicate a preference after a certain period of time, one
consumer group indicated that it was not categorically opposed to this
practice, but suggested that the period the financial institution
should have to wait before enrolling a non-responsive consumer in a
default enrollment method should be 30 days or more.
One consumer group commenter asked the Bureau to go further and
require that, in order to comply with the compulsory use prohibitions,
a financial institution or other person obtain a consumer's written
consent before disbursing the consumer's payment via a payroll card
account or government benefit account. Another consumer group argued
that the Bureau should mandate a specific waiting period before a
consumer was required to make a selection with respect to his or her
preferred payment method.
Requests to expand the scope of Sec. 1005.10(e)(2) beyond payment
of salary or government benefit. Although it did not propose
alterations to the scope of the compulsory use prohibition, the Bureau
did seek comment on whether a similar restriction should be extended to
other types of prepaid accounts, as discussed above. In response,
numerous consumer group commenters urged the Bureau to expand the
compulsory use prohibition to other types of prepaid accounts used by
third parties to disburse funds to consumers, including accounts used
to disburse student aid or student loans, accounts used to disburse
insurance or workers' compensation payments, and accounts used by
correctional facilities to disburse funds to incarcerated or formerly
incarcerated individuals. The commenters expressed concern that
consumers in these circumstances could not otherwise avoid the high
fees or restrictive terms and conditions that they allege often
accompany such cards, if the consumers must accept the cards to access
their funds.
Several commenters, including several members of Congress, pointed
to prison release cards as a particularly troubling example of a
prepaid account product that they say comes with high fees and terms
and conditions that limit consumers' ability to access their own funds.
Funds disbursed onto prison release cards may include prison job wages
or public benefits paid to the prisoner while in prison. The commenters
argued that consumers who receive these prepaid products should have a
choice with respect to how they get paid. In the alternative, the
commenters urged the Bureau to limit fees on cards that the consumer
has to accept, as well as on cards issued on an unsolicited basis. In
response, a commenter that manages several prison release card
programs, as well as other ``correction-related'' services submitted a
comment disputing the consumer groups' allegations with respect to its
programs. This commenter objected to the suggestion that its prepaid
products are or should be subject to the compulsory use provision.
Among other arguments, the commenter noted that prison release cards
are a superior alternative to checks, which are often accompanied by
excessive check cashing fees, or cash, which can be mismanaged by
correctional staff. This commenter also took issue with the suggestion
that its prepaid account programs are accompanied by particularly high
fees, noting that State departments of corrections that bid for its
services look carefully at the fees charged to card users. The
commenter provided fee schedules for several of its programs that it
argued show that the
[[Page 83985]]
programs' cardholder fees are not exorbitant.
The Final Rule
For the reasons set forth herein, the Bureau is adopting comment
10(e)(2)-2 as proposed with minor modifications for clarity and
conformity. The Bureau declines to amend regulatory text or adopt
additional commentary as requested by some commenters. The Bureau
continues to believe it is important that consumers have a choice with
respect to how they receive their salary or government benefits.
Whether a financial institution or other person complies with Sec.
1005.10(e)(2), therefore, depends on whether the financial institution
or other person provides the consumer with a choice regarding how to
receive his or her payment. For example, a financial institution or
other person that mandates that consumers receive their salary or
government benefit on a specific prepaid card violates EFTA section
913(2) and Sec. 1005.10(e)(2), as the statutory and regulatory text
make clear. Accordingly, the Bureau declines to revise Sec.
1005.10(e)(2) to allow government agencies to require consumers to
receive government benefits on a prepaid card of the agency's choosing,
as some commenters requested.
Likewise, after considering the comments on this issue, the Bureau
agrees with consumer group commenters that a financial institution or
other person that mandates that a consumer receive the first payment of
salary or government benefits on a prepaid card does not give the
consumer a choice regarding how to receive the payment, even if the
consumer can later re-direct the payment to an account of his or her
choice.\324\ In such a scenario, the consumer does not have a choice
with respect to how to receive the first payment of salary or
government benefit; rather, at least with respect to that first
payment, the consumer was required to establish an account with the
financial institution that issued the prepaid account as a condition of
receiving the funds.
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\324\ The Bureau likewise declines to grandfather in or provide
an extended timeframe to amend or rebid existing vendor contracts
for government benefit accounts beyond the final rule's general
effective date, as requested by some commenters. See the section-by-
section analysis of Sec. 1005.18(h) below for a more detailed
discussion of the final rule's effective date.
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The Bureau does not at this time and on this record believe it
would be appropriate to set a bright-line test based solely on amount
of time or whether the consumer agrees to the preferred payment method
in writing, as some commenters suggested. As the Bureau noted in the
proposal, there are many ways a consumer can obtain a prepaid account,
and the Bureau believes its disclosure regime should be--and is--
adaptable to this variety.\325\ The Bureau notes that how long a
consumer had to select a preferred payment method may not always be
indicative of whether the consumer was given a choice regarding how to
receive his payment. For example, a company's policies and procedures
may dictate that employees be given at least two weeks to select a
preferred payment method. However, such a policy may not help an
employee who is ordered by his direct supervisor to accept wages via a
payroll card. Likewise, the way a consumer expresses her preferred
payment method may not be indicative of whether she exercised a choice
with respect to how to receive her payments. Relatedly, as some
industry commenters noted, consumers are sometimes given a choice
between two or more payment alternatives, but may fail to indicate
their preference. Depending on the facts and circumstances--for
example, the date by which the consumer has to be paid her wages under
State law--it may be reasonable for a financial institution or other
person in this scenario to employ a reasonable default enrollment
method.
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\325\ 79 FR 77102, 77148 (Dec. 23, 2014).
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The Bureau also declines to amend existing regulatory text or adopt
additional commentary concerning which alternative payment methods must
be made available to a consumer to comply with the compulsory use
prohibition. In response to requests for clarification from a member of
Congress and an industry commenter on the one hand, and several
consumer group commenters on the other, the Bureau notes that the
compulsory use prohibition does not amount to a requirement that a
financial institution or other person provide a consumer with any
particular alternative to a prepaid account. More specifically, Sec.
1005.10(e)(2) does not mandate that a covered person offer a consumer
the option of getting paid by paper check (to address concerns from the
member of Congress and industry commenter), nor require that one of the
payment options made available to the consumer be direct deposit to an
account of the consumer's choosing (as the consumer groups requested).
Rather, the consumer must not be required to establish a particular
account and must be presented with at least one alternative to the
prepaid account, which may be a paper check, direct deposit to the
consumer's bank account or to her own prepaid account, or some other
payment method.
With respect to the comments recommending that the Bureau expand
application of the compulsory use prohibition to other types of prepaid
accounts, the Bureau has concluded that it would not be appropriate to
take such a step at this time. The compulsory use prohibition has been
in place and largely unchanged since its adoption in 1978 in EFTA.\326\
The Bureau believes it would be inappropriate to alter the application
of the prohibition in the manner suggested by commenters in this final
rule without additional public participation and information gathering
about the specific product types at issue. The Bureau notes that to the
extent that student, insurance, or prison release cards are used to
disburse consumers' salaries or government benefits, as defined under
applicable law, such accounts are already covered by Sec.
1005.10(e)(2) and will continue to be so under this final rule. The
Bureau notes further that it is continuing to monitor financial
institutions' and other persons' practices relating to consumers' lack
of choice (including with respect to prepaid accounts that are not
subject to the compulsory use prohibitions). Depending on the facts and
circumstances, the Bureau may consider whether exercise of the Bureau's
authority under title X of the Dodd-Frank Act, including its authority
over unfair, deceptive, or abusive acts or practices, would be
appropriate.
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\326\ EFTA section 913; Public Law 95-630, 92 Stat. 3737 (1978)
(codified at 15 U.S.C. 1693k).
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Section 1005.11 Procedures for Resolving Errors
11(c) Time Limits and Extent of Investigation
The Bureau is making a conforming change to Sec. 1005.11 to except
unverified accounts from the provisional credit requirements therein,
in conformance with changes to the error resolution requirements for
prepaid accounts in revised Sec. 1005.18(e) below.
EFTA section 908 governs the timing and other requirements for
consumers and financial institutions pertaining to 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) require that a financial
institution, after receiving notice that a consumer believes an EFT
from the consumer's account was not authorized, must investigate
promptly and determine whether an error occurred (i.e., whether
[[Page 83986]]
the transfer was unauthorized), within 10 business days (20 business
days if the EFT occurred within 30 days of the first deposit to the
account). Existing Sec. 1005.11(c)(2) provides that if the financial
institution is unable to complete the investigation within 10 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 10 business days of receiving the error notice.\327\ Provisional
credit is not required if the financial institution requests but does
not receive written confirmation within 10 business days of an oral
notice by the consumer, or if the alleged error involves an account
that is subject to Regulation T of the Board of Governors of the
Federal Reserve System (Securities Credit by Brokers and Dealers, 12
CFR part 220).\328\
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\327\ The financial institution has 90 days (instead of 45) to
investigate if the claimed unauthorized EFT 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).
\328\ Sec. 1005.11(c)(2)(i)(A) and (B).
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The Bureau proposed in Sec. 1005.18(e)(2) 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). In addition, the Bureau proposed to use its exception
authority under EFTA section 904(c) to propose Sec. 1005.18(e)(3);
that provision would have provided that for prepaid accounts that are
not payroll card accounts or government benefit accounts, if a
financial institution disclosed 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 would not have been 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 had
not completed its collection of consumer identifying information and
identity verification.
As discussed in greater detail in the section-by-section analysis
of Sec. 1005.18(e)(3) below, the Bureau is revising the limitation on
financial institutions' obligations to provide limited liability and
error resolution protections for prepaid accounts that have not
completed the consumer identification and verification process. Rather
than allow financial institutions to forego providing all of the
limited liability and error resolution protections for such unverified
accounts, as the Bureau proposed, the final rule allows financial
institutions to forego extending provisional credit to such accounts as
part of the error resolution process--under the final rule, therefore,
financial institutions may take up to 45 days (or 90 days, where
applicable) to investigate an error claim without provisionally
crediting the account in the amount at issue for prepaid accounts with
respect to which the financial institution has not completed its
consumer identification and verification process. To implement this
revision, the Bureau is adopting an exception to the general
requirement in Sec. 1005.11(c)(2) that a financial institution must
provide provisional credit if it takes longer than 10 business days to
investigate and determine whether an error occurred. As stated above,
there are two existing exceptions listed in Sec. 1005.11(c)(2)(i)(A)
(no provisional credit where institution required, but did not receive,
written confirmation of the oral notice of error within 10 business
days) and Sec. 1005.11(c)(2)(i)(B) (no provisional credit where error
involves an account subject to the Board's Regulation T). The Bureau is
adding a third exception in new Sec. 1005.11(c)(2)(i)(C), which,
together with Sec. 1005.11(c)(2)(i), provides that a financial
institution does not have to provisionally credit a consumer's account
if the alleged error involves a prepaid account, other than a payroll
card account or government benefit account, for which the financial
institution has not completed its consumer identification and
verification process, as set forth in Sec. 1005.18(e)(3)(ii).\329\ The
Bureau believes it is necessary and proper to finalize this exclusion
pursuant to its authority under EFTA section 904(c) to further the
purposes of EFTA to provide a framework to establish the rights,
liabilities, and responsibilities of prepaid account consumers.
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\329\ Pursuant to Sec. 1005.18(e)(3)(ii), a financial
institution has not completed its consumer identification and
verification process where it has not concluded its consumer
identification and verification process; it has concluded its
consumer identification and verification process, but could not
verify the identity of the consumer; or it does not have a consumer
identification and verification process by which the consumer can
register the prepaid account. See the section-by-section analysis of
Sec. 1005.18(e)(3) below for a detailed explanation of these
provisions and related commentary.
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By adding an exception for unverified accounts to the provisional
credit requirement set forth in Sec. 1005.11(c)(2)(i), the Bureau
intends to clarify the scope of the revised exception in final Sec.
1005.18(e)(3). Specifically, although the Bureau is finalizing a
provision that would allow financial institutions not to extend
provisional credit to prepaid accounts for which the financial
institution has not completed its consumer identification and
verification process, all other timing and related requirements set
forth in Sec. 1005.11(c), as modified by final Sec. 1005.18(e)(2),
will apply to both verified and unverified accounts. The addition of
new Sec. 1005.11(c)(2)(i)(C), therefore, is intended to make clear
that accounts referenced in that provision are only exempted from the
provisional credit requirement in Sec. 1005.11(c)(2)(i), and not from
any other provisions of Sec. 1005.11(c). Final Sec. Sec.
1005.11(c)(2)(i)(C) and 1005.18(e)(3) reference each other for added
clarity.
A full discussion of the Bureau's revisions to the limited
liability and error resolution requirements for prepaid accounts in
this final rule can be found in the section-by-section analysis of
Sec. 1005.18(e) below.
Section 1005.12 Relation to Other Laws
12(a) Relation to Truth in Lending
Existing Sec. 1005.12(a) provides guidance on whether the issuance
provisions in existing Regulation E Sec. 1005.5 or the unsolicited
issuance provisions in existing 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 Regulation Z
below.) In addition, existing Sec. 1005.12(a) also provides guidance
on how the provisions on liability for unauthorized use and for
resolving errors in existing Regulation E Sec. Sec. 1005.6 and 1005.11
and existing Regulation Z Sec. Sec. 1026.12(b) and 1026.13 interact
where a credit transaction is incidental to an EFT.
Issuance Rules
The Bureau's Proposal
Consistent with EFTA section 911(a),\330\ existing Sec. 1005.5(a)
provides that a financial institution generally may issue an access
device for an account that is subject to Regulation E 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),\331\ existing Sec. 1005.5(b)
provides that a financial institution may distribute an access device
to a
[[Page 83987]]
consumer on an unsolicited basis if four enumerated situations are met.
These exceptions are particularly important to issuance of debit cards
to access checking accounts for which the consumer is eligible for
overdraft services or has opened an overdraft line of credit.
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\330\ 15 U.S.C. 1693i(a).
\331\ 15 U.S.C. 1693i(b).
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In contrast, the issuance rules for a credit card under Regulation
Z are more restrictive. Consistent with TILA section 132,\332\ existing
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.
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\332\ 15 U.S.C. 1642.
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Existing Sec. 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, existing Sec.
1005.12(a)(1) currently provides that EFTA and Regulation E govern: (1)
The addition to an accepted credit card, as defined in Regulation Z
(existing Sec. 1026.12, comment 12-2), of the capability to initiate
EFTs; (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 existing Sec. 1005.17(a));
and (3) the addition of an overdraft service, as defined in existing
Sec. 1005.17(a), to an accepted access device.
On the other hand, existing 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 as discussed above. The
application of these various provisions to prepaid accounts and
revisions to the relevant prongs of existing Sec. 1005.12 are
discussed below. The proposal would have amended provisions in existing
Sec. 1005.12(a)(1)(ii) so that the rules in TILA and Regulation Z
would govern whether a prepaid card could be a credit card when it is
issued. Proposed Regulation Z Sec. 1026.12(h) (renumbered as new Sec.
1026.61(c) in the final rule) would have required a credit card issuer
to wait at least 30 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. Thus,
proposed Regulation Z Sec. 1026.12(h) would have prevented a prepaid
card from being a credit card at the time it was issued if it was
issued before the expiration of the 30-day period set forth in proposed
Regulation Z Sec. 1026.12(h). Under the proposal, because a prepaid
card could not have been a credit card at the time it was issued if it
was issued before the expiration of the 30-day period discussed above,
the issuance of such a prepaid card would have been governed under the
issuance rules in EFTA and Regulation E.
Existing 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 the issuance of an access device that permits
credit extensions pursuant to a preexisting overdraft line of credit or
under an overdraft service as discussed in existing Sec.
1005.12(a)(1)(ii). Existing Sec. 1005.12(a)(1)(ii) provides that the
issuance rules of EFTA and Regulation E 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 existing 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, existing 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. In
contrast, Regulation Z's issuance rules apply if the access device can
access another type of credit feature when it is issued; for example,
one permitting direct extensions of credit that do not involve the
asset account. Existing comment 12(a)-2 provides 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) or an overdraft service, as defined in
existing Sec. 1005.17(a). Regulation Z rules apply if there is another
type of credit feature; for example, one permitting direct extensions
of credit that do not involve the asset account.
The proposal would have amended existing Sec. 1005.12(a)(1)(ii) to
provide that this provision relating to preexisting overdraft lines of
credit and overdraft services does not apply to access devices for
prepaid accounts. The proposal also would have moved existing comment
12(a)-2 related to preexisting overdraft lines of credit and overdraft
services to proposed comment 12(a)-1 and would have revised the comment
to explain that it does not apply to access devices for prepaid
accounts. Thus, under the proposal, because the existing exception for
preexisting overdraft line of credit and overdraft services would not
have applied to an access device for a prepaid account, the issuance
rules in TILA and Regulation Z would have applied to the issuance of a
prepaid card that also a credit card at the time it is issued.
Nonetheless, under the proposal, in proposed Regulation Z Sec.
1026.12(h) (renumbered as new Sec. 1026.61(c) in the final rule), a
prepaid card could not have been a credit card when it was issued if it
was issued before the expiration of the 30-day period set forth in
proposed Sec. 1026.12(h). Proposed Regulation Z Sec. 1026.12(h) would
have required a credit card issuer to wait at least 30 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 proposed to comment 12(a)-3 to explain
that an access device for a prepaid account may not access a credit
card account when the access device is issued and would have cross
referenced proposed Regulation Z Sec. 1026.12(h). Under the proposal,
because a prepaid card could not have been a credit card when it was
issued if it was issued before the expiration of the 30-day period set
forth in proposed Regulation Z Sec. 1026.12(h), the issuance of such a
prepaid card would have been governed under the issuance rules in EFTA
and Regulation E.
The proposal also would have amended existing Sec.
1005.12(a)(1)(iii)
[[Page 83988]]
and (2)(i) to address whether Regulation E or Regulation Z governs the
addition of a credit feature or plan (including an overdraft credit
plan) to a previously issued access device for a prepaid account where
the credit feature or plan would have made the access device into a
credit card under Regulation Z. Existing Sec. 1005.12(a)(1)(iii)
provides that the issuance rules of EFTA and Regulation E govern the
addition of an overdraft service, as defined in existing Sec.
1005.17(a), to an accepted access device. The proposal would have
amended existing Sec. 1005.12(a)(1)(iii) to provide that this
provision does not apply to access devices for prepaid accounts. The
proposal also would have moved comment 12(a)-3 which discussed
overdraft services as defined in existing Sec. 1005.17(a) to proposed
comment 12(a)-2 and revised 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 below,
the proposal would have revised the term ``overdraft service'' as
defined in existing 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 have been subject to the provisions in Regulation Z.
The proposal also would have amended existing Sec.
1005.12(a)(2)(i) to provide that the unsolicited issuance rules in TILA
and existing Regulation Z Sec. 1026.12(a) would have applied 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. The proposal would
have added proposed comment 12(a)-4 that would have explained 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 also
would have stated that Regulation Z (existing Sec. 1026.2(a)(20),
proposed comment 2(a)(20)-2.ii) would have provided guidance on whether
a program constitutes a credit plan, and that Regulation Z (existing
Sec. 1026.2(a)(15)(i), proposed comment 2(a)(15)-2) would have defined
the term credit card and provided examples of cards or devices that are
and are not credit cards.
Comments Received and the Final Rule
The Bureau did not receive any specific comments on its proposal to
amend existing Sec. 1005.12(a) and related commentary with respect to
the issuance rules, other than those related to general comments from
industry not to cover overdraft plans offered on prepaid accounts under
Regulation Z. See the Overview of the Final Rule's Amendments to
Regulation Z section for a discussion of those comments.
As explained in more detail below, with respect to the issuance
rules, the Bureau is amending existing Sec. 1005.12(a) and related
commentary consistent with the proposal, with revisions to clarify the
intent of the provisions and to be consistent with new Regulation Z
Sec. 1026.61.
Issuance of a prepaid card. As discussed above, existing Sec.
1005.12(a)(2)(ii) generally provides that the unsolicited issuance
rules in TILA and Regulation Z, which prohibit the unsolicited issuance
of credit cards, govern the issuance of a credit card that is also an
access device. Existing Sec. 1005.12(a)(1)(ii) provides that the
issuance rules of EFTA and Regulation E 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 existing Sec. 1005.17(a). Existing comment 12(a)-2 provides
that for access devices that also constitute credit cards, the issuance
rules of Regulation E apply if the only credit feature is a preexisting
overdraft line of credit attached to the asset account to cover
overdrafts (or to maintain a specified minimum balance) or an overdraft
service, as defined in existing Sec. 1005.17(a). Regulation Z rules
apply if there is another type of credit feature; for example, one
permitting direct extensions of credit that do not involve the asset
account.
Consistent with the proposal, the Bureau is amending existing Sec.
1005.12(a)(1)(ii) to provide that this provision does not apply to
access devices for prepaid accounts. Consistent with the proposal, the
final rule moves existing comment 12(a)-2 related to preexisting
overdraft lines of credit and overdraft services to final comment
12(a)-1 and revises it to explain that it does not apply to access
devices for prepaid accounts. Thus, under the final rule, the existing
exception in Sec. 1005.12(a)(1)(ii) for credit extended under a
preexisting overdraft line of credit or under an overdraft service does
not apply to an access device that accesses a prepaid account. Thus,
under the final rule, Sec. 1005.12(a)(2)(ii) provides that the
issuance rules in TILA and Regulation Z govern the issuance of an
access device for a prepaid account that is a credit card at the time
it is issued.
Nonetheless, under new Regulation Z Sec. 1026.61(c), a prepaid
card may not be a credit card under Regulation Z when it is issued if
the prepaid card is issued prior to expiration of the 30-day period set
forth in new Sec. 1026.61(c). New Regulation Z Sec. 1026.61(c)
provides that with respect to a covered separate credit feature that
could be accessible by a hybrid prepaid-credit card at any point, a
card issuer must not do any of the following until 30 days after the
prepaid account has been registered: (1) Open a covered separate credit
feature accessible by the hybrid prepaid-credit card; (2) make a
solicitation or provide an application to open a covered separate
credit feature accessible by the hybrid prepaid-credit card; or (3)
allow an existing credit feature that was opened prior to the consumer
obtaining the prepaid account to become a covered separate credit
feature accessible by the hybrid prepaid-credit card. As discussed in
more detail in the section-by-section analysis of Regulation Z Sec.
1026.61(a)(2) below, a covered separate credit feature accessible by a
hybrid prepaid-credit card includes an overdraft credit feature offered
by a prepaid account issuer, its affiliate, or its business partner
that can be accessed by a prepaid card (except as provided in new
Regulation Z Sec. 1026.61(a)(4)). The prepaid card is a hybrid
prepaid-credit card under new Regulation Z Sec. 1026.61 and a credit
card under final Regulation Z Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
As discussed above, the proposal would have added comment 12(a)-3
to explain that an access device for a prepaid account may not access a
credit card account when the access device is issued and would have
cross referenced proposed Regulation Z Sec. 1026.12(h). Consistent
with the proposal, the Bureau is adopting new comment 12(a)-3, with
revisions to clarify the intent of the provision and to be consistent
with new Regulation Z Sec. 1026.61. New comment 12(a)-3 provides that
an access device for a prepaid account cannot access a covered separate
credit feature as defined in new Regulation Z Sec. 1026.61 when the
access device is issued if the access device is issued prior to the
expiration of the 30-day period set forth in new Regulation Z Sec.
1026.61(c). New comment 12(a)-3 also explains that an access device for
a prepaid account that is not a hybrid prepaid-credit card as that term
is defined in new Regulation Z Sec. 1026.61
[[Page 83989]]
is subject to the issuance rules in Regulation E. Because a prepaid
access device cannot access a covered separate credit feature that
would make the access device into a credit card when the access device
is issued if the access device is issued prior to the expiration of the
30-day period set forth in new Regulation Z Sec. 1026.61(c), the
issuance rules in EFTA and Regulation E will apply to the issuance of
the prepaid access device that does not access a covered separate
credit feature as defined in new Regulation Z Sec. 1026.61.
As discussed in the section-by-section analysis of Regulation Z
Sec. 1026.61 below, the Bureau has decided to exclude prepaid cards
from being covered as credit cards under Regulation Z when they access
certain specified types of credit. First, under new Regulation Z Sec.
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card
with respect to a ``non-covered separate credit feature,'' which means
that the separate credit feature either (1) cannot be accessed in the
course of a prepaid card transaction to obtain goods or services,
obtain cash, or conduct P2P transfers, or (2) is offered by an
unrelated third party that is not the prepaid account issuer, its
affiliate, or its business partner. Second, under new Regulation Z
Sec. 1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit
card when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Regulation Z Sec.
1026.61 or a credit card under final Regulation Z Sec.
1026.2(a)(15)(i) when it accesses credit from these types of credit
features. For more detailed explanations of when prepaid cards are not
credit cards under Regulation Z, see the section-by-section analyses of
Regulation Z Sec. 1026.61(a)(2) and (4) below.
The issuance rules in EFTA and Regulation E apply to those prepaid
cards that are not hybrid prepaid-credit cards even though the prepaid
card accesses the credit feature at the time the prepaid card is
issued.
Addition of a covered separate credit feature to an existing access
device for a prepaid account. The Bureau is amending existing Sec.
1005.12(a)(2)(i) as proposed to provide that the issuance rules in TILA
and Regulation Z govern 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.
The proposal would have added comment 12(a)-4 that would have
explained 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 also would have stated that Regulation Z (existing Sec.
1026.2(a)(20), proposed comment 2(a)(20)-2.ii) would have provided
guidance on whether a program constitutes a credit plan, and that
Regulation Z (existing Sec. 1026.2(a)(15)(i), proposed comment
2(a)(15)-2) would have defined the term credit card and provided
examples of cards or devices that are and are not credit cards.
Consistent with the proposal, the Bureau is finalizing new comment
12(a)-4, with revisions to be consistent with new Regulation Z Sec.
1026.61. New comment 12(a)-4 provides that Regulation Z governs the
addition of a covered separate credit feature as that term is defined
in new Regulation Z Sec. 1026.61 to an existing access device for a
prepaid account. In this case, the access device becomes a hybrid
prepaid-credit card under Regulation Z. A credit card feature may be
added to a previously issued access device for a prepaid account only
upon the consumer's application or specific request as described in
final Regulation Z Sec. 1026.12(a)(1) and only in compliance with new
Regulation Z Sec. 1026.61(c), as discussed above. As discussed in more
detail in the section-by-section analysis of Regulation Z Sec.
1026.61(a)(2) below, a covered separate credit feature accessible by a
hybrid prepaid-credit card includes an overdraft credit feature offered
by a prepaid account issuer, its affiliate, or its business partner
that can be accessed by a prepaid card (except as provided in new
Regulation Z Sec. 1026.61(a)(4)). The prepaid card is a hybrid
prepaid-credit card under new Regulation Z Sec. 1026.61 and a credit
card under final Regulation Z Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
For the reasons set forth in the Overview of the Final Rule's
Amendments to Regulation Z section, the Bureau believes that credit
card rules in Regulation Z, including the unsolicited issuance rules in
final Regulation Z Sec. 1026.12(a), should apply to hybrid prepaid-
credit cards that access covered separate credit features. The Bureau
believes that the more restrictive issuance rules in Regulation Z for
issuance of a credit card are appropriate in this context. As discussed
above, consistent with TILA section 132, final Regulation Z Sec.
1026.12(a) provides that no credit card generally may be issued to any
person on an unsolicited basis. This is in contrast to Regulation E
which allows an access device to be provided to a consumer on an
unsolicited basis if four enumerated situations are met.
The Bureau believes in particular that the addition of a covered
separate credit feature to an accepted prepaid access device that would
make the prepaid card into a hybrid prepaid-credit card causes a
significant transformation with respect to a prepaid account. The
Bureau believes that applying the Regulation Z unsolicited issuance
rules to the addition of such a credit feature to a prepaid access
device will help ensure that consumers must take affirmative steps to
effect such a transformation by permitting financial institutions to
link covered separate credit features to prepaid cards only in response
to consumers' applications or requests that the credit features be
linked. A card issuer also must comply with new Regulation Z Sec.
1026.61(c) with respect to linking the covered separate credit feature
to the prepaid card, as discussed above and in the section-by-section
analysis of Regulation Z Sec. 1026.61(c) below. New Regulation Z Sec.
1026.61(c) will help ensure that consumers are fully aware of the
implications of their decisions to link covered separate credit
features to prepaid cards by prohibiting card issuers from linking a
covered separate credit feature to a prepaid card until 30 days after
the prepaid account has been registered.
Overdraft credit services defined in Sec. 1005.17. Existing Sec.
1005.12(a)(1)(iii) provides that the issuance rules of EFTA and
Regulation E govern the addition of an overdraft service, as defined in
existing Sec. 1005.17(a), to an accepted access device. Existing
comment 12(a)-3 provides that the addition of an overdraft service, as
that term is defined in existing Sec. 1005.17(a), to an accepted
access device does not constitute the addition of a credit feature
subject to Regulation Z. Instead, the provisions of Regulation E apply,
including the liability limitations (existing Sec. 1005.6) and the
requirement to obtain consumer consent to the service before any fees
or charges for paying an overdraft may be assessed on the account
(existing Sec. 1005.17). The proposal would have provided that
existing Sec. 1005.12(a)(1)(iii) would not have applied to access
devices for prepaid accounts. The proposal would have moved existing
comment 12(a)-3 to proposed comment 12(a)-2 and would have revised it
to provide that the
[[Page 83990]]
comment does not apply to access devices for prepaid accounts.
The final rule does not adopt the proposed changes to existing
Sec. 1005.12(a)(1)(iii). The final rule moves existing comment 12(a)-3
to new comment 12(a)-2 for organizational purposes, but does not amend
the comment as proposed. The Bureau has not adopted the proposed
amendments to existing Sec. 1005.12(a)(1)(iii) and new comment 12(a)-2
because the Bureau believes such revisions are unnecessary in light of
changes in other parts of the rule. As discussed in the section-by-
section analysis of Sec. 1005.17 below, the Bureau is adding Sec.
1005.17(a)(4) to provide that an overdraft service does not include any
payment of overdrafts pursuant to (1) a credit feature that is a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in new Regulation Z Sec. 1026.61; or (2) credit
extended through a negative balance on the asset feature of the prepaid
account that meets the conditions of new Sec. 1026.61(a)(4). Thus,
because a covered separate credit feature accessible by a hybrid
prepaid-credit card is not an overdraft service under final Sec.
1005.17(a), existing Sec. 1005.12(a)(1)(iii) and new comment 12(a)-2
related to the addition of an overdraft service as defined in final
Sec. 1005.17(a) to an access device are not applicable to a covered
separate credit feature accessible by a hybrid prepaid-credit card.
Rules Applicable to Limits on Liability for Unauthorized Use and to
Billing Errors Procedures
The Bureau's Proposal
Current Sec. 1005.6 generally sets forth provisions for when a
consumer may be held liable, within the limitations described in
existing Sec. 1005.6(b), for an unauthorized EFT involving the
consumer's account. Current Sec. 1005.11 generally sets forth the
procedures for resolving errors relating to EFTs involving a consumer's
account. The Bureau is adding new Sec. 1005.18(e) to set forth a
consumer's liability for unauthorized EFTs and the procedures for
investigating errors related to EFTs involving prepaid accounts. See
generally the section-by-section analysis of Sec. 1005.18(e) below.
Relatedly, current 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. Current 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 credit plans or credit card accounts.
Existing 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
Regulations E and Z apply when credit is extended incident to an EFT.
Specifically, current Sec. 1005.12(a)(1)(iv) provides that EFTA and
Regulation E govern a consumer's liability for an unauthorized EFT 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 existing Sec. 1005.17(a).
Current comment 12(a)-1.i 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 existing 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).\333\ 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. Current comment 12(a)-1.ii sets forth examples
that illustrate these principles.
---------------------------------------------------------------------------
\333\ Existing Regulation Z Sec. 1026.13(d) sets forth certain
requirements that apply until a billing error is resolved. For
example, existing Regulation Z Sec. 1026.13(d)(1) 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. Existing
Regulation Z Sec. 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 consumer liability for unauthorized use,
existing 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 EFT
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.\334\ 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 EFT 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.\335\ In proposing
these rules, the Board stated that the proposed rule would simplify
procedures for financial institutions where an EFT results in both a
debit to a consumer's account and a credit extension.\336\
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\334\ 15 U.S.C. 1693g(c).
\335\ 45 FR 8249, 8266 (Feb. 6, 1980).
\336\ 44 FR 25850, 25857 (May 3, 1979).
---------------------------------------------------------------------------
For the reasons discussed in more detail in the section by section
analysis of Regulation Z Sec. 1026.13(i) below, the Bureau proposed to
amend existing Sec. 1005.12(a)(1)(iv) by moving the current language
to proposed Sec. 1005.12(a)(1)(iv)(A) and applying it to accounts
other than prepaid accounts. The Bureau also proposed to add 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
EFT 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 EFT when the consumer's prepaid account is overdrawn.
Proposed Sec. 1005.12(a)(1)(iv)(B) that would have applied to
credit in connection with a prepaid account was similar but not the
same as proposed Sec. 1005.12(a)(1)(iv)(A) that would have applied 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 have applied Regulation E's limits on
[[Page 83991]]
liability for unauthorized use and error resolution procedures to
transactions that are partially funded through an EFT using an access
device and partially funded through credit under a plan that is
accessed by an access device when the consumer's prepaid account is
overdrawn.
However, unlike proposed Sec. 1005.12(a)(1)(iv)(A), proposed Sec.
1005.12(a)(1)(iv)(B) would not have focused 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) would have focused on whether
credit is extended under a ``plan'' when the consumer's prepaid account
does not have sufficient funds to complete a transaction and the plan
is subject to the provisions in Regulation Z subpart B. For example,
under the proposal, a credit plan that is accessed by a prepaid card
that is a credit card would have been subject to the provisions of
subpart B. Under the proposal, a prepaid card would have been a credit
card under Regulation Z even if the creditor retains discretion not to
pay the credit transactions. Thus, proposed Sec. 1005.12(a)(1)(iv)(B)
would have focused on whether credit is extended under an ``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.
The proposal would have added comment 12(a)-5.i to provide that for
an account other than a prepaid account where credit is extended
incident to an EFT under an agreement to extend overdraft credit
between the consumer and the financial institution, Regulation E's
liability limitations and error resolution provisions would have
applied, in addition to Sec. 1026.13(d) and (g) of Regulation Z (which
apply because of the extension of credit associated with the overdraft
feature on the asset account). With respect to an account other than a
prepaid account, credit that is incident to an EFT 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. 1026.13(d) and (g) do not apply. 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 would have applied, 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). In addition, proposed comment 12(a)-5.i would have provided
that a credit plan is subject to Regulation Z subpart B if it is
accessed by an access device that is a credit card under Regulation Z
or if it is open-end credit under Regulation Z. An access device for a
prepaid account would not have been 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. Proposed comment 12(a)-5.i also would
have provided that credit incident to an EFT 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 would not have accessed by a credit card and
the plan would not have been open-end credit. In this case, Regulation
Z Sec. 1026.13(d) and (g) would not have applied.
As discussed above, existing comment 12(a)-1.i provides guidance on
how the principles in existing Sec. 1005.12(a)(1)(iv) apply to
transactions involving access devices that are credit cards under
Regulation Z. The proposal would have moved existing comment 12(a)-1.i
to proposed comment 12(a)-5.ii and made revisions to make clear that
this guidance applies to prepaid cards that would have been credit
cards under the proposal. The proposal also would have made technical
revisions to proposed comment 12(a)-5.ii for clarity.
Existing comment 12(a)-1.ii.A through D provide examples of how the
principles described in existing comment 12(a)-1.i relate to
transactions involving access devices that also function as credit
cards under Regulation Z. Specifically, these examples describe
different types of transactions that involve a debit card that also is
a credit card and discuss whether Regulation E or Regulation Z's
liability limitations and error resolution requirements apply to those
transactions. The proposal would have moved existing comment 12(a)-
1.ii.A through D to proposed comment 12(a)-5.iii.A through D
respectively. The proposal also would have revised the examples in
proposed comment 12(a)-5.iii.A through D to clarify that these examples
relate to a credit card that also is an access device that draws on a
consumer's checking account, and would have made technical revisions to
clarify the intent of the examples. No substantive changes would have
been intended with these revisions. The proposal also would have added
proposed comment 12(a)-5.iii.E that would have provided that the same
principles in proposed comment 12(a)-5.iii.A through D apply to prepaid
cards that would have been credit cards under the proposal.
Comment Received and the Final Rule
The Bureau did not receive any specific comments on this proposal
to amend existing Sec. 1005.12(a)(1)(iv) related to applicability of
limits on liability for unauthorized use and error resolution
provisions under Regulations E and Z.
The Bureau is amending existing Sec. 1005.12(a)(1)(iv) and adding
new Sec. 1005.12(a)(2)(iii) to be consistent with new Regulation Z
Sec. 1026.61.
For the reasons discussed in more detail in the section-by-section
analysis of Regulation Z Sec. 1026.13(i) below, consistent with the
proposal, the Bureau is amending existing Sec. 1005.12(a)(1)(iv) by
moving the current language to Sec. 1005.12(a)(1)(iv)(A) and applying
it to transactions that do not involve prepaid accounts. The Bureau
also is adding new Sec. 1005.12(a)(1)(iv)(B) to provide that with
respect to transactions that involve a covered separate credit feature
and an asset feature on a prepaid account that are both accessible by a
hybrid prepaid-credit card as those terms are defined in new Regulation
Z Sec. 1026.61, EFTA and Regulation E govern a consumer's liability
for an unauthorized EFT and the investigation of errors involving an
extension of credit that is incident to an EFT that occurs when the
hybrid prepaid-credit card accesses both funds in the asset feature of
the prepaid account and a credit extension from the credit feature with
respect to a particular transaction. As discussed in more detail in the
section-by-section analysis of Regulation Z Sec. 1026.61(a)(2) below,
a covered separate credit feature accessible by a hybrid prepaid-credit
card includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Regulation Z Sec.
1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit card under
new Regulation Z Sec. 1026.61 and a credit card under final Regulation
Z Sec. 1026.2(a)(15)(i) with respect to the covered separate credit
feature.
[[Page 83992]]
As discussed below, the final rule also adds new Sec.
1005.12(a)(1)(iv)(C), and (D), and (2)(iii) to provide guidance on
whether Regulation E or Regulation Z governs the consumer's liability
for unauthorized use and the investigation of errors with respect to
transactions made by prepaid cards that are not hybrid prepaid-credit
cards as defined in new Regulation Z Sec. 1026.61.
Proposed comment 12(a)-5.i would have provided guidance on the
provisions in both proposed Sec. 1005.12(a)(1)(iv)(A) and (B). As
discussed in more detail below, the final rule retains the guidance
related to credit extended in connection with prepaid accounts in new
comment 12(a)-5.i with revisions to be consistent with new Regulation Z
Sec. 1026.61. As discussed in more detail below, the final rule moves
guidance related to other types of credit from proposed comment 12(a)-
5.i to new comment 12(a)-5.ii and revises it to be consistent with new
Regulation Z Sec. 1026.61. Consistent with the proposal, the final
rule also moves current comment 12(a)-1.i and ii to new comment 12(a)-
5.iii and iv and revises this comment to be consistent with new
Regulation Z Sec. 1026.61.
Consistent with the proposal, with respect to transactions that
involve a covered separate credit feature and an asset feature on a
prepaid account that are both accessible by a hybrid prepaid-credit
card as those terms are defined in new Regulation Z Sec. 1026.61, new
Sec. 1005.12(a)(1)(iv)(B) does 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. Under
the final rule, whether a prepaid card is a hybrid prepaid-credit card
does not depend 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, under the final rule, a prepaid
card is a credit card under Regulation Z when it is a ``hybrid prepaid-
credit card'' as defined in Regulation Z. In particular, new Regulation
Z comment 61(a)(1)-1 provides that a prepaid card is a hybrid prepaid-
credit card if the prepaid card can access credit from a covered
separate credit feature even if, for example: (1) The person that can
extend the credit does not agree in writing to extend the credit; (2)
the person retains discretion not to extend the credit; or (3) the
person does not extend the credit once the consumer has exceeded a
certain amount of credit.
Thus, consistent with the proposal, new Sec. 1005.12(a)(1)(iv)(B)
focuses on transactions that involve a covered separate credit feature
and an asset feature on a prepaid account that are both accessible by a
hybrid prepaid-credit card as those terms are defined in new Regulation
Z Sec. 1026.61, where an extension of credit that is incident to an
EFT occurs when the hybrid prepaid-credit card accesses both funds in
the asset feature of the prepaid account and a credit extension from
the credit feature with respect to a particular transaction. These are
the situations in which Regulations Z and E would overlap with respect
to covered separate credit features accessible by hybrid prepaid-credit
cards. New Sec. 1005.12(a)(1)(iv)(B) provides that in these
circumstances, EFTA and Regulation E generally govern a consumer's
liability for an unauthorized EFT and the investigation of errors with
respect to these transactions. Regulation Z's provisions related to a
consumer's liability for unauthorized transactions and error resolution
procedures generally do not apply, except for existing Regulation Z
Sec. 1026.13(d) and (g) that apply to the credit portion of the
transaction.
New Sec. 1005.12(a)(1)(iv)(B) and new comment 12(a)-5.i and iii
through iv are discussed first. New Sec. 1005.12(a)(1)(iv)(C) and (D),
and (2)(iii) are discussed second. New Sec. 1005.12(a)(1)(iv)(A) and
new comment 12(a)-5.ii are discussed third.
Transactions involving covered separate credit features accessible
by hybrid prepaid-credit cards. As discussed above, new Sec.
1005.12(a)(1)(iv)(B) provides that with respect to transactions that
involve a covered separate credit feature and an asset feature on a
prepaid account that are both accessible by a hybrid prepaid-credit
card as those terms are defined in new Regulation Z Sec. 1026.61, EFTA
and Regulation E govern a consumer's liability for an unauthorized EFT
and the investigation of errors involving an extension of credit
incident to an EFT that occurs when the hybrid prepaid-credit card
accesses both funds in the asset feature of the prepaid account and a
credit extension from the credit feature with respect to a particular
transaction.
Proposed comment 12(a)-5.i would have provided guidance on the
provisions in both proposed Sec. 1005.12(a)(1)(iv)(A) and (B). In the
final rule, the guidance related to credit extended in connection with
prepaid accounts is retained in new comment 12(a)-5.i with revisions to
be consistent with new Regulation Z Sec. 1026.61. As discussed in more
detail below, the final rule moves guidance related to other types of
credit from proposed comment 12(a)-5.i to new comment 12(a)-5.ii with
revisions.
Under the final rule, new comment 12(a)-5.i provides that with
respect to a transaction that involves a covered separate credit
feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as those terms are defined
in new Regulation Z Sec. 1026.61, where credit is extended under a
covered separate credit feature accessible by a hybrid prepaid-credit
card that is incident to an EFT when the hybrid prepaid-credit card
accesses both funds in the asset feature of a prepaid account and
credit extensions from the credit feature with respect to a particular
transaction, Regulation E's liability limitations and error resolution
provisions apply to the transaction, in addition to existing Regulation
Z Sec. 1026.13(d) and (g) (which apply because of the extension of
credit associated with the covered separate credit feature).
As discussed above, existing comment 12(a)-1.i provides guidance on
how the principles in existing Sec. 1005.12(a)(1)(iv) apply to
transactions involving access devices that are credit cards under
Regulation Z. The proposal would have moved existing comment 12(a)-1.i
to proposed comment 12(a)-5.ii and made revisions to make clear that
this guidance applies to prepaid cards that would have been credit
cards under the proposal. The proposal also would have made technical
revisions to proposed comment 12(a)-5.ii for clarity; no substantive
changes were intended. The final rule moves current comment 12(a)-1.i
to new comment 12(a)-5.iii and adopts this comment consistent with the
proposal, with additional technical revisions for clarity. New comment
12(a)-5.iii provides guidance on how the principles in final Sec.
1005.12(a)(1)(iv) apply to transactions involving access devices that
are credit cards under Regulation Z, including hybrid prepaid-credit
cards that access covered separate credit features. New comment 12(a)-
5.iii provides that for transactions involving access devices that also
function as credit cards under Regulation Z, 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 access funds in a consumer asset account, such as a checking
account or prepaid account, the liability limitations and
[[Page 83993]]
error resolution requirements of Regulation Z apply. If the transaction
accesses funds in an asset account only (with no credit extended), the
provisions of Regulation E apply. If the transaction access funds in an
asset account but also involves an extension of credit under an
overdraft credit feature subject to Regulation Z attached to the
account, Regulation E's liability limitations and error resolution
provisions apply, in addition to existing 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). If a consumer's access
device is also a credit card and the device is used to make
unauthorized withdrawals from an asset account, but also is used to
obtain unauthorized cash advances directly from a credit feature that
is subject to Regulation Z that is separate from the asset account,
both Regulation E and Regulation Z apply.
Existing examples in comment 12(a)-1.ii.A through D provide
examples of how the principles in existing comment 12(a)-1.i relate to
transactions involving access devices that also function as credit
cards under Regulation Z. Specifically, these examples describe
different types of transactions that involve a debit card that also is
a credit card and discuss whether Regulation E or Regulation Z's
liability limitations and error resolution requirements apply to those
transactions. The proposal would have moved existing comment 12(a)-
1.ii.A through D to proposed comment 12(a)-5.iii.A through D
respectively and would have made several revisions as discussed above.
The final rule moves the existing examples from existing comment
12(a)-1.ii.A through D to new comment 12(a)-5.iv.A through D
respectively. Consistent with the proposal, the final rule also revises
the examples in new comment 12(a)-5.iv.A through D to clarify that
these examples relate to a credit card that also is an access device
that draws on a consumer's checking account, and makes technical
revisions to clarify the intent of the examples. No substantive changes
are intended with these revisions. Consistent with the proposal, the
final rule also adds new comment 12(a)-5.iv.E that provides that the
same principles in new comment 12(a)-5.iv.A through D apply to an
access device for a prepaid account that also is a hybrid prepaid-
credit card with respect to a covered separate credit feature under
Regulation Z Sec. 1026.61. New comment 12(a)-5.iv.E also provides a
cross-reference to final Regulation Z Sec. 1026.13(i)(2) and new
comment 13(i)-4 that deals with the interaction between Regulations E
and Z with respect to billing error resolution for transactions that
involve covered separate credit features accessible by hybrid prepaid-
credit cards.
Prepaid cards that are not hybrid prepaid-credit cards. As
discussed in the section-by-section analysis of Regulation Z Sec.
1026.61 below, the Bureau has decided to exclude prepaid cards from
being covered as credit cards under Regulation Z when they access
certain specified types of credit. First, under new Regulation Z Sec.
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card
with respect to a ``non-covered separate credit feature,'' which means
that the separate credit feature either (1) cannot be accessed in the
course of a prepaid card transaction to obtain goods or services,
obtain cash, or conduct P2P transfers, or (2) is offered by an
unrelated third party that is not the prepaid account issuer, its
affiliate, or its business partner. Second, under new Regulation Z
Sec. 1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit
card when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Regulation Z Sec.
1026.61 or a credit card under final Regulation Z Sec.
1026.2(a)(15)(i) when it accesses credit from these types of credit
features. For more detailed explanations of when prepaid cards are not
credit cards under Regulation Z, see the section-by-section analyses of
Regulation Z Sec. 1026.61(a)(2) and (4) below.
As discussed above, the final rule adds new Sec.
1005.12(a)(1)(iv)(C), (D), and (2)(iii) to provide guidance on whether
Regulation E or Regulation Z governs the consumer's liability for
unauthorized use and the investigation of errors with respect to
transactions made by prepaid cards that are not hybrid prepaid-credit
cards as defined in Regulation Z Sec. 1026.61. New Sec.
1005.12(a)(1)(iv)(C) provides that Regulation E governs the consumer's
liability for an unauthorized EFT and the investigation of errors with
respect to transactions that involves credit extended through a
negative balance to the asset feature of a prepaid account that meets
the conditions set forth in Regulation Z Sec. 1026.61(a)(4). New
comment 12(a)-5.i clarifies that Sec. 1005.12(a)(1)(iv)(C) provides
that with respect to transactions that involves credit extended through
a negative balance to the asset feature of a prepaid account that meets
the conditions set forth in Regulation Z Sec. 1026.61(a)(4), these
transactions are governed solely by the liability limitations and error
resolution procedures in Regulation E, and Regulation Z does not apply.
New Sec. 1005.12(a)(1)(iv)(D) provides that with respect to
transactions involving a prepaid account and a non-covered separate
credit feature as defined in Regulation Z Sec. 1026.61, Regulation E
governs the consumer's liability for an unauthorized EFT and the
investigation of errors with respect to transactions that access the
prepaid account, as applicable. New Sec. 1005.12(a)(2)(iii) provides
that with respect to transactions involving a prepaid account and a
non-covered separate credit feature as defined in Regulation Z Sec.
1026.61, Regulation Z governs the consumer's liability for unauthorized
use and the investigation of errors with respect to transactions that
access the non-covered separate credit feature, as applicable. New
comment 12(a)-5.i clarifies that Sec. 1005.12(a)(1)(iv)(D) and
(2)(iii), taken together, provide that with respect to transactions
involving a prepaid account and a non-covered separate credit feature
as defined in Regulation Z Sec. 1026.61, a financial institution must
comply with Regulation E's liability limitations and error resolution
procedures with respect to transactions that access the prepaid account
as applicable, and the creditor must comply with Regulation Z's
liability limitations and error resolution procedures with respect to
transactions that access the non-covered separate credit feature, as
applicable.
As discussed above, EFTA section 909(c) provides that EFTA's limits
on liability for unauthorized use apply to transactions which involve
both an unauthorized EFT 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.\337\ The Bureau believes, however, that EFTA section 909(c)
does not apply to transactions that access a non-covered separate
credit feature. Non-covered separate credit features only include
overdraft credit features with respect to prepaid accounts provided by
unrelated third-party creditors other than the prepaid account issuer,
its affiliates, or its business partners. Thus, a non-covered separate
credit feature could not be offered by a financial institution that is
offering overdraft on the prepaid account. For purposes of EFTA section
909(c), the Bureau believes extending
[[Page 83994]]
credit is reasonably interpreted only to apply where the financial
institution is itself the creditor, and thus would not encompass a
situation where the financial institution who is the prepaid account
issuer would be accessing credit, pursuant to an agreement with the
consumer, from the consumer's non-covered separate credit feature.
Thus, as explained in new comment 12(a)-5.i, new Sec.
1005.12(a)(1)(iv)(D) and (2)(iii), taken together, provide that with
respect to transactions involving a prepaid account and a non-covered
separate credit feature as defined in Regulation Z Sec. 1026.61, a
financial institution must comply with Regulation E's liability
limitations and error resolution procedures with respect to
transactions that access the prepaid account as applicable, and the
creditor must comply with Regulation Z's liability limitations and
error resolution procedures with respect to transactions that access
the non-covered separate credit feature, as applicable. See also the
section-by-section analysis of Regulation Z Sec. 1026.13(i) below.
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\337\ 15 U.S.C. 1693g(c).
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Transactions that do not involve prepaid accounts. As discussed
above, final Sec. 1005.12(a)(1)(iv)(A) provides that EFTA and
Regulation E generally govern a consumer's liability for an
unauthorized EFT and the investigation of errors with respect to
transactions that (1) do not involve a prepaid account; and (2) involve
an extension of credit that is incident to an EFT 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, or under an
overdraft service, as defined in final Sec. 1005.17(a).
As discussed above, proposed comment 12(a)-5.i would have provided
guidance on the provisions in both proposed Sec. 1005.12(a)(1)(iv)(A)
and (B). In the final rule, the proposed guidance related to credit
extended in connection with prepaid accounts is retained in new comment
12(a)-5.i with revisions. The final rule moves guidance related to
other types of credit from proposed comment 12(a)-5.i to new comment
12(a)-5.ii and revises it to be consistent with new Regulation Z Sec.
1026.61.
The final rule adds new comment 12(a)-5.ii to provide guidance with
respect to accounts other than prepaid accounts. Specifically, new
comment 12(a)-5.ii provides that with respect to an account (other than
a prepaid account) where credit is extended incident to an EFT under an
agreement to extend overdraft credit between the consumer and the
financial institution, Regulation E's liability limitations and error
resolution provisions apply to the transaction, in addition to existing
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). Access devices that access accounts other than prepaid
accounts are credit cards under Regulation Z when there is an agreement
by the financial institution to extend credit. See final Regulation Z
Sec. 1026.2(a)(15)(iv) and existing Regulation Z comments 2(a)(15)-
2.i.B and ii.A. As discussed above, new comments 12(a)-5.iii and iv
provide guidance on, and examples of, how the principles in final Sec.
1005.12(a)(1)(iv) apply to transactions involving access devices that
are credit cards under Regulation Z.
12(b) Preemption of Inconsistent State Laws
The Bureau's Proposal
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.\338\ The
Bureau stated 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 final determination stated that
the determination would also be reflected in the commentary
accompanying Regulation E.
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\338\ 78 FR 24386, 24391 (Apr. 25, 2013).
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The Bureau proposed 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 have stated that the
Bureau had determined that a provision in the State law of Tennessee is
preempted by the Federal law, effective April 25, 2013. It would have
further stated that, 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 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 proposed to make this statement into a
standalone comment in proposed comment 12(b)-2 under the heading
Preemption determinations generally. The Bureau proposed 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 clarity, and to update proposed comments 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 proposed 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.\339\
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\339\ See 72 FR 36589 (July 5, 2007).
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Comments Received
The Bureau received no comments regarding the proposed revisions to
the commentary for Sec. 1005.12(b). The Bureau did, however, receive
comments from a consumer group and the office of a State Attorney
General urging the Bureau to clarify that this final rule does not
preempt stronger State laws with respect to payroll, student, prison,
and government benefit accounts and to acknowledge that State laws may
require additional disclosures and obligations not required by this
final rule. These commenters specifically referenced the Illinois
payroll card law, which they stated provides certain employee
protections that are not contemplated by this rule, and recommended
that the Bureau emphasize that employers may have additional
obligations and restrictions under State law.
The Bureau also received a comment from a payment network, urging
the Bureau to expressly provide that all State law requirements that
are inconsistent with the requirements of the Bureau's final rule
governing prepaid accounts are preempted. The commenter stated that
inconsistent State requirements would detract from any required Federal
disclosures and add costs to prepaid programs that
[[Page 83995]]
ultimately will be borne by consumers. The commenter specifically
expressed concern regarding State laws governing disclosures of fees or
terms because, it said, such laws will frustrate the goals of
consistent disclosure and comparison shopping.
The Final Rule
The Bureau is finalizing comments 12(b)-2 and -3 generally as
proposed, with several minor modifications for clarity. The Bureau is
also finalizing comment 12(b)-4 as proposed, but in lieu of the
proposed reference to ``stored value cards,'' the Bureau is using
``general-use prepaid cards'' in final comment 12(b)-4.i for
consistency with Sec. 1005.20(a). The Bureau considered the comments
discussed above from the consumer group, the office of a State Attorney
General, and the payment network, but does not believe that a revision
to the regulatory text or commentary is necessary. EFTA section 922
makes clear that it does not preempt State laws except to the extent
those laws are inconsistent with EFTA (and then only to the extent of
that inconsistency). It further provides that ``[a] State law is not
inconsistent with [EFTA] if the protection such law affords any
consumer is greater than the protection afforded by [EFTA].'' The
Bureau acknowledges that State laws may require additional disclosures
and obligations not required by this final rule, and agrees that
financial institutions and other persons involved in prepaid account
programs, including employers, should be aware of additional
obligations and restrictions under State law.
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. 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.\340\ 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.\341\
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\340\ Public Law 104-193, 110 Stat. 2105 (1996).
\341\ See, e.g., 62 FR 43467 (Aug. 14, 1997).
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The Bureau proposed 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 proposed to do with respect to payroll card accounts). The
Bureau sought general comment on whether it should subsume all
requirements for government benefit accounts into Sec. 1005.18, as
well. The majority of industry commenters who commented on this issue
supported maintaining a separate section for requirements specifically
applicable to government benefit accounts, arguing that government
benefit accounts had unique legal and functional characteristics that
warranted separate treatment. No commenter opposed maintaining a
separate section for government benefit cards. After considering the
comments and reading no reasons to the contrary, the Bureau is
maintaining the government benefit account provisions in a separate
section (Sec. 1005.15) as proposed.
15(a) Government Agency Subject to Regulation
Existing Sec. 1005.15(a)(1) provides, inter alia, that a
government agency shall comply with all applicable requirements of EFTA
and Regulation E, except as provided in Sec. 1005.15. Existing Sec.
1005.15(a)(2), in turn, defines 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
(not including an account for distributing needs-tested benefits in a
program established under State or local law or administered by a State
or local agency). The Bureau proposed to adjust the final sentence of
Sec. 1005.15(a)(1) to reflect that proposed Sec. 1005.15 would
include substantive requirements, and not just exceptions to Regulation
E requirements. In addition, for ease of reference, the Bureau proposed
to define an account under Sec. 1005.15(a)(2) as a ``government
benefit account.''
As it stated in the proposal, the Bureau did not intend for the
proposed revisions to impact the existing scope of Sec. 1005.15(a).
Numerous commenters asked the Bureau to clarify that government benefit
accounts would continue to be covered under the existing requirements
of Regulation E, rather than under the new requirements applying to
prepaid accounts. One industry commenter, for example, argued that the
final rule should exempt from coverage all cards used to distribute
government benefits, regardless of whether such benefits are needs-
tested. Other industry commenters asked the Bureau to exempt cards used
to disburse certain types of benefits--for example, child support,
unemployment insurance, and workers' compensation benefits. Currently,
these commenters noted, the issuers of these cards administer the
programs at no cost to the government agency disbursing the benefit,
and at little cost to consumers. If saddled with the costs of complying
with the various requirements of the proposed rule, they argued, these
issuers may increase their fees or stop issuing government benefit
cards altogether.
Consumer group commenters, by contrast, advocated that the Bureau
expand the scope of the ``government benefit account'' definition to
include additional account types, including accounts that are expressly
exempted from Regulation E now. A significant number of consumer group
commenters argued that the Bureau should clarify that the exemption for
needs-tested government benefit programs established or administered
under State or local law does not apply to prepaid accounts. According
to these commenters, the rationales for the exemption were either
outdated or should not apply to prepaid cards. For example, one
consumer group commenter noted that the exemption was intended to
relieve regulatory burden for State and local governments, whereas the
vast majority of government benefit accounts today are administered by
financial institutions that are well-equipped to handle Regulation E
compliance. Commenters argued additionally that the recipients of
needs-tested benefits are, by definition, the neediest of all prepaid
consumers, and thus should be entitled to the full protections of the
Bureau's final rule governing prepaid accounts.
The Bureau has considered the comments but believes that changes to
the scope of the government benefit account definition are not
warranted at this time. As discussed above, the Bureau did not intend
its proposed changes to the definition of government benefit account to
affect the scope of Sec. 1005.15's coverage, nor did it contemplate or
seek comment on whether or how it should narrow or expand the scope of
the definition in the final rule. The Bureau understands that the
existing scope of the definition, which has been in place since 1997,
is well-established and forms the basis of
[[Page 83996]]
current industry, government, and consumer practices, and it is not
persuaded that the policy rationales presented by the commenters
warrant unsettling the status quo with respect to the scope of coverage
for government benefit accounts. The Bureau likewise declines to exempt
government benefit accounts from the new requirements of this final
rule, as some industry commenters requested. As detailed in the
following sections, the Bureau believes that this final rule's
revisions to existing government benefit account requirements, such as
the requirements for pre-acquisition disclosures and enhanced access to
account information, will substantially benefit consumers by providing
them with a full, accurate, and timely disclosure of all of their
account's terms and fees, and by helping them gain a more complete
picture of their account activity. Accordingly, the Bureau is adopting
the revisions to Sec. 1005.15(a) as proposed.
15(b) Issuance of Access Devices
The Bureau did not propose to modify Sec. 1005.15(b). Accordingly,
the Bureau is finalizing that provision unchanged.
15(c) Pre-Acquisition Disclosure Requirements
The Bureau's Proposal
The Bureau proposed new disclosure requirements for government
benefit accounts that would be provided before a consumer acquired a
government benefit account. The requirements in proposed Sec.
1005.15(c) would have been in addition to the initial disclosure
requirements in existing Sec. 1005.7(b) and corresponded to the
requirements in proposed Sec. 1005.18(b) for prepaid accounts
generally.\342\ EFTA section 905(a) sets forth disclosure requirements
for accounts subject to the Act.\343\ In addition to these disclosures,
the Bureau proposed to use its authority under EFTA sections 904(a) and
(c), and 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 Sec. 1005.18(b)(1)(i) below for
prepaid accounts, the Bureau believed that adjustment of the timing
requirement was 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 would have assisted consumers' understanding of the
terms and conditions of their government benefit accounts.
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\342\ The Bureau also proposed, 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 in the
section-by-section analysis of Sec. 1005.15(f)(1) below. See also
Sec. 1005.18(f)(1) (finalizing the same requirement for prepaid
accounts).
\343\ 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).
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The Bureau proposed new Sec. 1005.15(c) to extend to government
benefit accounts the same pre-acquisition disclosure requirements the
Bureau proposed for prepaid accounts, as discussed in detail in the
section-by-section analysis of Sec. 1005.18(b) below. Specifically,
proposed Sec. 1005.15(c)(1) would have stated that before a consumer
acquired a government benefit account, a government agency must 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 new comment 10(e)(2)-2)), the Bureau proposed that a
notice be provided at the top of the short form disclosure to highlight
for consumers that they were not required to accept the government
benefit account. As it noted in the proposal, the Bureau believed it
was important for consumers to realize they had the option of not
accepting a government benefit account before they acquired the
account, and that receiving such notice at the top of the short form
would help to ensure consumers were aware of this right. To that end,
proposed Sec. 1005.15(c)(2) would have stated that before a consumer
acquired a government benefit account, the agency must provide a
statement pursuant to proposed Sec. 1005.18(b)(2)(i)(A) that the
consumer did not have to accept the government benefit account and that
the consumer could 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).
Proposed comment 15(c)-1 would have explained that proposed Model
Form A-10(a) contained a model form for the pre-acquisition short form
disclosure requirements for government benefit accounts pursuant to
proposed Sec. 1005.15(c), and that government agencies could use
Sample Form A-10(e) to comply with the pre-acquisition long form
disclosure requirements of proposed Sec. 1005.15(c)(1). Proposed
comment 15(c)-2 would have reiterated that proposed Sec.
1005.18(b)(1)(i) generally required delivery of both the short form and
long form disclosures before a consumer acquired a prepaid account, and
provided, in comment 15(c)-2.i, an example illustrating when a consumer
received disclosures before acquisition of an account for purposes of
proposed Sec. 1005.15(c)(1). Proposed comment 15(c)-3 would have
explained that the disclosures and notice required by proposed Sec.
1005.15(c)(1) and (2) could be given in the same process or appointment
during which the consumer acquired or agreed to acquire a government
benefit account. When a consumer received benefits eligibility
information and signed up or enrolled to receive benefits during the
same process or appointment, a government agency that gave the
disclosures and notice required by proposed Sec. 1005.15(c)(1) and (2)
before issuing a government benefit account would have complied with
the timing requirements of proposed Sec. 1005.15(c).
Comments Received
Several industry and government commenters objected to the
wholesale application of the proposed pre-acquisition disclosures to
government benefit accounts. Specifically, several trade associations,
a program manager for government benefit accounts, and two State
government agencies urged the Bureau to exempt government benefit
accounts from the proposed disclosure regime altogether, or to exempt
them from the requirement to provide the short form disclosure. These
commenters argued that the timing requirements proposed by the Bureau
were too difficult to implement and unnecessary, since consumers could
not in fact shop for alternative government benefit cards. One State
government agency commenter argued that the application of the proposal
to its program could necessitate revisions to its vendor contracts. In
addition, commenters argued that most of the information that would be
required by the proposed disclosures is already disclosed to consumers
of government benefit accounts in the initial disclosures required by
existing Sec. 1005.7(b)(5) or would be disclosed via the proposed long
form disclosure. Receiving duplicative information in the short form
and long form disclosures, these commenters asserted, would lead to
consumer confusion and information overload.
Other industry and government commenters did not object to the
general application of the pre-acquisition disclosure requirements to
[[Page 83997]]
government benefit accounts, but urged the Bureau to modify the
requirements to better suit the government benefit account context. For
example, several industry trade associations, a law firm writing on
behalf of a coalition of prepaid issuers, a program manager for
government benefit card programs, and State government agencies argued
that consumers would be confused if they saw certain fees listed on the
government benefit account disclosures that did not in fact apply to
their government benefit account program. These commenters urged the
Bureau to allow agencies and financial institutions to omit such fees
rather than disclose them with a corresponding ``N/A'' or ``$0,'' as
required under proposed Sec. 1005.18(b)(2)(i) and comment 18(b)(2)(i)-
1. Likewise, certain commenters objected to the proposed requirement
that the disclosures for government benefit account programs disclose
the maximum amount that could be charged for each fee, since such a
disclosure would in some cases misinform consumers as to the actual fee
charged in connection with their account.
The program manager commenter and a State government agency
commenter argued that government benefit accounts should be exempt from
the proposed incidence-based fee disclosure requirements. They argued
that the calculation required by proposed Sec. 1005.18(b)(2)(i)(B)(8)
would be too difficult to complete for government benefit accounts,
especially since it was unclear whether the calculation must include
every distinct program the issuer offers (of which there could be
dozens), or only different types of programs. Oftentimes, the
commenters noted, issuers offer only one type of program, but that
program is customized for individual government agency clients. The
commenters argued in addition that government benefit accounts should
be exempted from the segregation requirement in proposed Sec.
1005.18(b)(4), so that the short form disclosure accompanying them can
include additional information about how consumers can use their
accounts with minimal fee charges.
A large number of commenters, including payment networks, issuing
banks, program managers, industry trade associations, a member of
Congress, and several government agencies, urged the Bureau to revise
the language of the notice requirement in proposed Sec. 1005.15(c)(2)
to inform a consumer that he or she was not required to accept the
government benefit account. They argued that the proposed language was
overly negative in tone and would dissuade consumers from choosing
prepaid accounts by giving them the impression that prepaid products
were unsafe or less preferable than other payment options. A program
manager for government benefit accounts and a State government agency
also urged the Bureau to remove the requirement that the banner notice
for government benefit accounts include a sentence encouraging
consumers to ``ask about other ways to get'' their payments. These
commenters argued that this language would lead consumers to contact
the government agency or their individual caseworkers to get
information about the prepaid account program. Such outreach by
consumers would place a further burden on already strained resources
without aiding consumers, since agencies or caseworkers were unlikely
to have the information the consumer is seeking. Consumer group
commenters also asked the Bureau to revise the notice language to
include information about what alternative payment methods the consumer
could choose, arguing that the onus should not be on the consumer to
seek out information about what other payment options are available.
The Bureau also received numerous comments, from both industry and
consumer groups, regarding the timing requirements of the pre-
acquisition disclosures and their application in the government benefit
context. As stated above, the Bureau proposed comments 15(c)-2 and -3
to clarify when a consumer enrolling to receive government benefits via
a prepaid account received the disclosures in compliance with the
timing requirements of Sec. 1005.18(b)(1)(i). An industry trade
association, two issuing banks, a program manager for government
benefit accounts, and a State government agency, argued that the
proposed comments did not provide sufficient clarity. Specifically,
they were concerned that proposed comment 15(c)-2.i suggested that
``acquisition'' in the government benefit context meant the consumer's
physical acquisition of the card. According to these commenters,
entities charged with administering government benefit account programs
often distribute inactive government benefit cards to consumers at the
same time as they distribute accompanying disclosures and other
paperwork. The commenters were concerned that, as proposed, the
commentary would disrupt current practices and place additional
implementation burdens on government agencies. Further, they argued
that the practice of providing consumers with an inactive card does not
harm consumers, since consumers do not accrue any fees or undertake any
obligations until the card is activated. Instead, the industry and
government commenters urged the Bureau to clarify in revised commentary
that acquisition for purposes of government benefit accounts was the
point at which the consumer agreed or elected to be paid via a
government benefit card. One trade association argued instead that the
Bureau should define acquisition in this context as the point at which
the consumer activates the government benefit account.
Several consumer group commenters agreed that the Bureau should
provide greater clarity regarding what it meant to ``acquire'' a
government benefit account, but argued that the point of acquisition
should be defined as earlier in the enrollment process. Two consumer
groups specified further that the disclosures should be provided before
the consumer acquired the physical (if un-activated) card.
Finally, an industry trade association and an issuing bank argued
that the Bureau should exempt government benefit accounts from the
requirement in proposed Sec. 1005.18(b)(2)(i)(B)(12) that the short
form disclosure include a statement communicating to the consumer that
a prepaid account must register with a financial institution or service
provider in order for the funds loaded onto it to be protected. As
stated in the proposal, the Bureau believed this disclosure was
necessary because many consumer protections set forth in the proposal
would not have taken effect until the consumer registered the account.
The Bureau acknowledged, however, that the disclosure would be less
useful for government benefit account recipients, since consumers have
to register with the agency in any event in order to receive their
benefits. Commenters noted in addition that the notice was not
necessary for government benefit accounts because, as discussed in
greater detail in the section-by-section analysis of Sec.
1005.18(e)(3) below, government agencies are required to provide error
resolution and limited liability protections to government benefit
account consumers regardless of whether those consumers have registered
their accounts.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing the
general requirement in Sec. 1005.15(c) that government agencies comply
with the pre-acquisition disclosure requirements in final Sec.
1005.18(b), with a number of revisions, as explained below. The Bureau
is finalizing this provision
[[Page 83998]]
pursuant to its authority under EFTA sections 904(a) and (c), and
905(a), and section 1032(a) of the Dodd-Frank Act. The Bureau believes
that extending the disclosure requirements in Sec. 1005.18(b) 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, by assisting consumers'
understanding of the terms and conditions of their government benefit
accounts.
Largely similar to proposed Sec. 1005.15(c), final Sec.
1005.15(c)(1) states 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 Sec. 1005.18(b). As discussed in more detail below, the
Bureau is adopting new Sec. 1005.15(c)(2)(i) and (ii), which largely
mirror final Sec. 1005.18(b)(2)(i)(xiv)(A) and (B). Section
1005.15(c)(2)(i) reflects several changes to the proposed requirement
to inform consumers that they are not required to accept the government
benefit account, while Sec. 1005.15(c)(2)(ii) provides that agencies
may include additional information about how consumers can access their
government benefit account funds or balance information for free or for
a reduced fee. The Bureau is also adopting new Sec. 1005.15(c)(3) to
address the form of the pre-acquisition disclosures required for
government benefit accounts pursuant to final Sec. 1005.15(c). Second,
the Bureau is not finalizing proposed comment 15(c)-1; accordingly, it
has renumbered proposed comments 15(c)-2 and -3 as final comments
15(c)-1 and -2, respectively. Third, the Bureau is adopting new comment
15(c)-3. Finally, the Bureau is finalizing certain revisions to those
comments to provide further guidance on when a consumer acquires a
government benefit account for purposes of the pre-acquisition
disclosure requirements.
Although the Bureau understands that government benefit accounts
are distinguishable from other prepaid accounts in several material
respects, including the way they are distributed and marketed and the
fees associated with them, the Bureau declines to exempt government
benefit accounts from the general requirement to provide both a short
form and long form disclosure before the consumer acquires the account.
The Bureau notes that, pursuant to final Sec. 1005.18(h) and as
discussed in the section-by-section analysis thereof, agencies are not
required to pull and replace prepaid account packaging materials with
non-compliant disclosures that were produced in the normal course of
business prior to October 1, 2017.
The Bureau continues to believe that consumers who use these
accounts will benefit from the ability to review a set of uniform
disclosures regarding their accounts. First, the disclosures provide a
clear and conspicuous disclosure of consumers' right under Sec.
1005.10(e)(2) to receive their payment in some other form. The Bureau
believes that this important disclosure may be less conspicuous, and
therefore potentially less effective, if it were disclosed on the long
form disclosure, since the long form disclosure contains far more
information in a format that is less hierarchical than the short form
disclosure. Second, the new disclosures highlight information that,
according to the Bureau's consumer testing, was the most important
information consumers needed to inform their decision-making with
respect to their preferred payment method.\344\ Third, although
consumers may not be able to shop for alternative government benefit
cards, the short form disclosure facilitates comparison shopping
between the government benefit card and, for example, the consumer's
own prepaid card or a prepaid card sold at retail. With respect to the
comments that the pre-acquisition timing requirements would be
particularly difficult to implement in the government benefit context,
the Bureau notes that the revisions it is making to proposed comment
15(c)-2 (re-numbered as comment 15(c)-1) in the final rule, as
discussed below, will provide government agencies and financial
institutions with more flexibility to design efficient and practical
enrollment procedures that comply with Sec. 1005.15(c).
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\344\ See ICF Report I at 7.
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The Bureau likewise disagrees with industry commenters' suggestion
that the statement regarding benefit payment options is negative and
implies that government benefit accounts are inferior products, thereby
discouraging consumers from using them. As discussed in greater detail
in the section-by-section analysis of Sec. 1005.18(b)(2)(xiv) below,
the Bureau examined this issue in its post-proposal consumer testing
and found that participants did not construe the language negatively,
confirming the Bureau's original understanding from the proposal.\345\
Nonetheless, the Bureau has decided to include in the final rule an
alternative version of the statement language which the Bureau believes
would address commenters' concerns. Moreover, unlike the proposed
statement, this added alternative has the advantage of providing
concrete options to consumers regarding other ways to receive their
funds. The Bureau is thus finalizing Sec. 1005.15(c)(2)(i), which
mirrors final Sec. 1005.18(b)(2)(xiv)(A), and provides that as part of
its short form pre-acquisition disclosures, the agency must provide a
statement that the consumer does not have to accept the government
benefit account and directing the consumer to ask about other ways to
receive their benefit payments from the agency instead of receiving
them via the account, using the following clause or a substantially
similar clause: ``You do not have to accept this benefits card. Ask
about other ways to receive your benefits.'' Alternatively, an agency
may provide a statement that the consumer has several options to
receive benefit payments, followed by a list of the options available
to the consumer, and directing the consumer to indicate which option
the consumer chooses using the following clause or a substantially
similar clause: ``You have several options to receive your payments:
[list of options available to the consumer]; or this benefits card.
Tell the benefits office which option you choose.'' Final Sec.
1005.15(c)(2)(i) also provides that this statement must be located
above the information required by final Sec. 1005.18(b)(2)(i) through
(iv). This statement must appear in a minimum type size of eight points
(or 11 pixels) and appear in no larger a type size than what is used
for the fee headings required by final Sec. 1005.18(b)(2)(i) through
(iv).
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\345\ See ICF Report II at 16-17 and 27.
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To address comments arguing that agencies should be permitted to
include additional information on the short form disclosure for
government benefit accounts about how consumers can use their accounts
with minimal fee charges, the Bureau is adopting new Sec.
1005.15(c)(2)(ii), which states that an agency may, but is not required
to, include a statement in one additional line of text in the short
form disclosure directing the consumer to a particular location outside
the short form disclosure for information on ways the consumer may
access government benefit account funds and balance information for
free or for a reduced fee. This statement must be located directly
below any statements disclosed pursuant to final Sec. 1005.18(b)(3)(i)
and (ii), or, if no such statements are disclosed, above the statement
required by final Sec. 1005.18(b)(2)(x). This
[[Page 83999]]
statement must appear in the same type size used to disclose variable
fee information pursuant to Sec. 1005.18(b)(3)(i) and (ii), or, if
none, the same type size used for the information required by Sec.
1005.18(b)(2)(x) through (xiii).
To provide greater clarity and additional guidance on the specific
form and formatting requirements that must apply to government benefit
account disclosures, the Bureau is moving the reference to Model Form
A-10(a) to new Sec. 1005.15(c)(3). New Sec. 1005.15(c)(3) mirrors
several form and formatting requirements in final Sec. 1005.18(b).
Specifically, it states that when a short form disclosure required by
final Sec. 1005.15(c) is provided in writing or electronically, the
information required by final Sec. 1005.18(b)(2)(i) through (ix) shall
be provided in the form of a table. Except as provided in final Sec.
1005.18(b)(6)(iii)(B), the short form disclosure required by final
Sec. 1005.18(b)(2) shall be provided in a form substantially similar
to final Model Form A-10(a). Final Sample Form A-10(f) provides an
example of the long form disclosure required by final Sec.
1005.18(b)(4) when the agency does not offer multiple service plans.
Because the Bureau has added format requirements for government
benefit account disclosures in new Sec. 1005.15(c)(3), proposed
comment 15(c)-1 is now superfluous; accordingly, the Bureau is not
finalizing that comment. The Bureau has therefore renumbered proposed
comments 15(c)-2 and -3 as final comments 15(c)-1 and -2, respectively.
With respect to comments regarding the timing of acquisition
requirements in Sec. 1005.15(c), the Bureau agrees that the final rule
should provide greater clarity with respect to when a consumer acquires
a government benefit account. The Bureau believes that, in providing
such clarity, the rule should strike a balance between avoiding
significant disruption of current benefit enrollment practices and
ensuring that consumers receive the new disclosures early enough in the
enrollment process to inform their decision of how to receive their
payments, thereby furthering the goals of the compulsory use provision
in Sec. 1005.10(e)(2). Accordingly, the Bureau declines to define
acquisition as, for example, the point at which the consumer obtains
physical possession of a government benefit card, or the point at which
a consumer signs an enrollment form, because such a rule could be
overly prescriptive and could disrupt current practices and delay
benefit disbursement. On the other hand, the Bureau also declines to
define acquisition as the point at which a consumer receives his or her
first payment on the government benefit card, because it believes that
by the time a consumer receives funds via a particular payment method,
he or she is less likely to consider alternative options for how to get
paid, thereby reducing the value of the pre-acquisition disclosures.
Furthermore, the Bureau notes that, pursuant to the compulsory use
prohibition in Sec. 1005.10(e)(2), discussed above, consumers cannot
be required to receive government benefits by direct deposit to any
particular institutions, including a specific prepaid account. In other
words, consumers who have the option to receive their government
benefits via a government benefit account must be provided with at
least one alternative payment method. The Bureau believes that,
particularly in such scenarios, the proposed disclosures should be
provided in time to help a consumer decide between the alternative
payment methods available to him or her.
Accordingly, and in consideration of the comments above, the Bureau
is finalizing revisions to proposed comments 15(c)-2 and -3 (re-
numbered as comments 15(c)-1 and -2, respectively) to clarify that a
consumer acquires a government benefit account when he or she chooses
to receive benefits via the government benefit account. Specifically,
final comment 15(c)-1 has been revised to state that, for purposes of
final Sec. 1005.15(c), a consumer is deemed to have received the
disclosures required by Sec. 1005.18(b) prior to acquisition when the
consumer receives the disclosures before choosing to receive benefits
via the government benefit account. The Bureau recognizes that
consumers may indicate their choice to be paid via a government benefit
card in various ways, including, for example, by signing or filling out
an enrollment form or by calling the financial institution to activate
the card. The final rule does not specify what actions manifest a
consumer's choice regarding how to get paid.
The Bureau is finalizing the first example in comment 15(c)-1.i
generally as proposed. The second example in final comment 15(c)-1.i
(which as proposed would have stated that the short form and long form
disclosures are provided post-acquisition if a consumer receives them
after receiving the government benefit card) has been revised to state
that if the consumer does not receive the disclosures required by final
Sec. 1005.18(b) to review until the time at which the consumer
received the first benefit payment deposited into the government
benefit account, these disclosures were provided to the consumer post-
acquisition, and were not provided in compliance with final Sec.
1005.15(c). Under the final rule, therefore, a government agency can
provide the short form and long form disclosures in the same package as
the physical prepaid card and still comply with the requirement in
final Sec. 1005.15(c) that the forms be provided prior to acquisition.
Likewise, a government agency can provide the pre-acquisition
disclosures at the same appointment during which the consumer acquires
the government benefit account so long as the disclosures are provided
before the consumer actually chooses to receive payments via the
account.
Final comment 15(c)-2 also reflects certain other technical
revisions for clarity and consistency with the above changes.
Specifically, this comment states that the disclosures and notice
required by final Sec. 1005.15(c) may be given in the same process or
appointment during which the consumer receives a government benefit
card. When a consumer receives benefits eligibility information and
enrolls to receive benefits during the same process or appointment, a
government agency that gives the disclosures and notice required by
final Sec. 1005.15(c) before the consumer chooses to receive the first
benefit payment on the card complies with the timing requirements of
final Sec. 1005.15(c).
The Bureau has added new comment 15(c)-3 to provide clarification
regarding the form and formatting requirements for government benefit
account disclosures. This comment explains that the requirements in
Sec. 1005.15(c) correspond to those for payroll card accounts set
forth in Sec. 1005.18(b). The comment also cross-references final
comments 18(b)(2)(xiv)(A)-1 and 18(b)(2)(xiv)(B)-1 for additional
guidance regarding the requirements set forth in final Sec.
1005.15(c)(2)(i) and (ii), respectively. The Bureau has also added new
comment 15(c)-4 to clarify the application of the requirement in Sec.
1005.18(b)(5) that the name of the financial institution be disclosed
outside the short form disclosure for government benefit accounts.
Pursuant to new comment 15(c)-4, the financial institution whose name
must be disclosed pursuant to the requirement in Sec. 1005.18(b)(5) is
the financial institution that directly holds the account or issues the
account's access device. Also pursuant to comment 15(c)-4, the
disclosure provided outside the short form may, but is not required
[[Page 84000]]
to, include the name of the government agency that established the
government benefit account.
Finally, the Bureau agrees with commenters that the notice
regarding registration of the prepaid account that would have been
required by proposed Sec. 1005.18(b)(2)(i)(B)(12) is likely not
necessary for government benefit accounts, as the registration process
is typically completed before the account is opened. As discussed in
the section-by-section analysis of Sec. 1005.18(b)(2)(xi) below, the
final rule does not require the statement regarding registration where
customer identification and verification occurs for all prepaid
accounts within the prepaid program before the account is opened.
15(d) Access to Account Information
15(d)(1) Periodic Statement Alternative
The Bureau's Proposal
Section 1005.9(b), which implements EFTA section 906(c), generally
requires a periodic statement for each monthly cycle in which an EFT
occurred or, if there are no such transfers, a periodic statement at
least quarterly.\346\ 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 EFT); 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.
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\346\ 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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The Bureau proposed to revise existing Sec. 1005.15(c), renumbered
as Sec. 1005.15(d)(1), which would have allowed 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. The Bureau believed that, 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), it was 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 Sec. 1005.18(c)(1) below.
Proposed Sec. 1005.15(d)(1) and (1)(i) would have stated that a
government agency need not furnish periodic statements required by
Sec. 1005.9(b) if the agency made 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 EFT). This language was 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, did not include the requirement to provide balance
information at a terminal. As discussed in the section-by-section
analysis of Sec. 1005.18(c)(1)(i) below, the Bureau sought 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, or whether, alternatively,
the requirement should be eliminated from Sec. 1005.15 given the other
proposed enhancements and for parity with proposed Sec. 1005.18.
Second, proposed Sec. 1005.15(d)(1)(ii) would have required
government agencies to provide an electronic history of the consumer's
account transactions, such as through a Web site, that covered at least
18 months preceding the date the consumer electronically accessed the
account. As noted above, the requirement to provide an electronic
history of a consumer's account transactions was new for government
benefit accounts. The Bureau did not believe that the proposed
requirement would have imposed significant burden on government
agencies, as the Bureau believed that many government benefit account
programs already provided electronic access to account information.
Third, proposed Sec. 1005.15(d)(1)(iii) would have required
government agencies to provide a written history of the consumer's
account transactions promptly in response to an oral or written request
and that covered at least 18 months preceding the date the agency
received the consumer's request. This provision was similar to existing
Sec. 1005.15(c)(2), but was 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.
Comments Received
A consumer group commenter supported the Bureau's decision to apply
the requirement to provide consumers access to a longer account history
period to government agencies. A think tank commenter, on the other
hand, objected to the decision, arguing that it would be difficult for
government agencies to manage beneficiaries' account histories for 18
months. In addition, an industry trade association and an issuing bank
opposed the Bureau's decision to maintain the requirement that
government agencies wishing to take advantage of the periodic statement
alternative provide consumers' account balance information at a
terminal, arguing that terminal access was outdated and has been
replaced by text or online account access. Two consumer groups, by
contrast, supported the continued requirement for balance information
at a terminal for government benefit accounts and urged the Bureau to
expand the requirement to all prepaid accounts. They argued that ATMs
are easy to use and that all consumers have access to ATM terminals,
while not all consumers may have access to online account information.
The Final Rule
For the reasons set forth herein, the Bureau is adopting Sec.
1005.15(d)(1) and comment 15(d)-1 largely as proposed, with minor
revisions for consistency with final Sec. 1005.18(c). 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. As discussed in
the section-by-section analysis of Sec. 1005.18(c)(1) below, the
Bureau has modified proposed Sec. 1005.18(c)(1) to require 12 months
of electronic account transaction history and 24 months of
[[Page 84001]]
written account transaction history instead of 18 months for both as
proposed. The Bureau has therefore modified Sec. 1005.15(d)(1)
accordingly. The Bureau believes that this revision strikes the
appropriate balance between the burden imposed on industry overall
while, in conjunction with final Sec. 1005.18(c)(1)(iii) discussed
below, ensuring that additional transaction history will be available
for consumers who need it. Final comment 15(d)-1 cross-references final
comments 18(c)-1 through -3 and -5 through -9 for further guidance on
the access to account information requirements.
In response to the comment that the proposed 18-month access to
account information requirements should not be extended to government
benefit accounts, the Bureau is not convinced that there is a
significant difference between the burden these requirements place on
prepaid account issuers as financial institutions and the burden they
place on government agencies, since, as the Bureau noted in the
proposal, government benefit account programs are typically
administered by financial institutions pursuant to a contract between
the institution and the agency.\347\ With respect to the requirement
that government agencies continue to provide account balances at
terminal locations, the Bureau has considered the comments and is
adopting Sec. 1005.15(d)(1)(i) as proposed. The requirement is
unchanged from existing Sec. 1005.15(c)(1); recipients of government
benefits may have come to rely on the ATM as a source of account
information, and the Bureau does not see a need to remove this
provision from the final rule. Relatedly, the Bureau notes that ATMs
are still in wide use by consumers of various financial services
products, and as such, it disagrees with commenters who argued that
ATMs are an obsolete method of providing balance information to
consumers. Furthermore, the Bureau understands that recipients of
government benefits may be among the neediest consumers of prepaid
accounts, and as such, may be less likely to have access to a mobile
phone when they need it, such as prior to withdrawing money at the ATM.
Having access to their balance at an ATM could help consumers in this
scenario avoid costly fees. Finally, the Bureau notes that government
agencies and financial institutions remain free under the final rule to
recommend or encourage consumers to use particular modes of accessing
their account balances.
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\347\ 79 FR 77102, 77141 (Dec. 23, 2014). As it noted in the
proposal, the Bureau has found that all the government benefit card
programs included in its Study of Prepaid Account Agreements already
provide online access to account information (see Study of Prepaid
Account Agreements at 18 tbl.5), and, in most cases, electronic
periodic statements as well (see id. at 20 tbl.7).
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15(d)(2) Additional Access to Account Information Requirements
The Bureau proposed Sec. 1005.15(d)(2), which would have required
that a government agency comply with the account information
requirements 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)
would have required that the electronic and written histories in the
periodic statement alternative 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 have required 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 have required 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 have referred to proposed comments 18(c)-1 through -5 for
guidance on access to account information requirements.
The Bureau did not receive any comments specifically addressing
Sec. 1005.15(d)(2)'s application of the account information
requirements in Sec. 1005.18(c)(2) through (4) to government benefit
accounts. Accordingly, the Bureau is finalizing Sec. 1005.15(d)(2) as
proposed with revised cross-references to reflect changes in the
numbering of provisions within final Sec. 1005.18(c). 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
that 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 summary
totals of both monthly and annual fees. The Bureau believes that these
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 section 1032(a) of the Dodd-
Frank Act because it believes that disclosure of all fees and account
activity summaries will 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.
The Bureau notes, however, that it is finalizing certain revisions
to proposed Sec. 1005.18(c)(2) through (4), renumbered as final Sec.
1005.18(c)(3) through (5). Most significantly, the Bureau has removed
the requirement that financial institutions provide summary totals of
all deposits to and debits from a consumer's prepaid account from the
final rule. The specific revisions and their respective rationales are
discussed in the section-by-section analyses of Sec. 1005.18(c)(3)
through (5) below.
15(e) Modified Disclosure, Limitations on Liability, and Error
Resolution Requirements
Because the Bureau proposed to modify the periodic statement
alternative for government benefit accounts in proposed Sec.
1005.15(d)(1), the Bureau proposed to modify the requirements in
existing Sec. 1005.15(d), renumbered as 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. For the reasons set forth below, the Bureau is finalizing
the various provisions of Sec. 1005.15(e) as proposed. As specified in
final Sec. 1005.15(e), these requirements apply to government agencies
that provide access to account information under the periodic statement
alternative in final Sec. 1005.15(d)(1). The Bureau has also revised
the heading for final Sec. 1005.15(e) to reflect that the section
contains modified requirements regarding limitations on liability and
error resolution, as well as disclosures.
15(e)(1) Initial Disclosures
15(e)(1)(i) Access to Account Information
Proposed Sec. 1005.15(e)(1)(i) would have required a government
agency to modify the disclosures required under Sec. 1005.7(b) by
disclosing a telephone number that the consumer could call to obtain
the account balance, the means by which the consumer could 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
[[Page 84002]]
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) could have been
made by providing a notice substantially similar to the notice
contained in proposed appendix A-5. The Bureau did not receive any
comments in response to this portion of the proposal. As such, it is
finalizing Sec. 1005.15(e)(1)(i) as proposed.
15(e)(1)(ii) Error Resolution
Mirroring existing Sec. 1005.15(d)(1)(iii), proposed Sec.
1005.15(e)(1)(ii) would have required a government agency to modify the
disclosures required under Sec. 1005.7(b) by providing a notice
concerning error resolution that was substantially similar to the
notice contained in proposed appendix A-5, in place of the notice
required by Sec. 1005.7(b)(10). Those proposed modifications are
discussed below in the section-by-section analysis of appendix A-5. The
Bureau did not receive any comments on proposed Sec.
1005.15(e)(1)(ii); accordingly, the Bureau is adopting Sec.
1005.15(e)(1)(ii) as proposed.
15(e)(2) Annual Error Resolution Notice
Mirroring existing Sec. 1005.15(d)(2), proposed Sec.
1005.15(e)(2) would have required that an agency provide an annual
notice concerning error resolution that was substantially similar to
the notice contained in proposed appendix A-5, in place of the notice
required by Sec. 1005.8(b). The Bureau proposed to add that,
alternatively, the agency could 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 proposed 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. The Bureau
sought comment, however, on whether to continue to require annual error
resolution notices for government benefit accounts in certain
circumstances, such as when a consumer has not accessed an electronic
history or requested a written history in an entire calendar year.
One consumer group commenter urged the Bureau to maintain the
requirement that government agencies send annual error resolution
notices in connection with government benefit accounts in all
instances, regardless of whether the consumer had recently accessed the
account. Several industry commenters, including a program manager, an
issuing bank, and a trade association, supported the Bureau's decision
to allow government agencies to provide an abbreviated error resolution
notice on each electronic or written history in lieu of the annual
notice. These commenters argued that providing an annual notice is
costly, that many such notices get returned to the sender without being
opened, and that consumers with dormant accounts who receive these
notices may be confused and led to believe that their government
benefits were being affected in some way.
The Bureau has considered the above comments. To further the
purposes of EFTA to provide a framework to establish the rights,
liabilities, and responsibilities of prepaid account users and pursuant
to its authority under EFTA section 904(c) to adopt an adjustment to
the error resolution notice requirement of EFTA section 905(a)(7), the
Bureau is finalizing the annual error resolution notice requirement in
Sec. 1005.15(e)(2) as proposed. As stated in the section-by-section
analysis of Sec. 1005.18(d) below, the Bureau continues to believe
that its regime for error resolution notices strikes an appropriate
balance by providing consumers with enough information to know about
and exercise their rights without overwhelming them with more
information than they can process or put to use.
15(e)(3) Modified Limitations on Liability Requirements
For accounts under Regulation E generally, Sec. 1005.6(a) provides
that a consumer may be held liable for an unauthorized EFT 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.\348\ 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.\349\ 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.\350\ Section 1005.6(b)(3) provides, in part,
that a consumer must report an unauthorized EFT 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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\348\ 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
EFTs; 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).
\349\ Sec. 1005.6(b)(1).
\350\ Sec. 1005.6(b)(2).
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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), 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). Proposed Sec. 1005.15(e)(3) would have modified 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 have provided that
for purposes of existing Sec. 1005.6(b)(3), the 60-day period for
reporting any unauthorized transfer began on the earlier of the date
the consumer electronically accessed the consumer's account under
proposed Sec. 1005.15(d)(1)(ii), provided that the electronic history
made available to the consumer reflected the unauthorized transfer, or
the date the agency sent 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 was first
reflected.
Proposed Sec. 1005.15(e)(3)(ii), which mirrored existing Sec.
1005.18(c)(3)(ii) and proposed Sec. 1005.18(e)(1)(ii), would have
provided that an agency could 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 did not receive any comments on this portion of the
proposal. To further the purposes of
[[Page 84003]]
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 under EFTA 904(c) to modify the timing
requirements of EFTA 909(a). As such, it is finalizing Sec.
1005.15(e)(3)(i) and (ii) as proposed. The Bureau did receive comments
on Sec. 1005.18(e)(1)(ii), which are discussed in the section-by-
section analysis of that provision below. The Bureau notes that nothing
in this final rule 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
Section 1005.11(c)(1) and (3)(i) requires that a financial
institution, after receiving notice that a consumer believes an EFT
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 10 business days (20 business days
if the EFT 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.\351\ 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.
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\351\ See Sec. 1005.11(c)(1).
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Existing Sec. 1005.11(c)(2) provides that if the financial
institution is unable to complete the investigation within 10 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 10 business days of receiving the error notice.\352\ 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.\353\ 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).\354\
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\352\ The financial institution has 90 days (instead of 45) if
the claimed unauthorized EFT 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).
\353\ See Sec. 1005.11(c)(2)(i)(A).
\354\ See Sec. 1005.11(d)(2).
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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 noted in the proposal that this provision only modified the 60-
day period for consumers to report an error and did not alter any other
provision of Sec. 1005.11.
Proposed Sec. 1005.15(e)(4) would have modified 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 have provided 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 accessed
the consumer's account under proposed Sec. 1005.15(d)(1)(ii), provided
that the electronic history made available to the consumer reflected
the alleged error, or 60 days after the date the agency sent a written
history of the consumer's account transactions requested by the
consumer under proposed Sec. 1005.15(d)(1)(iii) in which the alleged
error was first reflected.
Proposed Sec. 1005.15(e)(4)(ii) would have provide that in lieu of
following the procedures in proposed Sec. 1005.15(e)(4)(i), an agency
complied with the requirements for resolving errors in existing Sec.
1005.11 if it investigated any oral or written notice of an error from
the consumer that was 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 have cross-referenced proposed
comments 18(d)-1 through -3 for guidance on modified limited liability
and error resolution requirements.
The Bureau did not receive any comments with respect to proposed
Sec. 1005.15(e)(4) or comment 15(e)-1. Accordingly, it is finalizing
those provisions as proposed. The Bureau is finalizing the proposed
provisions 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, and
because it 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).
As explained in greater detail in the section-by-section analysis
of Sec. 1005.18(e) below, the Bureau has revised its proposed error
resolution requirements for prepaid accounts generally in several key
respects in the final rule. Specifically, under the final rule,
financial institutions that have not completed their consumer
identification and verification process with respect to a particular
account will still have to investigate and resolve errors reported with
respect to that account. However, pursuant to new Sec. 1005.18(e)(3),
financial institutions that have not completed the consumer
identification and verification process, that completed the process but
were not able to verify the account holder's identity, or that do not
have a process by which consumers can register their accounts, can take
up to the maximum length of time permitted under Sec. 1005.11(c)(2)(i)
or (3)(ii), as applicable, to investigate and resolve the error without
having to provisionally credit the consumer's account, as required by
Sec. 1005.11(c)(2).
The exclusion set forth in final Sec. 1005.18(e)(3) from certain
aspects of existing Sec. 1005.11(c)(2) does not apply to government
benefit accounts. This is to retain the current application of these
rules to government benefit accounts. As the Bureau explained in the
proposal, the Bureau understands that the consumer identifying
information associated with a government benefit account is collected
and verified by the government agency, another financial institution,
or a service provider prior to the account's distribution. Therefore,
under the final rule, and as discussed in greater detail in the
section-by-section analysis of Sec. 1005.18(e)(3) below, government
agencies and other financial institutions must provide full error
resolution protections for government benefit accounts, including
provisional credit for accounts when investigations of errors take
longer than 10 business days, regardless of whether the
[[Page 84004]]
government benefit account had been registered or the consumer's
identity had been verified.
15(f) Initial Disclosure of Fees and Other Information
The Bureau proposed Sec. 1005.15(f) to provide that for government
benefit accounts, a government agency would have to 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). EFTA section 905(a)(4), as implemented by
existing Sec. 1005.7(b)(5), requires financial institutions to
disclose to consumers, as part of an account's terms and conditions,
any charges for EFTs or for the right to make such transfers. The
Bureau believed that for prepaid accounts (including government benefit
accounts), it was important that the initial account disclosures
provided to consumers listed all fees that may be imposed in connection
with the account, not just those fees related to EFTs.
Specifically, the Bureau proposed Sec. 1005.15(f), which would
have cross-referenced proposed Sec. 1005.18(f) to require that, in
addition to disclosing any fees imposed by a government agency for EFTs
or the right to make such transfers, the agency would have also had to
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 would have had to disclose the
amount of the fee, the conditions, if any, under which the fee may have
been imposed, waived, or reduced, and, to the extent known, whether any
third-party fees would have been applied. These disclosures pursuant to
proposed Sec. Sec. 1005.15(f) and 1005.18(f) would have had to include
all of the information required to be disclosed pursuant to proposed
Sec. 1005.18(b)(2)(ii)(B) and would have needed to be provided in a
form substantially similar to proposed Sample Form A-10(e). Further,
for consistency purposes and to facilitate consumer understanding of a
government benefit account's terms, the fee disclosure provided
pursuant to Sec. 1005.7(b)(5), as modified by proposed Sec.
1005.18(f), would have to be in the same format of the long form
disclosure requirement of proposed Sec. 1005.18(b)(2)(ii)(A).
The Bureau did not receive any comments regarding this portion of
the proposal. 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 finalize an
adjustment of the requirement implemented in existing Sec.
1005.7(b)(5) for government benefit accounts. Accordingly, it is
adopting Sec. 1005.15(f) largely as proposed to cross-reference the
requirements set forth in final Sec. 1005.18(f), with revisions for
parity with the final text of Sec. 1005.18(f).
The Bureau notes that it is also finalizing certain revisions to
proposed Sec. 1005.18(f). The specific revisions and their respective
rationales are discussed in detail the section-by-section analyses of
Sec. 1005.18(f) and (f)(3) below. In summary, the Bureau has revised
proposed Sec. 1005.18(f), renumbered as Sec. 1005.18(f)(1), to
require that a financial institution include, as part of the initial
disclosures given pursuant to Sec. 1005.7, all of the information
required to be disclosed in its pre-acquisition long form disclosure
pursuant to final Sec. 1005.18(b). The Bureau has added new Sec.
1005.18(f)(2) to make clear that a financial institution must provide a
change-in-terms notice, pursuant to Sec. 1005.8(a), for any change in
a term or condition required to be disclosed under Sec. Sec. 1005.7 or
1005.18(f)(1). Finally, Sec. 1005.18(f)(3) sets forth the required
disclosures that must appear on prepaid account access devices (in the
proposal, these requirements would have been set forth in proposed
Sec. 1005.18(b)(7)). To clarify the application of the requirement in
Sec. 1005.18(f)(3) that the name, Web site URL, and telephone number
of the financial institution be disclosed on the prepaid account access
device to government benefit accounts, the Bureau is adding new comment
15(f)-1. Pursuant to new comment 15(f)-1, the financial institution
whose name must be disclosed pursuant to the requirement in Sec.
1005.18(f)(3) is the financial institution that directly holds the
account or issues the account's access device.
15(g) Government Benefit Accounts Accessible by Hybrid Prepaid-Credit
Cards
The Bureau proposed Sec. 1005.15(g), which would have required
that for credit plans linked to government benefit accounts, a
government agency would have to comply with prohibitions and
requirements applicable to prepaid accounts as set forth in proposed
Sec. 1005.18(g). The Bureau did not receive any comments regarding
this portion of the proposal, and is finalizing Sec. 1005.15(g)
largely as proposed with minor modifications to incorporate the term
hybrid prepaid-credit card that this final rule is adopting under new
Regulation Z Sec. 1026.61. The Bureau has made changes, however, to
certain of the underlying requirements in proposed Sec. 1005.18(g).
See the section-by-section analysis of Sec. 1005.18(g) below for
additional information on those requirements.
Section 1005.17 Requirements for Overdraft Services
17(a) Definition
The Bureau's Proposal
Existing Sec. 1005.17 sets forth requirements that financial
institutions must follow in order to provide an ``overdraft service''
to consumers related to consumers' accounts. Under existing Sec.
1005.17, financial institutions must provide consumers with a notice
describing 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.
Existing Sec. 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. Existing Sec.
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
existing Regulation Z Sec. 1026.3(d). In adopting the provisions in
what is now existing Sec. 1005.17, the Board indicated that these
methods of covering overdrafts were excluded because they require the
express agreement of the consumer.\355\
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\355\ 74 FR 59033, 59040 (Nov. 17, 2009).
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As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section, in the proposal, the Bureau declined to extend
the current regulatory scheme governing overdraft services on checking
accounts to prepaid accounts, and instead proposed to regulate these
types of services generally under Regulation Z (as well as
[[Page 84005]]
Regulation E's compulsory use provision). The proposal would have
amended existing 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 have amended existing Sec.
1005.17(a)(1) to provide that the term ``overdraft service'' 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,'' under proposed Regulation Z Sec. 1026.12(a)(1) and proposed
comment 12(a)(1)-7, credit card plans in connection with prepaid
accounts would have required the express agreement of consumers in
that, under the proposal, such plans could be added to previously
issued prepaid accounts only upon a consumer's application or request.
In addition, under proposed Sec. 1005.18(g)(1) and proposed Regulation
Z Sec. 1026.12(h), a credit card account could not have been added to
a previously issued prepaid account until 30 days after the prepaid
account has been registered.
In the proposal, the Bureau also noted that the opt-in provision in
existing Sec. 1005.17 would not have applied to credit accessed by a
prepaid card that would not have been a credit card under the proposal
because the card could have only accessed 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. Specifically,
existing 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 existing
Sec. 1005.17) that access an institution's overdraft service would
have been considered ``finance charges'' under the proposal. Thus,
under the proposal, 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 existing Sec. 1005.17) for
accessing the overdraft service, such that the opt-in provision in
existing Sec. 1005.17 would apply. Under the proposal, if a prepaid
card were charging any fees or charges for ATM or one-time ``debit
card'' transactions (as that term is used in existing Sec. 1005.17)
that accessed the overdraft service, the prepaid card would have been a
credit card under Regulation Z. In that case, the prepaid card would
not have been subject to the opt-in requirement in existing Sec.
1005.17, but would be subject to provisions of Regulation Z, as
discussed above.
Comments Received and the Final Rule
The Bureau did not receive specific comment on the proposed changes
to existing Sec. 1005.17(a)(1), other than those related to general
comments from industry not to cover overdraft plans offered on prepaid
accounts under Regulation Z and instead cover these overdraft plans
under Regulation E Sec. 1005.17. See the Overview of the Final Rule's
Amendments to Regulation Z section for a discussion of those comments.
As discussed in more detail below, the final rule moves the
language in proposed Sec. 1005.17(a)(1) that specifically would have
provided that credit plans accessed by prepaid cards that are credit
cards are exempt from the definition of ``overdraft service'' to new
Sec. 1005.17(a)(4) and revises it to be consistent with new Regulation
Z Sec. 1026.61. New Sec. 1005.17(a)(4) provides that a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in new Regulation Z Sec. 1026.61 is not a ``overdraft
service'' under final Sec. 1005.17(a).
In addition, as discussed in more detail below, consistent with the
proposal, new Sec. 1005.17(a)(4) also provides that credit extended
through a negative balance on the asset feature of a prepaid account
that meets the conditions of new Regulation Z Sec. 1026.61(a)(4) is
not an ``overdraft service'' under final Sec. 1005.17(a). As discussed
below, a prepaid card that accesses such credit is not a hybrid
prepaid-credit card under new Regulation Z Sec. 1026.61.
Covered separate credit features accessible by a hybrid prepaid-
credit card. Consistent with the proposal, the opt-in provisions in
final Sec. 1005.17 will not apply to the payment of overdrafts
pursuant to a credit feature that is accessible by a prepaid card that
is a credit card. The final rule moves the language in proposed Sec.
1005.17(a)(1) that specifically would have provided that credit plans
accessed by prepaid cards that are credit cards are exempt from the
definition of ``overdraft service'' to new Sec. 1005.17(a)(4) and
revises it to be consistent with new Regulation Z Sec. 1026.61. New
Sec. 1005.17(a)(4) provides that a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in new Regulation
Z Sec. 1026.61 is not a ``overdraft service'' under final Sec.
1005.17(a). This exception is consistent with existing Sec.
1005.17(a)(1) which exempts from the term ``overdraft service'' under
existing Sec. 1005.17(a) any payment of overdrafts pursuant to a line
of credit subject to Regulation Z Sec. 1026, including transfers from
a credit card account, home equity line of credit, or overdraft line of
credit. As discussed in more detail in the section-by-section analysis
of Regulation Z Sec. 1026.61(a)(2) below, a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in Regulation Z Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Regulation Z
Sec. 1026.61 and a credit card under final Regulation Z Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
Thus, a covered separate credit feature accessible by a hybrid prepaid-
credit card is a credit card account subject to Regulation Z.
Credit features on prepaid accounts not accessible by a hybrid
prepaid-credit card. As discussed above, in the proposal, the Bureau
also noted that the opt-in provision in existing Sec. 1005.17 would
not have applied to credit accessed by a prepaid card that would not
have been a credit card under the proposal because the 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), and is not payable by written agreement in more than
four installments.
As discussed in the section-by-section analysis of Regulation Z
Sec. 1026.61 below, the Bureau has decided to exclude prepaid cards
from being covered as credit cards under Regulation Z when they access
certain specified types of credit. First, under new Regulation Z Sec.
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card
with respect to a ``non-covered separate credit feature,'' which means
that the separate credit feature either (1) cannot be accessed in the
course of a prepaid card transaction to obtain goods or services,
obtain cash, or conduct P2P transfers, or (2) is offered by an
unrelated third party that is not the prepaid account issuer, its
affiliate, or its business partner. Second, under new Regulation Z
Sec. 1026.61(a)(4), a prepaid card also is not a hybrid
[[Page 84006]]
prepaid-credit card when the prepaid card accesses incidental credit in
the form of a negative balance on the asset account where the prepaid
account issuer generally does not charge credit-related fees for the
credit. A prepaid card is not a hybrid prepaid-credit card under new
Regulation Z Sec. 1026.61 or a credit card under final Regulation Z
Sec. 1026.2(a)(15)(i) when it accesses credit from these types of
credit features. For more detailed explanations of when prepaid cards
are not credit cards under Regulation Z, see the section-by-section
analyses of Regulation Z Sec. 1026.61(a)(2) and (4) below.
Consistent with the proposal, the Bureau is adding new Sec.
1005.17(a)(4) to provide that the term ``overdraft service'' does not
include any payment of overdrafts pursuant to credit extended through a
negative balance on the asset feature of a prepaid account that meets
the conditions set forth in new Regulation Z Sec. 1026.61(a)(4). As
discussed above, a prepaid card would not be a hybrid prepaid-card when
it accesses this credit. With respect to such an overdraft credit that
meets the conditions for the exception in new Regulation Z Sec.
1026.61(a)(4), a prepaid account issuer could still qualify for this
exemption if the issuer is charging a per transaction fee for paying a
transaction on the prepaid account, so long as the amount of the per
transaction fee is not higher based on whether the transaction only
accesses asset funds in the prepaid account or also accesses credit.
For example, assume a $1.50 transaction charge is imposed on the
prepaid account for each paid transaction that is made with the prepaid
card, including transactions that only access asset funds, transactions
that take the account balance negative, and transactions that occur
when the account balance is already negative. A prepaid account issuer
could still qualify for the exception under new Regulation Z Sec.
1026.61(a)(4) even if it was charging this $1.50 transaction fee, so
long as the prepaid account issuer meets the conditions of new
Regulation Z Sec. 1026.61(a)(4).
The Bureau is adding new Sec. 1005.17(a)(4) to provide that credit
which is exempt from Regulation Z under new Regulation Z Sec.
1026.61(a)(4) is not an overdraft service under final Sec. 1005.17(a)
and thus would not be subject to the opt-in requirements in final Sec.
1005.17. This is true even though the prepaid account issuer may be
charging a per transaction fee as described above on the prepaid
account, including for transactions that access incidental credit as
described above. The Bureau believes that the opt-in requirements in
final Sec. 1005.17 are not necessary for this types of overdraft
credit given that the per transaction fee is the same amount regardless
of whether the transaction is only accessing funds in the prepaid
account or is also accessing credit.
The Bureau notes that a prepaid account issuer does not satisfy the
exception in new Regulation Z Sec. 1026.61(a)(4) from the definition
of ``hybrid prepaid-credit card'' if it charges on a prepaid account
transaction fees for credit extensions on the prepaid account where the
amount of the fee is higher based on whether the transaction accesses
asset funds in the prepaid account or accesses credit. For example,
assume a $15 transaction charge is imposed on the prepaid account each
time a transaction is authorized or paid when there are insufficient or
unavailable funds in the asset balance of the prepaid account at the
time of the authorization or settlement. Also assume, a $1.50 fee is
imposed each time a transaction on the prepaid account only accesses
funds in the asset balance of the prepaid account. The $15 charge would
disqualify the prepaid account issuer for the exception under new
Regulation Z Sec. 1026.61(a)(4) and the prepaid card would be a
``hybrid prepaid-credit card'' with respect to that prepaid account. In
that case, the prepaid account issuer still would not be subject to
final Sec. 1005.17, but would be subject to Regulation Z. In that
case, under final Regulation Z Sec. 1026.61(b), the credit feature
accessible by a hybrid prepaid-credit card must be structured as a
``covered separate credit feature'' as discussed above.
While overdraft credit described in new Regulation Z Sec.
1026.61(a)(4) is exempt from final Sec. 1005.17, this incidental
credit generally is covered under Regulation E. For example, as
discussed in more detail in the section-by-section analysis of Sec.
1005.12(a) above, Regulation E's provisions in final Sec. Sec. 1005.11
and 1005.18(e) regarding error resolution would apply to extensions of
this credit. In addition, such credit extensions would be disclosed on
Regulation E periodic statements under final Sec. 1005.18(c)(1) or, if
the financial institution follows the periodic statement alternative in
final Sec. 1005.18(c)(1), on the electronic and written histories of
the consumer's prepaid account transactions. This overdraft credit,
however, is exempt from the compulsory use provision in final Sec.
1005.10(e)(1). See the section-by-section analysis of Sec.
1005.10(e)(1) above.
Non-covered separate credit features that are functioning as an
overdraft credit features with respect to prepaid accounts also
typically will not be subject to final Sec. 1005.17 because these
credit features typically will be lines of credit that are subject to
Regulation Z, which are expressly exempt from the definition of
``overdraft service'' under final Sec. 1005.17(a)(1).
Section 1005.18 Requirements for Financial Institutions Offering
Prepaid Accounts
Currently, Sec. 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 proposed to
revise Sec. 1005.18 by replacing it with provisions governing prepaid
accounts, which the Bureau proposed to apply to payroll card accounts
as well. Each of the provisions of Sec. 1005.18 is discussed in turn
below.
Regarding the Bureau's proposed approach to Sec. 1005.18, several
commenters, including industry trade associations, program managers,
and issuing banks, argued that payroll card accounts should not be
treated the same as other prepaid accounts, because they are already
heavily regulated by State laws, and, unlike prepaid accounts sold at
retail, are not distributed or marketed to the general public. These
commenters thus urged the Bureau to finalize the provisions related to
payroll card accounts specifically in a separate section, rather than
to subsume those provisions into proposed Sec. 1005.18. They argued
that maintaining two separate sections would ease compliance and
provide regulatory clarity and certainty for issuers and employers. One
issuing bank, however, took the opposite position, arguing that there
was no reason to treat payroll card accounts distinctly from other
prepaid accounts.
As discussed in more detail in the Overview of the Bureau's
Approach to Regulation E section and the section-by-section analysis of
Sec. 1005.2(b)(3)(i)(A) above, the Bureau believes that there is
substantial value to both consumers and financial institutions in
promoting consistent treatment across products. In addition, the Bureau
believes that, to the extent many GPR cards already comply with
existing regulations for payroll card accounts, financial institutions
already treat payroll card accounts and GPR cards similarly. Similarly,
the Bureau believes that maintaining the current numbering system that
financial institutions already complying with Regulation E have come to
rely on--i.e., keeping provisions related to government benefit
accounts in
[[Page 84007]]
Sec. 1005.15 and provisions related to payroll card accounts in Sec.
1005.18--will enhance compliance by preventing unnecessary confusion.
Thus, although there are several provisions in final Sec. 1005.18 that
distinguish payroll card accounts (and government benefit accounts)
from other types of prepaid accounts, the Bureau believes it is
appropriate to subsume the requirements for payroll card accounts into
the requirements for prepaid accounts generally in final Sec. 1005.18.
The Bureau is finalizing Sec. 1005.15 separately for government
benefit accounts, however, because of the unique complexities
surrounding who constitutes a financial institution for purposes of
that section (and Regulation E generally) with respect to government
benefit accounts.
18(a) Coverage
The Bureau proposed 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
have also referred 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 proposed 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 have explained that a
consumer was deemed to request an access device for a prepaid account
when, for example, the consumer acquired a prepaid account offered for
sale at a retail store or acquired a prepaid account by making a
request or submitting an application by telephone or online. The Bureau
also proposed 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 the
proposal would have left current comment 18(a)-2 unchanged.
One program manager commenter asked the Bureau to clarify in
existing comment 18(a)-1 that the distribution of an un-activated
payroll card to a new employee did not constitute unsolicited issuance
of a payroll card account. A number of other industry commenters,
including a trade association and two issuing banks, requested that the
Bureau make the same clarification with respect to other account types,
including disaster relief cards and student ID cards that also function
as prepaid accounts. With respect to the first comment, the Bureau did
not intend the proposal to alter the application of Sec. 1005.5 to
payroll card accounts, nor is this final rule making such a change. As
such, the Bureau declines to revise comment 18(a)-1 in the final rule
to change the existing guidance with respect to when a consumer
solicits a payroll card account.
With respect to the request for similar clarification regarding
other types of cards, the Bureau does not believe that such a
clarification is warranted.\356\ The Bureau understands from the
comments received that most issuers of student prepaid accounts already
comply with most, if not all, of the requirements of existing Sec.
1005.5(b) with respect to such cards. Specifically, the Bureau
understands that, when students receive access devices they did not
specifically request, the devices are inactive and need to be validated
before they can be used to access a prepaid account; further, the
Bureau understands the devices already come accompanied by most, if not
all, of the disclosures required by Sec. 1005.7. The Bureau believes
that the remaining requirements of Sec. 1005.5(b)--that the access
devices be accompanied by an explanation that it is not validated, as
well as an explanation of how the consumer may dispose of the card--
should not place an additional ongoing burden on issuers of student
prepaid accounts.\357\ At the same time, the Bureau is aware of reports
of students incurring ``confusing'' or ``unreasonably high fees'' for
using their student cards.\358\ The Bureau believes that, consistent
with Sec. 1005.5(b), students who receive ID cards with a prepaid
functionality they did not request should know that they are receiving
a financial product, and should be aware that they have the right to
decline that product's functionality if they so wish.
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\356\ See Sec. 1005.5(b)(1), (3), and (4). As discussed in part
II.B above, ED recently finalized a rule ``intended to ensure that
students have convenient access to their title IV, HEA program
funds,\[]\ do not incur unreasonable and uncommon financial account
fees on their title IV funds, and are not led to believe they must
open a particular financial account to receive their Federal student
aid.'' 80 FR 67126 (Oct. 30, 2015). ED considered, but did not
adopt, limitations on schools or financial institutions sending
students ID cards that can act as access devices to a student's
account. Id. at 67159. In stating its decision, however, ED noted
that distribution of such ID cards would constitute an unsolicited
issuance under Sec. 1005.5(b); accordingly, financial institutions
must still comply with consumer protection rules regarding
unsolicited access device issuance. Id.
\357\ See Sec. 1005.5(b)(2).
\358\ See 80 FR 67126, 67128 (Oct. 30, 2015).
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In sum, the Bureau believes there are significant consumer
protection benefits in requiring student ID cards with prepaid
functionality to comply with the unsolicited issuance provisions in
Sec. 1005.5(b), even in light of any the potential burden to industry.
The Bureau therefore declines to add an exception to the unsolicited
issuance provisions in Sec. 1005.5(b) for student ID cards, and,
likewise, is not adopting any additional guidance with respect to when
a student ID card is distributed on an unsolicited basis in Sec.
1005.18. Accordingly, student ID cards with prepaid functionality that
are distributed without a consumer's request, and not as a renewal or
substitution for an existing access device, are unsolicited and must
comply with the requirements of Sec. 1005.5(b).
The Bureau did not receive any additional comments on its proposed
revisions to Sec. 1005.18(a). Accordingly, the Bureau is adopting
Sec. 1005.18(a) and related commentary as proposed, with certain
technical revisions to comment 18(a)-1 for clarity and consistency with
the Bureau's changes to Sec. 1005.18(b)(1)(ii), discussed below.
18(b) Pre-Acquisition Disclosure Requirements
Overview of the Final Rule's Pre-Acquisition Disclosure Regime for
Prepaid Accounts
The final rule requires that new disclosures for prepaid accounts
be provided to consumers before they acquire a prepaid account. The
Bureau believes that providing these disclosures pre-acquisition will
ensure that all consumers, regardless of the type of prepaid account
they are acquiring, receive relevant information to better inform their
decision before they have committed themselves to a particular account.
The new disclosure regime for prepaid accounts requires a financial
institution to provide a consumer with both a ``short form'' and a
``long form'' disclosure pre-acquisition. The short form sets forth the
prepaid account's most important fees and certain other information to
facilitate consumer understanding of the account's key terms and aid
comparison shopping among prepaid account programs.\359\ The long form
disclosure, on the other hand, provides the consumer with a
comprehensive list of all of the fees
[[Page 84008]]
associated with the prepaid account and detailed information on how
those fees are assessed, as well as certain other information about the
prepaid account program. The long form provides consumers an
opportunity to review all fee information about a prepaid account
before acquiring it. In sum, the short form provides a snapshot of key
fees and information, while its companion disclosure, the long form,
provides an unabridged, straightforward list of fees and greater detail
regarding use of the prepaid account.
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\359\ The final rule also requires pre-acquisition disclosure of
certain information outside but in close proximity to the short form
disclosure. See final Sec. 1005.18(b)(5).
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The Bureau understands that there are many methods through which a
consumer can acquire a prepaid account, and it has designed the final
rule's disclosure regime to be adaptable to all these methods. For
example, a consumer might purchase a prepaid account at retail, online
through a financial institution's Web site (or the Web site of a
service provider such as a program manager), or by telephoning the
financial institution (or program manager). An employee might receive a
payroll card account from an employer, or a student might receive a
prepaid account from his or her university in connection with the
disbursement of financial aid. A government benefit recipient might
receive benefit payments on a government benefit card distributed by
the agency responsible for administering those benefits, or an
insurance company might distribute prepaid cards to consumers to
disburse property or casualty insurance proceeds.
The Bureau has tailored the final rule to accommodate these varied
methods while maintaining the overall integrity of the required
disclosures. This tailoring includes permitting special formatting for
prepaid disclosures delivered electronically; permitting disclosure of
discounts and waivers for the periodic fee; permitting information
within the short form disclosure for payroll card accounts (and
government benefit accounts) directing consumers to sources of
information regarding State-required information and other fee
discounts and waivers; and accommodating disclosure of fees for
optional services as well as those charged on non-traditional prepaid
accounts, such as digital wallets, via a requirement to disclose
certain information about additional types of fees not otherwise
disclosed on the short form. The Bureau believes that creating a
generally consistent and comprehensive disclosure regime that applies
before the consumer's acquisition of a 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 relevant
information at an opportune time in the acquisition sequence to better
inform his or her purchase and use decisions.
The content and structure of the short form and long form
disclosures set forth in the final rule largely mirror that of the
proposed rule, although the Bureau has refined various elements and
reorganized the disclosure provisions in the final rule to simplify the
structure and aid compliance. See the individual section-by-section
analyses below under this Sec. 1005.18(b) for a more detailed
discussion of each aspect of the final pre-acquisition disclosure
regime. The following provides a summary of the key provisions in the
final rule's pre-acquisition disclosure regime.
The short form disclosure. The short form disclosure, designed to
provide a snapshot of key fees and information for a prepaid account,
features a section for fees and a section for certain other
information. The fee section must appear in the form of a table, and
consists of two parts. The first part contains ``static'' fees, setting
forth standardized fee disclosures that must be provided for all
prepaid account programs, even if such fees are $0 or if they relate to
features not offered by a particular program. The second part provides
information about some additional types of fees that may be charged for
that prepaid account program.
Specifically, the static portion of the short form fee disclosures
features a ``top line'' component highlighting four types of fees at
the top of the form: The periodic fee, the per purchase fee, ATM
withdrawal fees (parsed out for both in- and out-of-network withdrawals
in the United States), and the cash reload fee. As discussed in more
detail in part III.A above, the Bureau believes these fees are the most
important to consumers when shopping for a prepaid account. For this
reason, the top line is designed to quickly draw the attention of
consumers through its dominant location and use of larger and more
prominent type than that used for the remainder of the disclosures on
the short form. Located just below the top line are disclosures for
three other types of fees: ATM balance inquiry fees (parsed out for
both in- and out-of-network balance inquiries in the United States),
customer service fees (parsed out for both live and automated customer
service), and the inactivity fee. While the final rule generally
prohibits disclosure of third-party fees, the final rule requires that
the cash reload fee disclosed in the top line include third-party fees.
The static fees are followed by a portion of the disclosure that
addresses additional types of fees specific to that prepaid account
program. For the final rule, the Bureau has brought together the
proposed statement disclosing the number of ``other fees'' not listed
on the short form disclosure and the proposed disclosure of
``incidence-based fees'' into a common category referred to as
``additional fee types'' and located these disclosures together on the
short form immediately following the static fee disclosures. First, the
final rule requires a statement disclosing the number of additional fee
types the financial institution may charge consumers with respect to
the prepaid account (the proposal would have required disclosure of the
total number of individual fees rather than fee types). Second, the
final rule requires a statement explaining to consumers that what
follows are examples of some of those additional fee types.
Next, the two additional fee types that generate the highest
revenue from consumers above a de minimis threshold must be disclosed.
These fee types must be calculated for the prepaid account program or
across prepaid account programs that share the same fee schedule. In
general, financial institutions must assess their additional fee types
every 24 months and, if necessary, update their disclosures. There is
an exception to this requirement, however, such that financial
institutions are not required to pull and replace disclosures provided
on, in, or with prepaid account packaging material if there is a change
in the additional fee types required to be listed. (Under the proposal,
this disclosure would have been based on incidence rather than revenue,
would have been three fees rather than two, and updating would have
been required every 12 rather than 24 months. The de minimis threshold
and assessment across programs that share the same fee schedule are
also new to the final rule.) The final rule also contains additional
flexibility regarding the timing for reassessments, voluntary
disclosures of additional fee types in certain circumstances, and
disclosure of fee variations within additional fee types.
The final, non-fee section of the short form is comprised of a
series of statements containing certain other key information regarding
the prepaid account. The final rule generally requires disclosure of
the highest fee when the price of a service or feature may vary and
permits use of a symbol, such as an asterisk, to indicate that those
fees may vary; the statement linked to that asterisk must appear below
the fee disclosures. The final rule also permits use of a different
symbol,
[[Page 84009]]
such as a dagger, to provide specific information about waivers or
discounts for the periodic fee only. Next is a statement indicating
whether an overdraft credit feature may be offered in connection with
the prepaid account and, if so, an explanation that the feature may be
offered after a certain number of days and that fees would apply. In
contrast to the proposal, the final rule requires disclosure both when
a prepaid account is set up to be eligible for FDIC or NCUA insurance
and when it is not, and combines this statement with the call to action
for the consumer to register the account, if applicable. The final rule
requires disclosure of the URL for a Bureau Web site from which
consumers can obtain general information on prepaid accounts. The short
form disclosure concludes with a statement directing consumers to where
they can obtain information on all fees and services for that
particular prepaid account program. The Bureau has incorporated into
the regulatory text of the final rule specific language for each of
these statements rather than referencing the model forms for such
language.
Short form disclosures for payroll card accounts (and government
benefit accounts). The final rule contains an additional requirement
and an additional accommodation for short form disclosures for payroll
card accounts (and government benefit accounts). For these accounts,
like in the proposal, financial institutions are required to include a
statement regarding alternate wage (or benefits) payment options above
the top-line fee disclosures. The final rule permits financial
institutions to choose between two different statements to make this
disclosure. The first statement simply informs consumers that they do
not have to accept the card and directs them to ask about other ways to
receive their wages. The alternative statement informs consumers that
they have several options to receive their wages, followed by a list of
those options, and directs them to tell their employer which option
they choose. The final rule also permits financial institutions to
include an optional line in the informational statements portion of the
short form disclosure for these accounts directing consumers to a
particular location outside the short form for State-required
information and other fee discounts and waivers.
Short form disclosures for multiple service plans. The final rule
permits financial institutions offering prepaid account programs with
multiple service plans to use a short form disclosure specifically
tailored for these products. The Bureau has redesigned the multiple
service plan short form to be more simple and clear, incorporating a
multi-columned structure for displaying all short form fees across all
plans.
Additional disclosures outside the short form. The final rule
requires that the following information be disclosed outside but in
close proximity to the short form: The name of the financial
institution; the name of the prepaid account program; and the purchase
price and activation fee, if any.
The long form disclosure. The long form disclosure is the second
part of the pre-acquisition disclosure regime for prepaid accounts and
complements the short form disclosure. It sets forth in a table all of
the prepaid account's fees and their qualifying conditions as well as
other information about the prepaid account program. Similar to the
short form, the long form also contains a series of statements
following the fee table containing certain other key information
regarding the prepaid account. First is a statement regarding
registration and FDIC or NCUA insurance eligibility that mirrors the
statement required for the short form, together with an explanation of
the benefit of FDIC or NCUA insurance coverage or the consequence of
the lack of such coverage. Next is a statement indicating whether an
overdraft credit feature may be offered in connection with the prepaid
account and, if so, an explanation that the feature may be offered
after a certain number of days and that fees would apply; this
statement also mirrors the one required in the short form disclosure.
The final rule also requires contact information for the financial
institution; the URL of a Bureau Web site where the consumer can obtain
general information on prepaid accounts; and the Bureau Web site URL
and telephone number to submit a complaint about a prepaid account.
Finally, the long form must include certain Regulation Z disclosures
if, at any point, a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Regulation Z Sec. 1026.61 may
be offered in connection with the prepaid account. The final rule
provides a safe harbor for financial institutions from having to
reprint the long form disclosure due to changes in third-party fees or
the Regulation Z disclosures.
Form and format of the disclosures. The final rule contains
detailed provisions addressing the form and formatting of the short
form and long form disclosures. These provisions reflect the changes to
the multiple service plan short form design, discussed above, as well
as several additional exceptions to the general retainability
requirement for the pre-acquisition disclosures and clarification
regarding how certain requirements apply to electronic disclosures
(including how to comply with the requirement that electronic
disclosures be viewable across all screen sizes). The final rule
contains additional formatting requirements to address new disclosure
elements added to the final rule, including several optional elements
discussed above. The final rule also contains a provision requiring
that fee names and other terms be used consistently within and across
the short form and long form disclosures.
Model and sample disclosure forms. The final rule contains five
model form variations for the short form disclosure: Two iterations of
the short form disclosures generally, one for payroll card accounts,
one for government benefit accounts, and one for prepaid account
programs with multiple service plans. See Model Forms A-10(a) through
(e). The final rule also contains a sample long form disclosure. See
Sample Form A-10(f). The model forms provide a safe harbor to financial
institutions that use them (provided that the model forms are used
accurately and appropriately), unlike the sample form which serves only
as an example. Whether a financial institution chooses to use a model
form for its short form disclosure or design its long form disclosure
based on the long form, the financial institution must of course tailor
its disclosures for the specific prepaid account program in order to
comply with the requirements of Sec. 1005.18(b).
For the convenience of the prepaid industry and to help reduce
development costs, the Bureau is also providing native design files for
print and source code for Web-based disclosures for all of the model
and sample forms included in the final rule. These files are available
at www.consumerfinance.gov/prepaid-disclosure-files.
Timing requirements for pre-acquisition disclosures generally and
the alternative timing regime for prepaid accounts acquired at retail
locations and orally by telephone. The final rule generally requires
that the disclosures required by Sec. 1005.18(b) be provided before a
consumer acquires a prepaid account. Commentary to the final rule
explains that a consumer acquires a prepaid account by purchasing,
opening, or choosing to be paid via a prepaid account, and includes
several examples.
Consistent with the proposal, the final rule also provides special
rules for
[[Page 84010]]
situations in which a consumer acquires a prepaid account at retail or
orally by telephone. In these situations, a financial institution must
provide the short form disclosure to the consumer prior to acquisition
and must provide methods for consumers to access the long form by
telephone and via a Web site prior to acquisition. If these conditions
are met, the financial institution does not need to provide the long
form in writing until after acquisition. The Bureau has expanded this
exception in the final rule to cover all retail locations (rather than
just retail stores) that sell prepaid accounts in person, without
regard to whether the location is operated by a financial institution's
agent. A financial institution selling its own prepaid accounts in its
own branches does not qualify for the retail location exception with
respect to those prepaid accounts.
Prepaid accounts acquired in foreign languages. A financial
institution must provide the pre-acquisition disclosures in a foreign
language if the financial institution uses that same foreign language
in connection with the acquisition of a prepaid account in certain
circumstances. Unlike the proposal, the final rule does not require a
financial institution to provide pre-acquisition disclosures in a
foreign language if an employee of the financial institution or a third
party uses that foreign language in person with the consumer. The
financial institution also must provide the long form disclosure in
English upon a consumer's request and on its Web site.
Background and the Bureau's Proposed Pre-Acquisition Disclosure Regime
for Prepaid Accounts
EFTA section 905(a) sets forth disclosure requirements for accounts
subject to the Act. The relevant portion of EFTA section 905 states
that the terms and conditions of EFTs involving a consumer's account
shall be disclosed at the time the consumer contracts for an EFT
service, in accordance with 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 EFTs or for the right to
make such transfers,\360\ that a fee may be imposed for use of certain
ATMs,\361\ information regarding the type and nature of EFTs that the
consumer can initiate,\362\ and details regarding the consumer's
liability for unauthorized transactions and whom to contact in the
event an unauthorized transaction has occurred.\363\ The implementing
regulation for this provision, Sec. 1005.7, further elaborates that
the required disclosures must be provided to a consumer at the time a
consumer contracts for an EFT or before the first EFT is made involving
the consumer's account. However, while EFTA section 905(a) and Sec.
1005.7(b) mandate the inclusion of several specific items, they do not
specify a particular format for the disclosures.\364\ At various
points, these general provisions in Sec. 1005.7 have been modified for
use with other types of accounts or in other contexts.\365\
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\360\ EFTA section 905(a)(4).
\361\ EFTA section 905(a)(10).
\362\ EFTA section 905(a)(3).
\363\ EFTA section 905(a)(1) and (2).
\364\ Specifically, section 905(a) and Sec. 1005.7(b) generally
require disclosure of details regarding the types of EFTs that the
consumer may make (including limitations on the frequency and dollar
amount of the transfers), any fees imposed by the financial
institution for EFTs 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 EFT or makes a balance inquiry, among other
requirements.
In addition, TISA contains disclosure requirements for accounts
issued by depository institutions. Specifically, Regulation DD, 12
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. Regulation DD Sec.
1030.4(b)(4).
\365\ See generally Sec. 1005.14(b)(1) (disclosures provided by
certain service providers), 61 FR 19662, 19674 (May 2, 1996);
existing Sec. 1005.15(d) (disclosures related to the EFT of
government benefits), 61 FR 19662, 19670 (May 2, 1996); Sec.
1005.16 (disclosures at ATMs), 78 FR 18221, 18224 (Mar. 26, 2013);
Sec. 1005.17(d) (overdraft disclosures), 74 FR 59033, 59053 (Nov.
17, 2009); existing Sec. 1005.18(c)(1) (payroll card account
disclosures), 71 FR 51437, 51449 (Aug. 30, 2006); and Sec. 1005.31
(disclosures related to remittance transfers), 77 FR 50244, 50285
(Aug. 20, 2012).
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Section 1005.18(b) of the final rule implements, in part, EFTA
section 905(a) for prepaid accounts. In addition, pursuant to its
authority under EFTA sections 904(a), (b), and (c) and 905(a), and
section 1032(a) of the Dodd-Frank Act, the Bureau is requiring
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. Also, the Bureau is
requiring that in certain circumstances financial institutions provide
disclosures in languages other than English.
The Bureau proposed a new pre-acquisition disclosure regime for
prepaid accounts, separate from the general requirements under Sec.
1005.7, for several reasons. First, the Bureau was concerned that
providing core pricing and usage information at the time the contract
is formed or prior to the first EFT would be too late for many
consumers to make informed acquisition decisions. As the Bureau
explained in the proposal, for instance, the Bureau understood based on
its outreach that many financial institutions were providing only
limited fee information on the outside of packaging for GPR cards, so
that consumers would have to purchase the card to access comprehensive
information about the card's fees and terms. Similarly, the Bureau was
concerned about the acquisition process for payroll card accounts,
where new employees often receive account terms and conditions
documents at the same time they received large quantities of other
benefits-related paperwork, and about the sequencing of account
disclosures in an online environment.
Second, the Bureau believed that it was important to provide
specific formatting information that would ensure substantial
consistency to facilitate consumers' comparison and selection process
across a range of acquisition channels and carefully balance concerns
about information overload. The Bureau therefore designed and developed
its proposed pre-acquisition disclosures for prepaid accounts over the
course of several years through a process that included consumer
testing conducted both prior to and after the publication of the
proposal and feedback from stakeholders in direct meetings, comments
responding to the Prepaid ANPR, and follow up to a blog post of
prototype disclosure designs.\366\
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\366\ 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/.
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The majority of both industry and consumer groups agreed that it
was important for consumers to receive disclosures before they purchase
a prepaid account. Industry and consumer groups 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. The
majority also strongly supported standardized disclosures, instead of a
more general rule requiring only that fees be disclosed clearly and
conspicuously without providing specific instructions or model forms.
However, industry mostly advocated 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. On the other hand,
many
[[Page 84011]]
consumer groups urged provision of a full disclosure to the consumer of
all fees associated with a GPR card, voicing concern that consumers
would not get a full understanding of a prepaid account's true costs
without comprehensive fee information and that providers could subvert
a limited scope disclosure by adjusting fee schedules to increase or
add fees not required to be disclosed on a shorter disclosure.
To balance such concerns, the Bureau proposed to require financial
institutions to provide both a short form and a long form disclosure,
as generally described above, prior to the time the consumer acquires a
prepaid account. The proposed short form focused on the fees charged
most frequently across most types of prepaid account programs, as well
as providing limited information about the three fees incurred most
frequently by users of the particular program. The short form thus
would have provided largely consistent information for purposes of
comparison, while also providing certain unique information about other
fees that were charged most frequently to consumers (so-called
``incidence-based fees'') and other cues encouraging the consumer to
consult the long form for more detailed and comprehensive information.
The Bureau also proposed to require that financial institutions provide
the disclosures in languages other than English in certain
circumstances.
Specifically, proposed Sec. 1005.18(b)(2) would have set forth the
substantive requirements for the Bureau's proposed prepaid account pre-
acquisition disclosure regime, with content requirements for the short
form disclosures addressed by proposed Sec. 1005.18(b)(2)(i), content
requirements for the long form disclosure addressed by proposed Sec.
1005.18(b)(2)(ii), and form and formatting requirements for both
disclosures addressed by proposed Sec. 1005.18(b)(3) and (4),
respectively.\367\
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\367\ As discussed in detail below, the final rule addresses
these requirements in Sec. 1005.18(b)(2) and (4) and Sec.
1005.18(b)(6) and (7), respectively.
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Depending on the structure of a particular prepaid account,
however, the Bureau recognized that the proposed 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 pre-proposal consumer testing 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.\368\ 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 have received 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. In addition, in pre-proposal testing, most
participants did not identify any additional fees that they would have
wanted to see listed in a short form.\369\ The Bureau believed that the
proposed short form contained most fees that might be charged in
connection with a prepaid account and the fees listed are those that
are most important for a consumer to know in advance of acquiring a
prepaid account.
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\368\ See ICF Report I at 9.
\369\ See id. at 6-8.
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The Bureau also recognized that disclosing even this proposed
subset of fee information on the short form ran the same risk of
information overload that the Bureau believed could occur if all fees
were disclosed to a consumer instead of just a subset of fees. The
Bureau believed, however, based on its pre-proposal consumer testing
and other research, that incorporating elements of visual hierarchy
would mitigate these risks. Most importantly, the fee types that would
have been disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1)
through (4) in the top line of the short form would have used font size
and other elements to promote readability.
General Comments Received
The Bureau sought comment on its proposed overall approach to the
pre-acquisition disclosure regime. Discussed in this section are the
comments provided in response as well as certain other general comments
received. Comments regarding particular aspects of the proposed pre-
acquisition disclosure regime are addressed in the applicable section-
by-section analyses below.
Several State government agencies, a majority of consumer groups,
and a substantial number of industry commenters (including trade
associations, a credit union, and a program manager) expressed general
support for the proposed pre-acquisition regime, although most also
offered criticisms and recommendations for change of some individual
elements. The credit union and industry trade associations complimented
the Bureau on the proposed pre-acquisition disclosures, with some
commenters calling the short form disclosure an elegant and smart
solution that would give consumers a clear, simple, and consumer
friendly way to review critical data when shopping for prepaid
accounts. Consumer groups and individual consumers who submitted
comments as part of a comment submission campaign organized by a
national consumer advocacy group also strongly supported the design and
content of the proposed short form and long form disclosures as
essential to protecting consumers. In particular, the consumer groups
praised the short form disclosure's clear standardized form, saying it
provides a good balance between simplicity and completeness.
Most industry commenters offered specific criticisms of or
recommended changes to specific elements of the proposed pre-
acquisition disclosure regime. Industry commenters' more general
criticisms of the proposed disclosures included both that the amount of
information in the short form disclosure would be overwhelming to
consumers (and thus certain aspects should be eliminated, such as the
disclosure of the number of additional fees, incidence-based fees, or
any incidental fees that are excluded from the disclosure requirements
of Regulation DD) and that the short form failed to provide certain
information that the commenters believed to be meaningful to consumers'
purchase decisions (such as disclosure of fee waivers and discounts
instead of disclosure of the highest fee as proposed) and thus that
additional information should be added.
More globally, one academic group and several industry commenters
(including program managers, a credit union, and a regional credit
union trade association) urged the Bureau to eliminate both the short
form and long form disclosures. These commenters said variously that
the proposed disclosures would overwhelm consumers, burden industry
without commensurate benefits to consumers, or duplicate the initial
disclosures already required by Regulation E. They also asserted that
research by the Bureau and others indicated that few consumers engage
in formal comparison shopping among prepaid accounts or that consumers
lack the financial literacy or inclination to read disclosures (and
thus, the Bureau's efforts to facilitate comparison shopping are
unnecessary). One of the program managers and the academic group
asserted that the highly competitive prepaid marketplace, which in
their view had already produced lower fees and simpler fee structures,
[[Page 84012]]
was sufficient to meet the evolving needs of consumers. Industry
commenters expressed concern regarding the burden they felt the
proposed disclosures would impose; the program manager elaborated that
the proposed disclosure regime would require expensive and time-
consuming redesign of disclosures and changes in packaging,
manufacturing processes, and distribution.
A number of other industry commenters and a group of members of
Congress opposed one, but not both, of the proposed pre-acquisition
disclosures. A few industry commenters (including an issuing credit
union, a credit union association, and a program manager) recommended
eliminating the short form disclosure in favor of the long form
disclosure. A larger group (including trade associations, issuing
banks, credit unions, program managers, a law firm writing on behalf of
a coalition of prepaid issuers, and the group of members of Congress)
recommended eliminating the long form disclosure in favor of the short
form--or at least that the long form not be required to be provided
pre-acquisition or only be required to be provided online, over the
telephone, or upon request. As a whole, both groups of commenters
asserted that requiring both of the proposed disclosures would result
in too many disclosures (the short form and long form, prepaid account
agreement containing initial disclosures, and State-required
disclosures for payroll card accounts), resulting in high compliance
costs and disclosure fatigue for consumers.
The industry commenters recommending elimination of the short form
asserted that it was redundant of the long form, which they argued
would be sufficient alone by virtue of it providing a complete
disclosure of fees. The program manager recommended combining the short
form and the long form to create a single comprehensive pre-acquisition
disclosure. The industry commenters critical of the long form variously
asserted that it was redundant of the short form and other disclosures
required by Regulation E before a consumer can use the prepaid card
(i.e., initial disclosures) and State-required disclosures for some
payroll card accounts; inferior to the short form, which would provide
the most pertinent and common fees; and would overload and confuse
consumers with its comprehensive information and therefore not
contribute to consumer purchase decisions. An issuing bank, a program
manager, a trade association, and a group of members of Congress
recommended against requiring the long form, arguing that the Bureau's
pre-proposal consumer testing indicated consumers would not use it to
make pre-acquisition decisions. Several industry commenters opposed
required disclosure of optional incidental services that are not
available at the time of purchase; rather, they suggested those fees
should not have to be disclosed until such services are accepted by the
consumer.
A number of industry commenters and a State government agency
recommended that the Bureau eliminate the proposed short form
disclosure requirement for payroll card accounts and government benefit
accounts or, alternatively, treat the short form disclosure for these
accounts differently from those for GPR cards. Some of these commenters
said otherwise these disclosures would be burdensome for financial
institutions providing payroll (and government benefit) cards for a
number of reasons. They said the proposed disclosures were, in their
opinion, duplicative of the initial disclosures required by Sec.
1005.7(b) and that the differences between payroll card accounts (and
government benefit accounts) and GPR cards militate against requiring a
short form disclosure for the former. They said that, compared to GPR
cards, these accounts have fewer fees, features, and conditions, and
the statement regarding registration and many specific fees listed in
the static portion of the proposed short form are inapplicable. They
also pointed to State-required disclosure of certain fee discounts and
waivers for these accounts as another distinguishing factor from GPR
cards. Some commenters said the proposed disclosures were inapt for
payroll card accounts (and government benefit accounts) as there are
not the same space constraints as there are for GPR cards sold at
retail and, further, consumers cannot comparison shop for these kinds
of accounts. Finally, some commenters requested that the Bureau
eliminate the long form disclosure for these types of accounts as they
said it would be redundant of the short form disclosure and the prepaid
account agreement; they also suggested that the long form disclosure
could be provided post-acquisition or at the time of registration or
activation in the payroll (and government benefit) context.
Rather than eliminating the short form disclosure altogether for
payroll card accounts (and government benefit accounts), some industry
commenters recommended that the Bureau eliminate certain short form
requirements, such as the registration statement which would be
inapplicable for these products.\370\ On the other hand, other industry
commenters recommended permitting additional disclosures on the short
form, such as disclosure of State-required methods to access wages
without incurring fees. Some recommended requiring disclosure of all
fees on the payroll card account (and government benefit account) short
form disclosure as these accounts generally have fewer fees, thereby
allowing room for full fee disclosure.
---------------------------------------------------------------------------
\370\ See the section-by-section analysis of Sec.
1005.18(b)(2)(xiv) below for a discussion of elements that
commenters suggested the Bureau remove from the short form
disclosure in the payroll (and government benefit) context.
---------------------------------------------------------------------------
Similarly, some industry commenters argued that differences in
other types of prepaid accounts necessitated greater flexibility in the
content and delivery requirements for the short form disclosure. For
example, some industry commenters, including issuing banks, program
managers, and a trade association, recommended that the Bureau exclude
non-reloadable prepaid products from the proposed disclosure regime, or
at least from certain disclosure requirements such as those regarding
registration and eligibility for FDIC insurance. Some industry
commenters suggested that requiring standardized disclosures for these
products would be of limited use to consumers given how the products
are meant to be used, and would come at a prohibitively high cost for
issuers; several suggested the burden of complying with the proposed
disclosure requirements--for example, the requirement to calculate
incidence-based fees--may lead to the removal of certain of these
products from market. These commenters suggested instead that the
Bureau create a separate disclosure regime for non-reloadable cards,
similar to the treatment of loyalty, award, and promotional gift card
products under the Gift Card Rule.\371\
---------------------------------------------------------------------------
\371\ See Sec. 1005.20(a)(4)(iii) (exempting loyalty, award, or
promotional gift cards from general coverage of the Gift Card Rule
provided that they satisfy certain specific disclosure
requirements).
---------------------------------------------------------------------------
Likewise, several trade associations and a provider of digital
wallets urged the Bureau not to sweep innovative financial services,
such as digital wallets, into a disclosure regime they felt was
designed for a specific type of product (i.e., GPR cards sold at
retail) based on how it functioned at a fixed point in time.
Specifically, the digital wallet provider argued that disclosures
cannot be standardized effectively across industries as diverse as
digital wallets and GPR cards. In addition, the commenter stated that
current digital
[[Page 84013]]
wallet models do not charge any fees for general usage. As such, the
proposed short form disclosure's top-line fees would all be disclosed
as $0 or N/A, which it said could potentially confuse consumers and
cause them to abandon the digital wallet sign-up process. The commenter
also noted that, because consumers are not likely to comparison shop
between digital wallets and GPR cards, it believed the comparison
shopping benefit of the short form disclosure would be inapplicable to
digital wallets.
A payment network and a law firm writing on behalf of a coalition
of prepaid issuers criticized the proposal for not providing a method
for updating or curing outdated pricing, which it said issuers may
typically accomplish through disclosures and consumer consent at
registration, or at a later point in the customer relationship through
a Regulation E change-in-terms notice. The payment network suggested
that the Bureau grant a safe harbor and allow financial institutions to
keep existing physical cards stocked at retail locations and notify
consumers of any changes either by sending change-in-terms notices or
by obtaining consumer consent upon registration. This commenter added
that this approach would both cure outdated pricing on card packaging
and also allow financial institutions to introduce new features that
have a fee.
While consumer groups generally supported the proposed disclosures,
they also asserted some criticisms focused primarily on requesting that
the Bureau prohibit certain fees, add certain information to either or
both the short form and long form disclosures, and eliminate the
proposed short form disclosure for multiple service plans. A few
consumer groups also recommended enhancing the disclosures with visual
aids, such as an image of a piggy bank to denote that an account offers
a savings feature.
The Bureau's General Approach to the Final Rule
For the reasons set forth herein, the Bureau is adopting a
disclosure regime in final Sec. 1005.18(b), under which financial
institutions must generally provide both a short form and a long form
disclosure before consumers acquire prepaid accounts. The final rule
generally retains the content, formatting, and delivery requirements of
the short form and long form disclosures as proposed, but includes
substantial refinements to some individual elements and numerous
smaller changes in response to information received through comments
received on the proposal, the interagency consultation process, further
consumer testing, and other research and analysis. The Bureau believes
the final rule's disclosure requirements will achieve the desired
results of providing consumers with a succinct and engaging overview of
crucial information in the short form disclosure and an unabridged
reference for all fees and other crucial information in the long form
disclosure.
The Bureau has also made substantial organizational changes to the
structure of the final rule to facilitate understanding and compliance.
The Bureau also has incorporated certain burden-reducing measures to
address various concerns raised by commenters about the burden on
industry they asserted would result from the proposed pre-acquisition
disclosure regime. The analysis of costs and benefits in part VII.E.1
as well as the section-by-section analyses below both contain
discussion of provisions adopted in this final rule that are aimed at
reducing burden on industry relative to the proposal. These burden-
alleviating modifications include the various changes to the additional
fee types disclosures, including disclosure of two fees rather than
three; a de minimis threshold; and reassessment and updating required
every 24 months rather than 12. Other measures in the final rule that
reduce burden include permitting reference in the short form disclosure
for payroll card accounts (and government benefit accounts) to State-
required information and other fee discounts and waivers pursuant to
final Sec. 1005.18(b)(2)(xiv)(B); permitting disclosure of the long
form within other disclosures required by Regulation E pursuant to
final Sec. 1005.18(b)(7)(iii); and flexible updating of third-party
fees pursuant to Sec. 1005.18(b)(4)(vii).
Although some industry commenters suggested that the competitive
nature of the prepaid market forecloses the need for disclosure
regulation, the Bureau believes both consumers and industry are better
served by disclosure regulations carefully calibrated to balance the
needs and concerns of all parties.
The Bureau is issuing the final rule pursuant to EFTA section
904(a), (b), and (c), and 905(a) and 913(2), and section 1032 of the
Dodd-Frank Act. As discussed further below in the section-by-section
analyses of Sec. 1005.18(b)(1)(i), (b)(2)(xiv), (b)(4)(ii), and
(b)(9), the Bureau believes that adjustment of the timing and fee
requirements 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 consumers
because the 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 section 1032(a) of the Dodd-Frank Act, 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.
Short form and long form disclosures generally. As discussed in the
proposal, the Bureau believes the short form and long form disclosures
both play crucial but distinct roles. Eliminating one or both would
defeat the overall purpose of the pre-acquisition disclosure regime to
provide consumers with comprehensible information to make reasoned
purchase and use decisions with regard to their prepaid accounts. The
short form discloses key fees and information to consumers in a
standardized visual hierarchy that lends itself to comparison shopping
prior to purchase and provides a handy summary post-purchase; the long
form provides a comprehensive location for all fees and other
information that a consumer may consult both prior to and after
purchase. In the absence of such a disclosure regime, consumers have
scant opportunity to see all fees prior to purchase or to quickly
assess the relative benefits of one prepaid account over another.
Specifically, the Bureau believes that by prominently displaying
key fees with limited explanatory text, the short form enhances
consumers' ability to notice these key fees and enables them to use the
disclosure to inform their acquisition choice. The Bureau also believes
that the short form's design, and in particular the emphasized top-line
portion of the disclosure, creates a visual hierarchy of information
that will more effectively draw consumers' attention to a prepaid
account's key terms. The Bureau also believes the general visual
hierarchy as well as the relatively spare content of the short form
increases the likelihood that consumers will engage with the
disclosure.
The Bureau understands that, faced with the disclosures in the
current marketplace, consumers may spend little time reviewing fee
disclosures, particularly when shopping for prepaid accounts in person.
The Bureau believes it is therefore important to provide a disclosure
that quickly draws
[[Page 84014]]
consumers' attention to the most important information regarding that
particular account with minimal clutter on the form. For this reason,
the Bureau designed and developed the short form as a concise snapshot
of a prepaid account's key fees and features that is both easily
noticeable and digestible by consumers. Relatedly, the Bureau also
believes that the overall standardization of the short form disclosure
will facilitate consumers' ability to comparison shop among prepaid
account programs. The standardization of the static fee components of
the short form disclosure ensures that consumers will be provided
certain key fee information about prepaid accounts in a consistent
manner regardless of how or where they shop for or obtain prepaid
accounts. For example, under the final rule, a consumer who takes a
package containing a prepaid account access device off of a J-hook in a
retail location would see the same fee disclosures in the static
portion of the short form as that consumer would see if shopping online
for a prepaid account. Similarly, the standardization of the
informational statements at the bottom of the short form permits that
consumer to easily compare, for example, whether the prepaid accounts
are eligible for FDIC or NCUA insurance.
The Bureau believes that consumers offered payroll card accounts at
their place of employment can also benefit from this standardization
because, even though they cannot comparison shop among payroll card
accounts, they can make meaningful comparisons with a prepaid account
they may already have or with one they may choose to acquire in lieu of
the payroll card account. Moreover, the straightforward standardized
format of the short form can enhance consumers' comprehension of the
key terms of the payroll card account if they do choose to acquire it.
In sum, the Bureau believes that standardizing the short form
disclosure across all possible acquisition channels will enhance
consumer understanding of the terms of all prepaid accounts and make it
easier for consumers to choose the prepaid account that best meets
their needs.
The Bureau recognizes that providing only a subset of a prepaid
account program's fee information on the short form might not provide
all consumers with the information they need to make fully-informed
acquisition decisions. For this reason, the new disclosure regime also
requires the long form disclosure to be provided as a companion
disclosure to the short form, offering a comprehensive repository of
all of a prepaid account's fees and the conditions under which those
fees could be imposed. The long form disclosure also provides detailed
explanations to consumers about conditions that may cause fees to vary,
such as the impact of crossing a threshold number of transactions or
specific waivers and discounts. Such explanations are generally not
permitted on the short form to preserve its simplicity, but may be
relevant to some consumers' acquisition decisions.
The Bureau expects that consumers will use the long form if they
want to review a comprehensive list of fees before choosing to acquire
a prepaid account and learn details about the fees listed on the short
form. In sum, the short form and the long form used alone or in tandem
provide consumers with either or both an overview of the key
information about the prepaid account and an unabridged list of fees
and conditions and other important information.
The Bureau believes that providing both disclosures is more
beneficial than either form standing alone, and the Bureau does not
believe that providing only the long form would be satisfactory. The
Bureau understands that the potential size and complexity of the long
form could lead consumers to disregard the disclosure in some settings,
such as in retail locations where consumers are shopping while standing
up, and not use it to comparison shop across products or even to
evaluate a single product. However, in the Bureau's pre-proposal
testing of a simulated purchase environment, some participants
indicated they would use information found only in the long form
disclosure, i.e., information absent from the short form disclosure, in
making their purchase decisions.\372\ Thus, insofar as the subset of
fee information on the short form disclosure may be incomplete or
insufficient for some consumers, the Bureau believes that providing
both the short form and long form disclosures will 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.
---------------------------------------------------------------------------
\372\ See ICF Report I at 32-33.
---------------------------------------------------------------------------
Disclosures for payroll card accounts and government benefit
accounts. The Bureau declines, as requested by some commenters, to
eliminate the proposed short form disclosure requirement for payroll
card accounts and government benefit accounts or, alternatively, create
a short form disclosure specifically for these accounts, for several
reasons. First, the short form disclosure provides an opportunity to
clearly and conspicuously inform consumers of their wage and benefit
payment rights under the compulsory use prohibition in EFTA section 913
and Sec. 1005.10(e)(2), which the Bureau believes is key information
for consumers. If the short form disclosure were eliminated and this
statement was moved to the long form disclosure, for example, the
Bureau believes it likely this information would be obscured by the
relatively increased length and complexity of the long form disclosure
and thereby deprive consumers of an opportunity to be informed of this
crucial statutory right.
Second, the short form disclosure is important because consumers
may be more likely to view it than the long form disclosure. The short
form disclosure was designed to showcase information the Bureau
believes is most important to consumers in their general prepaid
account purchase and use decisions and such information is intended to
complement the information disclosed in the more detailed long form.
Pre-proposal testing indicated that consumers would prefer the short
form over the long form when shopping for a prepaid card in certain
environments, such as at retail while standing up.\373\ The Bureau
believes that consumers will benefit from receiving the short form
disclosure for payroll card accounts and government benefit accounts in
that consumers may receive multiple pieces of written information at
the beginning of a new job or when applying for government benefits,
that may compete for the consumer's attention. Thus, even if consumers
do not look at the long form disclosure before choosing to receive
wages or benefits via the account, they may at least see information
about key fees and features of the account on the short form
disclosure.
---------------------------------------------------------------------------
\373\ See ICF Report I at 34.
---------------------------------------------------------------------------
Third, while employees cannot comparison shop among payroll card
accounts or government benefit accounts, the short form disclosure
provides a convenient way to compare key fees and features with the
consumer's own prepaid account (if they have one) and, perhaps at a
later time, with other prepaid accounts. Consumers may also use the
short form disclosure to quickly assess the relative advantage of
receiving their wages (or benefits) via the account versus other
payment methods, such as direct deposit to a bank account or by check.
[[Page 84015]]
In sum, while the consumer may not comparison shop among payroll card
accounts (or government benefit accounts), the short form disclosure
nevertheless provides important comparison opportunities for consumers
offered payroll card accounts (and government benefit accounts).
Finally, while the Bureau understands that some payroll card
accounts (and government benefit accounts) currently charge fewer fees
and offer fewer features than GPR cards, requiring the short form
disclosure in this context ensures that consumers know that certain
features and services are free or unavailable and further, it ensures
they will be apprised of the charges for any new fees the payroll (or
government benefit) industry may impose on such accounts in the future.
Disclosures for non-reloadable cards and digital wallets. The
Bureau also considered the comments requesting exemption from the short
form disclosure requirements for non-reloadable cards and digital
wallets, but declines such exemption in the final rule. The Bureau
believes consumers who buy these product types will benefit from the
short form disclosure. As discussed above with respect to payroll card
accounts and government benefit accounts, the short form disclosure was
designed to showcase information participants identified in the
Bureau's pre-proposal consumer testing as key to their general prepaid
account purchase and use decision-making; such information is intended
to complement the information disclosed in the more detailed long form.
In addition, the Bureau is concerned that creating an individualized
disclosure regime for different types of prepaid accounts could create
a patchwork regulatory regime, which is one of the results this rule
seeks to prevent.
With respect to the request to exempt digital wallets from the pre-
acquisition disclosure requirements (particularly the short form), the
Bureau believes consumers of digital wallets should have the same
opportunity to review fees (or lack thereof) in the short form
disclosure as consumers of other prepaid accounts. While the majority
of digital wallet models currently on the market may not charge usage
fees, as one commenter asserted, this may not hold true in the future,
especially if these products become more widely used and the features
and services offered broaden. The Bureau is also not persuaded that
there are sufficient factors distinguishing digital wallets from other
types of prepaid accounts that are marketed or available for
acquisition electronically. The Bureau is skeptical that the technical
and other constraints suggested by commenters would impact the ability
of digital wallets to provide pre-acquisition disclosures. The Bureau
is not persuaded, therefore, that a convincing policy rationale exists
for treating digital wallets differently than other prepaid accounts
with regard to pre-acquisition disclosures.
Changes in terms and addition of new EFT services. The Bureau
understands financial institutions do not change the fee schedules for
most prepaid accounts often, especially for prepaid products
distributed in person, such as GPR cards and similar products sold at
retail, because a financial institution may need to pull and replace
outdated card packaging when making changes to those programs'
disclosed fee structures. Financial institutions' reasons for pulling
and replacing may include compliance with legal requirements under
operative State consumer protection and contract laws, difficulties
that may arise in attempting to provide notice of changed terms to
consumers, as well as financial institutions' concerns about being
accused of deceptive advertising practices by selling products with
inaccurate disclosures. The Bureau encourages the practice of pulling
and replacing when making significant changes to prepaid account
programs, as it believes that doing so will facilitate consumer
understanding of the products they are purchasing and reduce risk to
the financial institution of litigation or regulatory claims of
deception.
Two industry commenters, however, stated that financial
institutions also sometimes make changes either through disclosures and
consumer consent at registration, or at a later point in the customer
relationship through a Regulation E change-in-terms notice. The Bureau
recognizes that Regulation E provides a system for notifying existing
customers of changes in terms to existing accounts, set forth in Sec.
1005.8(a). The Bureau believes that in some circumstances, such
procedures may also provide an appropriate means to notify new
customers of changes to recently acquired prepaid accounts.
The Bureau also notes that Regulation E also provides a means,
separate from a change-in-terms notice, for financial institutions to
notify consumers of terms associated with a new EFT service that is
added to a consumer's account, in Sec. 1005.7(c).\374\ The Bureau
believes that such procedures are appropriate in circumstances where a
financial institution is, for example, making available a new optional
service for all prepaid accounts in a particular prepaid account
program. In such a circumstance, financial institutions do not need to
pull and replace card packaging that does not disclose that new
optional feature, even though a long form disclosure that may be
provided inside the card packaging pursuant to Sec.
1005.18(b)(1)(ii)(A), the number of additional fee types pursuant to
Sec. 1005.18(b)(2)(viii), and the listing of additional fee types
pursuant to Sec. 1005.18(b)(2)(ix) may be incomplete or inaccurate due
to the addition of that service. Instead, a financial institution may
provide to new customers disclosures for the addition of the new
service in accordance with Sec. 1005.7(c) post-acquisition. The Bureau
expects, however, that financial institutions will keep their other
disclosures up to date (including those provided electronically and
orally, as well as disclosures provided in writing that are not a part
of pre-printed packaging materials, such as those printed by a
financial institution upon a consumer's request).
---------------------------------------------------------------------------
\374\ See also final Sec. 1005.18(f)(1), which extends the
requirements of Sec. 1005.7 to all fees, not just fees for EFTs or
the right to make EFTs.
---------------------------------------------------------------------------
Other requests by commenters. In response to the consumer groups
requesting the addition of visual aids to the disclosures, the Bureau
believes that there is insufficient space in the short form to
accommodate such visuals and that the length and detail of the
information in the long form disclosure obviate the need for such
additional requirements there.
With regard to comments from some consumer group commenters and the
office of a State Attorney General recommending prohibition of certain
fees, such requests are outside of the scope of this rulemaking.
However, the Bureau intends to monitor compliance with this rule as
well as developments in the prepaid market in general, and will
consider additional action in future rulemakings if necessary.
Alternative Approaches Considered by the Bureau
Before proposing the pre-acquisition disclosure regime that the
Bureau is adopting in this final rule, the Bureau considered and
rejected two alternative approaches. As discussed in the proposal, an
``all-in'' approach would have disclosed a single monthly cost for
using a particular prepaid account.\375\ Proponents of this approach
said it would provide a quick and understandable reference point and,
as compared to a disclosure listing several different numbers with line
items for
[[Page 84016]]
each fee type, could also allow for easier comparisons among prepaid
account programs. The Bureau also considered the ``category heading''
approach which would have featured a short form disclosure with
category headings based on the function for which a consumer would use
the service associated with each fee, a format that many prepaid
account providers have already adopted, in lieu of the top-line fee
type format the Bureau is adopting in this final rule.\376\ The
proposal included a discussion of the justification for the Bureau's
rejection of these two alternative approaches in favor of the pre-
acquisition disclosure regime that the Bureau proposed and is now
adopting in this final rule.
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\375\ See 79 FR 77102, 77150-51 (Dec. 23, 2014).
\376\ See ICF Report I at app. C, 2A. As listed in that
prototype short form disclosure, 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 ATM.
---------------------------------------------------------------------------
The Bureau received few comments regarding these rejected
alternatives. Two program managers expressed their support for the
Bureau's decision to reject both the ``all-in'' and ``category
heading'' approaches for the reasons the Bureau set forth in the
proposal and an issuing bank supported the Bureau's reasoning for
avoiding the all-in approach. One of the program managers noted that
use of payroll cards varies significantly both by individual consumer
and the specific employer's payroll card account program. On the other
hand, two consumer group commenters recommended that the Bureau
reconsider the feasibility of the ``all-in'' approach. While
acknowledging the Bureau's valid concerns about determining typical
usage costs given the wide variety of consumer use, they said that
providing through the short form disclosure the estimated cost of
typical use of a specific prepaid account would help the minority of
consumers who are ``intensive users'' of prepaid accounts and use them
essentially as a substitute for checking accounts. They recommended
that the Bureau require financial institutions to analyze the
distribution of accountholders' actual total expenses and identify
total expenses at the 25th and 75th percentiles of distribution. They
said this analysis would show that consumers who use a specific prepaid
account product frequently for routine financial transactions would be
likely to incur costs within a concrete range.
For the reasons the Bureau declined to embrace the ``all-in'' and
``category heading'' approaches in the proposal, the Bureau also has
rejected these approaches in the final rule in favor of the pre-
acquisition disclosure regime described above and throughout this final
rule. As discussed in more detail in the proposal \377\ and
acknowledged by the consumer groups recommending the ``all-in''
approach, the Bureau continues to question the viability of developing
a single formula that accurately reflects typical consumer use of a
particular prepaid account program, including how to decide which fee
types to include in such a formula and in view of studies indicating
there are numerous use cases for prepaid accounts, particularly GPR
cards.\378\ Moreover, a prepaid account that might have a higher cost
under such a formula adopted by the Bureau may actually be less costly
for certain consumers, depending on how they use the prepaid account.
For example, a formula that included ATM withdrawal fees would disclose
an ``all-in'' fee not germane to consumers who do not withdraw cash via
an ATM. The Bureau is concerned that such a result may be confusing to
consumers. The Bureau also believes that an explanation of the
methodology used to calculate the ``all-in'' disclosure would disturb
the balance in the short form of the most important information for
consumers and the brevity and clarity necessary for optimal consumer
comprehension. Thus, the Bureau has concluded that an ``all-in''
disclosure would be of limited utility and could even mislead
consumers, and declines to adopt such a disclosure in this final rule.
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\377\ See 79 FR 77102, 77150 (Dec. 23, 2014).
\378\ See, e.g., 2014 Pew Study at 13.
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The Bureau also continues to believe the use of the ``category
heading'' approach would not be appropriate because the headings would
take up valuable space in the short form disclosure that would limit
disclosure of other, more important information, particularly for
headings under which there would only be disclosed one fee. Also, as
discussed above, the Bureau's pre-proposal consumer testing indicated
that the top-line approach embraced in the proposed and final rules
proved effective with consumers and the Bureau does not believe that
the short form disclosure could effectively accommodate both approaches
together. Finally, pre-proposal testing revealed that participant
comprehension of fees and their purposes did not improve with the use
of category headings. The Bureau also notes that the less space-
restricted long form disclosure, pursuant to Sec. 1005.18(b)(7)(i)(B),
requires the use of subheadings by the categories of function for which
a financial institution may impose fees, as illustrated by Sample Form
A-10(e). The Bureau thus declines to adopt a ``category heading''
approach for the short form disclosure in this final rule.
18(b) Pre-Acquisition Disclosure Requirements--Commentary
The Bureau is adopting two comments to accompany Sec. 1005.18(b),
as described below.
Written and electronic pre-acquisition disclosures. The final rule
includes certain specific requirements for pre-acquisition disclosures
depending on whether they are provided in written, electronic, or oral
form. See, e.g., Sec. 1005.18(b)(1)(iii) and (6). The Bureau is adding
new comment 18(b)-1 to provide additional guidance as to the
interaction of these Sec. 1005.18(b) disclosure requirements with the
E-Sign Act and with other existing provisions within Regulation E.
Specifically, comment 18(b)-1 explains that existing Sec. 1005.4(a)(1)
generally requires that disclosures be made in writing; written
disclosures may be provided in electronic form in accordance with the
E-Sign Act. The comment goes on to say that, because final Sec.
1005.18(b)(6)(i)(B) provides that electronic disclosures required by
final Sec. 1005.18(b) need not meet the consumer consent or other
applicable provisions of the E-Sign Act, Sec. 1005.18(b) addresses
certain requirements for written and electronic pre-acquisition
disclosures separately. Final Sec. 1005.18(b) also addresses specific
requirements for pre-acquisition disclosures provided orally.
Disclosures in foreign currencies. A payment network commenter
recommended that the Bureau permit disclosure of fees in a foreign
currency for prepaid cards denominated in that currency. The commenter
gave the example of permitting disclosures in pound sterling for
prepaid accounts sold in U.S. airports for intended use in England. The
Bureau is adding comment 18(b)-2 to clarify that such disclosures are
permitted. Specifically, comment 18(b)-2 explains that fee amounts
required to be disclosed by Sec. 1005.18(b) may be disclosed in a
foreign currency for a prepaid account denominated in that foreign
currency, other than the fee for the purchase price required by Sec.
1005.18(b)(5). The comment gives an example that a prepaid account sold
in a U.S. airport intended for use in England may disclose in pound
sterling ([pound]) the fees required to be disclosed in the short form
and long form disclosures and outside the short form disclosure, except
for the purchase price.
[[Page 84017]]
18(b)(1) Timing of Disclosures
18(b)(1)(i) General
The Bureau's Proposal
As discussed above, Sec. 1005.7(b) currently requires financial
institutions to provide certain initial disclosures when a consumer
contracts for an EFT service or before the first EFT is made involving
a consumer's account. The Bureau proposed in revised Sec.
1005.18(b)(1)(i) that, in addition to the initial disclosures that are
usually provided in an account's terms and conditions document pursuant
to existing Sec. 1005.7(b), a financial institution would also have to
provide a consumer with certain fee-related disclosures before a
consumer acquired a prepaid account. In the proposal, the Bureau
explained its concerns as noted above that while some financial
institutions were already providing limited disclosures to consumers
prior to acquisition, consumers across a range of acquisition channels
did not always have access to consistent and comprehensive information
before selecting a prepaid account.
Based on its outreach and research, the Bureau explained in the
proposal its understanding that some financial institutions were not
disclosing the fees that consumers may find relevant to their
acquisition decision until the account was purchased (or otherwise
acquired), the packaging material was opened, and the consumer reviewed
the enclosed account agreement document. To take just one example, one
prepaid product the Bureau looked at imposed an inactivity fee after 90
days of no transactions, but this fee was not disclosed on an outward-
facing external surface of the prepaid account access device's
packaging material that was visible before purchase. Further, the
Bureau expressed concern that new employees might have been receiving
terms and conditions documents regarding payroll card accounts at the
same time they received substantial other benefits-related paperwork,
making the fees difficult for employees to comprehend while sorting
through other important and time-sensitive documents. Similarly,
certain providers of prepaid accounts online may have been presenting
disclosures on their Web sites in a way that made it difficult for
consumers to have the chance to review them prior to acquisition.
In the proposal, the Bureau stated its belief that, for several
reasons, consumers in all acquisition scenarios would benefit from
receiving these new pre-acquisition disclosures prior to contracting
for an EFT service or before the first EFT was made involving the
account, at which point they would receive the initial disclosures that
Sec. 1005.7(b) already requires.
First, the Bureau believed that pre-acquisition disclosures could
limit the ability of financial institutions to obscure key fees. For
example, many participants in the Bureau's consumer pre-proposal
consumer testing reported incurring fees that they did not become aware
of until after they purchased their prepaid account.\379\ 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 disclosed before they
acquired the accounts.\380\ The Bureau believes that its pre-
acquisition disclosure regime will reduce the likelihood that these
problems recur.
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\379\ See ICF Report I at 7.
\380\ See id.
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Second, the Bureau believed that, 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. The
Bureau recognized 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 believed, however, that even in this scenario, students
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 believed that both the short and
long form disclosures could inform the way in which these consumers
decide to use the product once they acquired it.
Third, the Bureau believed that consumers could use their prepaid
account for an extended period of time and potentially incur
substantial fees over that time. For example, the Bureau noted that,
during its pre-proposal consumer testing, participants indicated that
they tend to use a given prepaid account, 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, paying whatever fees are incurred in the
course of doing so. Other research is consistent. Specifically, the
Bureau cited to one study that indicated 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.\381\ Thus, the Bureau believed that whatever disclosure
information a consumer used 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.
---------------------------------------------------------------------------
\381\ 2012 FRB Kansas City Study at 40.
---------------------------------------------------------------------------
Regulation E, however, currently only provides for initial
disclosures to be delivered at the time a consumer contracts for an EFT
service or before the first EFT is made involving a consumer's account.
The Bureau was concerned that, in the prepaid account context, this
might sometimes be too late. With prepaid accounts, consumers often
contract for an EFT service when acquiring the prepaid account and
completing an initial load. The Bureau was concerned that, under the
timing requirements for initial disclosures in Sec. 1005.7, consumers
were receiving fee-related disclosures too late to use them in their
decision-making and comparison-shopping. The Bureau therefore proposed
Sec. 1005.18(b)(1)(i), which would have required a financial
institution, in most cases, to provide the short form and long form
disclosures before a consumer acquired a prepaid account.
The Bureau also proposed to add comment 18(b)(1)(i)-1, which would
have provided examples of what would and would not qualify as providing
disclosures pre-acquisition in the bank branch and payroll contexts.
Proposed comment 18(b)(1)(i)-2 would have provided further explanation
regarding circumstances when short form and long form disclosures would
have been 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).
Comments Received
As with the timing of acquisition of a government benefit account,
discussed in the section-by-section analysis of Sec. 1005.15(c) above,
the Bureau received numerous comments requesting that it provide
further clarification on the meaning of the term acquisition in the
payroll card context.
A number of commenters urged that, as with government benefit
accounts, acquisition in the payroll card account context should be
defined as the point at which the consumer chooses to receive wages via
a payroll card account. These commenters included
[[Page 84018]]
issuers, program managers, employers that use payroll card accounts, a
think tank, and trade associations representing the prepaid industry
and payroll and human resource professionals. The commenters argued in
support of defining acquisition as the point of consumer choice because
it has already been adopted in several states' wage and hour laws,
emphasizing that those laws have the same purpose as this rule: to
ensure that employees are aware that they have options with regard to
how they get paid. The commenters argued that alternative approaches--
for example, defining acquisition as the point at which an employee
takes physical possession of a payroll card--could cause significant
disruption to current industry practice. Under current practice, they
asserted, an employee may arrive on the first day of work and receive a
package containing an inactive payroll card account, disclosures
related to that account, and additional information regarding payroll,
benefits, and other work-related issues. According to commenters, this
practice is beneficial to employees, as an employee is more likely to
be engaged in the on-boarding process and to ask questions about the
payroll card on that first day than at some later time, so distributing
the card and disclosures together in that circumstance maximizes the
chances that the employee will review the disclosures and ask related
questions. Further, these commenters asserted, an employee who
possesses a physical payroll card has at least one way of receiving his
pay. If he chooses the payroll card, they argued, he will be paid
quickly and without much hassle, in contrast to paper checks, which can
take time to clear and cost money to cash or deposit, or direct
deposit, which requires the employee to submit additional information
to the employer in order to set up.
One employer that uses payroll card accounts to distribute wages to
its employees argued that acquisition should mean either the point at
which a consumer affirmatively chooses to receive wages via a payroll
card account, or the point at which a consumer fails to make a choice
from among a previously-presented list of available payment options.
According to this commenter, some employers provide payroll cards as
the default payment option if an employee fails to affirmatively elect
a payment option. This practice, the commenter maintained, should be
allowed to continue so long as the employee is notified (and where
permitted by State law).
On the other hand, a number of consumer groups stated that under
current payroll card disbursement processes, there have been continuing
reports of employers steering employees to select payroll card accounts
as their payment method. Such reports, they maintained, show that
current methods for distributing payroll cards or disclosures do not
sufficiently ensure that employees have the time and information they
need to evaluate or choose an alternative payment method. Relatedly,
two consumer groups also argued that employees should be given a
minimum number of days (seven, according to one commenter, and 30,
according to the other) before they are required to select a method of
payment. Other commenters did not suggest a specific point in time for
defining acquisition. Rather, they urged the Bureau to define
acquisition in a way that ensures employees receive the pre-acquisition
disclosures earlier than they currently receive the initial account
opening disclosures pursuant to Sec. 1005.7.
With respect to online acquisition, a digital wallet provider
argued that the point of acquisition for a digital wallet should be the
point at which the consumer's account first holds a balance, not the
point at which the consumer sets up or opens the account. Prior to the
point at which the account holds a balance, the commenter argued, the
pre-acquisition disclosures are irrelevant and may confuse consumers
and cause them to abandon the online sign-up process. In addition, the
commenter urged the Bureau to revise proposed comment 18(b)(1)(i)-2 to
allow digital wallet providers to collect personally identifiable
information before providing the disclosures. The commenter noted that
these providers have to collect certain information in order to open
the account. In a similar vein, a program manager asked the Bureau to
clarify that the collection of certain personally identifiable
information from a consumer does not by itself constitute
``acquisition.'' The commenter provided the example of an individual
who goes online and submits her name and address in order to receive
more information about a prepaid product by mail. The commenter was
concerned that proposed comment 18(b)(1)(i)-2 could be read to require
the financial institution to provide the short and long form
disclosures before the consumer submitted this information, even if the
consumer was providing the information on a third-party Web site while
seeking information about multiple prepaid account products.
Also with respect to online acquisition of accounts, a consumer
group commenter asked the Bureau to clarify that consumers must be
shown both the short form and long form prior to acquiring the account,
not just provided a link to them. The commenter argued that there was a
lack of clarity in proposed comment 18(b)(1)(i)-2 around this point,
since the comment both states that the consumer should not be able to
easily bypass the disclosures, and that the financial institution can
include a link to the long form on the same Web page as it discloses
the short form.
The Final Rule
For the reasons set forth herein, the Bureau is adopting Sec.
1005.18(b)(1)(i) largely as proposed, with a technical revision. The
Bureau is also adopting proposed comments 18(b)(1)(i)-1 and -2 with
several revisions. First, the Bureau has added guidance in comment
18(b)(1)(i)-1 to clarify that for purposes of Sec. 1005.18(b)(1)(i), a
consumer acquires a prepaid account by purchasing, opening, or choosing
to be paid via a prepaid card. Second, the Bureau has added
clarification to comment 18(b)(1)(i)-1.ii to explain that, in the
context of payroll card accounts, short form and long form disclosures
are provided pre-acquisition if they were provided before a consumer
chose to receive wages via a payroll card. Third, the Bureau has
revised comment 18(b)(1)(i)-2 to clarify that a consumer who goes
online to obtain more information about a prepaid account does not
acquire a prepaid account by providing personally identifiable
information in the process. The comment also provides additional
examples of when a consumer who acquires a prepaid account
electronically receives the short form and long comments for clarity
and consistency.
The Bureau is adopting Sec. 1005.18(b)(1)(i), as well as Sec.
1005.18(b)(1)(ii) and (iii) discussed below, pursuant to its authority
under EFTA sections 904(a) and (c), and 905(a), and section 1032(a) of
the Dodd-Frank Act. As discussed above, the Bureau believes that
adjustment of the timing and fee requirements 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 revision will
assist consumers' understanding of the terms
[[Page 84019]]
and conditions of their prepaid accounts.
Specifically, the Bureau has added language to comment 18(b)(1)(i)-
1 stating that a consumer acquires a prepaid account by purchasing,
opening, or choosing to be paid via a prepaid account. The Bureau
agrees with commenters that additional clarity was needed around the
use of the term acquisition in circumstances where the consumer does
not purchase the prepaid account. Accordingly, the Bureau has included
such terms as ``opening'' or ``choosing to be paid'' in the commentary
to clarify the point in time at which consumers acquire a prepaid
account in circumstances other than the retail scenario. The Bureau is
finalizing comment 18(b)(1)(i)-1.i, which includes an example of the
acquisition timing requirements in the context of a bank branch,
largely as proposed, with minor revisions for conformity with changes
elsewhere in Sec. 1005.18(b).
For similar reasons, the Bureau has revised comment 18(b)(1)(i)-
1.ii to clarify that, in the payroll card account context, a consumer
who is provided with a payroll card and the disclosures required by
Sec. 1005.18(b) at the time he or she learns that he or she can
receive wages via a payroll card account, but before the consumer
chooses to receive wages via a payroll card account, is provided with
the disclosures prior to acquisition. The final comment explains that,
if a consumer receives the disclosures after the consumer receives the
first payroll payment on the payroll card, those disclosures were
provided post-acquisition, in violation of Sec. 1005.18(b)(1)(i).
As above with respect to the timing of acquisition of a government
benefit card, the Bureau has attempted to strike a balance that ensures
that employees receive the new disclosures early enough to inform their
payment choices, thereby furthering the goals of the compulsory use
prohibition in Sec. 1005.10(e)(2), while minimizing the potential
disruption to current employer practices. Further, as discussed in the
section-by-section analysis of Sec. 1005.10(e)(2) above, the Bureau
believes it is important that consumers have a choice with respect to
how they receive their wages or salary. Accordingly, the Bureau
believes it is appropriate to adopt a rule requiring financial
institutions to provide their new disclosures before the consumer
chooses a method of payment. Under the final rule, therefore, consumers
must receive both the short form and long form disclosures (which
include on the short form disclosure a notice informing consumers they
have other options besides the payroll card account to receive their
wages) before they choose the payment method that is best for them.
The Bureau declines to require a mandatory waiting period between
the time consumers receive the disclosures and the time they are
required to elect a payment method, for the reasons set forth in the
section-by-section analyses of Sec. Sec. 1005.10(e)(2) and 1005.15(c)
above. Specifically, the Bureau does not believe that it is necessary
at this time to specify a single time period that would apply in all
enrollment scenarios.
Further, the Bureau is aware that, as noted by an employer
commenter and as discussed in the section-by-section analysis of Sec.
1005.10(e)(2) above, consumers are sometimes given a choice between two
or more payment alternatives, but may fail to indicate their
preference. Depending on the facts and circumstances--for example, the
date by which the consumer has to be paid her wages under State law--it
may be reasonable for a financial institution or other person in this
scenario to employ a reasonable default enrollment method. However, the
Bureau is concerned about reports from consumer group commenters of
employees being coerced to accept payroll card accounts as their
default method of receiving wages and intends to monitor the payroll
card account market for compliance with the compulsory use prohibition
and will consider further action in a future rulemaking if necessary.
As stated above, the Bureau also believes that by requiring the
disclosures to be provided before a consumer acquires a prepaid
account, the final rule will help ensure that all prepaid consumers,
including employees receiving payroll card accounts, have the
information they need to evaluate the prepaid account option (or
options) available to them.
With respect to proposed comment 18(b)(1)(i)-2, regarding the
timing for delivery of disclosures provided electronically, the Bureau
understands that the digital wallet acquisition process may in some
respects be different than the acquisition process for other prepaid
accounts. However, the Bureau does not believe that this warrants
different treatment for purposes of the timing requirement for delivery
of pre-acquisition disclosures. In particular, the Bureau notes that
the fact that a digital wallet consumer could receive the disclosures
before the wallet holds any funds is not unique to digital wallets.
Indeed, to qualify as a prepaid account, an account must be issued on a
prepaid basis or be capable of being loaded with funds after
acquisition.\382\ The Bureau believes that it is important that
consumers are informed of the fees and other key terms that will apply
to their prepaid account before they open or purchase that account,
whether that account is accessed by a physical prepaid card, a digital
wallet, or through some other means. Furthermore, the Bureau
understands that digital wallet providers presently provide some
disclosures (for instance, user agreements and privacy policies) prior
to a consumer opening an account. Thus, the Bureau does not believe
that requiring digital wallet providers to provide the short form and
long form disclosures before the consumer opens the account should be
problematic for financial institutions or confusing to consumers.
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\382\ See final Sec. 1005.2(b)(3)(i)(D)(1).
---------------------------------------------------------------------------
Next, the Bureau has removed the reference in proposed comment
18(b)(1)(i)-2 to a consumer's provision of personally identifiable
information. The Bureau understands that there may be scenarios in
which a consumer provides personal information, such as name or
address, in order to obtain more information about a particular
product. Likewise, there could be instances where a consumer provides
personal information for one purpose online, and that information is
then used for other purposes, such as to market a prepaid account to
the consumer. In either scenario, the consumer did not provide the
personal information in order to acquire the prepaid account. Final
comment 18(b)(1)(i)-2, therefore, no longer states that a consumer who
receives the disclosures after the consumer provides personally
identifiable information has received the disclosures post-acquisition.
Instead, the comment states that the disclosures required by Sec.
1005.18(b) may be provided before or after a consumer has initiated the
acquisition process. If the disclosures are presented after a consumer
initiates the acquisition process such disclosures are made pre-
acquisition if the consumer receives them before choosing to accept the
prepaid account.
Finally, with respect to consumer groups' requests that the Bureau
clarify that a consumer must be shown both the short form and long form
disclosures prior to a consumer's acquisition of a prepaid account
through electronic means, the Bureau has added several examples in
final comment 18(b)(1)(i)-2 to illustrate disclosure methods that would
comply with final Sec. 1005.18(b)(1)(i). In the first example, set
forth in new paragraph i, the
[[Page 84020]]
financial institution presents the short form, long form, and Sec.
1005.18(b)(5) disclosures on the same Web page, which the consumer must
view before choosing to accept the prepaid account. In the second
example, set forth in new paragraph ii, the financial institution
presents the short form and Sec. 1005.18(b)(5) disclosures on one Web
page, together with a link that directs the consumer to a separate Web
page containing the long form disclosure, which the consumer must also
view before choosing to accept the prepaid account. Finally, in the
third example, set forth in new paragraph iii, the financial
institution presents on a Web page the short form and Sec.
1005.18(b)(5) disclosures, followed by the initial disclosures required
by Sec. 1005.7(b) containing the long form disclosure in accordance
with final Sec. 1005.18(f)(1), on the same Web page. The financial
institution includes a link, after the short form disclosure or as part
of the statement required by Sec. 1005.18(b)(2)(xiii), that directs
the consumer to the section of the initial disclosures containing the
long form disclosure. The consumer must view this Web page containing
the two disclosures prior to choosing to accept the prepaid account.
These comments are intended to clarify that a consumer does not
receive electronic disclosures prior to acquisition if the consumer is
able to bypass some or all of the Sec. 1005.18(b) disclosures before
choosing to accept the prepaid account. The Bureau agrees with the
consumer group commenter that language in the proposed comment
regarding whether or not the consumer could review unrelated
information before reviewing the long form disclosure on a separate Web
page potentially contradicted this general principle. Accordingly, the
Bureau has removed that language from the commentary to the final rule.
In addition to the revisions discussed above, the Bureau is
finalizing certain other minor changes to comments 18(b)(1)(i)-1 and -2
for clarity and consistency.
18(b)(1)(ii) Disclosures for Prepaid Accounts Acquired in Retail
Locations
The Bureau's Proposal
The Bureau proposed an adjustment to the general pre-acquisition
timing requirement where consumers acquired prepaid accounts in retail
stores. Proposed Sec. 1005.18(b)(1)(ii) would have permitted financial
institutions to employ an alternative method of delivering the long
form disclosure. Under this alternative timing regime, a financial
institution would have been permitted to provide the long form
disclosure in writing after the consumer acquired a prepaid account as
long as three conditions were met, as discussed below.
In the proposal, the Bureau stated its belief that in many cases it
was not feasible for financial institutions that offered prepaid
accounts in retail stores to provide printed long form disclosures
prior to acquisition. For example, due to size and space limitations on
standard J-hook display racks, the Bureau believed that many financial
institutions would not have been able to present both the short form
and long form disclosures required by proposed Sec. 1005.18(b)(2)(i)
and (ii) on the packaging without overhauling the packaging's design or
otherwise adjusting the relevant retail space.
Nevertheless, the Bureau believed it was 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 have permitted a financial institution to provide the long form
disclosure after a consumer acquired a prepaid account in person in a
retail store, as long as three conditions were met. Proposed Sec.
1005.18(b)(1)(ii)(A) would have set forth the first condition: That the
access device for the prepaid account available for sale in a retail
store had to be inside of a packaging material. This condition would
have applied even if the product, when sold, was only a temporary
access device. Proposed Sec. 1005.18(b)(1)(ii)(B) would have set forth
the second condition: That the short form disclosures required by
proposed Sec. 1005.18(b)(2)(i) had to 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 believed that financial
institutions offering the majority of current prepaid accounts at
retail would be able to satisfy this condition without altering the
structure of the existing packaging.
The third condition, set forth in proposed Sec.
1005.18(b)(1)(ii)(C), would have required that a financial institution
include the telephone number and URL a consumer could use to access the
long form disclosure while in a retail store on the short form
disclosure, as required by proposed Sec. 1005.18(b)(2)(i)(B)(11). The
Bureau believed that consumers 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 believed that many
consumers had the ability to access a Web site through the URL that
would be listed on the short form disclosure when shopping for a
prepaid account, but nonetheless also proposed that when a financial
institution did not disclose the long form disclosure before a consumer
acquired a prepaid account, the financial institution had to also make
the long form disclosure available to a consumer by telephone. The
Bureau acknowledged that it might be complicated for financial
institutions to provide the long form disclosure by telephone. Further,
the Bureau acknowledged that it may be harder for a consumer to
understand the information in the long form disclosure when delivered
orally. Nevertheless, the Bureau believed that if a consumer took the
affirmative step to request additional information about a prepaid
account by telephone when shopping in a retail store, it may have been
more likely that the consumer was seeking out specific information not
included on the short form disclosure, and that such a consumer would
therefore be less likely to suffer from information overload.
Proposed comment 18(b)(1)(ii)-1 would have provided guidance on the
definition of retail store. Specifically, proposed comment
18(b)(1)(ii)-1 would have explained that, for purposes of the proposed
requirements of Sec. 1005.18(b)(1)(ii), a retail store was a location
where a consumer could obtain a prepaid account in person and that was
operated by an entity other than a financial institution or an agent of
the financial institution. Proposed comment 18(b)(1)(ii)-1 would have
further clarified that a bank or credit union branch was not a retail
store, but that drug stores and grocery stores at which a consumer can
acquire a prepaid account could be retail stores. Proposed comment
18(b)(1)(ii)-1 would have also clarified that a retail store that
offered 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 would need
to be provided pre-acquisition pursuant to proposed Sec.
1005.18(b)(1)(i) in such settings.
The Bureau believed that if a financial institution was the sole
provider of prepaid accounts in a given retail store, or was otherwise
an agent of the financial institution, then it would be easier for the
financial institution to manage the distribution of disclosures to
consumers. The Bureau believed that financial institutions with such
exclusive relationships should have fewer hurdles to providing both the
[[Page 84021]]
short form and long form disclosures to a consumer before acquisition.
Nevertheless, the Bureau sought comment on whether agents of the
financial institution faced space constraints in retail stores that
would have made it difficult to provide the short form and long form
disclosures pre-acquisition.
Proposed comment 18(b)(1)(ii)-2 would have explained that
disclosures were considered to have been provided post-acquisition if
they were inside the packaging material accompanying a prepaid account
access device that a consumer could not see or access before acquiring
the prepaid account, or if it was not readily apparent to a consumer
that he or she had the ability to access the disclosures inside of the
packaging material. Proposed comment 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 18(b)(1)(ii)-3 would have explained that a payroll
card account offered to and accepted by consumers working in retail
stores would not have been 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 had 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 explained that it
did not believe that there were space constraints involved in offering
payroll card accounts to retail store employees. Finally, proposed
comment 18(b)(1)(ii)-4 would have clarified that pursuant to proposed
Sec. 1005.18(b)(1)(ii)(C), a financial institution could make the long
form accessible to a consumer by telephone and by a Web site by, for
example, providing the long form disclosure by telephone using an
interactive voice response system or by using a customer service agent.
Comments Received
Industry commenters overwhelmingly supported the proposed retail
store exception. Despite this general support, however, a large number
of industry commenters, including issuing banks, program managers,
trade associations, a payment network, and an advocacy organization
advocating on behalf of business interests, generally opposed the
proposition that neither financial institutions nor their agents could
qualify for the proposed retail store exception. These commenters
argued that the exclusion of financial institutions and their agents
was unnecessary and did not reflect compliance and market realities.
Specifically, the commenters asserted that the location of acquisition
should not dictate the type of disclosure the consumer receive since,
they said, the constraints of providing the long form disclosure in any
in-person environment are the same. Thus, they argued, there is no
basis for distinguishing between large retailers that carry multiple
prepaid account programs and small retailers, who may have no choice
but to carry only one financial institution's products, nor between
retail stores and bank and credit union branches who may also sell
prepaid accounts on J-hooks or in J-hook-style packaging. One program
manager argued that the Bureau's failure to distinguish in this context
between banks that issue prepaid accounts and smaller financial
institutions, like credit unions or smaller banks, that only sell
prepaid accounts issued by others, is inequitable in that it places a
greater compliance burden on smaller institutions than comparable
retailers would face. These commenters urged the Bureau to expand the
application of the retail store exception to more or all in-person
sales of prepaid accounts.
A subset of these commenters objected specifically to the proposed
commentary stating that an entity is an agent of the financial
institution for purposes of proposed Sec. 1005.18(b)(1)(ii) if it
exclusively sells one financial institution's prepaid account products.
These commenters argued that agency status should be an issue
determined under State law. They explained that, under several States'
laws, a financial institution must appoint any store that sells its
products as its agent, which would make such store ineligible for the
retail store exception as proposed. Commenters also argued that the
exclusive retailer exclusion would be difficult to enforce. For
example, they noted that retailers may not be aware that they were
selling prepaid accounts from only one financial institution,
especially as retailers often deal with a program manager rather than
directly with the financial institution itself. The commenters also
listed several circumstances under which a retail store could
unwittingly become disqualified from the proposed retail store
exception by inadvertently offering only that financial institution's
prepaid accounts, including, for example, if a retail store offers two
financial institutions' prepaid accounts, but the supply of one
financial institution's products runs out.
Few consumer groups commented on this issue, but those that did,
along with the office of a State Attorney General, opposed the retail
store exception generally. They urged the Bureau to instead require
that the long form disclosure be provided prior to acquisition in all
scenarios because, they argued, consumers are more likely to pay
attention to information disclosed on a physical form than on a Web
site. They further noted that financial institutions could develop
viable alternative disclosure methods that would allow them to disclose
physical copies of both the short form and the long form prior to
acquisition as part of the prepaid card package--for example, the long
form could be disclosed under a flap that could be secured to the
package with a Velcro tab. These commenters did not comment, however,
on the types of entities that should qualify for the retail store
exception if the Bureau were to adopt such a regime in the final rule.
The Final Rule
For the reasons set forth herein, the Bureau is adopting Sec.
1005.18(b)(1)(ii) with modifications to the situations that qualify for
the alternative timing regime for delivery of the long form disclosure
for prepaid accounts sold at retail. In general, under the final rule,
the alternative timing regime applies when a consumer acquires a
prepaid account in person at a retail location, without regard to
whether the location is operated by an agent of the financial
institution. The final rule also clarifies, however, that financial
institutions selling prepaid accounts in their own branches qualify for
the exception only with respect to prepaid accounts that they do not
themselves issue. Finally, the Bureau has made several minor revisions
to Sec. 1005.18(b)(1)(ii) and its commentary for clarity and
consistency.
The Bureau has considered whether, as some consumer group
commenters suggested, it might be more beneficial for consumers to see
all of a prepaid account's fees pre-acquisition for prepaid accounts in
all acquisition scenarios including at retail to avoid putting the
burden on consumers to seek out additional information. The Bureau
declines, however, to revise the proposed alternative timing regime for
prepaid accounts sold at retail in this way, for the reasons discussed
below. The Bureau also declines to permit post-acquisition disclosure
of the long form in all in-person acquisition scenarios, as some
industry commenters requested.
[[Page 84022]]
The Bureau continues to believe that consumers benefit from
receiving both the short form and the long form disclosures in writing
prior to acquisition, because the disclosures serve different but
complementary goals. See the section-by-section analysis of Sec.
1005.18(b) above for a detailed discussion of the reasons the Bureau is
generally requiring that financial institutions provide both the short
form and the long form disclosures pre-acquisition.
However, the Bureau is cognizant of the potentially significant
cost to industry of providing the long form disclosure prior to
acquisition at retail and the packaging adjustments that including such
a disclosure would likely require based on the space constraints for
products sold at retail. Specifically, commenters have confirmed the
Bureau's understanding that, if it were to finalize a requirement that
the long form disclosure be provided in writing prior to acquisition of
a prepaid account in a retail environment, financial institutions would
have to undertake a significant overhaul of current packaging
designs.\383\ As such, the Bureau continues to believe that such
packaging adjustments would result in significant expense to industry
and would likely increase the cost of prepaid accounts and limit the
diversity of options available to consumers shopping for prepaid
accounts at retail (assuming retailers maintain the same overall space
for the display and sale of all prepaid accounts that they have now).
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\383\ As some consumer group commenters recognized, the only way
a printed long form could be incorporated into the current packaging
design is by adding additional material and functionality to the
package. As the Bureau noted in the proposal, adding material to
prepaid card packaging could limit the number of packages retailers
could sell on J-hook displays. See 79 FR 77102, 77153 (Dec. 23,
2014).
---------------------------------------------------------------------------
To balance these considerations, the Bureau has revised Sec.
1005.18(b)(1)(ii) and its commentary to broaden in certain respects the
type of entity that qualifies for the retail location exception set
forth in Sec. 1005.18(b)(1)(ii). Under final Sec. 1005.18(b)(1)(ii),
therefore, a financial institution is not required to provide the long
form disclosures before a consumer acquires a prepaid account in person
at a retail location; provided the following conditions are met: (A)
The prepaid account access device is contained inside the packaging
material; (B) the short form disclosures are provided on or are visible
through an outward-facing, external surface of a prepaid account access
device's packaging material; (C) the short form disclosures include the
information set forth in final Sec. 1005.18(b)(2)(xiii) that allows a
consumer to access the long form disclosure by telephone and via a Web
site; and (D) the long form disclosures are provided after the consumer
acquires the prepaid account.
The Bureau is persuaded that, in certain cases, the constraints
that apply in retail stores--limited space, distribution of disclosures
by someone other than the financial institution that issues the prepaid
account--could also apply in the context of other in-person acquisition
scenarios, such as in the branches of banks and credit unions that sell
another financial institution's prepaid accounts. Accordingly, the
Bureau is revising Sec. 1005.18(b)(1)(ii) and its commentary to
broaden the scope of the retail exception by referring to a retail
location rather than a retail store. The Bureau does not believe that
this shift in approach undermines the consumer protections offered by
the Bureau's pre-acquisition disclosure regime generally. Rather, the
Bureau continues to believe that its alternative timing regime, with
certain modifications described below, strikes an appropriate balance
by providing consumers with--or with access to--important disclosures
before acquiring a prepaid account while recognizing the packaging and
other constraints faced by financial institutions when selling prepaid
accounts at retail. Further, the Bureau notes that the conditions
placed on a financial institution's ability to use the exemption--
including that the short form disclosure appear on the outside of the
packaging containing the card and list a telephone number and Web site
URL the consumer can use to access the long form disclosure \384\--
should ensure that most consumers have access to comprehensive fee
information while they shop.
---------------------------------------------------------------------------
\384\ See final Sec. 1005.18(b)(1)(ii)(A) through (D).
---------------------------------------------------------------------------
The Bureau has revised comment 18(b)(1)(ii)-1 to remove the
commentary stating that a retail store must be operated by an entity
other than a financial institution or a financial institution's agent,
and giving specific examples of what type of entities would or would
not qualify as retail stores. Instead, final comment 18(b)(1)(ii)-1
states that, for purposes of final Sec. 1005.18(b)(1)(ii), a retail
location is a store or other physical site where a consumer can
purchase a prepaid account in person and that is operated by an entity
other than the financial institution that issues the prepaid account.
The Bureau continues to believe, however, that a financial
institution selling its own prepaid accounts does not face the same
challenges as in other retail locations, and in particular that it is
far less difficult for such a financial institution to manage the
distribution of disclosures to consumers. In addition, the Bureau
believes it is unlikely that any financial institution selling its own
prepaid accounts in its own branches also offers prepaid accounts
issued by other financial institutions. The Bureau also understands, as
stated in the proposal, that financial institutions selling their own
prepaid accounts may be less dependent on the J-hook infrastructure to
market their products to consumers. Thus, the Bureau believes it is
still appropriate to exclude from the retail location exception
financial institutions that sell their own prepaid accounts.
Accordingly, the Bureau has revised comment 18(b)(1)(ii)-1 to clarify
that a branch of a financial institution that offers its own prepaid
accounts is not a retail location with respect to those accounts and,
thus, both the short form and the long form disclosure must be provided
pre-acquisition pursuant to the timing requirements set forth in final
Sec. 1005.18(b)(1)(i).
Next, the Bureau is adopting new Sec. 1005.18(b)(1)(ii)(D) to make
clear that, to qualify for the retail location exception, the financial
institution must provide the long form disclosure after the consumer
acquires the prepaid account. Proposed Sec. 1005.18(b)(1)(ii) would
have permitted a financial institution, under certain conditions, to
provide the long form disclosure after acquisition, but left open a
possible interpretation that the financial institution could forego
delivering the long form disclosure altogether, which was not the
Bureau's intent. For clarity, therefore, the Bureau is adopting Sec.
1005.18(b)(1)(ii)(D) to make delivery of the long form disclosure after
acquisition an explicit requirement in Sec. 1005.18(b)(1)(ii). The new
provision does not set forth a specific time by which the long form
disclosure must be provided after acquisition. In practice, however,
the Bureau expects that compliance with final Sec.
1005.18(b)(1)(ii)(D) will typically be accomplished in conjunction with
compliance with final Sec. 1005.18(f)(1), which provides that a
financial institution must include, as part of the initial disclosures
given pursuant to Sec. 1005.7, all of the disclosures required by
Sec. 1005.18(b)(4). The initial disclosures required by Sec. 1005.7
must be provided prior to a consumer contracting for an EFT service or
before the first EFT involving the account.
Relatedly, the Bureau has removed the portion of proposed comment
[[Page 84023]]
18(b)(1)(ii)-2 that would have provided an example of when prepaid
disclosures provided inside packaging material are provided post-
acquisition, because it believes the other provisions of the rule make
clear that, other than as set forth in the retail location exception in
Sec. 1005.18(b)(1)(ii), the short form and long form disclosures must
both be provided to a consumer prior to acquiring the prepaid account.
The Bureau is otherwise finalizing comment 18(b)(1)(ii)-2, as well as
comments 18(b)(1)(ii)-3 and -4, generally as proposed with minor
modifications for clarity and consistency, as well as conforming
changes to reflect the numbering changes elsewhere in Sec. 1005.18(b).
18(b)(1)(iii) Disclosures for Prepaid Accounts Acquired Orally by
Telephone
Similar to the proposed alternative for retail stores, the Bureau
proposed Sec. 1005.18(b)(1)(iii) to provide that before a consumer
acquired a prepaid account orally by telephone, a financial institution
would have to disclose orally the short form information that would
have been required by proposed Sec. 1005.18(b)(2)(i). Proposed Sec.
1005.18(b)(1)(iii) would have further stated that a financial
institution could provide a written or electronic long form disclosure
required by proposed Sec. 1005.18(b)(2)(ii) after a consumer acquired
a prepaid account orally by telephone if the financial institution
communicated to a consumer orally, before a consumer acquired the
prepaid account, that the information required to be disclosed by Sec.
1005.18(b)(2)(ii) was available orally by telephone and on a Web site.
The Bureau believed that as long as consumers were made aware of their
ability to access the information contained in the long form
disclosure, they would be able to get enough information to make an
informed acquisition decision. Those who wished to learn more about the
prepaid account could do so, and financial institutions would not be
unduly burdened by having to provide the long form disclosure orally to
all consumers who acquire prepaid accounts by telephone. A version of
the long form disclosure, however, would have still been required to be
provided after acquisition in the prepaid account's initial
disclosures, pursuant to proposed Sec. 1005.18(f).
Proposed comment 18(b)(1)(iii)-1 would have explained that, for
purposes of proposed Sec. 1005.18(b)(1)(iii), a prepaid account was
considered to have been acquired orally by telephone when a consumer
spoke to a customer service agent or communicated with an automated
system, such as an interactive voice response system, to provide
personally identifiable payment information to acquire a prepaid
account, but would have clarified that prepaid accounts acquired using
a mobile device without speaking to a customer service agent or
communicating with an automated system were not considered to have been
acquired orally by telephone. The Bureau believed that, if a consumer
used a smartphone to access a mobile application to acquire a prepaid
account, and did not receive disclosures about the prepaid account
orally, the disclosures could be provided electronically pursuant to
proposed Sec. 1005.18(b)(3)(i)(B). The Bureau believed that in such a
scenario the logistical challenges justifying an alternative timing
requirement for accounts acquired orally by telephone were not present.
Proposed comment 18(b)(1)(iii)-2 would have explained how
disclosures provided orally could comply with the pre-acquisition
timing requirement in proposed Sec. 1005.18(b)(2)(i). Specifically,
proposed comment 18(b)(1)(iii)-2 would have clarified 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 disclosures required
under proposed Sec. 1005.18(b)(2)(i) over the telephone after a
consumer had initiated the purchase of a prepaid account by calling the
financial institution, but before a consumer agreed to acquire the
prepaid account. Proposed comment 18(b)(1)(iii)-2 would have also
explained that although the disclosure required by proposed Sec.
1005.18(b)(2)(ii) was not required to be given pre-acquisition when a
consumer acquired a prepaid account orally by telephone, a financial
institution would still have to communicate to a consumer that the long
form disclosure was available upon request, either orally by telephone
or on a Web site. Finally, the proposed comment would have clarified
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 EFT was made
from a consumer's prepaid account.
One consumer group commenter urged the Bureau to provide consumers
who acquire a prepaid account by telephone or electronically the option
of receiving written disclosures by mail upon request. The Bureau notes
that consumers acquiring prepaid accounts through these methods must
still receive the initial disclosures required by Sec. 1005.7, which,
as modified by final Sec. 1005.18(f)(1), must include all of the
information required to be disclosed in its pre-acquisition long form
disclosure pursuant to Sec. 1005.18(b)(4). Accordingly, the Bureau
does not believe it is necessary to separately provide consumers the
right to request a written copy of information they are already
required to receive under existing Sec. 1005.7 and final Sec.
1005.18(f)(1).
The Bureau is therefore adopting Sec. 1005.18(b)(1)(iii) and its
related commentary largely as proposed, with a few minor revisions.
Under final Sec. 1005.18(b)(1)(iii), a financial institution is not
required to provide the long form disclosure required by Sec.
1005.18(b)(4) before a consumer acquires a prepaid account orally by
telephone if the following conditions are met: (A) The financial
institution communicates to the consumer orally, before the consumer
acquires the prepaid account, that the long form disclosure is
available both by telephone and on a Web site; (B) the financial
institution makes the long form disclosure available both by telephone
and on a Web site; and (C) the long form disclosures are provided after
the consumer acquires the prepaid account.
The Bureau continues to believe that it is appropriate to modify
the proposed general pre-acquisition disclosure requirements when a
consumer acquires a prepaid account orally by telephone, and that
requiring disclosure of 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. The
Bureau believes that, since the final rule mandates that consumers be
made aware of their ability to access the information contained in the
long form disclosure, consumers will have access to enough information
to make an informed acquisition decision.
As stated above, the Bureau is finalizing several modifications to
Sec. 1005.18(b)(1)(iii) and its commentary. First, the Bureau has
added language to comment 18(b)(1)(iii)-2 to clarify that a financial
institution can meet the requirements of final Sec. 1005.18(b)(1)(iii)
by providing the required disclosures over the telephone using an
interactive voice response or similar system. Second, for the same
reason the Bureau is adopting new Sec. 1005.18(b)(1)(ii)(D) above, the
Bureau is adopting new Sec. 1005.18(b)(1)(iii)(C) to clarify that, to
qualify for the telephone exception, the financial institution would
have to provide the long form disclosure after
[[Page 84024]]
the consumer acquires the prepaid account. Again, while this new
provision does not set forth a specific time by which the long form
disclosure must be provided after acquisition, the Bureau expects that
compliance with Sec. 1005.18(b)(1)(iii)(C) will typically be
accomplished through delivery of the long form disclosure as part of
the initial disclosures required by Sec. 1005.7, in accordance with
final Sec. 1005.18(f)(1). Finally, the Bureau has made certain other
revisions to Sec. 1005.18(b)(1)(iii) and its commentary to streamline
and clarify the language therein.
18(b)(2) Short Form Disclosure Content
Proposed Sec. 1005.18(b)(2) would have consisted solely of a
heading, with the substantive content requirements for the Bureau's
proposed prepaid account pre-acquisition disclosure regime located
under proposed Sec. 1005.18(b)(2)(i) for the short form disclosure and
proposed Sec. 1005.18(b)(2)(ii) for the long form disclosure. The
regulatory text of proposed Sec. 1005.18(b)(2)(i) would have consisted
of a general statement that would have required that the fees,
information, and notices that would have been set forth in the
regulatory provisions under proposed Sec. 1005.18(b)(2)(i) be provided
in the short form disclosure.
The Bureau has relocated the regulatory text and commentary from
proposed Sec. 1005.18(b)(2)(i) to the final rule in Sec.
1005.18(b)(2) (with certain modifications as discussed below).\385\ In
keeping with this relocation, the discussion of the Bureau's proposal
and comments received regarding the regulatory text and comments of
proposed Sec. 1005.18(b)(2)(i) are incorporated into this section-by-
section analysis of Sec. 1005.18(b)(2) (except the overall description
of the proposed short form disclosure, which can be found in the
section-by-section analysis of Sec. 1005.18(b) above).
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\385\ See the section-by-section analysis of Sec. 1005.18(b)
above for a general discussion of the reorganization of the final
rule.
---------------------------------------------------------------------------
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(i) would have required that, before a
consumer acquires a prepaid account, a financial institution provide a
short form disclosure containing specific information about the prepaid
account, including certain notices, fees, and other information, as
applicable.
Proposed comment 18(b)(2)(i)-1 would have explained what a provider
should disclose on the short form when fees are inapplicable to a
particular prepaid account product or are $0. Specifically, the
proposed comment would have said 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 not
applicable to a specific prepaid account. The proposed comment would
have also provided 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 have been 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 have
further clarified, however, that if 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, it should
still list ``ATM withdrawal (in-network)'' and ``ATM withdrawal (out-
of-network)'' on the short form disclosure and state ``not offered'' or
``N/A.'' The Bureau believed it important that the static portion of
the short form disclosure list identical account features and fee types
across all prepaid account products, to create standardization in order
to enable consumers to quickly determine and compare the potential cost
of certain offered features.
The Bureau also proposed 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 have explained that no more
than two fees may be disclosed 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 (that is, the per purchase fee, the ATM withdrawal fee,
and the ATM balance inquiry fee), and that only one fee may be
disclosed for each fee type required to be disclosed by proposed Sec.
1005.18(b)(2)(i)(B)(1), (4), (6), (7), and (8) (that is, the periodic
fee, the cash reload fee, the customer service fee, the inactivity fee,
and the incidence-based fees). The proposed comment would have
clarified, however, that proposed Sec. 1005.18(b)(2)(i)(B)(8) would
have required the disclosure of up to three additional fee types.
Finally, the proposed comment would have provided the example that, if
a financial institution offers more than one method for loading cash
into a prepaid account, only the fee for the method that will charge
the highest fee should be disclosed, and the financial institution may
use an asterisk or other symbol next to the cash reload fee disclosed
to indicate that the fee may be lower. Finally, the proposed comment
would have provided a cross-reference to proposed comment
18(b)(2)(i)(C)-1.
As the Bureau explained in the proposal, the Bureau believed that
simplicity and clarity are important goals for the short form
disclosure, particularly in light of the space constraints imposed in
retail settings. Insofar as allowing complicated explanations and
multiple different fees to be disclosed for a particular feature could
disrupt those goals, the Bureau thus proposed 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. The
Bureau noted that these limitations would only apply to the short form
disclosure; the financial institution could use any other portion of
the packaging material or Web site to disclose other relevant fees at
its discretion, and would be required to disclose the other variations
on the long form.
The Bureau also believed there was 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 proposed 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 also proposed to require disclosure of two fee values.
The Bureau believed 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 believed including two per purchase fees
would highlight for consumers that the fees for completing a
transaction using a PIN versus the fee for using a signature could
differ. Similarly, the Bureau believed 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
relevant network. The Bureau noted that in its pre-proposal consumer
testing, some participants were
[[Page 84025]]
confused about the meaning of an ATM network.
By contrast, the Bureau proposed to allow only one periodic fee and
one cash reload fee to be listed in the top line of the short form. The
Bureau acknowledged 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 believed consumers would benefit
more from immediately seeing the two ways the per purchase and ATM
withdrawal fees may vary.
Comments Received
Comments received regarding the Bureau's proposed pre-acquisition
disclosing regime generally, including those regarding the short form
disclosure as a whole, are addressed in the section-by-section analysis
of Sec. 1005.18(b) above. Comments received that address specific
disclosure requirements in the short form disclosure are addressed in
the section-by-section analysis that corresponds to each specific
disclosure requirement. Comments received regarding proposed comment
18(b)(2)(i)-1 (regarding how to disclose features that are inapplicable
or free) are discussed below.
Several industry commenters, including program managers, an issuing
credit union, a payment network, and an industry trade association,
recommended against requiring disclosure of inapplicable fees. They
said such disclosures would take up valuable space on the short form
and it would confuse consumers to inform them about fees and services
that are not offered, especially for non-reloadable prepaid products
and government benefits prepaid cards which, the commenters said, do
not charge monthly, per purchase, or cash reload fees. Conversely, two
consumer groups, a program manager, and an issuing bank supported the
disclosure of inapplicable fees as providing a quick and accurate basis
for comparison across prepaid accounts. Another program manager and
issuing bank both supported the disclosure of inapplicable fees but
recommended requiring ``not applicable'' instead of ``N/A'' to clarify
to consumers that the service itself, not the fee, is inapplicable. One
of the consumer groups said ``N/A'' was confusing and recommended
disclosing ``not offered'' instead.
One issuing bank and an industry trade association recommended
against disclosing when no fee is charged. The bank recommended this
specifically for the fees that do not appear in the top line because it
said they are not commonly charged and the space in the short form
could be used for more commonly-charged fees. The bank recommended
listing the required fees if there is a charge but, if there is no
charge, permitting the issuer to decide what fee to display. A program
manager recommended eliminating the ``$0'' fee requirement for
government benefit accounts for fees that do not apply to such
accounts.\386\
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\386\ The Bureau notes that for fees for features that are not
available for such accounts, the disclosure made in the short form
would be ``N/A'' not ``$0.''
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The Final Rule
As noted above, to simplify the structure of the final rule, the
Bureau has modified proposed Sec. 1005.18(b)(2) and (2)(i), to locate
the content requirements for the short form disclosure in the final
rule under Sec. 1005.18(b)(2). Also, for reasons set forth below, the
Bureau is adopting revisions to proposed comment 18(b)(2)(i)-1,
renumbered as comment 18(b)(2)-1. Second, the Bureau is not finalizing
proposed comment 18(b)(2)(i)-2 regarding the number of fees to
disclose, as this comment would have repeated information found
elsewhere in the final regulatory text and commentary. Finally, the
Bureau is adopting new comment 18(b)(2)-2 regarding the prohibition on
disclosure of finance charges in the short form.
The Bureau has made both substantive and technical modifications to
comment 18(b)(2)-1 to clarify the explanation and examples in the
proposed comment that required fees must always be disclosed in the
short form--even when the financial institution does not charge a fee
or does not offer the feature, in which case the financial institution
would disclose ``$0'' or ``N/A,'' respectively, as applicable. Although
some commenters opposed a requirement to disclose a fee when there is
no charge or the feature is not offered, the Bureau is adopting this
requirement in the final rule to preserve standardization among short
forms such that consumers can see when a feature is offered for free or
is not offered at all to better compare prepaid accounts and inform
consumer purchase and use decisions. The Bureau recognizes that many
payroll card accounts and government benefit accounts do not currently
charge certain fees or offer certain features required to be disclosed
in the short form, but is finalizing the rule as proposed to allow
consumers to compare payroll card accounts or government benefit
accounts with their own prepaid accounts or prepaid accounts they may
acquire to receive their benefits or wages.
The Bureau's post-proposal consumer testing revealed that nearly
all participants understood both ``N/A'' and ``not offered'' when
disclosed in place of a required fee for features not offered by a
financial institution.\387\ However, in order to achieve a greater
degree of standardization across short form disclosures, the Bureau is
finalizing the rule to require disclosure of ``N/A,'' but not ``not
offered,'' when a financial institution does not offer a feature for
which a fee is required to be disclosed in the short form. The Bureau
believes this single standardized approach is shorter, simpler, and
clearer for consumers to use to compare fees and information in the
short form across prepaid accounts. Thus, final comment 18(b)(2)-1
clarifies that ``N/A'' is the required disclosure when a financial
institution does not offer a feature for which a fee is required to be
disclosed in the short form.
---------------------------------------------------------------------------
\387\ See ICF Report II at 17 and 27.
---------------------------------------------------------------------------
The Bureau is adopting new comment 18(b)(2)-2, which clarifies that
pursuant to new Sec. 1005.18(b)(3)(vi), a financial institution may
not include in the short form disclosure finance charges as described
in Regulation Z Sec. 1026.4(b)(11) imposed in connection with a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in Sec. 1026.61. The comment also cross-references new
comment 18(b)(3)(vi)-1.
18(b)(2)(i) Periodic Fee
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(i)(B)(1) would have required
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. The proposal
stated the provision was 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 have
been required to disclose this fee in the top line of the short form
disclosure.
The proposal set forth the following reasons for the Bureau's
proposed
[[Page 84026]]
requirement that financial institutions disclose the presence or
absence of a periodic fee as the first item in the short form. First,
the Bureau's analysis of fee data indicated that many prepaid accounts
charge a recurring fee, typically on a monthly basis. Second, the
Bureau believed 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.\388\ The Bureau
therefore believed 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 believed 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, the Bureau's pre-proposal consumer testing
showed that participants frequently cited periodic fees as one of the
most important factors influencing their decision about which prepaid
account to acquire.
---------------------------------------------------------------------------
\388\ The Bureau also proposed to require the disclosure of per
purchase fees on the top line of the short form. As discussed in
greater detail below, the Bureau is finalizing the per purchase fee
disclosure mostly as proposed, including locating it in the top line
of the short form. See the section-by-section analysis of Sec.
1005.18(b)(2)(ii) below.
---------------------------------------------------------------------------
Comments Received
No commenter opposed disclosure of the periodic fee, though an
issuing bank requested that the Bureau permit disclosure in the short
form of the conditions under which a financial institution may waive
the periodic fee and many other commenters urged more generally to
provide latitude to financial institutions to disclose conditions for
waiver or reduction of all listed fees.\389\ An office of a State
Attorney General recommended that the Bureau ban periodic fees for
payroll card accounts, but otherwise supported the disclosure required
by proposed Sec. 1005.18(b)(2)(i)(B)(1).
---------------------------------------------------------------------------
\389\ These comments are addressed in the section-by-section
analysis of Sec. 1005.18(b)(3) below.
---------------------------------------------------------------------------
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(1), renumbered as Sec. 1005.18(b)(2)(i),
with minor technical modifications for conformity and clarity. Also,
for the reasons set forth below, the Bureau is adopting comment
18(b)(2)(i)-1.
The Bureau is finalizing the requirement that financial
institutions disclose the periodic fee as the first fee on the short
form disclosure because it is a virtually universal charge and, even if
a per purchase fee is incurred instead of the periodic fee, the Bureau
continues to believe that consumers should be apprised of the trade-off
between the two pricing schemes.
The Bureau agrees that it may be particularly important for
consumers to be aware of waivers and discounts of the periodic fee, and
thus is adopting a new provision in the final rule that permits
financial institutions to disclose, in addition to the highest fee,
conditions under which the periodic fee may vary. While final Sec.
1005.18(b)(3)(i) requires disclosure of the highest fee when a fee can
vary, final Sec. 1005.18(b)(3)(ii) permits a financial institution to
disclose a waiver of or reduction in the fee amount for the periodic
fee in language lower down in the short form disclosure. See the
section-by-section analysis of Sec. 1005.18(b)(3) below for a
discussion of the comments received and analysis leading to the
adoption of this alternative for the periodic fee.
To clarify the specific applicability of final Sec.
1005.18(b)(3)(i) and (ii) to the periodic fee disclosure required by
final Sec. 1005.18(b)(2)(i), the Bureau is adopting new comment
18(b)(2)(i)-1. Comment 18(b)(2)(i)-1 states that, if the amount of a
fee disclosed on the short form could vary, the financial institution
must disclose in the short form the information required by final Sec.
1005.18(b)(3)(i). If the amount of the periodic fee could vary, the
financial institution may opt instead to use an alternative disclosure
pursuant to final Sec. 1005.18(b)(3)(ii). The Bureau is adopting this
comment to direct attention to the alternative disclosure of the
periodic fee in the short form permitted by Sec. 1005.18(b)(3)(ii).
With regard to the comment recommending that the Bureau ban the
periodic fee for payroll card accounts, such a request is outside the
scope of this rulemaking.
18(b)(2)(ii) Per Purchase Fee
Proposed Sec. 1005.18(b)(2)(i)(B)(2) would have required
disclosure of two fees for making a purchase using a prepaid account,
both for when a consumer uses a PIN 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.
The proposal explained that, 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. The Bureau said that the
impact of these fees could be substantial for consumers who make
multiple purchases. Often these fees are charged when periodic fees are
not, 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 believed 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. Proposed Model Forms A-10(a) through
(d) would have disclosed the per purchase fees on the top line of the
short form.
The Bureau's proposed rule further recognized 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 may sign for the transaction but does
not need to enter his or her PIN code. The Bureau therefore proposed
model forms for prepaid accounts that disclose both fees for these two
authorization methods.
No commenters objected to inclusion of per purchase fees generally
in the short form disclosure. An industry trade association, an issuing
bank, and a program manager commented on the relevance of requiring the
separate disclosure of per purchase fees for PIN and signature. These
commenters said that such methods may become obsolete with the
evolution of new cardholder verification methods (CVMs) and that many
current transactions do not technically require either PIN or
signature, such as online purchases. These commenters, plus another
industry trade association and the office of a State Attorney General,
suggested permitting disclosure of one per purchase fee if the PIN and
signature fees are the same. The office of a State Attorney General
also urged the Bureau to ban per purchase fees for payroll card
accounts.
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(2), renumbered as
[[Page 84027]]
Sec. 1005.18(b)(2)(ii), with certain modifications as described below.
Because a per purchase fee could be significant for consumers who make
multiple purchases with their prepaid card, the Bureau continues to
believe it appropriate for all prepaid accounts to disclose on the
short form whether there is a per purchase fee and, if so, the fee for
making a purchase. However, the Bureau understands that most prepaid
accounts do not charge fees for each purchase transaction and, for
those that do, the Bureau believes that distinguishing between PIN and
signature when other methods of cardholder verification may now or in
the future be available may be confusing to consumers. The Bureau
further understands that new cardholder verification methods are
rapidly evolving. For these reasons, the Bureau believes disclosure of
the breakdown of specific per purchase fees has less consumer benefit
than disclosure of one per purchase fee, i.e., the highest fee charged
for making a purchase as required pursuant to final Sec.
1005.18(b)(3)(i), which is discussed in detail below. Thus, the Bureau
is finalizing this provision as proposed, except it is requiring
disclosure of only a single fee for making a purchase using the prepaid
account instead of requiring disclosure of two fees (both for when a
consumer uses a PIN and when a consumer uses a signature to verify the
purchase). The Bureau has also made other technical revisions to this
provision for clarity.
With regard to the comment recommending that the Bureau ban per
purchase fees for payroll card accounts, such a request is outside the
scope of this rulemaking.
18(b)(2)(iii) ATM Withdrawal Fees
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(i)(B)(3) would have addressed
disclosure on the short form of ATM fees for withdrawing cash.
Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(3) would have required
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. Proposed Model Forms A-10(a)
through (d) would have disclosed these ATM withdrawal fees on the top
line of the short form.
The Bureau understood that the ATM fees for most prepaid accounts
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.
Insofar as accessing ATM networks of which the issuing financial
institution is not a member or an affiliate often costs the financial
institution more, it typically charges a higher fee to a consumer for
using that out-of-network ATM. Given that such potential variances are
common, the Bureau believed that disclosure of fees for both in- and
out-of-network ATMs withdrawals is important. Although the Bureau noted
in the proposal that many participants during its pre-proposal consumer
testing were unfamiliar with the difference between ``in-network'' and
``out-of-network'' ATMs, the Bureau believed 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 program.
Proposed comment 18(b)(2)(i)(B)(3)-1 would have clarified 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 must 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 proposed incidence-based fee disclosure.
Comments Received
Several industry and consumer group commenters and one office of a
State Attorney General commented on the Bureau's proposed ATM
withdrawal fee disclosure. In response to the Bureau's question
regarding whether additional information is needed on the short form to
explain the distinction between in-network versus out-of-network ATMs,
a prepaid program manager, an issuing bank, and an industry trade
association commented that it was unnecessary to require such an
explanation, asserting that consumers generally understand the
terminology and if not, consumers could direct their questions to the
prepaid issuer or to the Bureau. The program manager also suggested
permitting disclosure of a single ATM fee if the fees for both in- and
out-of-network withdrawals are the same, as well as disclosing when ATM
withdrawals are not available.
The office of a State Attorney General and an industry trade
association specifically addressed payroll card accounts. The office of
the State Attorney General said that its research revealed that ATMs
were the most common way for payroll card accountholders in its State
to access their wages and that accountholders regularly incurred fees
for ATM transactions. It recommended that all payroll card account
programs be required to provide free and unlimited withdrawal of wages
via ATMs with no third-party fees. The trade association recommended
permitting disclosure in the short form of the number of free ATM
withdrawals available to payroll card accountholders.
Two consumer groups and the office of the State Attorney General
recommended additional ATM-related disclosures, such as the name of the
ATM network and whether the prepaid account is affiliated with the
network, the full extent of the network, whether third-party fees
apply, whether there are limits on in-network ATM withdrawals, and the
cost of international ATM transactions.
No commenters objected to the inclusion of ATM withdrawal fees in
the short form, or generally regarding distinguishing between in- and
out-of-network ATM withdrawal fees.
The Final Rule
For the reasons set forth herein, the Bureau is adopting Sec.
1005.18(b)(2)(i)(B)(3), renumbered as Sec. 1005.18(b)(2)(iii), as
proposed with minor technical modifications for clarity. The Bureau
continues to believe it is important for consumers to know how much
they will be charged to withdraw funds at an ATM and to know the
difference, if any, for conducting the withdrawal at an in-network
versus out-of-network ATM. The Bureau is also adopting proposed comment
18(b)(2)(i)(B)(3)-1, renumbered as comment 18(b)(2)(iii)-1, explaining
that a financial institution may not disclose its fee (if any) for
using an ATM to initiate a withdrawal of cash in a foreign country in
the disclosure required by final Sec. 1005.18(b)(2)(iii), although it
may be required to disclose that fee as an additional fee type pursuant
to final Sec. 1005.18(b)(2)(ix). In response to comments requesting
that additional information be added to the disclosure of ATM
withdrawal fees, the Bureau declines to require disclosure of such
additional information in final Sec. 1005.18(b)(2)(iii). The Bureau
believes the short form disclosure balances the
[[Page 84028]]
most important information for consumers with the brevity and clarity
necessary for optimal consumer comprehension. Moreover, much of the
additional information recommended by commenters, such as third-party
fees and the name and extent of the ATM network, must or may be
provided in the long form disclosure. See, e.g., final Sec.
1005.18(b)(4)(ii) and Sample Form A-10(f).
To address the comments recommending that the Bureau require more
fulsome disclosure of the details regarding ATM fees for payroll card
accounts (and similar comments made elsewhere recommending disclosure
of other information in addition to ATM fees), the Bureau is finalizing
new Sec. 1005.18(b)(2)(xiv)(B), which permits inclusion of a statement
in the short form disclosure for payroll card accounts directing
consumers to a location outside the short form for information on how
to access funds and balance information for free or for a reduced fee.
Final Sec. 1005.15(c)(2)(ii) contains a similar provision for
government benefit accounts. To address the comment recommending
disclosure of a single ATM fee if the fees for both in- and out-of-
network withdrawals are the same (and similar comments made elsewhere
regarding two-tier fee disclosures), the Bureau is finalizing new Sec.
1005.18(b)(3)(iii), which permits a single disclosure for like fees.
Regarding the comment recommending disclosure of when ATM withdrawals
are not available, both proposed and final Sec. 1005.18(b)(2) require
such disclosure through use of ``N/A'' as discussed above. See also
final comment 18(b)(2)-1. Regarding the comment requesting that the
Bureau ban fees for ATM transactions on payroll card accounts, such
request is outside the scope of this rulemaking.
18(b)(2)(iv) Cash Reload Fee
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(i)(B)(4) would have required
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 believed that the existence of a cash
reload service and the fee for using such a service, if any, is
important for consumers to know insofar as this is a key feature of
many prepaid accounts. Proposed Model Forms A-10(a) through (d) would
have disclosed the cash reload fee on the top line of the short form
disclosure.
The Bureau also proposed to adopt comment 18(b)(2)(i)(B)(4)-1,
which would have provided guidance on what would be considered a cash
reload fee. Specifically, the proposed comment explained that the cash
reload fee, for example, would include the cost of adding cash at a
point-of-sale terminal, 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 have also clarified
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 have required that it only disclose the
highest fee on the short form. The Bureau noted 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
disclosed on the proposed short form pursuant to proposed comment
18(b)(2)(i)(C)-2. The Bureau noted, 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.
As described in the proposal, 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, however, believed it was 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 its pre-proposal consumer
testing, the Bureau found that participants consistently understood a
disclosure containing a single cash reload fee, and therefore the
Bureau did not believe it was as important to include two fees for this
fee type.\390\
---------------------------------------------------------------------------
\390\ See ICF Report I at 20, 29, and 30.
---------------------------------------------------------------------------
Comments Received
One issuing bank and a number of consumer groups expressed concern
that failing to reflect third-party fees in connection with the
proposed disclosure of the cash reload fee in the short form might
create consumer confusion given that it is a standard industry practice
for reload network providers or third-party retailers, not the
financial institutions that issue prepaid accounts, to provide and
charge for the reloading of cash into prepaid accounts. In such
circumstances, due to the prohibition on inclusion of third-party fees
in the short form pursuant to proposed Sec. 1005.18(b)(2)(i)(C), a
financial institution that does not offer proprietary cash reloading
capabilities would typically disclose the cash reload fee as ``$0,''
while a financial institution that offers proprietary cash reloading
capabilities would have to disclose the cost for the cash reload. In
addition to confusing consumers, commenters suggested this outcome
would result in a competitive disadvantage for financial institutions
that offer proprietary systems, which are usually less expensive than
third-party systems, and thereby dissuade financial institutions from
offering this service. A trade association recommended eliminating the
term ``cash reload'' fee in favor of ``deposit'' fee for consistency
and clarity. An issuing bank recommended disclosure of a range of fees
for cash reloads and a statement explaining where to find reload
locations as well as allowing disclosure of the conditions under which
the cash reload fee could be waived instead of the asterisk and linked
statement for variable fees pursuant to proposed Sec.
1005.18(b)(2)(C). A program manager commenter recommended permitting
disclosure of a disclaimer for third-party charges for cash reloads. An
office of a State Attorney General recommended prohibiting cash reload
fees, particularly for payroll card accounts, but otherwise supported
the disclosure.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(4), renumbered as Sec. 1005.18(b)(2)(iv),
with certain modifications as described below. As in the proposal, the
Bureau is requiring in the final rule disclosure of the cash reload fee
in the top line of the short form because it is one of the primary ways
consumers fund their prepaid accounts. The Bureau believes the
disclosure in the short form of a single cash reload fee balances the
most important information for consumers with the brevity and clarity
necessary for optimal consumer comprehension and therefore declines to
require disclosure of additional content in final Sec.
1005.18(b)(2)(iv) as requested by commenters.
The Bureau is adopting the final rule with a notable change from
the proposal. The final rule requires
[[Page 84029]]
disclosure of the cash reload fee as the total of all charges from the
financial institution and any third parties for a cash reload. See also
final Sec. 1005.18(b)(3)(iv) and (v). The Bureau had intended the
proposed rule to require disclosure of the complete cost of reloading
cash. While the Bureau believes that a general prohibition on the
disclosure of third-party fees in the short form is appropriate, the
Bureau also believes that it is important to reflect the cost of a cash
reload via a non-proprietary cash reload network and to avoid
disfavoring particular prepaid market participants in connection with
reload systems, which is a concern raised by several commenters. By
requiring inclusion of the full cost of cash reloads, including third-
party fees, consumers will receive full information about the amount of
this key fee as well as ensuring standardized disclosure requirements
among market participants. Final Sec. 1005.18(b)(2)(iv) also reflects
minor technical modifications for clarity.
The Bureau is adopting proposed comment 18(b)(2)(i)(B)(4)-1,
renumbered as comment 18(b)(2)(iv)-1, with modifications to reflect the
above-referenced modification to the regulatory text. The comment
provides several examples illustrating how financial institutions must
disclose cash reload fees.
The Bureau is persuaded that labeling this fee as ``cash
deposits,'' rather than ``cash reloads,'' may be more meaningful to
consumers in certain circumstances. Final comment 18(b)(2)(iv)-2 thus
allows a financial institution that does not permit cash reloads via a
third-party reload network but instead permits cash deposits, for
example, in a bank branch, to use the term ``cash deposit'' instead of
``cash reload.'' Regarding the comment requesting that the Bureau ban
fees for cash reloads, such request is outside the scope of this
rulemaking.
The disclosure and updating of third-party cash reload fees is
discussed in further detail in the section-by-section analysis of Sec.
1005.18(b)(3) below.
18(b)(2)(v) ATM Balance Inquiry Fees
The Bureau's Proposal
Directly below the top line in the short form disclosure, the
Bureau proposed to include balance inquiry fees charged by a financial
institution for inquiring into the prepaid account's balance at an ATM.
Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(5) would have required
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. Proposed comment 18(b)(2)(i)(B)(5)-1 would
have clarified 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 as part of the proposed incidence-based fee
disclosure pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8).
The Bureau believed that, just as it is important for consumers to
know that different fees could be imposed for ATM withdrawals depending
on whether the ATM is in-network or out-of-network, it is also
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. However, the Bureau
did not propose to include balance inquiry fees in the top line of the
short form disclosure, because it believed that it is less common for
consumers to initiate ATM balance inquiry transactions compared to
withdrawals at ATMs.
Comments Received
The Bureau received comments about the proposed ATM balance inquiry
fees disclosure from several industry and consumer group commenters,
and an office of a State Attorney General. In response to the Bureau's
question regarding placement of ATM balance inquiry fees on the short
form disclosure, a program manager stated that placing these fees below
the top line of the short form disclosure is sufficient, because
consumers are not assessed this fee frequently enough to justify its
inclusion in the top line. According to this commenter, as well as a
trade association and issuing bank, an ATM is one of the most expensive
ways for consumers to check their balance on a prepaid card. The
program manager added that consumers generally use free and more
convenient methods to obtain balance information such as via
interactive voice response, the internet, email, and text message.
A consumer group suggested that the Bureau either eliminate the
disclosure to save space or require financial institutions to disclose
all methods a consumer may use to check the consumer's prepaid account
balance to make consumers aware of free balance inquiry methods.
Another consumer group recommended that the Bureau replace the ``or''
in the text of the ATM balance inquiry fee disclosure in the proposed
model short form disclosure with a slash (``/'') to distinguish between
in- and out-of-network fees. If there are two fees listed, the
commenter stated that the use of ``or,'' as opposed to ``/,'' may
create uncertainty with respect to which fee is the in-network fee, and
which fee is the out-of-network fee.
An office of a State Attorney General supported the Bureau's
proposal as an alternative to its primary recommendation that the
Bureau ban ATM balance inquiry fees for payroll card accounts. The
commenter further suggested that the Bureau require financial
institutions to list the in-network and out-of-network ATM balance
inquiry fee on separate lines of the short form to enhance consumer
comprehension.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(5), renumbered as Sec. 1005.18(b)(2)(v),
with minor technical modifications for clarity. The Bureau continues to
believe consumers should know the different fees they could be charged
for in-network versus out-of-network ATM balance inquiries but that
these fees are not incurred frequently enough to merit disclosure in
the top line of the short form. The Bureau is also adopting proposed
comment 18(b)(2)(i)(B)(5)-1, renumbered as comment 18(b)(2)(v)-1, with
several revisions. Final comment 18(b)(2)(v)-1 explains that a
financial institution may not disclose its fee (if any) for using an
ATM to check the balance of the prepaid account in a foreign country in
the disclosure required by final Sec. 1005.18(b)(2)(v), although it
may be required to disclose that fee as an additional fee type pursuant
to final Sec. 1005.18(b)(2)(ix).
The Bureau believes the final rule's ATM balance inquiry fee
disclosure requirement balances the most important information for
consumers with the brevity and clarity necessary for optimal consumer
comprehension and therefore declines to require disclosure of
additional content in final Sec. 1005.18(b)(2)(v) as requested by one
of the commenters. Regarding the recommendation that the Bureau use a
slash (``/'') instead of ``or'' to distinguish between in- and out-of-
network fees, the
[[Page 84030]]
Bureau notes that in post-proposal consumer testing of prototype short
forms nearly all participants were able to correctly identify the ATM
balance inquiry fee when using ``or'' and showed no indication of
misunderstanding the distinction between in- and out-of-network fees,
confirming the Bureau's understanding from pre-proposal testing.\391\
Thus, the Bureau declines to make this change. Regarding the request
that the Bureau ban fees for balance inquiries for payroll card
accounts, such request is outside the scope of this rulemaking.
---------------------------------------------------------------------------
\391\ See ICF Report II at 10 and 21.
---------------------------------------------------------------------------
18(b)(2)(vi) Customer Service Fees
Proposed Sec. 1005.18(b)(2)(i)(B)(6) would have required
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
believed that many consumers regularly have issues with their prepaid
accounts that require talking to a customer service agent by telephone.
The Bureau also believed that some providers impose fees for making
such a call. Additionally, several participants in the Bureau's pre-
proposal consumer testing reported having incurred such customer
service fees. For these reasons, the Bureau believed that the short
form disclosure should include this fee, and thus proposed to include
it. The Bureau noted that this disclosure would have been required even
if the financial institution did not charge such a fee pursuant to
proposed comment 18(b)(2)(i)-1.
No commenters opposed inclusion of customer service fees in the
short form disclosure. Instead of disclosing the single highest
customer service fee, an issuing bank and several consumer groups
recommended disclosing either the fee for both live agent and
interactive voice response (IVR) customer service or just the IVR fee.
They said otherwise customers may be misled into thinking the disclosed
fee includes the cost of a call to an IVR customer service, which
generally is free. An office of a State Attorney General recommended
that the Bureau ban customer service fees for payroll card accounts
because such fees chill inquiry into fraudulent or erroneous charges,
but it otherwise supported the disclosure.
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(6), renumbered as Sec. 1005.18(b)(2)(vi),
with certain modifications as described below. The Bureau continues to
believe that it is important to require disclosure of this fee because
consumers regularly have issues or questions that require contact with
the financial institution's customer service department, but the fee is
not so common as to merit disclosure in the top line of the short form.
The Bureau is adopting the final rule with a notable change from
the proposal. The Bureau agrees with commenters that it is beneficial
for consumers to specifically be alerted to the generally free or less
expensive IVR method of customer service, and thus is finalizing Sec.
1005.18(b)(2)(vi) requiring disclosure in the short form of fees for
both automated and live agent customer service. The Bureau's post-
proposal consumer testing revealed that, consistent with several
commenters' observations, disclosure of a general customer service fee
resulted in many participants incorrectly assuming the fee would remain
the same whether the service was live or automated, while all
participants understood the distinction when both automated and live
agent customer service fees were disclosed.\392\ Similarly, when a
short form disclosed a fee for ``live customer service,'' all
participants understood that the fee would apply if they spoke to a
live customer service agent and that the fee would not be charged if
they used the automated customer service system to get information
about their accounts.\393\ However, because the structure of the
multiple service plan short form permitted pursuant to final Sec.
1005.18(b)(6)(iii)(B)(2) does not have sufficient room to disclose both
automated and live customer service fees on separate lines, final Sec.
1005.18(b)(2)(vi) states that a financial institution using the
multiple service plan short form pursuant to final Sec.
1005.18(b)(6)(iii)(B)(2) must disclose only the fee for live customer
service. The Bureau believes that disclosing the live customer service
fee is preferable to disclosing the automated fee because of the
potential cost to the consumer, as the Bureau understands that
automated customer service is typically provided at no cost to the
consumer. Finally, the Bureau has made other technical modifications to
this provision for clarity. Regarding the request that the Bureau ban
customer service fees for payroll card accounts, such a request is
outside the scope of this rulemaking.
---------------------------------------------------------------------------
\392\ See ICF Report II at 12-13.
\393\ Id. at 23.
---------------------------------------------------------------------------
18(b)(2)(vii) Inactivity Fee
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(i)(B)(7) would have required
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. The Bureau believed that
many financial institutions charge consumers fees when they do not use
their prepaid accounts for a specified period of time. The Bureau
believed 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 program charges fees
for inactivity.\394\ Thus, the Bureau proposed that financial
institutions disclose the existence, duration, and amount of inactivity
fees, or that no such fee will be charged, as part the short form
disclosure. The Bureau also noted in the proposal, however, that, as
with all the disclosures in the short form, the requirement to disclose
a particular fee type was not an endorsement of such a fee.\395\
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\394\ In the Bureau's pre-proposal consumer testing, several
participants mentioned only using their prepaid cards occasionally.
\395\ The Bureau understands that some States bar or limit
inactivity fees, and nothing in this final rule is meant to preempt
any such State laws.
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Proposed comment 18(b)(2)(i)(B)(7)-1 would have clarified that when
disclosing the inactivity fee pursuant to proposed Sec.
1005.18(b)(2)(ii)(A) as part of the long form disclosure, a financial
institution should specify whether this inactivity fee was 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 believed that a lower
inactivity fee may correlate with a prepaid account product imposing a
higher monthly periodic fee on a consumer. Thus, consumers using 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. In preparing the proposal, the Bureau
considered whether the risk of potential confusion to a consumer
outweighed the benefit of including the inactivity fee on the short
form disclosure, but believed that providing consumers with the
inactivity fee amount and the relevant duration of dormancy would allow
consumers to make an informed choice about which
[[Page 84031]]
prepaid account product is best for their usage patterns.
Comments Received
The Bureau received comments from a program manager, an issuing
bank, an industry trade association, a consumer group, and an office of
a State Attorney General about the proposed inactivity fee disclosure.
In response to the Bureau's solicitation of comments as to whether
inactivity fees should be included in the short form disclosure, the
program manager responded that disclosure of both the monthly fee and
the inactivity fee would not confuse consumers, as most prepaid
products either charge a monthly fee or an inactivity fee, but not
both. Even if both fees are charged, it said, consumers can get more
information about the fees from the long form disclosure or on the Web
site associated with the prepaid program disclosed on the short form.
In contrast, the trade association and the issuing bank urged the
Bureau not to require disclosure of inactivity fees because, they said,
both studies of prepaid cards that they reviewed and information
provided to the trade association by its members indicate that
inactivity fees are not commonly charged. Additionally, the commenters
said there are better means than the short form through which consumers
can learn about inactivity fees, such as the Bureau's Web site, the
prepaid issuer's Web site or its customer service, and that contact
information for those sources is included in the short form disclosure.
The consumer group and the office of a State Attorney General
recommended primarily that the Bureau ban inactivity fees, but
otherwise generally supported the disclosure.
The consumer group also asserted that the portion of proposed
comment 18(b)(2)(i)(B)(7)-1 directing financial institutions to include
in the long form disclosure whether an inactivity fee is charged in
lieu of or in addition to the periodic fee disclosure implied the
Bureau's implicit endorsement of charging of both a periodic fee and an
inactivity fee--a practice the consumer group opposed. The consumer
group also stated that the inactivity fee can be known as ``dormancy''
or ``maintenance'' fees, and that the Bureau should require
standardized terminology to avoid confusion.
The office of the State Attorney General also recommended that the
Bureau require a minimum 10-day notice prior to imposition of an
inactivity fee on a payroll card account. The commenter stated that the
notice should include the amount of the inactivity fee, the date the
fee will be assessed, and a description of how to avoid the fee. The
commenter asserted that the notice should be provided through the
employee's preferred method of receiving communications from the
payroll card account vendor.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(7) and comment 18(b)(2)(i)(B)(7)-1,
renumbered as Sec. 1005.18(b)(2)(vii) and comment 18(b)(2)(vii)-1,
with certain modifications as described below. Because some consumers
use prepaid cards on an infrequent or occasional basis, the Bureau
continues to believe that disclosure of the inactivity fee is important
to provide specific information to consumers regarding the consequences
of their prepaid account use patterns, even though not all financial
institutions may charge this fee. The Bureau understands the concerns
of those commenters seeking to have the fee removed from the short
form, but believes that other means of communicating this potentially
significant fee are insufficient.
In the final rule, in place of the proposed disclosure of the
``duration of inactivity,'' the Bureau is requiring the broader
disclosure of the ``conditions'' that trigger the financial institution
to impose the inactivity fee.\396\ This change is intended to ensure
that more relevant information is disclosed, including what the
consumer must do to avoid imposition of the inactivity fee (such as
engaging in at least one transaction during a specified time period),
the time period after which the fee is imposed, and how often the fee
is assessed. The Bureau has made corresponding changes to comment
18(b)(2)(vii)-1, and also removed the direction to financial
institutions to specify in the long form whether the inactivity fee is
imposed in lieu of or in addition to the periodic fee, having relocated
this portion of the comment to final comment 18(b)(4)(ii)-2, which
addresses disclosure in the long form of any conditions under which a
fee may be imposed, waived, or reduced. Final comment 18(b)(2)(vii)-1
also contains an illustrative example of an inactivity fee disclosure.
Finally, the Bureau made other technical modifications to final Sec.
1005.18(b)(2)(vii) and comment 18(b)(2)(vii)-1 for conformity and
clarity.
---------------------------------------------------------------------------
\396\ Of course, if there is no inactivity fee, no disclosure of
conditions is required.
---------------------------------------------------------------------------
In response to the comment from a consumer group that proposed
comment 18(b)(2)(i)(B)(7)-1 implicitly endorses the simultaneous charge
of both a periodic fee and an inactivity fee, the Bureau reiterates
that it does not endorse such a practice nor is it aware of any
financial institution that imposes both fees at the same time. However,
the Bureau believes it is important that consumers be clearly apprised
if their prepaid account charges a periodic fee and an inactivity fee
in tandem and for this reason it is included in the commentary for the
final rule's long form disclosure requirements. In response to the
consumer group recommending that the Bureau require standardized
terminology for the inactivity fee disclosure to avoid consumer
confusion, because the final rule requires financial institutions to
make this disclosure using the term ``inactivity fee'' or a
substantially similar term, the Bureau expects that financial
institutions will not use substantially different terminology that
would confuse consumers. The Bureau also notes that final Sec.
1005.18(b)(8), discussed below, requires financial institutions to use
fee names and other terms consistently within and across the short form
and long form disclosures.
Regarding the comment requesting that the Bureau ban inactivity
fees either generally or for payroll card accounts, such a request is
outside the scope of this rulemaking.
18(b)(2)(viii) Statements Regarding Additional Fee Types
The proposal would have required two distinct disclosures in the
short form designed to alert consumers to other fees financial
institutions may charge in addition to the standardized static fees
disclosed at the top of the short form. First, following the static fee
disclosures, pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8), the
proposed short form would have disclosed up to three fees incurred most
frequently by consumers of that particular prepaid card program that
were not otherwise disclosed on the short form (referred to as
incidence-based fees). Second, pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(10), the short form would have included a statement
in bold-faced type near the bottom of the disclosure stating: ``We
charge [X] other fees not listed here.'' As described further below,
the Bureau believed that these two elements would help emphasize to
consumers that the short form disclosure was not a comprehensive list
of all fees, provide consumers with specific information about the
additional fees that they were most likely to encounter, and encourage
consumers to review the long form disclosure or otherwise seek
additional
[[Page 84032]]
information about the prepaid account's features and costs.
As discussed further below in connection with both final Sec.
1005.18(b)(2)(viii) and (ix), the Bureau is adopting both proposed
disclosures with substantial revisions and is placing them together on
the short form to provide greater clarity to consumers and enhance the
impact of each disclosure relative to the proposed version. Other
adjustments to the final rule to improve consumer comprehension and
reduce implementation burdens for financial institutions include, for
example, requiring disclosure of the number of additional types of fees
charged in connection with the prepaid account program, rather than
counting each variation in fees toward the total as proposed, and
requiring disclosure of specific fee types on the short form based on
revenue, rather than frequency, and only if in excess of a de minimis
threshold. The Bureau believes that these and other changes will make
the disclosures easier for financial institutions to prepare and more
meaningful for consumers.
The Bureau's Proposal
In proposed Sec. 1005.18(b)(2)(i)(B)(10), the Bureau proposed to
require financial institutions to disclose on the short form a
statement regarding the number of fees that could be imposed upon a
consumer, in a form substantially similar to the clause set forth in
proposed Model Forms A-10(a) through (d). The number of fees would have
been derived from those listed on the comprehensive long form
disclosure pursuant to proposed Sec. 1005.18(b)(2)(ii)(A), other than
those listed in the short form pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(1) through (8).
The Bureau sought comment on whether the proposed disclosure would
be useful to consumers or whether listing the total number of
additional fees without any other information would actually interfere
with consumers' ability to make an informed choice between prepaid
account programs. The Bureau acknowledged that there was some risk that
consumers might assume that the additional fees were punitive, rather
than covering the cost of optional services or product features that
the consumer might find advantageous. However, the Bureau also noted
that some participants in the Bureau's pre-proposal consumer testing
reported finding out about fees only after purchasing their card, and
sometimes only after incurring them.\397\ On balance, the Bureau
believed that disclosing in the short form a statement indicating
exactly how many additional fees could apply would encourage consumers
to seek out more information about a prepaid account before
acquisition.
---------------------------------------------------------------------------
\397\ See ICF Report I at 7.
---------------------------------------------------------------------------
Unlike the proposed incidence-based fees, the Bureau did not
believe it was necessary to propose provisions about updating this
statement regarding other fees. Pursuant to proposed Sec. 1005.18(f),
a financial institution would have been required to include the long
form disclosure in a prepaid account's Sec. 1005.7(b)(5) initial
disclosures. Any updates made to the fees disclosed in the long form
would have required an overhaul of all of the disclosures for a given
prepaid account product, which the Bureau believed was unlikely to
occur. Proposed comment 18(b)(2)(i)(B)(10)-1 would have provided
examples of how to comply with proposed Sec. 1005.18(b)(2)(i)(B)(10).
Proposed comment 18(b)(2)(i)(B)(10)-2 would have provided 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 have clarified 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 also would have provided an
example illustrating this concept. Finally, the proposed comment would
have explained that, even if a fee could be waived under certain
conditions, it would still be counted in order to comply with proposed
Sec. 1005.18(b)(2)(i)(B)(10).
Comments Received
Several consumer groups generally supported this portion of the
proposed short form disclosure as beneficial to alert consumers to fees
not disclosed in the short form and to encourage financial institutions
to simplify their fee schedules, although some groups also advocated
providing a paper long-form disclosure in all settings to ensure that
consumers could immediately review more detailed information about any
additional fees.\398\
---------------------------------------------------------------------------
\398\ For a discussion of the reasons the Bureau is requiring
both a short form and a long form disclosure but is not requiring a
written disclosure of all fees in all acquisition settings, see the
section-by-section analyses of Sec. 1005.18(b) and (b)(1)(ii) and
(iii) respectively.
---------------------------------------------------------------------------
A number of industry commenters, including trade associations,
issuing banks, and program managers, recommended eliminating the
proposed disclosure of the number of additional fees charged. In its
place, many of these commenters favored a general statement that other
fees are charged, generally with reference to the cardholder agreement
for more information about these other fees. One trade association and
an issuing bank stated that they found the proposed disclosure rational
and reasonable, as it provided useful data to consumers without
overwhelming them with information and without overcrowding the short
form disclosure, though they also preferred a requirement simply to
state that additional fees could apply.
Many of these industry commenters expressed concern that presenting
the number of fees would tend to mislead and confuse consumers and thus
interfere with consumers' ability to make an informed choice among
prepaid account programs. Several industry commenters said that the
statement would mislead consumers into believing that these other fees
are common fees they are likely to incur when in fact the commenters
asserted that the fees may only be charged in connection with optional
specialized services. Other industry commenters said that the number of
other fees could mislead and confuse consumers into thinking that a
product with a higher number of available functions--and fees for those
functions--is more expensive or otherwise inferior to a product with
fewer other fees, when in fact the opposite may be true. Some industry
commenters warned that this stigmatized perception of a higher number
of other fees and commensurate costs to update the disclosures may
undermine innovation and flexibility, as financial institutions may
either discontinue or cease developing new and flexible services that
may be advantageous to consumers.
Similarly, one of the consumer groups that recommended disclosure
of all fees in all acquisition settings noted that an account that has
many more other fees may actually charge fewer fees for the services it
has in common with another account, but the proposed short form would
make it seem as though it was potentially a more costly product. The
consumer group recommended that the Bureau monitor the effect of
requiring only the listing of the number of ``other'' fees on market
innovation and the cost and types of fees that are charged.
An issuing bank agreed that the disclosure of the number of
additional fees charged can be a factor for consumers in comparing
prepaid account terms, but also challenged the methodology of counting
each fee
[[Page 84033]]
variation as a separate fee. It said this methodology could be
misleading to consumers as it will lead to an artificial overstatement
of the total number of fees. It said that services like bill payment,
which may have standard and expedited delivery and are designed to be
flexible and offer the most choice and control to consumers, will make
the product appear undesirable, as the number of additional fees will
be inflated. Instead, it recommended counting fee types rather than
individual fee variations within fee types. Two trade associations and
two other issuing banks also recommended against counting each fee
variation as a separate fee, agreeing that it might unnecessarily
increase the number of other fees without commensurate benefit for
consumers.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(10), renumbered as Sec. 1005.18(b)(2)(viii),
with substantial modifications, largely in response to comments
received. First, the Bureau is locating together both disclosures
dealing with fees not otherwise disclosed in the short form: The number
of such fees required pursuant to final Sec. 1005.18(b)(2)(viii) and
the disclosure of certain such fees (referred to in the proposal as
incidence-based fees) pursuant to final Sec. 1005.18(b)(2)(ix).
Second, instead of requiring disclosure of the number of additional
fees, including all fee variations, the Bureau is requiring disclosure
of the number of additional fee types.\399\ Third, instead of requiring
the number of additional fees that could be imposed on a consumer in
general, the Bureau is limiting this disclosure to the number of
additional fee types that the financial institution may charge
consumers with respect to the prepaid account. Fourth, the Bureau is
requiring disclosure of an additional statement if a financial
institution discloses additional fee types pursuant to final Sec.
1005.18(b)(2)(ix) that directs consumers to the disclosure of those
additional fee types that follows. Fifth, the Bureau has relocated the
statement regarding the number of additional fee types from the bottom
portion of the proposed short form disclosure to a more clearly
delineated ``additional fee types'' portion that follows the static
fees.
---------------------------------------------------------------------------
\399\ See final comment 18(b)(2)(viii)(A)-2 for an explanation
of the term ``fee type'' and a list of examples of fee types and fee
variations within those fee types.
---------------------------------------------------------------------------
Finally, the Bureau is not adopting any of the proposed commentary,
but rather is adopting new comments 18(b)(2)(viii)(A)-1 through -4 and
18(b)(2)(viii)(B)-1 to clarify various issues regarding application of
the final rule.
Statement Regarding the Number of Additional Fee Types Charged Required
by Sec. 1005.18(b)(2)(viii)(A)
Final Sec. 1005.18(b)(2)(viii)(A) requires a statement disclosing
the number of additional fee types the financial institution may charge
consumers with respect to the prepaid account, using the following
clause or a substantially similar clause: ``We charge [x] other types
of fees.'' The number of additional fee types disclosed must reflect
the total number of fee types under which the financial institution may
charge fees, excluding fees required to be disclosed pursuant to final
Sec. 1005.18(b)(2)(i) through (vii) and (5) and any finance charges as
described in final Regulation Z Sec. 1026.4(b)(11) imposed in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in new Sec. 1026.61.
The Bureau is finalizing Sec. 1005.18(b)(2)(viii) because it
continues to believe, as explained in the proposal, that it is crucial
to inform consumers that there may be a cost for features not otherwise
captured in the short form disclosure. Disclosure of this information
will help both alert consumers that the short form is not a
comprehensive fee disclosure and encourage consumers to seek out more
information about the prepaid account from the long form disclosure and
other sources. As noted in the proposal, the Bureau's pre-proposal
consumer testing revealed that participants often did not know all the
fees that might be assessed prior to their purchase of a prepaid
account. In addition, the Bureau's post-proposal consumer testing
revealed that, while not all participants understood the significance
of the disclosure of the number of additional fee types, participants
were keenly interested in this disclosure, which the Bureau believes
will motivate consumers to seek more information about these additional
fee types.\400\
---------------------------------------------------------------------------
\400\ ICF Report II at 11-12 and 22.
---------------------------------------------------------------------------
The Bureau declines to use a more general statement to alert
consumers that there may be additional fees, as requested by some
industry commenters. The Bureau believes that disclosure of the
specific number of additional fee types, as opposed to a general
statement regarding other fees charged, provides consumers with
concrete information and stronger motivation to both better inform
themselves and to direct their searches for additional information.
Moreover, as discussed below, the Bureau believes that focusing the
disclosure on tallying the types of fees rather than counting each
variation in fees toward the total directly addresses industry's
concerns that disclosing a specific number of other fees would prompt
consumers to assign undue negative weight to the fact that a product
may have many fee variations. The change to fee types also helps reduce
compliance burden across the two related disclosures of the number of
additional fee types required by this provision and the disclosure of
additional fee types required by final Sec. 1005.18(b)(2)(ix).
The Bureau disagrees with commenters that the comprehensive
disclosure of all fees in another disclosure, such as the long form or
the cardholder agreement, negates the rationale for disclosing the
number of additional fee types in the short form. The Bureau believes
that consumers generally would rely solely on the short form disclosure
in making their acquisition decisions if they do not see language that
specifically emphasizes the value of consulting the long form. The
Bureau thus believes that listing the total number of fee types that
are not otherwise listed on the short form will complement and enhance
the statement in final Sec. 1005.18(b)(2)(xiii) directing consumers to
the long form, providing a concrete incentive to consult the longer
disclosure for products that are more complex.\401\ Specifically, the
Bureau's post-proposal consumer testing revealed that, when asked how
they could learn more about ``other fees'' not shown on the short form,
practically all participants referred to the financial institution's
telephone number and Web site disclosed on the prototype short form
disclosure (i.e., the information sources required by final Sec.
1005.18(b)(2)(xiii)).\402\ In sum, the Bureau believes that the
disclosure of the number of additional fee types in the short form
pursuant to Sec. 1005.18(b)(2)(viii) will directly inform consumers of
important information and serve to spur them to further inquiry in
other more detailed disclosures.
---------------------------------------------------------------------------
\401\ See ICF Report II at 12 and 22.
\402\ Id.
---------------------------------------------------------------------------
The Bureau acknowledges commenters' concerns that some consumers
may tend to assume that a prepaid account with a relatively high number
of additional fees is more expensive or less desirable than other
accounts, even when the opposite may be true. In part to address this
concern, the Bureau is finalizing the rule
[[Page 84034]]
requiring financial institutions to disclose the total number of fee
types, rather than the total number of all fees (including all fee
variations within a fee type) that would have been required under the
proposal. Requiring disclosure of the number of fee types instead of
the number of discrete fees likely will reduce the number required to
be disclosed for a typical prepaid account program. The Bureau believes
that this modification for the final rule should help ameliorate the
risk raised by some commenters that consumers will reject prepaid
accounts with a high number of additional fees out of hand without
seeking more detailed fee information to determine whether the products
meet their needs. Moreover, the requirements for both final Sec.
1005.18(b)(2)(viii) and (ix) are based on fee types (as opposed to one
being based on discrete fees and the other on fee types), thereby
reducing the burden of developing and maintaining two separate counts
to determine and disclose the elements under their respective rules.
The Bureau is also providing a list of fee types and fee variations in
final comment 18(b)(2)(viii)(A)-2, discussed below--which are based on
fees that the Bureau is aware exist in the current prepaid
marketplace--that a financial institution may use when determining both
the number of additional fee types charged pursuant to final Sec.
1005.18(b)(2)(viii)(A) and any additional fee types to disclose
pursuant to final Sec. 1005.18(b)(2)(ix). The Bureau believes that
these provisions will reduce the risks and burdens raised by commenters
concerning the proposed disclosure of the total number of fees not
otherwise listed, while still providing the consumer with an important
signal and incentive to investigate prepaid accounts that have more
complex pricing structures.
In addition, the Bureau believes that this modification addresses
commenters' concerns, at least in part, regarding a potential chill to
innovation of new features because such fee variations within a fee
type will not be required to be separately counted for purposes of this
disclosure. The Bureau intends to monitor compliance with this rule,
including financial institutions' disclosures of the number of
additional fee types charged, as well as market innovations in the
prepaid industry more generally, and will consider additional action in
future rulemakings if necessary.
Modifying the final rule to require disclosure of the number of fee
types also addresses concerns raised by some commenters that the
proposed disclosure would have included many fees that are not commonly
incurred by consumers--including fees for discretionary features that
require specific consumer action before they are incurred. For example,
under the final rule, a financial institution would count bill payment
as an additional fee type if it offered this feature, but, unlike the
rule as proposed, would not count each of the discrete fee variations
within bill payment such as ACH bill payment, paper check bill payment,
check cancellation, and regular or expedited delivery of a paper check.
Thus, in addition to a reduction in the overall number of additional
fees required to be disclosed under the final rule, a financial
institution would similarly not be required to disclose many of the
less common fees and fees triggered by affirmative consumer action.
While some of the additional fee types required to be disclosed in the
final rule may still be less common or triggered only when a consumer
elects to use an optional service, the Bureau reiterates that the
primary objective of this provision is to alert consumers to fee
information absent from the short form and to spur consumers to take
action to gain a more fulsome understanding of the terms of a
prospective prepaid account; this disclosure fulfils this objective.
As discussed in the section-by-section analysis of Sec.
1005.18(b)(2)(ix) below, the Bureau is adopting a de minimis threshold
with respect to the disclosure of specific additional fee types. The
Bureau does not believe a de minimis threshold would be appropriate for
the disclosure required by Sec. 1005.18(b)(2)(viii)(A) regarding the
total number of additional fee types. The Bureau notes, however, that
with the de minimis threshold in Sec. 1005.18(b)(2)(ix), disclosure of
such fee types under final Sec. 1005.18(b)(2)(ix) would not be
required, although such fee types would be counted in the total number
of additional fee types disclosed pursuant to final Sec.
1005.18(b)(2)(viii).
Finally, the Bureau continues to believe it is not necessary to
include in the final rule specific requirements for updating the
statement regarding the number of additional fee types charged required
by final Sec. 1005.18(b)(2)(viii)(A). As discussed in the section-by-
section analysis of Sec. 1005.18(b) above, the Bureau does not believe
that financial institutions change the fee schedules for prepaid
accounts often, particularly those sold at retail. If a financial
institution is making available a new optional service for all prepaid
accounts in a particular prepaid account program, Regulation E provides
a means for financial institutions to notify consumers of terms
associated with a new EFT service that is added to a consumer's
account, in Sec. 1005.7(c). A financial institution may provide new
consumer disclosures in accordance with Sec. 1005.7(c) post-
acquisition, without needing to pull and replace card packaging that
does not reflect that new optional feature in the disclosure of the
number of additional fee types pursuant to Sec.
1005.18(b)(2)(viii)(A). The Bureau does expect, however, that financial
institutions will keep their other disclosures up to date (including
those provided electronically and orally, as well as disclosures
provided in writing that are not a part of pre-printed packaging
materials, such as those printed by a financial institution upon a
consumer's request). The Bureau intends to monitor financial
institutions' practices in this area, however, and may consider
additional requirements in a future rulemaking if necessary.
Final comment 18(b)(2)(viii)(A)-1 clarifies what fee types to count
in the total number of additional fee types, specifically excluding
fees otherwise required to be disclosed in and outside the short form
pursuant to final Sec. 1005.18(b)(2)(i) through (vii) and (5) and any
finance charges as described in final Regulation Z Sec. 1026.4(b)(11)
imposed in connection with a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in final Sec. 1026.61.
Excluding the static fees and fees required to be disclosed outside the
short form avoids the duplicative counting of fees already disclosed to
the consumer. As discussed in more detail below, the Bureau has made a
strategic decision to focus the bulk of the short form disclosure on
usage of the prepaid account itself rather than any charges related to
overdraft credit features. The possibility that consumers may be
offered an overdraft credit feature for use in connection with the
prepaid account is addressed in the short form pursuant to Sec.
1005.18(b)(2)(x), which requires the following statement if such a
feature may be offered: ``You may be offered overdraft/credit after [x]
days. Fees would apply.'' Consistent with this overall decision, the
Bureau believes that it is appropriate to exclude any finance charges
related to an overdraft credit feature that may be offered at a later
date to some prepaid consumers from the disclosures regarding
additional fees under both final Sec. 1005.18(b)(2)(viii) and (ix). If
consumers are interested in such a feature, they can look to the
Regulation Z disclosures in the long form pursuant
[[Page 84035]]
to final Sec. 1005.18(b)(4)(vii), discussed below, for more details.
Final comment 18(b)(2)(viii)(A)-1.i explains that the number of
additional fee types includes only fee types under which the financial
institution may charge fees; accordingly, third-party fees are not
included unless they are imposed for services performed on behalf of
the financial institution. The comment additionally clarifies that the
number of additional fee types includes only fee types the financial
institution may charge consumers with respect to the prepaid account;
accordingly, additional fee types does not include other revenue
sources such as interchange fees or fees paid by employers for payroll
card programs, government agencies for government benefit programs, or
other entities sponsoring prepaid account programs for financial
disbursements.
Final comment 18(b)(2)(viii)(A)-1.ii explains that fee types that
bear a relationship to, but are separate from, the static fees
disclosed in the short form must be counted as additional fee types for
purposes of final Sec. 1005.18(b)(2)(viii). The comment also provides
a detailed explanation regarding the treatment of international ATM
fees and fees for reloading funds into a prepaid account in a form
other than cash (such as electronic reload and check reload). In
addition, the comment explains that additional fee types disclosed in
the short form pursuant to final Sec. 1005.18(b)(2)(ix) must be
counted in the total number of additional fee types. This is because
the exclusions in final Sec. 1005.18(b)(2)(ix)(A)(1) and (2) are only
for fees required to be disclosed pursuant to final Sec.
1005.18(b)(2)(i) through (vii) and (5) and any finance charges imposed
on the prepaid account as described in Regulation Z Sec.
1026.4(b)(11)(ii) in connection with a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Regulation Z
Sec. 1026.61. Further, the statement required by final Sec.
1005.18(b)(2)(viii)(B) explains that the additional fee types disclosed
are some of the total number of additional fee types.
The Bureau is adopting new comment 18(b)(2)(viii)(A)-2 to provide
guidance regarding the calculation of the number of additional fee
types pursuant to final Sec. 1005.18(b)(2)(viii) as well as to address
concerns raised by an industry commenter regarding how to categorize
fees in determining the additional fee types to disclose under final
Sec. 1005.18(b)(2)(ix). The comment explains that the term fee type,
as used in final Sec. 1005.18(b)(2)(viii) and (ix), is a general
category under which a financial institution charges fees to consumers.
A financial institution may charge only one fee within a particular fee
type, or may charge two or more variations of fees within the same fee
type. (The Bureau notes that an additional fee type for which a
financial institution does not charge any fee to the consumer,
including for any variations of the additional fee type, is not counted
in the total number of additional fee types under final Sec.
1005.18(b)(2)(viii) nor required to be disclosed on the short form
under final Sec. 1005.18(b)(2)(ix).) The comment goes on to provide a
list of examples of fee types a financial institution may use when
determining both the number of additional fee types charged pursuant to
final Sec. 1005.18(b)(2)(viii)(A) and any additional fee types to
disclose pursuant to final Sec. 1005.18(b)(2)(ix). The comment also
explains that a financial institution may create an appropriate name
for other additional fee types.
The Bureau compiled the list of examples of fee types in new
comment 18(b)(2)(viii)(A)-2 to provide guidance to financial
institutions and to help facilitate their categorization of additional
fee types for satisfying the requirements in final Sec.
1005.18(b)(2)(viii)(A) and (ix). The list also may encourage
standardization of this portion of the short form in that, although
additional fee types disclosed will vary across short forms for
different prepaid account programs, the Bureau believes financial
institutions will generally use consistent nomenclature for additional
fee types identified on the list. The Bureau compiled this list of
examples of fee types based on particular fee types referenced in
comments received on the proposal and by reviewing the packaging of and
disclosures for scores of prepaid account programs.\403\ The Bureau
balanced multiple considerations in compiling the list in final comment
18(b)(2)(viii)(A)-2 for purposes of both final Sec.
1005.18(b)(2)(viii) and (ix), including existing industry practices
with regard to fee types, the accounting burdens associated with
relatively narrower or broader definitions of fee types, and the
potential benefits to both industry and consumers in using narrower
definitions of fee types to communicate information about specific
account features and fees. The Bureau believes the resulting list
strikes an appropriate balance by capturing categories and terms
employed by the prepaid industry itself that will be useful to
financial institutions and consumers in determining and understanding
additional fee types. The Bureau is providing flexibility to financial
institutions to fashion appropriate names for other fee types,
including fee types for services that do not yet exist in the prepaid
marketplace.
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\403\ As part of the Bureau's Study of Prepaid Account
Agreements, Bureau staff found fee tables or other explanations of
at least some of the fees charged for 278 of the 325 agreements
reviewed. See Study of Prepaid Account Agreements at 29 and note 49.
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Final comment 18(b)(2)(viii)(A)-3 clarifies that, pursuant to final
Sec. 1005.18(b)(2)(vi), a financial institution using the multiple
service plan short form disclosure pursuant to final Sec.
1005.18(b)(6)(iii)(B)(2) must disclose only the fee for calling
customer service via a live agent. Thus, pursuant to final Sec.
1005.18(b)(2)(viii), any charge for calling customer service via an
interactive voice response system must be counted in the total number
of additional fee types.
Final comment 18(b)(2)(viii)(A)-4 clarifies that a financial
institution must use the same categorization of fee types in the number
of additional fee types disclosed pursuant to final Sec.
1005.18(b)(2)(viii) and in its determination of which additional fee
types to disclose pursuant to final Sec. 1005.18(b)(2)(ix). The Bureau
is including this comment on consistency to make clear that a financial
institution is not permitted to, for example, shorten its list of fee
types into a few broad categories (in order to minimize the number of
additional fee types required to be disclosed pursuant to final Sec.
1005.18(b)(2)(viii)) but use a more detailed list of fee types broken
out into a greater number of categories when assessing its obligations
under final Sec. 1005.18(b)(2)(ix) (in order to maximize the number of
fee types that may fall below the de minimis threshold pursuant to
final Sec. 1005.18(b)(2)(ix)(A)(2)).
Statement Directing Consumers To Disclosure of Additional Fee Types
Required by Sec. 1005.18(b)(2)(viii)(B)
Final Sec. 1005.18(b)(2)(viii)(B) requires that, if a financial
institution makes a disclosure of specific additional fee types
pursuant to final Sec. 1005.18(b)(2)(ix), the financial institution
must include a statement directing consumers to that disclosure,
located after but on the same line of text as the statement regarding
the number of additional fee types required by final Sec.
1005.18(b)(2)(viii)(A), using the following clause or a substantially
similar clause: ``Here are some of them:''.
The disclosure required by final Sec. 1005.18(b)(2)(viii)(A)
indicating the number of additional fee types will
[[Page 84036]]
generally be followed by the specific disclosure of two additional fee
types pursuant to final Sec. 1005.18(b)(2)(ix). The Bureau believes
that a brief transition statement linking these two disclosures will
enhance consumer understanding of both disclosures and dispel potential
consumer misunderstanding that features are not offered if they are not
disclosed on the short form.\404\ Thus, the line in the short form
disclosure following the static fees would disclose the following or
substantially similar clauses: ``We charge X other types of fees. Here
are some of them:''.
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\404\ See the section-by-section analysis of Sec.
1005.18(b)(2)(ix) below discussing industry commenters' concern that
disclosure of the proposed incidence-based fees would mislead
consumers into thinking that features are not offered if they are
not disclosed as incidence-based fees.
---------------------------------------------------------------------------
As discussed in the section-by-section analysis of Sec.
1005.18(b)(2)(ix) below, the Bureau believes that the brevity and
clarity of the short form disclosure necessary for optimal consumer
comprehension and engagement cannot support a detailed explanation of
what additional fee types are or the criteria the financial institution
used in determining which additional fee types to disclose. The
Bureau's pre-proposal consumer testing of such explanations support
this conclusion.\405\ Pre-proposal testing of a statement intended to
inform consumers that the fees listed were those that generated
significant revenue for the financial institution resulted in minimal
participant comprehension or notice.\406\ Post-proposal testing of a
similar disclosure that, in addition to including an explanation of the
criteria for disclosing such fees (i.e., that the two fees listed were
the most commonly charged), also directed consumers where to find
detail about all fees, similarly did not increase participant
comprehension.\407\
---------------------------------------------------------------------------
\405\ See ICF Report I at 35 and ICF Report II at 22-23.
\406\ See ICF Report I at 35. (Certain prototype short form
disclosures tested included the statement: ``The fees below generate
significant revenue for this company.'')
\407\ See ICF Report II at 22-23. (Certain prototype short form
disclosures tested included the statement: ``We charge [x]
additional fees. Details on fees inside the package, at 800-234-5678
or at bit.ly/XYZprepaids. These are our most common:''.)
---------------------------------------------------------------------------
Thus, to make the connection for consumers that the additional fee
types disclosed pursuant to final Sec. 1005.18(b)(2)(ix) are a subset
of the number of additional fee types disclosed pursuant to final Sec.
1005.18(b)(2)(viii)(A), and that absence of any feature on the short
form does not necessarily mean the prepaid account program does not
offer that feature, the Bureau is including in the final rule the
transition statement set forth above.
Final comment 18(b)(2)(viii)(B)-1 provides guidance regarding the
statement required by final Sec. 1005.18(b)(2)(viii)(B) directing
consumers to the disclosure of additional fee types pursuant final
Sec. 1005.18(b)(2)(ix). The comment explains that a financial
institution that makes no disclosure pursuant to final Sec.
1005.18(b)(2)(ix) may not include a disclosure pursuant to final Sec.
1005.18(b)(2)(viii)(B). The comment also provides examples regarding
substantially similar clauses a financial institution may use in
certain circumstances to make its disclosures under final Sec.
1005.18(b)(2)(viii)(A) and (B), such as when a financial institution
has several additional fee types but is only required to disclose one
of them pursuant to final Sec. 1005.18(b)(2)(ix).
18(b)(2)(ix) Disclosure of Additional Fee Types
As explained at the beginning of the section-by-section analysis of
Sec. 1005.18(b)(2)(viii) above, the proposal would have required two
distinct disclosures in the short form designed to alert consumers to
other fees financial institutions may charge in addition to the
standardized static fees disclosed at the top of the short form. First,
following the static fee disclosures, pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(8), the proposed short form would have disclosed up
to three fees incurred most frequently by consumers of that particular
prepaid card program that were not otherwise disclosed on the short
form (referred to as incidence-based fees). Second, pursuant to
proposed Sec. 1005.18(b)(2)(i)(B)(10), the short form would have
disclosed a statement in bold-faced type near the bottom of the
disclosure stating: ``We charge [X] other fees not listed here.'' As
described herein, the Bureau believed that these two elements would
help emphasize to consumers that the short form disclosure was not a
comprehensive list of all fees, provide consumers with specific
information about the additional fees that they were most likely to
encounter, and encourage consumers to review the long form or otherwise
seek additional information about the prepaid account's features and
costs.
As discussed in connection with both final Sec.
1005.18(b)(2)(viii) and (ix), the Bureau is adopting both proposed
disclosures with substantial revisions and is placing them together on
the short form to provide greater clarity to consumers and enhance the
impact of each disclosure relative to the proposed version. Other
adjustments made to the final rule to improve consumer comprehension
and reduce implementation burdens for financial institutions include,
for example, requiring disclosure of the number of additional types of
fees charged in connection with the prepaid account program, rather
than counting each variation in fees toward the total as proposed and
requiring disclosure of specific fee types on the short form based on
revenue, rather than frequency, and only if in excess of a de minimis
threshold. The Bureau believes that these and other changes will make
the disclosures easier for financial institutions to prepare and more
meaningful for consumers.
The Bureau's Proposal
In addition to the fees that all financial institutions would have
had to disclose in the static portion of the short form disclosure
pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7), the
Bureau also proposed that financial institutions 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 offered several
prepaid account products, the incidence-based fees analysis would have
had to be conducted separately for each product, based on usage
patterns in the prior 12-month period, and updated annually. Thus, the
incidence-based fees that would have been disclosed to a consumer on
the short form could have varied from one product to the next depending
on which fees consumers incurred most frequently for each product.
The Bureau proposed this disclosure because it was concerned that,
while the fee disclosures in the static portion of the short form under
the proposed rule would have included 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 also had
concerns that, absent this incidence-based disclosure, there was a risk
of evasion whereby a financial institution trying to gain an advantage
relative to its competitors could restructure its fee schedule to make
the fees disclosed in the static portion of the short form lower, while
structuring its pricing to make up or even increase overall revenue by
imposing fees that would not otherwise be disclosed on the short form.
The Bureau believed that requiring financial institutions to disclose
other fees that are frequently
[[Page 84037]]
paid by consumers would limit the ability of financial institutions to
avoid having to disclose relevant fee information up front on the short
form disclosure.
Additionally, the Bureau believed that the incidence-based portion
of the short form, though it would have mandated a specific metric to
determine which additional fees may be listed, would have provided some
flexibility to industry participants to disclose up to three more fees
on the short form particular to each prepaid account product and that
may be imposed for features that could be appealing to consumers.
Proposed Sec. 1005.18(b)(2)(i)(B)(8)(I). Accordingly, proposed
Sec. 1005.18(b)(2)(i)(B)(8)(I) would generally have required
disclosure of 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
were incurred most frequently in the prior 12-month period by consumers
of that particular prepaid account product.
For existing prepaid account products, proposed Sec.
1005.18(b)(2)(i)(B)(8)(I) would have required 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 by
consumers of that particular prepaid account product. In accordance
with the timing requirements of proposed Sec. 1005.18(h), a financial
institution would have had to execute any updates required by the rules
within 90 days for disclosures provided in written, electronic, or oral
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, would have had to be revised when the financial
institution printed new packaging material for its prepaid account
access devices, in accordance with the timing requirements in proposed
Sec. 1005.18(h). 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 had to include such changes, in accordance with
the timing requirements in proposed Sec. 1005.18(h).
The Bureau believed that it was important for the incidence-based
fee disclosure to list a prepaid account product's most commonly
incurred fees. The Bureau, however, recognized that financial
institutions would need time to update disclosures upon assessing
whether any changes to the incidence-based fee disclosure are needed,
although the Bureau expected such changes would be infrequent. The
Bureau believed such updates would be easier for disclosures provided
in electronic form or in written form outside of a retail setting.
Thus, the Bureau proposed that financial institutions would have had to
make updates to written, electronic, and oral disclosures within 90
days to ensure that consumers receive up-to-date incidence-based fee
disclosures. The Bureau, however, recognized 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 therefore proposed that financial institutions would have been able
to implement updates on packaging material whenever they are printing
new stock during normal inventory cycles. The Bureau acknowledged that
the 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, did
not believe that this discrepancy would significantly impact a
consumer's decision regarding which prepaid account product to acquire
since consumers would most likely be comparing the disclosures for two
distinct products, and not reviewing disclosures side-by-side for the
same prepaid account product found in different acquisition channels.
The Bureau also recognized 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, believed that imposing a cut-off date
after which sale or distribution of out-of-date retail packages would
be prohibited could be overly burdensome.
The Bureau also proposed to adopt several comments to provide
additional guidance on incidence-based fee disclosures. Proposed
comment 18(b)(2)(i)(B)(8)-1 would have provided guidance regarding the
number of incidence-based fees to disclose in the short form, including
when no fees, more than three, or less than three fees meet the
criteria in the definition of incidence-based fees. Proposed comment
18(b)(2)(i)(B)(8)-2 would have set forth how to determine which fees
were incurred most frequently in the prior 12-month period and would
have also clarified that the price for purchasing or activating a
prepaid account could qualify as an incidence-based fee. Proposed
comment 18(b)(2)(i)(B)(8)(I)-3 would have provided guidance regarding
the disclosure of incidence-based fees in accordance with the proposed
effective date regime in proposed Sec. 1005.18(h). Proposed comment
18(b)(2)(i)(B)(8)(I)-4 would have explained how to disclose incidence-
based fees when disclosing multiple service plans on a short form
disclosure that would have been permitted by proposed Sec.
1005.18(b)(3)(iii)(B). Proposed comment 18(b)(2)(i)(B)(8)(I)-5 would
have explained that proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would have
permitted a reprint exception that would not have required 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 were otherwise accurate, but
would have required that, if a financial institution determines that an
incidence-based fee listed on a short form disclosure in a retail store
no longer qualified as one of the most commonly incurred fees and made
the appropriate change when printing new disclosures, any packages in
retail stores that contained the previous incidence-based fee
disclosure could still be sold in compliance with proposed Sec.
1005.18(b)(2)(i)(B)(8)(I).
Proposed Sec. 1005.18(b)(2)(i)(B)(8)(II). Recognizing that new
prepaid products have no prior fee data history, the Bureau also
proposed additional requirements to address such circumstances.
Proposed Sec. 1005.18(b)(2)(i)(B)(8)(II) would have required 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. 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
[[Page 84038]]
requirements in proposed Sec. 1005.18(h). Although financial
institutions do not have actual fee data for new prepaid account
products, the Bureau believed that they nonetheless would have a
reasonable expectation as to which fees would be incurred most
frequently. Thus, financial institutions would have been required, 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. Proposed comment
18(b)(2)(i)(B)(8)(II)-1 would have explained that the financial
institution should use available data to reasonably anticipate what
fees should be disclosed and provided an example to illustrate.
Proposed Sec. 1005.18(b)(2)(i)(8)(III). The Bureau also proposed
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 have required that, if a financial
institution changes an existing prepaid account product's fee schedule
at any point after assessing its incidence-based fee disclosure for the
prior 12-month period pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(8)(I), it would have had 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 have represented the most
commonly incurred fees for the remainder of the current 12-month
period, it would have had 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) also would have required
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 institution is printing new packaging material, in accordance
with the timing requirements of proposed Sec. 1005.18(h). 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 have provided an example demonstrating
the impact of a fee change on an existing prepaid account product's
incidence-based fee disclosure.
The Bureau noted in the proposal that its proposed model forms did
not isolate or identify these incidence-based fees in a way that would
have distinguished them from the other fees, outside the top-line,
disclosed under proposed Sec. 1005.18(b)(2)(i)(B)(5) through (7).
Thus, the Bureau explained, 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) through (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 pre-proposal consumer testing, the
Bureau tested language identifying the incidence-based fees as such,
but this language was often ignored or misunderstood by
participants.\408\ Nevertheless, the Bureau recognized that some
variation on the short form fee disclosure could lead to confusion, and
thus the Bureau sought comment on whether the model forms should more
clearly indicate to a consumer the meaning of the incidence-based fees.
---------------------------------------------------------------------------
\408\ See ICF Report I at 35.
---------------------------------------------------------------------------
The Bureau also recognized 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 acknowledged that basing the
incidence-based fees determination on fee incidence might not make
sense for all prepaid products. Thus, the Bureau sought comment on all
aspects of this incidence-based fees proposal. Among other things, the
Bureau specifically solicited 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,
and 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.
Comments Received
Numerous industry commenters spanning a panoply of interests in the
prepaid industry including trade associations, issuing banks, credit
unions, program managers, a law firm commenting on behalf of a
coalition of prepaid issuers, and other parties involved in the prepaid
industry, as well as several employers, addressed the proposed
requirement to disclose incidence-based fees, with the vast majority
recommending the Bureau eliminate this aspect of the short form
disclosure. Their specific concerns and criticisms are discussed in
detail below. Industry commenters, however, generally supported the
proposed reprint exception. That exception would have excused financial
institutions from annually updating the incidence-based fees for
disclosures provided on a prepaid account product's packaging material,
for example, in retail stores, until the financial institution prints
new packaging material.
Industry commenters offered myriad reasons in support of their
recommendation that the Bureau not finalize the requirement to disclose
incidence-based fees. Industry commenters' concerns, summarized here,
are discussed in more detail in the paragraphs that follow. Some said
that the disclosure would heavily burden industry with what they viewed
to be little, if any, benefits to consumers and, if finalized as
proposed, would likely cause some prepaid providers to exit the market.
Many said that this disclosure defeats the uniformity in the short form
and thus could inhibit consumers' ability to comparison shop. Many
others asserted that the disclosure would create a discrepancy between
fees disclosed online and those disclosed on packaging for financial
institutions taking advantage of the reprint exception. Some industry
commenters suggested that the incidence-based fees disclosed may not be
germane to all consumers. Some also asserted the disclosure would be
redundant because the incidence-based fees can be found elsewhere, such
as on the long form disclosure.
Specifically, some industry commenters voiced concern regarding
consumer comprehension of the significance of incidence-based fees.
They said that the disclosure defeats uniformity within and comparison
shopping among short form disclosures because incidence-based fees
would vary among different prepaid account programs and over time even
for the same program, which they contended would mislead consumers into
thinking that absence of a certain fee on the short form may mean the
feature is not offered. A few commenters said that because of
differences in customer usage, some of the disclosed incidence-based
fees would not be germane to some consumers. Some industry commenters
contended that the Bureau's pre-proposal consumer testing
[[Page 84039]]
showed that consumers did not understand if they would incur incidence-
based fees, that frequency of incidence determined disclosure of one
feature over another, or how the information was relevant to them in
selecting a prepaid account. One industry commenter said that
addressing this confusion with an explanation of these topics in the
short form disclosure would take up valuable space and create its own
confusion, but that eliminating the requirement to disclose incidence-
based fees would solve this problem while reducing the overwhelming
amount and complexity of the information required in the short form
disclosure.
Some industry commenters questioned the Bureau's rationale for the
disclosure of incidence-based fees in the proposed rule, saying that
the risk of fee evasion by industry is unwarranted in the current
competitive prepaid marketplace.
Some industry commenters questioned the validity of the data upon
which incidence-based fees would be calculated, saying incidence-based
fees were unlikely to change significantly absent structural changes to
the program and that, because prepaid accounts are typically short-
lived, annual assessment would not provide a sufficient basis from
which to extrapolate meaningful information.
Some industry commenters, including issuing banks, credit unions,
and industry trade associations, asserted that requiring disclosure of
incidence-based fees for products distributed in bank branch settings
is unnecessary as availability of the long form disclosure prior to
acquisition and bank personnel to answer questions both encourage more
thoughtful consumer review. Some of these industry commenters claimed
incidence-based disclosures would disproportionately burden community
banks and credit unions because they use outside vendors to handle
disclosures, creating higher costs and unfair due diligence demands on
banks to oversee the vendors. Some said that, without an exemption for
small issuers, compliance costs may force these providers out of the
market. A program manager for government benefit account programs
recommended an exemption for accounts arranged for or issued by
government agencies, saying agencies usually each offer only one
prepaid account program and consequently, consumers do not need
disclosures to be provided in a format designed to facilitate
comparison of multiple prepaid accounts offered by the agency.
Alternatively, the commenter recommended permitting government agencies
to aggregate their data for incidence-based fees rather than analyzing
each program separately.
Many industry commenters focused on the perceived burden of this
proposed requirement, saying the disclosure would be complex, costly,
and difficult to implement. One industry commenter said the fear that
any changes to incidence-based fees will require changes to packaging
and marketing materials would stifle innovation and development of new
services or new prepaid products. Another recommended the Bureau
commission a study to confirm that the benefits of the incidence-based
disclosure outweigh the burden. Many industry commenters said it would
be a major undertaking to identify and calculate incidence-based fees,
with some saying the proposed annual update alone would necessitate a
massive amount of new procedures, controls, system updates, and
packaging design changes.
Some questioned the meaning in the proposed rule of the term
``separate prepaid account program,'' saying initial and ongoing
identification and calculation of incidence-based fees would be
particularly cost prohibitive for entities with hundreds or thousands
of separate prepaid account programs, as they said is the case with
certain companies that issue or manage payroll card account programs.
Some commenters involved in payroll card account programs queried
whether the proposed rule would require them to calculate incidence-
based fees for each individual program negotiated separately with an
employer or whether they could aggregate data across programs. For
example, one payroll card account program manager with 4,000 individual
employer programs said every annual printing would cost $1 per
cardholder such that annual printing costs alone would be a
multimillion dollar undertaking.
Some industry commenters questioned specific aspects of the
proposed incidence-based fee disclosure. A few commenters questioned
the proposed 90-day period for updates, saying it was unclear whether
both assessing and updating incidence-based fees would be required in
that time frame and recommended various extensions of the period, for
example, to 120 days for both assessment and updating, 12 months after
analysis to update, or within a reasonable time after a change. A trade
association commenter said the requirement to disclose additional fee
types would pose a ``compliance trap'' because financial institutions
could be second-guessed on how they categorized them.\409\ Another
industry commenter said financial institutions would have to justify
their categorization and tracking of fees to examiners, even when
vendors perform that service (as, they said, is the case with many
small banks). Another commenter said the ``reasonable'' standard for
estimating incidence for new products would be complicated and inexact,
with no guarantee of accuracy but would function as a de facto strict
liability standard.
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\409\ While proposed Sec. 1005.18(b)(2)(i)(8)(I) would have
required disclosure of up to three fees, proposed comment
18(b)(2)(i)(B)(8)(I)-2 would have explained that, in determining
incidence-based fees, financial institutions would have had to total
the incidence for each fee type incurred during the prescribed
period.
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Many industry commenters responded to the Bureau's solicitation of
comments regarding alternatives to the proposed incidence-based fee
disclosure. They variously recommended the following in the short form
disclosure: A general statement that other fees may apply, disclosing
all fees, or adding to the static fees already disclosed on the short
form up to three more common fees chosen by the financial institution
or determined by the Bureau on the basis of research. Some industry
commenters recommended modifying the proposed update schedule by
requiring the update every two years, or requiring it only when there
is a fee change which would require the financial institution to update
the prepaid account terms, packaging, and disclosures in any case.
A few industry commenters addressed the Bureau's queries regarding
whether the disclosure should be based on assessment of fee frequency,
as proposed, or fee revenue. A trade association and an issuing bank
said they had no preference, as long as the criteria are clear, easy to
determine, and not subject to annual updating. A program manager also
said it had no preference as it has the data necessary for either
calculation, and the cost and compliance burden would be the same
either way.
The proposal sought comment on a de minimis threshold below which
changes to the incidence ranking would not require form revisions.
While some industry commenters supported this idea, others went further
and advocated for a general de minimis threshold that would not require
disclosure of additional fee types below a threshold set by the Bureau.
A trade association, a payment network, an issuing bank, and several
program managers urged the Bureau to adopt a general de minimis
exclusion from the incidence-based fee
[[Page 84040]]
requirement. The issuing bank said this would help to ensure that
consumers are provided with information on the short form disclosure
that is most likely to be relevant to their actual use of the prepaid
account. Other commenters explained that, in general, very little
revenue is generated from fees paid by consumers that are not already
reflected on the proposed short form, other than from the purchase
price and activation fees (when charged), though there are outliers in
certain circumstances. One commenter expressed concern that because so
few consumers use the services associated with these other fees, the
incidence-based fees required to be disclosed would likely change every
year due to small shifts in consumer usage.
A trade association recommended the Bureau adopt a safe harbor to
the proposed incidence-based fee requirement that allows financial
institutions to disclose all fees on the short form, with a de minimis
exception for fees that are imposed on fewer than 25 percent of
accounts. A credit union similarly recommended that the Bureau give
financial institutions the option of listing all fees on the short
form, which it said would be more transparent to consumers and more
beneficial particularly for issuers who charge a limited number of fees
on their prepaid accounts.
Several consumer group commenters, on the other hand, supported the
proposed disclosure of incidence-based fees. These commenters said that
requiring disclosure of incidence-based fees would prevent financial
institutions from designing their fee schedules to minimize fees
required to be disclosed on the short form and to maximize those that
are only listed on the long form disclosure, where consumers are less
likely to see them. They also said the disclosure of incidence-based
fees would help consumers evaluate and avoid the most-commonly charged
fees.
The consumer group commenters also recommended some changes to the
proposed requirement. They all recommended requiring calculation of the
fees based on revenue, rather than frequency of incidence, saying it is
more important to warn consumers about high fees that impact small
numbers of consumers rather than small fees charged often. They warned
that placing more importance on a commonly incurred but inexpensive
fee, rather than a rare expensive fee, could result in consumers paying
more for fees that are not prominently displayed. They said the rule
could incent some providers to bring down cost of the most common fees
in favor of higher fees on those incurred less often, thus hiding
potential costly charges.
One consumer group commenter recommended eliminating the 12-month
lookback period for assessment of incidence-based fees because an
expensive fee, such as a legal process fee, may be charged sporadically
but could devastate a consumer. That commenter also argued against a de
minimis exception, saying any fee so small or so rarely incurred should
be eliminated. Moreover, it said, a de minimis threshold would likely
eliminate disclosure of infrequent but costly fees, such as legal fees
for garnishment. The consumer group also suggested requiring
standardized use of the term ``bill payment'' for incidence-based fees.
Another consumer group recommended permitting a financial institution
that charges a total of four other fees to disclose all four of those
fees in lieu of disclosing three of those fees and the statement
regarding other fees.
Regarding purchase price, one consumer group commenter agreed that,
as the Bureau had proposed, the purchase price for a prepaid account
should be a potential incidence-based fee and not be required as a
static fee because of the limited space in the short form and other
parts of the packaging can disclose this information. Moreover, the
commenter said, it is a one-time fee and consumers will take notice of
the price they have to pay for the prepaid account. On the other hand,
another consumer group commenter recommended that the purchase price be
required to be disclosed as a static fee on the short form or,
alternatively, as an incidence-based fee. It said disclosure of this
fee was important because almost half of regular GPR card users buy a
new card when their funds are exhausted, so the purchase price is a
frequent expense. Further, it stated that simply because the purchase
price is deducted from the amount of cash loaded onto a prepaid card
does not mean that consumers understand this fee.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(8), renumbered as Sec. 1005.18(b)(2)(ix),
with substantial modifications, largely in response to comments
received. First, as discussed above, the Bureau is moving the
disclosure's location on the short form so that it appears immediately
after the statement regarding the number of additional fee types
charged pursuant to final Sec. 1005.18(b)(2)(viii)(A). The Bureau
believes that locating these disclosures together will help consumers
see their connection and increase understanding of why the fee
information specified under final Sec. 1005.18(b)(2)(ix) may vary
among prepaid account programs, and thus enhance the use of short form
disclosures for comparison shopping. The Bureau believes this will also
make the disclosure of the total number of additional fee types under
final Sec. 1005.18(b)(2)(viii) more valuable to consumers by providing
some additional specific information.
Second, the Bureau is finalizing several changes to the nature of
the disclosure. In particular, the Bureau is requiring disclosure of
two fee types \410\ instead of three, and has renamed this requirement
the ``disclosure of additional fee types.'' In addition, the Bureau is
requiring that the criteria for determining fee types be based on which
categories generate the highest revenue from consumers, rather than
highest incidence of consumer use as proposed. As discussed above, the
Bureau compiled a list of fee type examples to provide guidance to
financial institutions and to help facilitate their categorization of
additional fee types for satisfying the requirements in final Sec.
1005.18(b)(2)(viii)(A) and (ix).
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\410\ See comment 18(b)(2)(viii)(A)-2 for an explanation of the
term ``fee type'' and a list of examples of fee types and fee
variations within those fee types that a financial institution may
use when determining both the number of additional fee types
pursuant to final Sec. 1005.18(b)(2)(viii)(A) and any additional
fee types to disclose pursuant to final Sec. 1005.18(b)(2)(ix).
Final comment 18(b)(2)(viii)(A)-4 also clarifies that a financial
institution must use the same categorization of fee types in the
number of additional fee types disclosed pursuant to final Sec.
1005.18(b)(2)(viii) and in its determination of which additional fee
types to disclose pursuant to final Sec. 1005.18(b)(2)(ix).
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Third, the Bureau has made a number of other adjustments intended
to reduce compliance burden relative to the proposal regarding the
tracking and reporting of the additional fee types. These adjustments
are in addition to proposed burden-reducing measures that the Bureau is
adopting in the final rule, such as the exemption from having to update
the listing of additional fee types on previously printed packaging
materials, pursuant to the update printing exception in final Sec.
1005.18(b)(2)(ix)(E)(4). Additional burden-reducing measures in the
final rule include a 24-month (rather than annual) cycle for assessing
and updating the disclosures and permitting financial institutions to
track revenue on a consolidated basis across multiple prepaid account
programs that share the same fee schedule. The final rule also permits
issuers not to provide
[[Page 84041]]
disclosures for any fee categories that fall below 5 percent of
consumer-generated revenues, as well as excluding certain other fee
categories. Finally, the Bureau has replaced the proposed commentary
with a number of new comments to provide additional clarification and
guidance on the requirements set forth in final Sec.
1005.18(b)(2)(ix).
The Bureau has considered the industry comments objecting to the
proposed disclosure of incidence-based fees \411\ and recommending
their elimination from the final rule. It has also considered the
alternatives recommended by some industry commenters and suggestions
for improvement by consumer group commenters. The Bureau has made
extensive refinements to the proposed framework based in substantial
part on this feedback but continues to believe that there is value to
maintaining a dynamic element on the short form and that disclosing
specific additional fee information that is updated on a periodic basis
is the best way to provide such dynamic information, as discussed
further below.
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\411\ Hereinafter, the Bureau uses the final rule term
``additional fee types'' in place of ``incidence-based fees,''
unless the discussion calls for specific reference to the term from
the proposed rule.
---------------------------------------------------------------------------
As discussed in detail in the next few paragraphs, the Bureau
continues to believe it is important that financial institutions
disclose to consumers certain fee types not otherwise listed on the
short form. The Bureau believes that this may be particularly important
for certain virtual wallets and other products covered by this final
rule that may have pricing structures that do not mirror those of GPR
cards or other more traditional prepaid products, as well as for
capturing potential major evolutions in pricing structures on
traditional products that may occur in the future. Further, the final
rule provides some flexibility to financial institutions that have
fewer than two fee types required to be disclosed pursuant to final
Sec. 1005.18(b)(2)(ix)(B) to disclose additional fee types of their
choice, such as those particular to their prepaid account program and
imposed for features that could be appealing to consumers. It also
provides additional flexibility for financial institutions to disclose
the names and fee amounts of the discrete fee variations for additional
fee types with two or fewer fee variations pursuant to final Sec.
1005.18(b)(2)(ix)(C).
First, as pointed out by some consumer group commenters, the
requirement to disclose additional fee types in the short form
disclosure creates a dynamic disclosure designed to reduce incentives
for manipulating fee structures to reduce the cost of the most common
fee types in favor of higher fees on fee types incurred less often,
thus hiding potential costly charges. The Bureau is not convinced, as
asserted by some industry commenters, that market forces alone would
adequately control for potential fee manipulation. Requiring disclosure
of additional fee types in the short form will help prevent financial
institutions from minimizing the cost of the fees required to be
disclosed in and outside the short form by final Sec. 1005.18(b)(2)(i)
through (vii) and (5) in favor of higher fees for fee types that would
only be required to be disclosed in the comprehensive long form
disclosure, where the Bureau believes consumers are much less likely to
see them before acquiring a prepaid account. In particular for prepaid
accounts sold at retail, consumers may not see the additional fee types
disclosed only in the long form and, thus, could be more likely to
incur such fees unknowingly. Putting consumers on notice of additional
fee types that, outside of those excluded from disclosure pursuant to
final Sec. 1005.18(b)(2)(ix)(A)(1) through (3), generate the highest
revenue from consumers for the particular prepaid account or across
prepaid account programs that share the same fee schedule will alert
consumers to account features for which they may end up incurring a
significant cost.
Second, eschewing full standardization in a static short form
disclosure in favor of the dynamic disclosure of additional fee types
enables the disclosure to capture market changes and innovations. In
this way, the short form is capable of reflecting over time significant
changes in consumer use patterns that affect the amount of revenue
generated for new features. Disclosing additional fee types in the
short form allows the disclosure to reflect the advent of new fee types
that consumers may come to incur frequently and for significant cost
that, without this requirement, otherwise would be prohibited from
disclosure in the short form and thus could render it outdated and of
diminished value to consumers over time. This same dynamism also
permits disclosure of fees for certain types of prepaid accounts, such
as mobile wallets, whose currently scant fee structures may not
otherwise be represented in the short form. Further, requiring
disclosure of additional fee types allows the short form to capture
future fee types charged by new products and under new pricing models
that emerge over time. Without this mechanism, the information provided
to consumers in the short form disclosure may become ossified and
anachronistic over time absent additional rulemakings by the Bureau to
update the required elements of the short form.
The Bureau recognizes that there are some tradeoffs for consumers
and for industry in providing the disclosures, but believes those
disadvantages are outweighed by the benefits of these disclosures to
consumers. Moreover, the Bureau believes that the changes it has made
in the final rule address many of the concerns raised by industry
commenters and also substantially reduce the burden on financial
institutions related to providing these disclosures relative to the
proposal.
One objection raised by industry commenters is that, because the
additional fee types disclosures will be the only non-standardized
elements of the short form, the lack of uniformity will cause consumer
confusion and prevent comparison shopping. As discussed in the section-
by-section analysis of Sec. 1005.18(b)(2)(viii) above, the Bureau had
consumer tested language to explain how the incidence-based fees were
selected for disclosure on the short form but found that the
information did not track well with consumers. The Bureau believes that
the final rule substantially reduces this problem by linking the
disclosures in final Sec. 1005.18(b)(2)(viii) and (ix) by using a
transition statement between the two (``Here are some of them:'') as
discussed above, making clear that the specific additional fee types
listed are examples of additional types of fees not otherwise disclosed
on the short form. While the short form will not specifically explain
why those two particular fee types were selected for disclosure,
consumers will be able to understand that this portion of the form is
variable across prepaid account programs, evaluate the specific
information provided for potential applicability to their expected
prepaid account use, and seek more information. The Bureau does not
believe it necessary for consumers to understand the calculations
behind and the specific purpose of the additional fee types to benefit
from their disclosure.
Some commenters said the proposed reprint exemption would create
discrepancies among short form disclosures for the same prepaid account
program depending on where a consumer views the form (for example, at
retail versus online). However, in
[[Page 84042]]
addition to the modifications to the final rule discussed above adding
an explanatory heading above the listing of additional fee types, the
Bureau believes it unlikely most consumers will be comparing short form
disclosures for the same prepaid account program in different mediums.
Moreover, a large majority of industry commenters favored the reprint
exemption, as it reduces burden, and the Bureau believes it is
preferable to retain this exemption in the final rule as opposed to
removing it. The Bureau does not believe that the additional fee type
disclosures required by the final rule will stifle innovation, as
suggested by industry commenters, particularly given the reprint
exemption and the additional explanation the Bureau has provided in the
supplementary information for this final rule regarding use of change-
in-terms notices pursuant to Sec. 1005.8(a) and notice of new EFT
services pursuant to Sec. 1005.7(c). See, e.g., the section-by-section
analysis of Sec. 1005.18(b)(2)(ix)(E)(4) below.
With regard to comparison shopping, the Bureau believes that having
the same disclosures in the bulk of the short form, including the
static fees and informational statements, will create more than
sufficient consistency to facilitate consumer comparison shopping based
on key fees in the marketplace, despite some variance introduced by the
disclosure of two additional fee types. At the same time, the
disclosure of additional fee types will ensure that consumers are made
aware of significant fee types relating to each particular prepaid
account program. Also, the transition statement linking the statement
regarding the number of additional fee types and the disclosure of
additional fee types provides sufficient information to orient
consumers to these disclosures and will help dispel the consumer
confusion that concerned industry commenters, particularly in light of
consumer testing of explanations of the criteria for selection of
additional fee types that proved ineffective.
To preserve standardization and consistency across short form
disclosures, the Bureau declines to exempt prepaid accounts distributed
in branches, particularly those of community banks and credit unions,
and by government agencies from the requirement to disclose additional
fee types. In addition to preserving standardization across short form
disclosures, the Bureau is concerned that creating an individualized
disclosure regime for different acquisition settings would create a
patchwork regulatory regime, which is what this rule seeks to
eliminate. The Bureau believes it is important to make the short form
disclosure as informative as possible considering its space
constraints; the disclosures regarding additional fee types will
encourage consumers to review the long form for more detailed
information in a way that simply providing the long form disclosure
will not do.
In finalizing this provision, the Bureau attempted to maximize the
usefulness of the disclosure for consumers while exacting the minimum
burden on industry. As discussed above and below, the final rule
incorporates many burden-reducing measures relative to the proposal,
such as excluding certain fees from potential disclosure as additional
fee types altogether (final Sec. 1005.18(b)(2)(ix)(A)(1) and (3)),
allowing for a consolidated calculation of additional fee types to
occur across all prepaid account programs that share the same fee
schedule (final Sec. 1005.18(b)(2)(ix)(A)), increasing the timeframe
for data collection and assessment/update from one year to 24 months
(final Sec. 1005.18(b)(2)(ix)(D) and (E)), and incorporating a de
minimis revenue threshold to exclude from potential disclosure fee
types that fall below this threshold (final Sec.
1005.18(b)(2)(ix)(A)(2)). The Bureau is skeptical that this disclosure
requirement will prompt financial institutions to exit the prepaid
market as suggested by some commenters. Rather, the Bureau believes
that the burden imposed on financial institutions by final Sec.
1005.18(b)(2)(ix) is manageable. Also, with regard to comments that the
disclosure of additional fee types in the short form is redundant of
information found in the long form disclosure, the Bureau believes
these fees merit disclosure in the short form as it is the disclosure
most likely to be reviewed pre-acquisition by consumers.
Each aspect of final Sec. 1005.18(b)(2)(ix) is addressed in turn
below, together with other specific comments from both industry and
consumer groups.
Determination of Which Additional Fee Types To Disclose Pursuant to
Sec. 1005.18(b)(2)(ix)(A)
Final Sec. 1005.18(b)(2)(ix)(A) requires disclosure of the two fee
types that generate the highest revenue from consumers for the prepaid
account program or across prepaid account programs that share the same
fee schedule during the time period provided in final Sec.
1005.18(b)(2)(ix)(D) and (E), excluding (1) fees required to be
disclosed pursuant to final Sec. 1005.18(b)(2)(i) through (vii) and
(5); (2) any fee types that generated less than 5 percent of the total
revenue from consumers for the prepaid account program or across
prepaid account programs that share the same fee schedule during the
relevant time period; and (3) any finance charges as described in final
Regulation Z Sec. 1026.4(b)(11) imposed in connection with a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in final Sec. 1026.61.
Specific aspects of this provision, and related commentary, are
discussed in turn below.
Two additional fee types. Final Sec. 1005.18(b)(2)(ix) requires
the disclosure of fee types, rather than individual fees. Requiring
financial institutions to disclose additional fee types for both final
Sec. 1005.18(b)(2)(viii) and (ix) should further reduce burden on
industry relative to the proposal.\412\ First, final Sec.
1005.18(b)(2)(viii) and (ix) are coordinated such that both provisions
require disclosure of additional fee types; therefore industry will use
the same criteria to formulate the disclosures for both provisions thus
avoiding the cost of maintaining separate rubrics.\413\ Second,
organizing the disclosures around fee types rather than discrete fees
simplifies the organizational process by reducing the number of
distinct fee categories financial institutions must track and analyze
in determining the disclosure of additional fee types. Third, in
response to industry commenters' concerns about how to categorize fee
types, final comment 18(b)(2)(viii)(A)-2 lists examples of fee types
and the breakdowns of discrete fee variations within fee types that a
financial institution may use when determining the disclosures required
by both final Sec. 1005.18(b)(2)(viii) and (ix). The Bureau balanced
multiple considerations in compiling this list of examples, including
existing industry practices with regard to fee types, the accounting
burdens associated with relatively narrower or broader definitions of
fee types, and the potential benefits to both industry and consumers in
using narrower definitions of fee types to communicate information
about specific account features and fees. The Bureau believes the
resulting list strikes an appropriate balance by capturing categories
and terms employed by the prepaid industry itself that will be most
useful to financial
[[Page 84043]]
institutions and consumers in determining and understanding additional
fee types. The Bureau is providing flexibility to financial
institutions to fashion appropriate names for other fee types,
including fee types for services that do not yet exist in the prepaid
marketplace.
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\412\ As discussed in the section-by-section analysis of Sec.
1005.18(b)(2)(viii)(A), the Bureau believes this approach addresses
a number of the concerns raised by commenters regarding the proposed
disclosure of the total number of additional fees.
\413\ See final comment 18(b)(2)(viii)(A)-4.
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The Bureau does not believe the use of fee types will compromise
the benefit to consumers of the disclosure required by final Sec.
1005.18(b)(2)(ix), as suggested by some commenters. While it is true
that the additional fee types disclosed will constitute broader
categories than disclosure of individual fee types, such as the
disclosure of fees for bill payment generally versus a specific fee for
regular or expedited delivery of a bill payment, there are benefits and
detriments to either approach for both consumers and financial
institutions and as discussed above, the Bureau believes the approach
in the final rule strikes an appropriate balance. To allow financial
institutions flexibility to disclose discrete fee variations, pursuant
to final Sec. 1005.18(b)(2)(ix)(C), financial institutions with
additional fee types with two or fewer fee variations may disclose
those fee variations by name and fee amount. Similarly, final Sec.
1005.18(b)(2)(ix)(B) permits financial institutions to disclose fee
types of their choice if they have fewer than two fee types that
require disclosure under final Sec. 1005.18(b)(2)(ix), thereby
creating opportunities for more transparent disclosure to consumers and
greater flexibility and control for financial institutions, including
the option of highlighting innovative and unique product features or
features that financial institutions project may require disclosure by
the next reassessment and update deadline.
Also in the final rule, the Bureau is requiring disclosure of two
additional fee types pursuant to final Sec. 1005.18(b)(2)(ix)(A),
rather than three as proposed. The Bureau has made this modification,
in part, to create additional space on the short form for other
disclosures required by the final rule, such as the statement
associated with the alternate disclosure of a variable periodic fee
pursuant to final Sec. 1005.18(b)(3)(ii). The Bureau also believes
some financial institutions will find that this modification will
impose less burden on an ongoing basis with respect to recalculation
and updates than the rule as proposed would have done. The Bureau does
not believe that the disclosure of two additional fee types rather than
three will reduce the effectiveness of the short form disclosure for
consumers, especially when balanced with other measures the Bureau has
taken in the final rule to inform consumers of other fee types, such as
the requirement under final Sec. 1005.18(b)(2)(vi) to generally
disclose two customer service fees (for interactive voice response and
live customer service) instead of the highest fee that would have been
required under the proposed rule.
Final comment 18(b)(2)(ix)(A)-1 clarifies that a prepaid account
program that has two fee types that satisfy the criteria in final Sec.
1005.18(b)(2)(ix)(A) must disclose both fees. If a prepaid account
program has three or more fee types that potentially satisfy the
criteria in final Sec. 1005.18(b)(2)(ix)(A), the financial institution
must disclose only the two fee types that generate the highest revenue
from consumers. This comment cross-references final comment
18(b)(2)(ix)(B)-1 for guidance regarding the disclosure of additional
fee types for a prepaid account with fewer than two fee types that
satisfy the criteria in final Sec. 1005.18(b)(2)(ix)(A).
Final comment 18(b)(2)(ix)(A)-1 also cross-references final comment
18(b)(2)(viii)(A)-2 for guidance on and examples of fee types. To
address an industry commenter's concerns regarding categorization of
fee types, comment 18(b)(2)(viii)(A)-2 provides concrete guidance on
how to categorize fee types. The comment provides an explanation of the
term ``fee type'' and examples of more than a dozen fee types, along
with fee variations within those fee types, that a financial
institution may use when determining both the number of additional fee
types charged pursuant to final Sec. 1005.18(b)(2)(viii)(A) and any
additional fee types to disclose pursuant to final Sec.
1005.18(b)(2)(ix). In response to the recommendation of one consumer
group commenter, this comment provides standardized terms for many fee
types, including bill payment. Final comment 18(b)(2)(ix)(A)-2 explains
that commonly accepted or readily understandable abbreviations may be
used as needed for additional fee types and fee variations disclosed
pursuant to final Sec. 1005.18(b)(2)(ix), and offers several example
to illustrate this concept.
Highest revenue. Upon consideration of the comments and additional
analysis, the Bureau has concluded that determining the disclosure of
additional fee types on the basis of revenue is superior to an
incidence-based system. The Bureau agrees with consumer group
commenters that there may be more merit in alerting consumers to fees
from which the financial institution makes the highest revenue, even if
those fees impact fewer consumers, rather than lower fees incurred by
consumers more frequently. Also, as raised by consumer group
commenters, the rule as proposed could incent some financial
institutions to reduce the cost of the most common fee types in favor
of higher fees on fee types incurred less often, thus hiding potential
costly charges. Moreover, all industry commenters who responded to the
issue were neutral as to whether the disclosure should be based on
incidence or revenue because they tracked both. To the extent that some
financial institutions do not track both, the Bureau believes that it
is more likely they track revenue and, regardless, that it will be
simpler and more straightforward for financial institutions to
calculate fee revenues rather than fee incidence.
The Bureau also believes that there is additional information
conveyed in using revenue; namely that a fee type's revenue is a
measure of the impact of that fee type on consumers--it is the amount,
in dollars, of the cost of that feature to consumers. In contrast, an
incidence-based approach could have led to disclosure of fee types that
were commonly incurred but had a low impact because the fee amount was
low.
Revenue from consumers. The Bureau has included specific reference
in the final rule to ``revenue from consumers'' to assure clarity that
the revenue required for calculation for the disclosure of additional
fee types required by final Sec. 1005.18(b)(2)(ix) is based on fee
types that the financial institution may charge consumers. Final
comment 18(b)(2)(ix)(A)-3 clarifies that the calculation excludes other
revenue sources such as revenue generated from interchange fees and
fees paid by entities that sponsor prepaid account programs for
financial disbursements (e.g., government agencies and employers). The
comment also explains that the calculation excludes third-party fees,
unless they are imposed for services performed on behalf of the
financial institution.
Assessing revenue within and across prepaid account programs to
determine disclosure of additional fee types. Some industry commenters
said the proposed requirement to calculate incidence-based fees on a
program-by-program basis would pose significant cost and burden to
them. They explained that some financial institutions administer
hundreds or more prepaid account programs, particularly in the payroll
and government benefit space, and recommended that financial
institutions be permitted to aggregate data rather than analyze the
data of each prepaid account program separately. The Bureau continues
to believe it is crucial that the
[[Page 84044]]
additional fee types disclosed to consumers in the short form reflect
consumer usage and cost for a particular prepaid account program.
However, the Bureau also recognizes that many payroll card account and
government benefit account programs may be considered separate programs
but share fee schedules and other terms. Because of the potential
burden for determining the additional fee disclosures based on fee
revenue data separately for programs that all share the same fee
schedule, particularly in the context of payroll card accounts and
government benefits accounts, the final rule permits financial
institutions to make their additional fee types determination based on
the fee types that generate the highest revenue from consumers for a
particular prepaid account program or across prepaid account programs
that share the same fee schedule during the time period provided in
final Sec. 1005.18(b)(2)(ix)(D) and (E).
Final comment 18(b)(2)(ix)(A)-4 explains that, if a financial
institution offers more than one prepaid account program, unless the
programs share the same fee schedule, the financial institution must
consider the fee revenue data separately for each prepaid account
program and not consolidate the fee revenue data across prepaid account
programs. The comment explains that prepaid account programs are deemed
to have the same fee schedules if they charge the same fee amounts,
including offering the same fee waivers and fee reductions for the same
features. The comment also provides examples of how to assess revenue
within and across prepaid account programs to determine the disclosure
of additional fee types. In addition, the comment explains that, for
multiple service plans disclosed pursuant to final Sec.
1005.18(b)(6)(iii)(B)(2), a financial institution must consider revenue
across all of those plans in determining the disclosure of additional
fee types for that program.
The Bureau notes that, financial institutions disclosing only the
default service plan for a prepaid account program offering multiple
service plans pursuant to final Sec. 1005.18(b)(6)(iii)(B)(1) are not
required to evaluate revenues or disclose additional fee types under
Sec. 1005.18(b)(2)(ix) for service plans other than the default
service plan.
Exclusions pursuant to Sec. 1005.18(b)(2)(ix)(A)(1) through (3).
As clarified in final comment 18(b)(2)(ix)(A)-5, once the financial
institution has calculated the fee revenue data for the prepaid account
program or across prepaid account programs that share the same fee
schedule during the appropriate time period, it must remove from
consideration the categories excluded pursuant to final Sec.
1005.18(b)(2)(ix)(A)(1) through (3) before determining the fee types,
if any, that generated the highest revenue.
Exclusion of fee types required to be disclosed elsewhere pursuant
to Sec. 1005.18(b)(2)(ix)(A)(1). Like the proposed rule, the final
rule requires financial institutions to exclude from the additional fee
types required to be disclosed (and from the number of additional fee
types required to be disclosed pursuant to final Sec.
1005.18(b)(2)(viii)(A)) the static fees required to be disclosed in the
short form pursuant to final Sec. 1005.18(b)(2)(i) through (vii). A
new provision in the final rule, Sec. 1005.18(b)(5), requires the
disclosure of certain information, including any purchase price or
activation fee for a prepaid account, outside the short form
disclosure. Because purchase price and activation fees will thus always
be disclosed for prepaid accounts under the final rule, the Bureau does
not believe it is necessary or appropriate for such fees to be
potentially disclosed as additional fee types under final Sec.
1005.18(b)(2)(ix), as was proposed, and thus has added an exclusion for
those fees as well. Final comment 18(b)(2)(ix)(A)-5.i provides further
clarification regarding the exclusion for fees required to be disclosed
elsewhere, including clarification that fee types such as those for
international ATM withdrawals and international ATM balance inquiries
are not excluded as potential additional fee types.
De minimis exclusion pursuant to Sec. 1005.18(b)(2)(ix)(A)(2). In
the final rule, the Bureau is adopting a de minimis threshold
permitting exclusion from the additional fee types required to be
disclosed of any fee types that generated less than 5 percent of the
total revenue from consumers for the prepaid account program or across
prepaid account programs that share the same fee schedule during the
time period provided in final Sec. 1005.18(b)(2)(ix)(D) and (E). Final
comment 18(b)(2)(ix)(A)-5.ii provides two examples illustrating the de
minimis exclusion; the second example also cross-references final
comment 18(b)(2)(ix)(B)-1. While the Bureau solicited comments on
whether the final rule should establish a de minimis threshold for
updating the proposed incidence-based fees, some industry commenters
recommended a de minimis threshold for the disclosure of such fees in
general, which is what the Bureau is adopting in this final rule.
The Bureau understands from some industry commenters that many fees
that would have qualified under the proposal as additional fee types
neither generate significant revenue nor are charged very frequently,
though they often relate to services that certain consumers find
valuable. With the de minimis threshold, disclosure of such fee types
under final Sec. 1005.18(b)(2)(ix) would not be required, although
such fee types would be counted in the total number of additional fee
types disclosed pursuant to final Sec. 1005.18(b)(2)(viii). Even with
a de minimis exclusion, the Bureau believes that this disclosure
requirement removes the potential incentive for financial institutions
to restructure their fee schedules to avoid disclosure on the short
form of certain fees from which they garner significant revenue. The
short form disclosure likewise still remains dynamic such that it can
reflect significant changes in the marketplace and in consumer use
patterns over time. The Bureau believes the dynamic disclosures may
also be useful to reflect the fees of certain types of prepaid
accounts, such as mobile wallets, that are less likely to charge the
types of fees that are represented in the static portion of the short
form.
Moreover, with a de minimis threshold, this disclosure requirement
will impose less burden relative to the proposal on financial
institutions whose potential additional fee types fall below the de
minimis threshold, as they may but are not required to disclose or
update those fee types under final Sec. 1005.18(b)(2)(ix). The Bureau
acknowledges, as pointed out by industry commenters, that some fee
types may not be germane to all consumers. The Bureau believes that by
applying a de minimis threshold, additional fee types that will not be
germane to most consumers are not likely to be required to be
disclosed. In response to the consumer group commenter that urged
prohibiting any fee so small as to fall below a de minimis threshold,
the Bureau states that such request is outside the scope of this
rulemaking. The Bureau acknowledges the consumer group commenter's
concerns regarding high fees with low incidence, but believes that the
de minimis exception, in combination with the disclosure of additional
fee types based on revenue, as opposed to incidence, strikes the
appropriate balance for the final rule.
After determining that a de minimis exclusion from the requirement
to disclose additional fee types would be appropriate, the Bureau
considered
[[Page 84045]]
recent studies as well as information provided by commenters to
determine an appropriate threshold. A 2012 study offered statistics on
the aggregate fees paid by cardholders to the prepaid issuer, using
data from more than 3 million prepaid cards across 15 programs from one
issuing bank.\414\ For the payroll card programs, approximately 89
percent of the fees (by value) paid by cardholders were from fees that
appear to align with those required to be disclosed on the static
portion of the short form under the final rule.\415\ The remaining fees
ranged between 1 and 7 percent.\416\ The study's fee analysis for the
various types of GPR card programs were less instructive, having been
evaluated across only three general categories (ATM withdrawal fees,
maintenance and origination fees, and transaction and other fees).\417\
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\414\ See 2012 FRB Philadelphia Study at 4, 11, and 26. This
study used transactions covering a six-year cycle, but most occurred
during the last two years of the data set (2009 and 2010). Programs
included three web GPR programs, six GPR programs sold at retail,
one GPR program offered in bank branches, and three payroll card
programs. See id. at 11.
\415\ These fees were ATM withdrawal (54 percent), PIN POS
purchase (14 percent), balance inquiry (11 percent), maintenance (10
percent). See id. at 59 fig. 5.1(B).
\416\ These fees were ATM decline (7 percent), PIN POS decline
(1 percent), and other/unidentified (3 percent). See id.
\417\ In the web GPR programs, these fees were ATM withdrawal
(26 percent), maintenance and origination (52 percent), and
transaction and other (22 percent). See id. at 60 fig. 5.2(B). In
the retail GPR programs, these fees were ATM withdrawal (17
percent), maintenance and origination (28 percent), and transaction
and other (55 percent). See id. at 61 fig. 5.3(B). In the FI GPR
program, these fees were ATM withdrawal (19 percent), maintenance
and origination (68 percent), and transaction and other (13
percent). See id. at 62 fig. 5.4(B). The category of transaction and
other fees here were calculated as the residual of all fees less
origination, maintenance, and ATM withdrawal fees, which include,
for example, fees for point-of-sale transactions, balance inquires,
paper statements, and calls to a live customer service agent. See,
e.g., id. at 60 note 2.
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A 2014 study evaluated transactions on more than 3 million GPR
cards from one program manager over a one-year period in 2011-
2012.\418\ Approximately 96 percent of the fees (by value) paid by
cardholders in these programs were from fees that appear to align with
those required to be disclosed on the static portion of the short form
or outside the short form pursuant to Sec. 1005.18(b)(5) under the
final rule.\419\ The remaining fees were 1.5 and 2.5 percent.\420\ The
Bureau notes that the data used in these studies is at least four years
old, while fee structures on prepaid accounts have generally been
shifting to be both lower and more simplified in recent years.\421\
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\418\ See 2012 FRB Kansas City Study at 4.
\419\ These fees were signature transaction (36.7 percent), PIN
transaction (19.5 percent), ATM withdrawal (15.9 percent), monthly
fee (8.7 percent), account maintenance (8.5 percent), IVR balance
inquiry (5.6 percent), and ATM balance inquiry (1.2 percent). See
id. at 67 fig. 5.1.
\420\ These fees were decline (1.5 percent) and other (2.5
percent). See id.
\421\ See, e.g., Fed. Reserve Bank of St. Louis, Cards, Cards
and More Cards: The Evolution to Prepaid Cards, Inside the Vault, at
1, 2 (Fall 2011), 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'').
---------------------------------------------------------------------------
The Bureau also received information from several commenters
regarding fee revenue for a number of prepaid account programs. These
commenters provided data mainly for GPR programs, but the Bureau
received some information regarding corporate disbursement cards and
non-reloadable cards sold at retail as well. Based on this information,
across all of these programs except one, fee revenue from consumers
amounted to 97 to 99 percent of fee revenue from fees required to be
disclosed on the static portion of the short form or outside the short
form pursuant to Sec. 1005.18(b)(5) under the final rule. Of the
remaining fees, fee revenue ranged from 3 percent to a fraction of 1
percent. In the one other program, 79 percent of fee revenue was from
fees required to be disclosed on the static portion of the short form.
Of the remaining fees, one comprised approximately 18 percent of fee
revenue, while the others ranged between 1 and 2 percent each.
After considering the requests from commenters for a de minimis
exclusion and the information available in studies and provided by
commenters, the Bureau believes that a 5 percent threshold is
appropriate and offers a clear dividing line between fee types that
generate only a small amount of revenue from consumers and those that
generate significant revenue and thus are most important to be
disclosed to consumers prior to acquisition of a prepaid account. Based
on this information, the Bureau believes that this threshold level
would facilitate compliance and reduce burden, as requested by industry
commenters, because a 5 percent de minimis threshold would exclude a
majority of the applicable fees (other than the fees disclosed on the
static portion of the short form disclosure or outside the short form
disclosure pursuant to Sec. 1005.18(b)(5)) that generate a small
amount of revenue and would be less germane to consumers. At the same
time, the Bureau believes that the 5 percent threshold appropriately
tailors the additional fee type disclosure requirement to ensure
consumers are alerted to fees that would potentially impose significant
costs. In addition, the Bureau believes that the 5 percent threshold
helps effectuate the intent of the dynamic portion of the short form
disclosure to reflect significant changes in the marketplace and in
consumer use patterns over time. The Bureau intends to monitor
developments in the market in this area.
Exclusion for certain credit-related fees pursuant to Sec.
1005.18(b)(2)(ix)(A)(3). The final rule requires financial institutions
to exclude from disclosure as additional fee types any finance charges
as described in final Regulation Z Sec. 1026.4(b)(11) imposed in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in final Sec. 1026.61. Final
comment 18(b)(2)(ix)(A)-5.iii clarifies that, pursuant to final Sec.
1005.18(b)(2)(viii)(A)(2), such finance charges are also excluded from
the number of additional fee types disclosed.
As discussed in more detail below, the Bureau has made a strategic
decision to focus the bulk of the short form disclosure on usage of the
prepaid account itself (i.e., the asset feature of the prepaid
account). The possibility that consumers may be offered an overdraft
credit feature for use in connection with the prepaid account is
addressed in the short form pursuant to Sec. 1005.18(b)(2)(x), which
requires the following statement if such a feature may be offered:
``You may be offered overdraft/credit after [x] days. Fees would
apply.'' Consistent with this overall decision, the Bureau believes
that it is appropriate to exclude any finance charges related to an
overdraft credit feature that may be offered at a later date to some
prepaid consumers from the disclosures regarding additional fees under
both final Sec. 1005.18(b)(2)(viii) and (ix). If consumers are
interested in such a feature, they can look to the Regulation Z
disclosures in the long form pursuant to final Sec.
1005.18(b)(4)(vii), discussed below, for more details.
The Bureau notes that the calculation for the disclosure of
additional fee types does not include fees that are not imposed with
respect to the prepaid account program. For example, any finance
charges imposed in connection with a covered separate credit feature
accessible by a hybrid prepaid-credit card, where such finance charges
are imposed on the separate credit account (not on the prepaid account)
would not be included as part of the denominator
[[Page 84046]]
used in calculating whether the two additional fee types that generated
the highest revenue from consumers of a particular prepaid account
program qualify for the de minimis exclusion in final Sec.
1005.18(b)(2)(ix)(A)(2).
Disclosure of Fewer Than Two Additional Fee Types Pursuant to Sec.
1005.18(b)(2)(ix)(B)
Final Sec. 1005.18(b)(2)(ix)(B) provides that a financial
institution that has only one additional fee type that satisfies the
criteria in final Sec. 1005.18(b)(2)(ix)(A) must disclose that one
additional fee type; it may, but is not required to, also disclose
another additional fee type of its choice. A financial institution that
has no additional fee types that satisfy the criteria in final Sec.
1005.18(b)(2)(ix)(A) is not required to make a disclosure under final
Sec. 1005.18(b)(2)(ix); it may, but is not required to, disclose one
or two fee types of its choice. Final comment 18(b)(2)(ix)(B)-1
contains several examples to provide guidance on the additional fee
types disclosure pursuant to Sec. 1005.18(b)(2)(ix)(B) for a prepaid
account with fewer than two fee types that satisfy the criteria in
final Sec. 1005.18(b)(2)(ix)(A). Final comment 18(b)(2)(ix)(B)-2
clarifies that, pursuant to final Sec. 1005.18(b)(3)(vi), a financial
institution may not disclose any finance charges as a voluntary
additional fee disclosure under final Sec. 1005.18(b)(2)(ix)(B).
The Bureau has included this provision in the final rule to clarify
the disclosure requirements for a financial institution that has fewer
than two additional fee types that neither exceed the de minimis
threshold nor otherwise satisfy the criteria in final Sec.
1005.18(b)(2)(ix)(A), given that some financial institutions may have
additional fee types that are not required to be disclosed on the short
form pursuant to the de minimis exclusion in final Sec.
1005.18(b)(2)(ix)(A)(2). The Bureau declines to permit disclosure of
more than two additional fee types or disclosure of all fee types, as
was suggested respectively by one consumer group commenter and two
industry commenters, because the Bureau believes adding more
information will upset the balance between providing the most important
information for consumers with the brevity and clarity necessary for
optimal consumer comprehension. However this final rule provision
permitting voluntary disclosure of fee types when a financial
institution has less than two additional fee types that satisfy the
criteria of Sec. 1005.18(b)(2)(ix)(A) does provide flexibility for
some financial institutions with regard to their disclosure of
additional fee types. A financial institution that chooses to disclose
fee types under this provision will be able to more fully inform
consumers of the features of a particular prepaid account. Moreover,
under this provision, a financial institution that is not currently
required to disclose any additional fees, but anticipating that in the
future one or two of its fee types may exceed the de minimis exception
in final Sec. 1005.18(b)(2)(ix)(A)(2) has the option to voluntarily
disclose those fee types in order to avoid the future need to update
its short form disclosures pursuant to final Sec. 1005.18(b)(2)(ix).
Fee Variations in Additional Fee Types Required by Sec.
1005.18(b)(2)(ix)(C)
Final Sec. 1005.18(b)(2)(ix)(C) provides that, if an additional
fee type required to be disclosed pursuant to Sec.
1005.18(b)(2)(ix)(A) has more than two fee variations, or when
providing a short form disclosure for multiple service plans pursuant
to Sec. 1005.18(b)(6)(iii)(B)(2), the financial institution must
disclose the name of the additional fee type and the highest fee amount
in accordance with Sec. 1005.18(b)(3)(i). It goes on to say that,
except when providing a short form disclosure for multiple service
plans pursuant to final Sec. 1005.18(b)(6)(iii)(B)(2), if an
additional fee type has two fee variations, the financial institution
must disclose the name of the additional fee type together with the
names of the two fee variations and the fee amounts in a format
substantially similar to that used to disclose the two-tier fees
required by final Sec. 1005.18(b)(2)(v) and (vi) and in accordance
with final Sec. 1005.18(b)(7)(ii)(B)(1). Finally, it states that, if a
financial institution only charges one fee under a particular fee type,
the financial institution must disclose the name of the additional fee
type and the fee amount; it may, but is not required to, disclose also
the name of the one fee variation, if any, for which the fee amount is
charged, in a format substantially similar to that used to disclose the
two-tier fees required by Sec. 1005.18(b)(2)(v) and (vi), except that
the financial institution would disclose only the one fee variation
name and fee amount instead of two.
Final comment 18(b)(2)(ix)(C)-1 provides examples to illustrate
disclosures when a financial institution charges two or more fee
variations under a particular fee type, including how to disclose two
fee variations with different fee amounts, two fee variations with like
fee amounts, more than two variations, and multiple service plans with
two fee variations. Final comment 18(b)(2)(ix)(C)-2 provides an example
illustrating the options for disclosing a fee type with only one fee
variation.
The Bureau has included Sec. 1005.18(b)(2)(ix)(C) in the final
rule to create consistency in the short form disclosure by conforming
the requirements for disclosure of fee variations for additional fee
types with the requirements for disclosure of fee variations for the
static fees disclosed pursuant to final Sec. 1005.18(b)(2)(i) through
(vii). In addition, this provision will give consumers the opportunity
to see more detailed information about fee variations and their
respective costs as well as to allow financial institutions flexibility
to disclose more details about discrete fee variations. This provision,
together with final Sec. 1005.18(b)(2)(ix)(B) which permits financial
institutions to disclose fee types of their choice if they have fewer
than two fee types that are required to be disclosed under final Sec.
1005.18(b)(2)(ix)(A), creates opportunities for more transparent
disclosure to consumers and greater flexibility and control for
financial institutions.
Assessment and Update of Additional Fee Types Pursuant to Sec.
1005.18(b)(2)(ix)(D) and (E)
Many industry commenters recommended that the Bureau eliminate the
proposed requirement to disclose incidence-based fees based on the
burden those commenters said the disclosure would place on industry,
particularly with regard to assessing and updating the additional fee
types disclosure. As discussed above, however, the Bureau is finalizing
the requirement to disclose additional fee types because it believes it
will bring significant benefit to consumers. Moreover, the Bureau
recognizes that certain industry practices already in place as well as
modifications the Bureau is making in the final rule serve to
ameliorate some of the burden financial institutions face in complying
with final Sec. 1005.18(b)(2)(ix). For example, the Bureau notes that
industry commenters have confirmed that prepaid issuers and program
managers already generally track and tag all fees imposed on consumers,
typically analyzing both frequency and revenue, thereby collecting
similar metrics in their normal course of business as those necessary
for assessing and updating the disclosure of additional fee types. In
addition, the Bureau has attempted to minimize burden on industry by
basing the detailed list of examples of fee types and fee variations in
final comment 18(b)(2)(ix)(A)-2 on fee classifications
[[Page 84047]]
used in the current prepaid marketplace.
The Bureau also notes that, as discussed above, the final rule
permits calculation of additional fee types across prepaid account
programs with like fee schedules, such that entities that have multiple
programs with identical fee schedules, as may be the case particularly
with payroll card account and government benefit account programs, may
perform a single assessment for all of the programs sharing the same
fee schedule.
The specific elements of final Sec. 1005.18(b)(2)(ix)(D) and (E)
are discussed in turn below.
Timing of initial assessment of additional fee types disclosure
pursuant to Sec. 1005.18(b)(2)(ix)(D). Final Sec.
1005.18(b)(2)(ix)(D)(1) provides that, for a prepaid account program in
effect as of October 1, 2017, the financial institution must disclose
the additional fee types based on revenue for a 24-month period that
begins no earlier than October 1, 2014. Final comment
18(b)(2)(ix)(D)(1)-1 explains that a prepaid account program that was
in existence as of October 1, 2017 must assess its additional fee types
disclosure from data collected during a consecutive 24-month period
that took place between October 1, 2014 and October 1, 2017. For
example, an existing prepaid account program was first offered to
consumers on January 1, 2012 and provides its first short form
disclosure on October 1, 2017. The earliest 24-month period from which
that financial institution could calculate its first additional fee
types disclosure would be from October 1, 2014 to September 30, 2016.
Final Sec. 1005.18(b)(2)(ix)(D)(2) provides that, if a financial
institution does not have 24 months of fee revenue data for a
particular prepaid account program from which to calculate the
additional fee types disclosure in advance of October 1, 2017, the
financial institution must disclose the additional fee types based on
revenue it reasonably anticipates the prepaid account program will
generate over the 24-month period that begins on October 1, 2017. Final
comment 18(b)(2)(ix)(D)(2)-1 provides the example of a financial
institution that begins offering to consumers a prepaid account program
six months before October 1, 2017. Because the prepaid account program
will not have 24 months of fee revenue data prior to October 1, 2017,
the financial institution must disclose the additional fee types it
reasonably anticipates the prepaid account program will generate over
the 24-month period that begins on October 1, 2017. The financial
institution would take into account the data it had accumulated at the
time of its calculation to arrive at the reasonably anticipated
additional fee types for the prepaid account program.
Final Sec. 1005.18(b)(2)(ix)(D)(3) provides that, for a prepaid
account program created on or after October 1, 2017, the financial
institution must disclose the additional fee types based on revenue it
reasonably anticipates the prepaid account program will generate over
the first 24 months of the program. The Bureau has included these
provision in the final rule to set forth detailed requirements for
financial institutions regarding the time frame within which and the
data from which to calculate the first assessment of additional fee
types required to be disclosed in the short form pursuant to final
Sec. 1005.18(b)(2)(ix). As illustrated in the example in final comment
18(b)(2)(ix)(D)(1)-1, for prepaid account programs in existence as of
the October 1, 2017 effective date of the final rule, the Bureau has
built in the additional flexibility of giving financial institutions up
to one year, after the 24-month time period from which to draw the data
used to calculate the additional fee types, for the financial
institution to perform the assessment and prepare its initial short
form disclosure. Similar to the proposed rule, the final rule provides
flexibility for the financial institution with prepaid account programs
in existence prior to the effective date with unavailable data by
requiring the financial institution to disclose the additional fee
types based on revenue it reasonably anticipates the prepaid account
program will generate over the 24-month period beginning on October 1,
2017. Similarly, for new prepaid account programs created on or after
October 1, 2017, the final rule provides flexibility for the financial
institution to disclose the additional fee types based on revenue it
reasonably anticipates the prepaid account will generate over the first
24 months of the program.
In response to the industry commenter recommending against the
reasonableness standard under which a financial institution must
project revenues for prepaid account programs in certain circumstances
(in final Sec. 1005.18(b)(2)(ix)(D)(2) and (3) as well as in final
Sec. 1005.18(b)(2)(ix)(E)(3) discussed below), the Bureau believes
that, although financial institutions will not have actual fee revenue
data for such products, they nonetheless will have a reasonable
expectation as to which fee types will generate the highest revenue.
Moreover, the reasonableness standard is a commonly-accepted legal
standard employed across diverse areas of law \422\ and the Bureau
believes it is appropriate to apply here, in lieu of prescribing a
complex formula upon which to base additional fee types disclosures for
situations such as those set forth above when the a financial
institution simply does not have 24 months of data from which to
calculate additional fee types.
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\422\ For example, this standard already is employed in
Regulation E in Sec. Sec. 1005.33(h)(5) and 1005.17(b)(1).
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In response to the industry commenters questioning the validity of
data collected over the proposed one-year period and recommending that
the Bureau expand the proposed time frame from which to calculate data,
the Bureau agrees that 24 months of data, rather than the proposed one
year, will improve the data set from which financial institutions
calculate the additional fee types and thus is modifying the final rule
as set forth above. In response to industry commenters recommending
elimination of this disclosure entirely due to the burden of
calculating the additional fee types, the Bureau notes that industry
commenters have confirmed that prepaid issuers and program managers
currently track and tag all fees imposed on consumers, typically
analyzing both frequency and revenue, thereby collecting similar
metrics in their normal course of business as those necessary for
assessing and updating the disclosure of additional fee types and thus,
the Bureau does not believe compliance with this requirement will be
particularly challenging or burdensome for most financial institutions.
In addition, the Bureau expects that both the de minimis threshold
and the change in the reassessment and update timeframes from one year
to 24 months will reduce variation over time in the additional fee
types that must be disclosed pursuant to final Sec. 1005.18(b)(2)(ix)
for each prepaid account or across prepaid account programs that share
the same fee schedule, resulting in fewer instances that financial
institutions will be required to make changes to the disclosure of
additional fee types on their short form disclosures.
Timing of periodic reassessment and update of additional fee types
disclosure pursuant to Sec. 1005.18(b)(2)(ix)(E). Final Sec.
1005.18(b)(2)(ix)(E)(1) provides a general framework for the
requirements to reassess and update the additional fee types
disclosures required by final
[[Page 84048]]
Sec. 1005.18(b)(2)(ix). Specifically, it states that a financial
institution must reassess its additional fee types disclosure
periodically as described in final Sec. 1005.18(b)(2)(ix)(E)(2) and
upon a fee schedule change as described in final Sec.
1005(b)(2)(ix)(E)(3). The financial institution must update its
additional fee types disclosure if the previous disclosure no longer
complies with the requirements of final Sec. 1005.18(b)(2)(ix).
Final Sec. 1005.18(b)(2)(ix)(E)(2) sets forth the requirements for
the periodic reassessment of the additional fee types disclosures
required by final Sec. 1005.18(b)(2)(ix). Specifically, it provides
that a financial institution must reassess whether its previously
disclosed additional fee types continue to comply with the requirements
of final Sec. 1005.18(b)(2)(ix) every 24 months based on revenue for
the previous 24-month period. The financial institution must complete
this reassessment and update its disclosures, if applicable, within
three months of the end of the 24-month period, except as provided in
the update printing exception in final Sec.
1005.18(b)(2)(ix)(E)(4).\423\ A financial institution may, but is not
required to, carry out this reassessment and update, if applicable,
more frequently than every 24 months, at which time a new 24-month
period commences.
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\423\ Pursuant to this provision, under certain circumstances, a
financial institution is not required to update the listing of
additional fee types within the timeframes provided under final
Sec. 1005.18(b)(2)(ix)(E).
---------------------------------------------------------------------------
Final comment 18(b)(2)(ix)(E)(2)-1 provides guidance regarding the
periodic assessment and, if applicable, update of the disclosure of
additional fee types pursuant to final Sec. 1005.18(b)(2)(ix),
including examples addressing reassessment when there is no change in
the additional fee types disclosed, when there has been a change in the
additional fee types disclosed, and when a voluntarily-disclosed
additional fee type later qualifies as an additional fee type required
to be disclosed pursuant to final Sec. 1005.18(b)(2)(ix). Final
comment 18(b)(2)(ix)(E)(2)-2 provides guidance regarding a voluntary
reassessment that occurs more frequently than every 24 months,
including an example illustrating the concept.
Final Sec. 1005.18(b)(2)(ix)(E)(3) sets forth the requirements for
the reassessment and update of additional fee types disclosures
required by final Sec. 1005.18(b)(2)(ix) when there is a change in the
fee schedule of a prepaid account program. Specifically, it provides
that if a financial institution revises the fee schedule for a prepaid
account program, it must determine whether it reasonably anticipates
that the previously disclosed additional fee types will continue to
comply with the requirements of final Sec. 1005.18(b)(2)(ix) for the
24 months following implementation of the fee schedule change. If the
financial institution reasonably anticipates that the previously
disclosed additional fee types will not comply with the requirements of
final Sec. 1005.18(b)(2)(ix), it must update the disclosure based on
its reasonable anticipation of what those additional fee types will be
at the time the fee schedule change goes into effect, except as
provided in the update printing exception in final Sec.
1005.18(b)(2)(ix)(E)(4). In this case, the stale forms would therefore
be accurate except for the fact that the disclosure of additional fee
types would not reflect the expectations of the financial institution
going forward for which fee types will garner the highest revenue from
consumers. The Bureau is thus adopting the update printing exception in
final Sec. 1005.18(b)(2)(ix)(E)(4) to make clear that a financial
institution will not be liable for such a result.
At the same time, as discussed in more detail in the section-by-
section analysis of Sec. 1005.18(b) above, the Bureau does not believe
that financial institutions change the fee schedules for prepaid
accounts often, and that financial institutions may need to pull and
replace card packaging in some circumstances anyway.
Final Sec. 1005.18(b)(2)(ix)(E)(3) also addresses situations in
which an immediate change in terms and conditions is necessary to
maintain or restore the security of an account or an EFT system as
described in Sec. 1005.8(a)(2) and that change affects the prepaid
account program's fee schedule. In that case, the financial institution
must complete its reassessment and update its disclosures, if
applicable, within three months of the date it makes the change
permanent, except as provided in the update printing exception in final
Sec. 1005.18(b)(2)(ix)(E)(4). Final comment 18(b)(2)(ix)(E)(3)-1
provides guidance regarding how to handle the disclosure of additional
fee types if a financial institution revises the fee schedule for a
prepaid account program, including examples addressing when the
financial institution reasonably anticipates that the previously
disclosed additional fee types will continue to comply with final Sec.
1005.18(b)(2)(ix) and when it reasonably anticipates that they will
not. The comment also clarifies that a fee schedule change resets the
24-month period for assessment; a financial institution must comply
with the requirements of final Sec. 1005.18(b)(2)(ix)(E)(2) at the end
of the 24-month period following implementation of the fee schedule
change.
Final Sec. 1005.18(b)(2)(ix)(E)(4) provides an exception to the
update requirements of final Sec. 1005.18(b)(2)(ix)(E). Specifically,
it states that, notwithstanding the requirements to update additional
fee types disclosures in final Sec. 1005.18(b)(2)(ix)(E), a financial
institution is not required to update the listing of additional fee
types disclosed that are provided on, in, or with prepaid account
packaging materials that were manufactured, printed, or otherwise
produced prior to a periodic reassessment and update pursuant to final
Sec. 1005.(b)(2)(ix)(E)(2) or prior to a fee schedule change pursuant
to final Sec. 1005.18(b)(2)(ix)(E)(3). Final comment
18(b)(2)(ix)(E)(4)-1 clarifies application of the update printing
exception to prepaid accounts sold in retail locations and provides an
example illustrating the timing of the exception.
The Bureau agrees with industry and consumer group commenters
recommending longer time periods between periodic assessments and
updates (if applicable) that the change from one year to two may
improve the data set from which to calculate additional fee types
because, absent structural changes to the prepaid account program,
revenue garnered from additional fee types above the de minimis
threshold in final Sec. 1005.18(b)(2)(ix)(A)(2) is unlikely to change
in a one-year period. Moreover, the Bureau believes changes in the
additional fee types disclosed will occur relatively infrequently
because the Bureau understands that financial institutions typically do
not revise prepaid account fees often. The Bureau also believes this
modification will impose a lower ongoing burden on financial
institutions with respect to recalculating and updating additional fee
types disclosures in addition to smoothing variations in the additional
fee types required to be disclosed.
In response to industry commenters' requests for clarification of
the time period within which financial institutions must reassess and
update (if applicable) the additional fee types disclosure, the final
rule explicitly states that both the reassessment and the update must
take place within three months of the end of the 24-month period,
except as provided in the update printing exception in final Sec.
1005.18(b)(2)(ix)(E)(4). The Bureau declines to extend this time
period, as recommended by a few industry
[[Page 84049]]
commenters, as it believes a quarter of a year is sufficient time to
perform these tasks, especially in conjunction with the update printing
exception in final Sec. 1005.18(b)(2)(ix)(E)(4).
The Bureau also added additional flexibility to the final rule by
expressly permitting financial institutions to carry out the required
reassessment and update (if applicable) more frequently than every 24
months. As clarified in final comment 18(b)(2)(ix)(E)(2)-2, a financial
institution may choose to do this, for example, to sync its assessment
process for additional fee types with its financial reporting schedule
or other financial analysis it performs regarding the particular
prepaid account program. The comment also explains that if a financial
institution chooses to reassess its additional fee types disclosure
more frequently than every 24 months, it is still required to use 24
months of fee revenue data to conduct the reassessment, and provides an
example illustrating this concept.
With regard to the provisions regarding fee schedule changes in
final Sec. 1005.18(b)(2)(ix)(E)(3), as discussed above, the Bureau is
using a 24-month timeframe to correspond to both the initial additional
fee types calculation in final Sec. 1005.18(b)(2)(ix)(D)(2) and (3) as
well as the periodic reassessment in final Sec.
1005.18(b)(2)(ix)(E)(2). In response to the industry commenter
recommending against the ``reasonable'' standard under which a
financial institution must project revenues for prepaid account
programs in certain circumstances (in final Sec.
1005.18(b)(2)(ix)(E)(3), as well as in final Sec.
1005.18(b)(2)(ix)(D)(2) and (3) discussed above), the Bureau believes
that, although financial institutions will not have actual fee revenue
data for such products, they nonetheless will have a reasonable
expectation as to which fee types will generate the highest revenue.
Moreover, as discussed earlier, the reasonableness standard is a
commonly-accepted legal standard employed across diverse areas of law
and the Bureau believes it is appropriate to apply here, in lieu of
prescribing a complex formula upon which to base additional fee types
disclosures for situations such as those set forth above when a
financial institution simply does not have 24 months of data from which
to calculate additional fee types.
Final Sec. 1005.18(b)(2)(ix)(E)(3) also addresses the circumstance
of a fee schedule change necessary to maintain or restore the security
of any account or an EFT system as described in Sec. 1005.8(a)(2). The
Bureau believes it is appropriate to include an accommodation in the
final rule to address situations where, for example, a financial
institution may have to cease offering a particular service for a
period of time because of security concerns. The Bureau does not wish
such a change due to temporary or exigent circumstances to have
negative consequences for financial institutions with respect to their
disclosure of additional fee types. Due to the nature of this provision
in Sec. 1005.8(a)(2), the Bureau does not expect evasion risk with
this accommodation because the Bureau does not foresee any
circumstances where it would be appropriate for a financial institution
to rely on Sec. 1005.18(b)(2)(ix)(E)(3) to increase a fee amount, add
a new fee, or change an existing fee to any amount other than $0.
Similar to the proposed rule, final Sec. 1005.18(b)(2)(ix)(E)(4)
provides an update printing exception. The Bureau notes that, despite
opposition to the additional fee types disclosure generally by industry
commenters these same commenters supported the proposed update printing
exception. As stated in the proposed rule, the Bureau recognizes that
it could be more complicated and time-consuming for financial
institutions to make updates to packages used to sell prepaid accounts
at retail. Thus, in the final rule, the Bureau is permitting financial
institutions to implement updates on packaging material whenever they
are printing new stock during normal inventory cycles. With regard to
the possibility raised by some commenters that disclosures for the same
prepaid account program may have different additional fee types
disclosures depending on the medium of the disclosure (i.e., electronic
disclosures versus disclosures printed on packaging materials for
prepaid accounts sold at retail), the Bureau continues to believe that
this discrepancy will not significantly impact a consumer's decision
regarding which prepaid account to acquire since consumers will most
likely be comparing the disclosures for two distinct products, and not
reviewing disclosures side-by-side for the same prepaid account found
in different acquisition channels.
While there is a chance that allowing financial institutions to
continue to use packaging with significantly out-of-date additional fee
types disclosures in retail locations could reduce the effectiveness of
the short form disclosure, the Bureau believes that imposing a cut-off
date after which sale or distribution of out-of-date retail packages
would be prohibited could be complex and would be an overly burdensome
requirement to impose on financial institutions on an ongoing basis.
While the Bureau is finalizing an update printing exception for the
additional fee types disclosure on prepaid account packaging materials,
it did not propose, nor is it finalizing, any other specific update
requirements with respect to disclosures generally. The Bureau notes
that financial institutions generally must ensure all other aspects of
pre-acquisition disclosures, whether on packaging materials, online, or
provided through other means, are accurate at the time such disclosures
are provided to consumers. In this final rule, as in the proposal, the
Bureau does not believe that a general disclosure update requirement is
necessary for other elements of the short form or long form disclosures
provided before a consumer acquires a prepaid account, as a financial
institution must continue to honor the fees and terms it discloses to
the consumer, at least until such time as it satisfies the change-in-
terms requirements as set forth in Sec. 1005.8(a) and final Sec.
1005.18(f)(2). See the section-by-section analysis of Sec. 1005.8(b)
above for a more detailed discussion of the Bureau's expectations
regarding changes in terms and the addition of new EFT services.
18(b)(2)(x) Statement Regarding Overdraft Credit Features
The Bureau's Proposal
The Bureau proposed to include in the short form disclosure a
statement indicating whether a consumer might be offered certain types
of credit features in connection with a prepaid account. Specifically,
proposed Sec. 1005.18(b)(2)(i)(B)(9) would have required a statement
on the short form disclosure directly below the top-line fees that
credit-related fees may apply, in a form substantially similar to the
clause set forth in 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 have explained that a
credit plan that would be a credit card account under Regulation Z
Sec. 1026.2(a)(15)(i) could be structured either as a credit plan that
could be accessed through the same device that accesses the prepaid
account, or through an account number where extensions of credit are
permitted to be deposited directly only into particular prepaid
accounts specified by the creditor offering the plan. Proposed Sec.
1005.18(b)(2)(i)(B)(9) further provided that if neither of these two
types of
[[Page 84050]]
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 will be
charged, in a form substantially similar to the clause set forth in
proposed Model Form A-10(d). The proposed model forms showed this
disclosure as ``This card may charge credit-related fees'' or ``No
overdraft or credit-related fees.''
As discussed in the proposal, in the Bureau's pre-proposal consumer
testing, many participants expressed a desire to avoid using any
financial products that offer overdraft. Further, other research
indicates that many consumers turn to prepaid cards specifically to
avoid incurring any overdraft charges.\424\ The Bureau therefore
believed 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 believed that placing such
notice on the short form disclosure would allow consumers to decide
whether they want to acquire a prepaid account that may offer credit,
or whether they would prefer an account that would not offer credit.
Without such a notice, the Bureau believed that consumers may not have
adequate information to decide which prepaid account is best for them.
The Bureau recognized that there might be some risk of confusion from
providing a relatively terse statement about credit because the Bureau
also proposed in Sec. 1005.18(g) and in Regulation Z Sec. 1026.12(h)
to require financial institutions to wait at least 30 days before
offering prepaid account holders credit, and not all account holders
may qualify for such credit features in any event. The Bureau noted,
however, that additional information would be provided on the long form
about credit availability and believed that the importance of alerting
all consumers as to whether credit features could be offered in
connection with a prepaid account warranted including a brief statement
on the short from.
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\424\ See 2014 Pew Study at 1.
---------------------------------------------------------------------------
Proposed comment 18(b)(2)(i)(B)(9)-1 would have explained that the
statement required by proposed Sec. 1005.18(b)(2)(i)(B)(9) 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
credit plan could be offered.
Comments Received
While the Bureau received many comments regarding its proposed
approach to regulating overdraft and certain other credit features on
prepaid accounts generally, few commenters addressed the Bureau's
proposal regarding how to disclose these features in the short form and
long form disclosures.\425\ With regard to the short form disclosure,
two issuing banks and an industry trade association recommended
eliminating the disclosure for products that could offer associated
credit features, saying it would be confusing to consumers given that
the proposed rules would require financial institutions to wait 30 days
after registration of a prepaid account to offer credit features and to
obtain separate consumer consent. Another industry trade association
and a program manager recommended substituting the word ``feature'' for
``fee'' in the proposed disclosure of ``No overdraft or credit-related
fees,'' suggesting this change would avoid the potentially erroneous
impression that a credit feature might be offered for free.
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\425\ For an overview of the Bureau's overall approach to
regulating overdraft credit features for prepaid accounts, see the
Overview of the Final Rule's Amendments to Regulation Z section
below. For a discussion of disclosure of overdraft and credit
features in the long form disclosure, see the section-by-section
analyses of Sec. 1005.18(b)(4)(iv) and (vii) below.
---------------------------------------------------------------------------
Two consumer groups recommended including the disclosure in the
short form only when overdraft or credit are offered and not when such
features are not offered. They said that disclosure when such features
are not offered would confuse consumers, as most prepaid account
programs do not offer overdraft or credit. They also said the absence
of the negative disclosure would offer a starker contrast to the
affirmative disclosure required when such features are offered. These
consumer groups also recommended more fulsome disclosure in the short
form regarding offered overdraft and credit features, such as requiring
disclosure of fees for transfers, loads, negative balances, and
insufficient funds. These groups also recommended that this disclosure
should be made more prominent, such as by requiring a larger-size font.
One consumer group recommended that the disclosure distinguish between
prepaid account programs that offer overdraft and those that offer
credit features so that financial institutions that offer prepaid
accounts with low cost lines of credit (with consumer consent) can be
distinguished from those that offer overdraft. Finally, two consumer
groups recommended that the Bureau require the word ``overdraft'' in
the disclosure because, they said, consumers know this term and it is
crucial information for them. These consumer groups also opposed using
the term ``credit-related fees,'' as they believed it would be opaque
and incomprehensible to consumers.
Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(9) and comment 18(b)(2)(i)(B)(9)-1,
renumbered as Sec. 1005.18(b)(2)(x) and comment 18(b)(2)(x)-1, as
proposed with certain modifications as described below. As discussed
below in connection with Regulation Z, the final rule makes some
revisions as to the proposal's scope of coverage regarding covered
overdraft and other credit features and final Sec. 1005.18(b)(2)(x)
mirrors these revisions. The final rule also revises the proposed
content of the disclosure for clarity and completeness. The Bureau also
made technical modifications to the rule and final comment 18(b)(2)(x)-
1 for conformity and clarity.
Specifically, if a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Regulation Z Sec. 1026.61 may
be offered at any point to a consumer in connection with the prepaid
account, the final rule requires the financial institution to disclose
a statement that overdraft/credit may be offered, the time period after
which it may be offered, and that fees would apply, using the following
clause or a substantially similar clause: ``You may be offered
overdraft/credit after [x] days. Fees would apply.'' If no such credit
feature will be offered at any point to a consumer in connection with
the prepaid account, the financial institution must disclose a
statement that no overdraft/credit feature is offered, using the
following clause or a substantially similar clause: ``No overdraft/
credit feature.'' Comment 18(b)(2)(x)-1, adopted largely as proposed,
clarifies that this statement must be provided on the short form
disclosures for all prepaid accounts that may offer such a feature,
regardless of whether some consumers may never be solicited or qualify
to enroll in such a feature.
As discussed in the proposal, the Bureau is adopting the
requirement to disclose in the short form whether an overdraft credit
feature as defined by the final rule may be offered in connection with
a prepaid account because it believes this is key information consumers
should know to better inform their prepaid account purchase and use
decisions, particularly for those
[[Page 84051]]
consumers seeking to use prepaid accounts to avoid overdraft or credit-
related charges and those seeking out prepaid accounts with such
features.\426\ In keeping with the overall goal of the short form
disclosure to provide consumers with a snapshot of key information, the
disclosure required in the final rule is designed to alert consumers to
whether an overdraft credit feature may be offered to them and, if so,
two other key pieces of information--that there is a waiting period,
and that fees will apply.
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\426\ See ICF Report II at 25. (In the Bureau's post-proposal
consumer testing, participants were nearly evenly split as to
whether knowing a prepaid card offering overdraft or credit made
them feel more positively or negatively toward the card.)
---------------------------------------------------------------------------
The Bureau does not believe it is possible to give consumers the
detailed information needed to make a decision about an overdraft
credit feature on the short form, and that attempting to do so would
substantially undermine the value of the form--that is, succinctly
providing consumers with the most important information needed to make
a decision about whether to acquire the prepaid account. Moreover, the
Bureau is concerned that devoting scarce space to overdraft credit
features would distract consumers from this decision-making process,
resulting in less space to address the core functionalities of the
prepaid account. In addition, given that some consumers may not satisfy
creditors' underwriting requirements or other eligibility criteria, the
Bureau believes that a limited disclosure strikes the best practicable
balance between competing considerations.
Accordingly, the Bureau has made a strategic decision to limit
information on the short form disclosure about overdraft credit
features to this one statement, and to refer consumers to the long form
for more detailed information about all fees and conditions, including
information about any overdraft credit feature. The Bureau recognizes
that the short form disclosure will not provide consumers with a
detailed definition of the term ``overdraft/credit'' or the details
about a particular overdraft credit feature, but believes that the
disclosure strikes a reasonable balance given the goals of the form,
its performance in testing, and its space constraints. In short, the
Bureau believes that the form will give consumers the most critical
information about any overdraft credit features with a strong incentive
to seek additional details in the long form disclosure or elsewhere if
they are interested. Relatedly, consistent with this overall decision,
the Bureau believes that it is appropriate to exclude any finance
charges related to an overdraft credit feature from the additional fee
type disclosures required in the short form pursuant to final Sec.
1005.18(b)(2)(viii) and (ix), as discussed above.
Participants in the Bureau's post-proposal consumer testing
generally understood that an affirmative statement about the
availability of overdraft or credit in a prototype short form
disclosure indicated the feature was offered while a negative statement
indicated it was not offered. All participants given a short form
indicating a prepaid card did not offer overdraft or credit correctly
understood that no such program would be offered or that a transaction
would not go through if the consumer tried to make a purchase for more
money than the amount loaded on the card. Conversely, all participants
given a short form indicating a prepaid card offered overdraft or
credit who noticed the statement correctly understood that a
transaction might be allowed in some cases if they tried to make a
purchase for more money than the amount loaded on the card.\427\ Thus,
post-proposal testing results confirm consumer understanding of
disclosures both when an overdraft credit feature is offered and when
no such feature is offered--as would have been required by the proposed
rule.
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\427\ See ICF Report II at 14.
---------------------------------------------------------------------------
Moreover, the long form disclosure will provide additional
information about overdraft credit features for consumers who are
interested in such programs including, as referenced by a consumer
group commenter, programs under which prepaid accounts with low lines
of credit are offered. As discussed in detail below, final Sec.
1005.18(b)(4)(iv) requires that the long form disclosure contain a
statement that mirrors the overdraft credit statement required in the
short form by final Sec. 1005.18(b)(2)(x). In addition, for prepaid
account programs offering an overdraft credit feature as defined by the
final rule, the long form disclosure must include the actual fees
consumers may incur for using that feature that are imposed in
connection with the prepaid account (pursuant to final Sec.
1005.18(b)(4)(ii)),\428\ as well as the disclosures described in
Regulation Z Sec. 1026.60(e)(1) (pursuant to final Sec.
1005.18(b)(4)(vii)).
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\428\ See comment 18(b)(7)(i)(B)-1 for guidance regarding
disclosure of finance charges in the long form.
---------------------------------------------------------------------------
The Bureau also believes that the final rule's refinements to the
language and placement of the short form statement about overdraft
credit features will reduce the risk of consumer confusion about the
nature and timing of any credit offers. To emphasize its importance,
pursuant to final Sec. 1005.18(b)(7)(ii)(B)(1), the statement about
overdraft credit features must be in bold-faced type. The proposed rule
would have required the statement to be located within the fee section
of the short form disclosure, just below the top-line fees, to
emphasize its relative importance among all the disclosures on the
short form. In the final rule, the Bureau has relocated the statement
to the section below the fee disclosures together with other statements
required in the short form disclosure, as upon further consideration,
the Bureau is concerned locating it amidst the fee disclosures could be
confusing to consumers.
The Bureau's consumer testing and other considerations, such as
commenters' concerns that consumers may be confused by the proposed
short form's lack of information regarding availability of the feature
and the Bureau's proposed 30-day waiting period, after which consumers
may be solicited for or may link credit to a prepaid account, led the
Bureau to require disclosure that a consumer ``may be offered
overdraft/credit after [x] days'' (emphasis added). In response to the
concern that the proposed disclosure could intimate that prepaid
account programs offer overdraft or credit programs for free, the final
rule requires explicit disclosure that ``[f]ees would apply.'' Where no
overdraft credit feature will be offered, the final rule requires
disclosure of ``[n]o overdraft/credit feature'' (emphasis added),
replacing the proposed term ``fee.'' The Bureau's post-proposal
consumer testing revealed, consistent with the Bureau's proposed rule,
that the statements required in the final rule effectively provide the
information that the Bureau intends to be imparted in that most
participants understood that overdraft or credit may or may not be
offered (as applicable), that obtaining the service is not guaranteed,
that there is a 30-day waiting period, and that they may pay fees for
the service.\429\
---------------------------------------------------------------------------
\429\ See ICF Report II at 14 and 24-25.
---------------------------------------------------------------------------
The disclosures required under the final rule use the term
``overdraft/credit'' instead of the proposed ``credit-related [fees]''
and ``overdraft or credit-related [fees]'' because the Bureau agrees
with commenters that use of the term ``overdraft'' in both versions of
the disclosure may be more meaningful to consumers. The Bureau is
concerned that, while the term ``overdraft credit'' (without a slash)
is more technically
[[Page 84052]]
accurate, it may not have particular meaning to consumers. The Bureau
also believes that use of the same term in both the short form and long
form disclosures will facilitate consumers' ability to comparison shop.
For all of these reasons, the Bureau believes that the refined and
relatively short statement regarding whether overdraft credit features
may be offered in connection with the prepaid account strikes the best
balance for the short form disclosure. The Bureau therefore declines to
add additional details about the terms of such overdraft credit
features to the short form disclosure.
18(b)(2)(xi) Statement Regarding Registration and FDIC or NCUA
Insurance
As described in detail below, the proposed rule would have required
a statement in the short form disclosure communicating to consumers
that a prepaid account must be registered in order for the funds to be
protected. On the following line, the proposed rule would have required
disclosure of a lack of FDIC or NCUSIF insurance. In the final rule,
the Bureau has combined the registration and insurance disclosures and
is requiring the financial institution to disclose whether or not the
prepaid account program is eligible for FDIC or NCUA insurance.
The Bureau's Proposal Requiring a Statement Regarding Registration of
the Prepaid Account
The Bureau proposed 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 have required 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 clauses set forth in proposed Model Forms A-10(a)
through (d).
As discussed in part II.B above, 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
proposed to add this statement because many consumer protections set
forth in the proposed rule would not take effect until a consumer
registers an account. For example, under proposed Sec. 1005.18(e)(3),
a consumer would not have been entitled to error resolution rights or
protection from unauthorized transactions until after registering the
prepaid account. The Bureau believed 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 the rightful
cardholder is.
The Bureau, however, recognized 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 specifically
solicited comment on whether the short form disclosure provided to
consumers pre-acquisition should always include this statement
regarding registering the prepaid account.
The Bureau's Proposal Requiring a Statement Regarding FDIC or NCUA
Insurance
The Bureau also proposed to address pass-through deposit (and
share) insurance in proposed Sec. 1005.18(b)(2)(i)(B)(13).
Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(13) would have
required that if a prepaid account product is not set up to be eligible
for FDIC deposit or NCUA share insurance, a financial institution would
have to include a statement on the short form disclosure that FDIC
deposit insurance or NCUA share insurance, as appropriate, does not
protect funds loaded into the prepaid account, in a form substantially
similar to the clause set forth in proposed Model Forms A-10(c) and
(d).
As discussed in part II.B 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 placed 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.\430\
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\430\ 73 FR 67155, 67157 (Nov. 13, 2008).
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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 believed 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, the Bureau proposed that
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 about two thirds 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, or explained that it only applies to
funds held by a bank or credit union in a pooled account associated
with the program). The Bureau found that only about 11 percent of
agreements explicitly stated that the program was not insured.\431\
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\431\ Of the remaining agreements, about 17 percent implied that
the program was FDIC or NCUSIF insured by stating that the issuer is
an FDIC- or NCUA-insured institution, but that did not address FDIC
or NCUSIF insurance coverage for the program. A small number of
agreements, 6 percent of those reviewed, did not address FDIC or
NCUA 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. 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.
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In its pre-proposal 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, nearly all participants
said they had heard of FDIC deposit insurance, and many consumers
believed the funds on their GPR cards were FDIC-insured.\432\ 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
[[Page 84053]]
or a stolen card.\433\ 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.
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\432\ See ICF Report I at 10.
\433\ The Bureau notes, however, that despite believing that
FDIC insurance could ``protect'' funds held in a prepaid account, in
its pre-proposal consumer testing no participants mentioned FDIC
insurance when asked to interpret the statement ``Register your card
to protect your money,'' which would have been disclosed pursuant to
proposed Sec. 1005.18(b)(2)(i)(B)(12). See ICF Report I 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
decided not to propose any requirements related to the affirmative
existence of pass-through deposit insurance. The Bureau did propose,
however, that financial institutions would have to disclose a statement
on the short form if a prepaid account is not set up to be eligible for
FDIC (or NCUSIF) pass-through deposit (or share) insurance.
Comments Received Regarding the Statement Regarding Registration
Industry commenters, including an industry trade association, an
issuing bank, a program manager, and the office of a State Attorney
General generally supported the proposed statement regarding
registration. The industry commenters also expressed concern, however,
that the disclosure could mislead consumers because the statement
implies that registration alone protects against fraud, rather than
just providing a step toward FDIC insurance coverage and protections
under Regulation E. The program manager recommended modifying the
disclosure by combining the registration and insurance disclosures into
one disclosure because, it said, registration is necessary for FDIC
insurance coverage and a combined disclosure would be more accurate and
less confusing to consumers. It also recommended stating that
registration protects the consumer's ``rights'' rather than ``money,''
as a more accurate statement. The program manager recommended the
following statement: ``Register your card to be eligible for [FDIC/
NCUSIF] insurance and to protect your rights.'' The trade association
and issuing bank recommended the following statement: ``Register your
card to protect your money.'' \434\
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\434\ The trade association and the issuing bank also expressed
concern that the proposed rule would have required disclosure of the
name of the financial institution, when a vendor, such as a program
manager, might actually carry out registration. The Bureau notes
that the proposal would have permitted the name of whatever party
carried out registration to be listed here, as the proposed rule
would have required a statement that communicates to a consumer that
a prepaid account must register with a financial institution or
servicer provider. The final rule does not require disclosure of
this information, as discussed below.
---------------------------------------------------------------------------
Several industry commenters, including a trade association, a
program manager, and two issuing banks also recommended eliminating the
registration disclosure for certain types of prepaid account programs,
including non-reloadable prepaid products, payroll card accounts, and
government benefit accounts. One of the issuing banks and the program
manager said the statement was not relevant for non-reloadable products
because there is no customer identification or account registration
process for such programs and, thus, the statement would be confusing
to consumers. The remaining commenters said the registration
requirement was not relevant for payroll card accounts and/or
government benefit accounts because registration occurs prior to card
issuance and because such accounts would be required to provide error
resolution and limited liability protections regardless of
registration. The program manager suggested that the space could be
better used to disclose other information, such as how to access full
wages without fees for payroll card accounts.
Comments Received Regarding the Statement Regarding FDIC or NCUA
Insurance
A number of industry commenters, including industry trade
associations, issuing banks, and a credit union, and as well as several
consumer groups commented on the proposed insurance disclosure (which,
as discussed above, would have required disclosure only of the lack of
insurance). Several industry trade associations and a credit union
supported the Bureau's proposed disclosure requirement; one commenter
noted that it is essential for consumers to know that they could lose
their money if the financial institution were to fail. Most industry
commenters, however, recommended that the Bureau require disclosure of
both when pass-through deposit insurance is available and when it is
not. One industry trade association and an issuing bank recommended
requiring disclosure when a prepaid account program is not eligible for
insurance coverage and permitting the issuer to decide whether to
disclose when the program is eligible for insurance coverage. The
credit union commenter recommended disclosure only when the program is
eligible for insurance coverage.
Two consumer groups recommended more fulsome disclosure of
insurance coverage. One recommended disclosure in the short form of the
risks of uninsured deposits and, when the program is eligible for
insurance coverage, the need to register for insurance to attach. The
other consumer group recommended that the Bureau include a section in
the long form disclosure which would provide fuller disclosure
regarding the lack of insurance. (See a detailed discussion of this
issue in the section-by-section analysis of Sec. 1005.18(b)(4)(iii)
below.) One of the consumer groups recommended requiring providers to
inform consumers that registration of the prepaid account is required
for deposit insurance to attach and protect funds.
Although the Bureau had not proposed to require financial
institutions affirmatively to obtain deposit or share insurance, some
commenters urged such a requirement. In particular, many consumer
groups, individual consumers who submitted comments as part of a
comment submission campaign organized by a national consumer advocacy
group, and the offices of two State Attorneys General argued that
disclosures are insufficient in this instance and requested that the
Bureau require that prepaid account funds be held in custodial accounts
that carry deposit insurance. Several commenters requested FDIC
insurance for specific accounts, such as payroll card accounts and
registered prepaid accounts. A few commenters argued that virtual
payment accounts that offer the same features as prepaid cards should
also be FDIC insured because the non-bank entities that offer such
accounts might attempt to avoid the cost of insurance and the oversight
of regulators by not storing funds at a depository institution.
These commenters primarily argued that prepaid accounts
increasingly serve as bank alternatives and therefore should have the
same benefits as checking and savings accounts, especially because
consumers expect this type of protection. Several commenters argued
that accepting a consumer's core income and holding it in an uninsured
account would be an unfair, deceptive or abusive act or practice;
requiring FDIC insurance would not be unexpected or onerous
[[Page 84054]]
and would eliminate unscrupulous providers that do not deposit funds
with legitimate financial institutions; and not requiring FDIC
insurance would cause prepaid accounts to be viewed as subpar financial
products.
Conversely, one industry trade association advocated against
requiring pass-through insurance for prepaid accounts, arguing that
such a measure would put credit unions at a competitive disadvantage
because of their field of membership restrictions.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(12) and (13), combined into renumbered Sec.
1005.18(b)(2)(xi), with several substantial modifications as described
below. First, the Bureau has combined the registration and insurance
disclosures into a single line. Second, the Bureau is requiring
disclosure both when a prepaid account program is eligible for FDIC or
NCUA insurance coverage and when it is not. Third, the Bureau has added
to the regulatory text the specific language that should be used to
make this combined disclosure in five distinct circumstances. The
Bureau is also adopting new comments 18(b)(2)(xi)-1 and -2 to provide
additional guidance regarding this disclosure requirement. Finally, the
Bureau has made technical modifications to the rule for conformity and
clarity.
The Bureau continues to believe it is important that financial
institutions disclose to consumers purchasing prepaid accounts both
that registration and insurance coverage provide protection. Because
certain protections do not attach until registration, such that
unregistered prepaid accounts are akin in some ways to carrying cash,
the Bureau believes it is important for consumers to be aware that they
should register their accounts. As discussed below, the final rule
links the act of registration with insurance coverage and other
protections. The Bureau believes that, even absent a consumer's full
understanding of the protections afforded by registration, linking
registration to insurance coverage and other protections will help
motivate consumers to register their prepaid accounts.
Similarly, the Bureau believes it is important to disclose to
consumers information about insurance coverage. While the Bureau's
post-proposal consumer testing confirmed that some consumers
erroneously equate FDIC coverage with fraud or theft protection, a
number of participants understood that the insurance protects
consumers' funds in the case of bank insolvency.\435\ Regardless of
their understanding of what FDIC insurance actually protects against,
most participants identified insurance coverage as positive and wanted
to know whether the prepaid card they were considering buying in the
testing scenario offered this protection. The Bureau understands that
the attachment of pass-through FDIC deposit or NCUA share insurance can
be a complex matter determined by many factors, including how the
financial institution has structured the program and the accuracy of
its recordkeeping. The Bureau believes that, even absent a full
understanding of the attachment requirements and the protections
afforded by insurance coverage, disclosing whether a prepaid account
program provides insurance coverage will educate consumers and a
combined insurance and registration disclosure will help motivate
consumers to register their prepaid accounts, when applicable.
---------------------------------------------------------------------------
\435\ See ICF Report II at 15 and 26. In the first round of the
Bureau's post-proposal consumer testing, two out of nine
participants understood that FDIC insurance is meant to protect
their money in case of a bank failure; in the second round,
approximately half of the 11 participants understood this.
---------------------------------------------------------------------------
The Bureau is persuaded by commenters, the results of its post-
proposal consumer testing, and information received during the
interagency consultation process that the registration and insurance
disclosures should be combined, and that both the existence as well as
the lack of insurance eligibility should be disclosed. First,
registration is a prerequisite to insurance protection; the two
processes are conceptually linked and the Bureau believes that
disclosing them together will help consumers appreciate this cause and
effect. Also, while under the proposed rule registration would have
been a prerequisite to certain Regulation E protections, the final rule
expands error resolution and limited liability protections for
unregistered consumers, thereby reducing the urgency to emphasize
registration in its own dedicated line in the short form disclosure.
See final Sec. 1005.18(e). Moreover, the additional space in the short
form created by combining these disclosures has allowed the Bureau to
permit the addition of other information to the form while remaining in
keeping with the size constraints of existing J-hook packaging. See,
e.g., final Sec. 1005.18(b)(2)(xiv)(B) and (3)(ii). The Bureau
believes that melding these two disclosures into a single line will
provide more rational and efficient information to consumers.
Second, the Bureau believes that disclosure of both the existence
or lack of insurance eligibility will be more beneficial to consumers
than disclosing only when insurance is not available. Consistent with
the position of many commenters, the Bureau found in its post-proposal
consumer testing that, while participants understood the meaning of
statements regarding coverage and non-coverage, when the prototype
short form was silent (as it would be under the proposed rule if the
prepaid account program was eligible for insurance coverage) most
participants did not understand that to mean insurance was
offered.\436\ The Bureau was thus concerned that the proposed model
forms' silence when a program is eligible for insurance coverage would
not be effective in communicating to consumers that a prepaid account
program is eligible for insurance coverage.
---------------------------------------------------------------------------
\436\ See ICF Report II at 15 and 25-26.
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The final rule refers to NCUA, rather than NCUSIF, insurance for
credit unions. After further consideration and based on information
received during the interagency consultation process, the Bureau
believes the term ``NCUA'' may be more meaningful to consumers than
``NCUSIF'' and has revised the disclosures accordingly in both final
Sec. 1005.18(b)(2)(xi) and (4)(iii).
In response to concerns raised by commenters, the Bureau has
tailored the final rule to take into account the existence and timing
of a financial institution's consumer identification and verification
process. For some types of prepaid account programs, such as payroll
card accounts and government benefit accounts, financial institutions
conduct customer identification and verification before the card is
distributed or activated, while others, such as certain non-reloadable
cards, may have no customer identification and verification process at
all. As noted above, the Bureau has added to the regulatory text of the
final rule specific language that financial institutions should use to
make the disclosure for clarity. The tailored language required under
the final rule accounts for these distinctions.
Specifically, the final rule covers five different scenarios:
Final Sec. 1005.18(b)(2)(xi)(A) requires that, if a
prepaid account program is set up to be eligible for FDIC deposit or
NCUA share insurance, and customer identification and verification does
not occur before the account is opened, the financial institution make
this
[[Page 84055]]
disclosure using the following clause or a substantially similar
clause: ``Register your card for [FDIC insurance eligibility] [NCUA
insurance, if eligible] and other protections.''
Final Sec. 1005.18(b)(2)(xi)(B) requires that, if a
prepaid account program is not set up to be eligible for FDIC deposit
or NCUA share insurance, and customer identification and verification
does not occur before the account is opened, the financial institution
make this disclosure using the following clause or a substantially
similar clause: ``Not [FDIC] [NCUA] insured. Register your card for
other protections.''
Final Sec. 1005.18(b)(2)(xi)(C) requires that, if a
prepaid account program is set up to be eligible for FDIC deposit or
NCUA share insurance, and customer identification and verification
occurs for all prepaid accounts within the prepaid program before the
account is opened, the financial institution make this disclosure using
the following clause or a substantially similar clause: ``Your funds
are [eligible for FDIC insurance] [NCUA insured, if eligible].''
Final Sec. 1005.18(b)(2)(xi)(D) requires that, if a
prepaid account program is not set up to be eligible for FDIC deposit
or NCUA share insurance, and customer identification and verification
occurs for all prepaid accounts within the prepaid account program
before the account is opened, the financial institution make this
disclosure using the following clause or a substantially similar
clause: ``Your funds are not [FDIC] [NCUA] insured.''
Finally, final Sec. 1005.18(b)(2)(xi)(E) requires that,
if a prepaid account program is set up such that there is no customer
identification and verification process for any prepaid accounts within
the prepaid account program, the financial institution make this
disclosure using the following clause or a substantially similar
clause: ``Treat this card like cash. Not [FDIC] [NCUA] insured.''
The Bureau had specifically requested comment as to whether non-
banks that issue prepaid accounts could apply the proposed statement
regarding FDIC or NCUA insurance to their products, or whether the
Bureau should propose an alternative requirement regarding the
disclosure of the availability of FDIC or NCUA insurance for non-banks
that issue prepaid accounts. The Bureau did not receive any comments in
response to this request. The Bureau believes that it nonetheless would
be useful to provide additional guidance as to when the disclosure
should refer to NCUA insurance coverage and when it should instead
refer to FDIC insurance coverage. Thus, new comment 18(b)(2)(xi)-1
clarifies when to use the term ``FDIC'' and when to use ``NCUA.''
Specifically, the comment explains that if the consumer's prepaid
account funds are held at a credit union, the disclosure must indicate
NCUA insurance eligibility. The comment goes on to say that if the
consumer's prepaid account funds are held at a financial institution
other than a credit union, the disclosure must indicate FDIC insurance
eligibility. As a result of requests received during the interagency
consultation process, the disclosures of both FDIC and NCUA insurance
pursuant to Sec. 1005.18(b)(2)(xi) expressly reflect eligibility in
the statement, to put consumers acquiring prepaid accounts on notice
that insurance protections may not attach in all cases. This includes,
for example, when the consumer is not a member of the issuing credit
union with respect to NCUA.
New comment 18(b)(2)(xi)-2 addresses certain aspects of customer
identification and verification. Specifically, the comment cross-
references final Sec. 1005.18(e)(3) and comments 18(e)-4 and -5 for
additional guidance on the timing of customer identification and
verification processes, and on prepaid account programs for which there
is no customer identification and verification process for any prepaid
accounts within the prepaid account program.
The Bureau considered adding additional information to the
registration and insurance disclosure in the short form, as requested
by one commenter, such as an explanation of what protections in
addition to insurance eligibility registration provides or more fulsome
information about the implications of insurance coverage. However, in
light of overall space constraints and the multiple goals for the short
form, the Bureau ultimately decided against adding any more information
to the registration/insurance disclosure. The Bureau believes this
disclosure balances the most important information for consumers with
the brevity and clarity necessary for optimal consumer comprehension of
the short form disclosure. The Bureau is, however, requiring financial
institutions to provide more detailed information about insurance
coverage in the long form disclosure. See final Sec.
1005.18(b)(4)(iii).
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, consumers' misunderstandings about what protections
pass-through deposit insurance actually affords, and the complexities
inherent in ensuring pass-through insurance coverage, the Bureau is not
including a requirement mandating FDIC or NCUA insurance coverage at
this time.
18(b)(2)(xii) Statement Regarding CFPB Web Site
The proposed rule would have required financial institutions to
disclose in proposed Sec. 1005.18(b)(2)(i)(B)(14) the URL of the Web
site of the Consumer Financial Protection Bureau, in a form
substantially similar to the clauses set forth in proposed Model Forms
A-10(a) through (d) and (f). In the proposal, the Bureau indicated that
it intended 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 final
rule's prepaid account disclosures, and a URL to the Bureau's Web site
where they can submit a complaint about a prepaid account.
The Bureau received comments from the office of a State Attorney
General, an industry trade association, and a group advocating on
behalf of business interests about this portion of the proposal. The
office of the State Attorney General generally supported the disclosure
while the trade association and business group recommended that the
Bureau eliminate the disclosure. The industry trade association
suggested that eliminating the disclosure would make room in the short
form for information more valuable to consumers and reduce consumer
confusion. It first asserted that the disclosure would not be necessary
in bank branches because Bureau contact information was included in the
proposed long form, which would be provided to consumers at the same
time as the short form in a bank branch. Second, it said that the
Bureau's pre-proposal consumer testing suggested consumers are unlikely
to access the Bureau's Web site when reviewing the short form
disclosure. Third, the commenter expressed concern about consumer
confusion, stating that the Bureau's pre-proposal consumer testing
suggested consumers would more likely access a financial institution's
Web site for additional information about a prepaid account rather than
obtaining more general information from the Bureau's Web site. Finally,
it argued that listing both the financial institution's Web site and
the Bureau's Web site on the short form disclosure would misdirect
consumers,
[[Page 84056]]
because in one of the rounds of the Bureau's pre-proposal consumer
testing, half of the participants stated that they would go to the
Bureau's Web site to get additional information about a particular
prepaid card product.
The business group opposed including a link to the Bureau's Web
site in both the short form and long form disclosures. It stated that
the link to the Web site in the model short form disclosure was not yet
an operating Web site, and therefore the commenter said it could not
comment on the wisdom of directing consumers to this particular Bureau
Web page. The commenter further suggested that requiring financial
institutions to disclose the Bureau's Web site URL on the short form
disclosure constituted Bureau interference with the purchasing process
and would instill doubt in the consumer's mind about the safety of the
prepaid account. It said it believed questions about prepaid accounts
should be directed to the financial institution in the first instance,
not to a regulatory agency.
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(14), renumbered as Sec. 1005.18(b)(2)(xii),
with minor modifications. The Bureau has moved the required language
for this disclosure into the regulatory text, and has modified that
language to specify that the disclosed Web site URL would provide
consumers with general information about prepaid accounts. Finally, the
Bureau has made technical modifications to the rule for conformity and
clarity. Accordingly, final Sec. 1005.18(b)(2)(xii) requires that
financial institutions include in the short form a statement directing
the consumer to a Web site URL of the Bureau (cfpb.gov/prepaid) for
general information about prepaid accounts, using the following clause
or a substantially similar clause: ``For general information about
prepaid accounts, visit cfpb.gov/prepaid.''
The Bureau is not persuaded by industry commenters' objections that
this disclosure is unnecessary, inappropriate, or confusing. In the
Bureau's post-proposal consumer testing of the short form disclosure,
most participants understood that the Web site in this disclosure was
administered by a government agency, not the financial institution, and
that it would contain general information about prepaid accounts.\437\
The Bureau continues to believe that it is important to provide
consumers with a non-commercial alternative source of information about
prepaid accounts to enhance consumers' ability to learn about prepaid
accounts in general in order to better inform their purchase and use
decisions.
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\437\ See ICF Report II at 12 and 22.
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18(b)(2)(xiii) Statement Regarding Information on All Fees and Services
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(i)(B)(11) would have required
disclosure of a telephone number and the unique URL of a Web site that
a consumer may use to access the long form disclosure that would have
been required under proposed Sec. 1005.18(b)(2)(ii) in a form
substantially similar to the clauses set forth in proposed Model Forms
A-10(c) and (d). Proposed Sec. 1005.18(b)(2)(i)(B)(11) would have
required this disclosure only when a financial institution chose not to
provide a written form of the long form disclosure that would have been
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). (Proposed Model Forms A-10(a) and (b) also included
this language for government benefit accounts and payroll card
accounts.) The Bureau believed that using either the telephone number
or the Web site, a consumer would be able to access information about
the fees listed in the long form disclosure, and any conditions on the
applicability of those fees. As discussed in the proposal, the Bureau
believed that if consumers do not receive the long form disclosure in
writing or by email before acquisition in a retail store, it is
important that they are still able to access the information. The
Bureau also believed it is important that the Web site URL be unique to
ensure that a consumer can directly access the same type of stand-alone
long form disclosure that would otherwise 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 have provided further
details about the telephone number that would have been required to be
included on the short form disclosure pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(11) when a financial institution does not provide
the long form disclosure before a consumer acquires a prepaid account.
The proposed comment would have clarified 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 have also explained that a consumer
must not incur a fee to call this telephone number before acquiring a
prepaid account. The telephone number disclosed pursuant to proposed
Sec. 1005.18(b)(2)(i)(B)(11) could be the same as the customer service
number for which a financial institution may 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 financial institutions because they would
perhaps have to maintain a separate toll-free line just for their
prepaid account products. The Bureau noted that some card networks may
require financial institutions to maintain toll-free lines, and
therefore believed that telephone numbers disclosed in such cases would
likely be toll-free.
Proposed comment 18(b)(2)(i)(B)(11)-2 would have provided further
details about the Web site that would have been required to be included
on the short form disclosure pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(11) when a financial institution does not provide
the long form disclosure before a consumer acquires a prepaid account.
The proposed comment would have clarified 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 believed 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.
Relatedly, proposed Sec. 1005.18(b)(4)(i)(A) would have required,
among other things, that the URL disclosed pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(11) must not exceed 22 characters and must be
meaningfully named. The Bureau explained that by meaningfully named, it
meant a Web site URL that uses real words or phrases, particularly
those related to the actual prepaid account product. The Bureau
believed 22 characters is the maximum length of a Web site URL that can
fit legibly on a short form disclosure on
[[Page 84057]]
most existing retail packaging material. The Bureau further believed
these parameters would ensure that a consumer can easily enter the Web
site URL listed on the short form into a mobile device when shopping in
a retail store in order to access the long form disclosure. Using a
meaningfully named Web site URL would also ensure that it is easy for a
consumer to understand, which the Bureau believed would increase the
likelihood that a consumer would use the URL to seek out more
information about a prepaid account product.
The Bureau also considered whether to require financial
institutions to disclose an SMS short code, which might be easier to
type than a Web site URL, that consumers could text to receive the Web
site URL that links directly to the long form disclosure.\438\ The
Bureau decided against including this method because sending a text
message using an SMS short code would still require a mobile phone
capable of sending text messages, could incur costs for the consumer,
and would require adequate reception in the retail location. The Bureau
also considered, but did not propose, requiring that a quick response
(QR) code be included in the short form but decided against it because
a QR code would require a substantial amount of space on the small
short form disclosure and QR code adoption remains low. The Bureau did,
however, request comment on including SMS and QR codes in the short
form disclosure.
---------------------------------------------------------------------------
\438\ 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.
---------------------------------------------------------------------------
Comments Received
The Bureau received few but varied comments regarding the
requirement in proposed Sec. 1005.18(b)(2)(i)(B)(11) to disclose a
telephone number and Web site URL in the short form disclosure in
retail settings so that consumers could access the long form disclosure
pre-acquisition. An industry trade association supported the disclosure
and recommended it for all short forms, not just those in retail
settings, but arguing that inclusion of this information generally
would render unnecessary pre-acquisition disclosure of the written long
form. A member of a trade association for State government officials
generally expressed concern about consumer confusion, positing that a
consumer picking up the short form may not realize there is also a long
form disclosure. A program manager requested clarification that the
telephone number disclosed need not be the same number for all the
financial institution's prepaid account programs but rather could
correspond to a particular prepaid account program. Two consumer groups
and a program manager recommended allowing, but not requiring,
disclosure of an SMS or QR code to provide an additional easy method to
access the long form disclosure for consumers who have smart phones. An
office of a State Attorney General said the Bureau should require that
the long form disclosure be provided in written form in all payroll
settings as employees may have limited telephone and internet access.
(The proposed and final rules, in fact, do require that a long form
disclosure be provided pre-acquisition for payroll card accounts.)
Several industry commenters recommended eliminating the character
limit and the ``meaningfully named'' standard from the Web site URL.
Specifically, an industry trade association and an issuing bank said
that the limited space of the short form already requires brevity and a
program manager said that use of real words and phrases does not mean
web addresses will be easier to remember and that many recognizable
trademarks and product names do not qualify as real words and phrases.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(B)(11), renumbered as Sec. 1005.18(b)(2)(xiii),
with certain modifications. The Bureau is requiring that all short
forms contain a statement directing consumers to the location of the
long form disclosure to find details and conditions for all fees and
services. For prepaid accounts offered at retail locations, this
statement must include a telephone number and a Web site URL, as
proposed. For clarity, the Bureau has added to the regulatory text the
specific language for this statement. The requirements in proposed
Sec. 1005.18(b)(4)(i)(A) that the Web site URL be no more than 22
characters and must be meaningfully named has been relocated to final
Sec. 1005.18(b)(2)(xiii). Also, this provision permits financial
institutions to include an SMS code as part of the disclosure. In
addition, comments 18(b)(2)(i)(B)(11)-1 and -2, renumbered as
18(b)(2)(xiii)-1 and -2, provide further clarification regarding
disclosure of the telephone number and Web site URL. The Bureau has
also made technical modifications to the rule and commentary for
conformity and clarity.
The final rule requires a statement in the short form disclosure
directing the consumer to the location of the long form disclosure
required by final Sec. 1005.18(b)(4) to find details and conditions
for all fees and services. For financial institutions offering prepaid
accounts pursuant to the retail location exception in final Sec.
1005.18(b)(1)(ii), this statement must also include a telephone number
and Web site URL that a consumer may use to directly, respectively,
access an oral and an electronic version of the long form disclosure
required under final Sec. 1005.18(b)(4). The Bureau proposed this
exception from the requirement to provide the long form disclosure pre-
acquisition at retail in recognition of the space limitations inherent
in selling prepaid accounts at retail. However, the Bureau continues to
believe it is important for consumers to be able to access the long
form disclosure through other modes prior to purchasing a prepaid
account at retail. The Bureau's post-proposal consumer testing of the
short form disclosure confirmed that nearly all participants understood
they could find information about additional fees not disclosed on the
prototype short form by visiting the Web site or calling the telephone
number on the form.\439\ Thus, in final Sec. 1005.18(b)(2)(xiii), the
Bureau has retained the proposed requirement to include in the short
form disclosure a telephone number and Web site URL that a consumer may
use to access oral and electronic versions of the long form disclosure
required by final Sec. 1005.18(b)(4) when the financial institution is
offering prepaid accounts at a retail location pursuant to final Sec.
1005.18(b)(1)(ii).
---------------------------------------------------------------------------
\439\ See ICF Report II at 12 and 22.
---------------------------------------------------------------------------
As stated above, the Bureau is finalizing Sec. 1005.18(b)(2)(xiii)
to require disclosure in all short forms of a statement directing the
consumer to the location of the long form to find details and
conditions for all fees and services. Pursuant to the final rule, short
form disclosures provided in locations other than retail locations are
not required to disclose the additional information of a telephone
number or Web site URL. Thus, the proposed disclosure remains the same
in the final rule for financial institutions offering prepaid accounts
pursuant to the retail location exception in final Sec.
1005.18(b)(1)(ii). The Bureau is adopting the additional requirement
that all short form disclosures contain a similar statement directing
consumers to the location of the long form disclosure to alert
consumers that there is a comprehensive list of fees and information
available to them and where to find it in order to help them make
prepaid account purchase and use decisions. The location included in
the
[[Page 84058]]
statement required in a non-retail location might be, for example, the
cardholder agreement or the Web site URL, or any other location where
the consumer can locate the long form disclosure. While the long form
disclosure may be readily accessible to consumers along with the short
form in certain settings, the amount of information often provided to
consumers prior to acquiring a prepaid account in some settings may
obfuscate the existence of the more complete long form disclosure. The
short form disclosure was designed to be a snapshot of key fees and
information; thus it is an optimal place to alert consumers to its
companion disclosure, the comprehensive long form. Finally, this change
to the proposal helps standardize the short form disclosures, including
those provided outside of retail locations, by requiring a parallel
disclosure in all short forms directing consumers to the location of
the long form disclosure.
Final Sec. 1005.18(b)(2)(xiii) provides that this disclosure must
be made using the following clause or a substantially similar clause:
``Find details and conditions for all fees and services in [location]''
or, for prepaid accounts offered at retail locations pursuant to final
Sec. 1005.18(b)(1)(ii), made using the following clause or a
substantially similar clause: ``Find details and conditions for all
fees and services inside the package, or call [telephone number] or
visit [Web site].''
The Bureau declines to follow the recommendation of the commenter
that all short forms, not just those provided in retail settings,
disclose a telephone number and Web site URL through which to access
the long form in lieu of requiring the written long form disclosure be
provided pre-acquisition. For a full discussion of the Bureau's
rationale for requiring disclosure of both a short form and a long
form, see the section-by-section analysis of Sec. 1005.18(b) above.
Also, the Bureau believes that providing consumers with written
versions of required disclosures that they can keep, without requiring
them to have access to the internet and a printer (or a telephone), is
superior to limiting consumer access to such disclosures solely through
a Web site or telephone number.
The Bureau has removed the requirement that the Web site URL
provided be ``unique,'' and instead is requiring that both the
telephone number and Web site URL provide the consumer with direct
access, respectively, to an oral and an electronic version of the long
form disclosure. This modification makes explicit the reasoning set
forth in the proposed rule that a consumer must not be required to go
through excessive steps or have to pay to access the electronic and
oral disclosures required under this section. In addition, comments
18(b)(2)(xiii)-1 and -2 provide further clarification of the direct
access requirement for telephone number and Web site URL.
In the final rule, the Bureau has also relocated to Sec.
1005.18(b)(2)(xiii) the requirements that the Web site URL not exceed
22 characters and be meaningfully named from its location in proposed
Sec. 1005.18(b)(4)(i)(A), to consolidate the requirements regarding
this Web site URL in a single place. As discussed above, several
industry commenters recommended eliminating the character limit and the
``meaningfully named'' standard from the Web site URL. The Bureau
continues to believe that the character limit and the requirement that
Web site URLs be meaningfully named is important for consumer
comprehension and ease of use in a retail setting; for these reasons
the Bureau is adopting these requirements in the final rule. The Bureau
notes that the character limit and the meaningfully named standard are
not meant to make the Web site URLs easier for consumers to remember
later, but rather are meant to enable consumers to more easily and
accurately enter them into a web browser on their mobile phones while
in a retail location. The Bureau does not believe that a Web site URL
containing a long string of meaningless letters and numbers would
facilitate consumer access to the long form disclosure at a retail
location. The Bureau is providing clarification in final comment
18(b)(2)(xiii)-2, as discussed below, that trademark and product names
and their commonly accepted or readily understandable abbreviations are
deemed to comply with the requirement of final Sec.
1005.18(b)(2)(xiii) that the Web site URL be meaningfully named.
Finally, the Bureau is adopting the final rule with the added
provision that a financial institution may, but is not required to,
disclose an SMS code at the end of the statement disclosing the
telephone number and Web site URL, if the SMS code can be accommodated
on the same line of text as the statement required by final Sec.
1005.18(b)(2)(xiii). The Bureau agrees with industry and consumer group
commenters that consumers could benefit from allowing financial
institutions to provide an additional easy method to access the long
form disclosure at retail locations. The Bureau believes that an SMS
code can fit within the short form disclosure without sacrificing
consumer engagement and comprehension. The Bureau is not permitting a
QR code to be disclosed in the short form, however, because although
potentially useful, a QR code would require a substantial amount of
space on the small short form disclosure and, the Bureau believes, QR
code adoption continues to remain low.
Final comment 18(b)(2)(xiii)-1 clarifies that, to provide the long
form disclosure by telephone, a financial institution could use a live
customer service agent or an interactive voice response system. In
response to the commenter referenced above, the comment goes on to
clarify that a financial institution could use a telephone number
specifically dedicated to providing the long form disclosure or a more
general customer service telephone number for the prepaid account
program. It also provides an example of a financial institution that
would be deemed to provide direct access pursuant to Sec.
1005.18(b)(2)(xiii) if a consumer navigates one or two prompts to reach
the oral long form disclosure via a live customer service agent or an
interactive voice response system using either a specifically dedicated
telephone number or a more general customer service telephone number.
Final comment 18(b)(2)(xiii)-2 provides an example of a financial
institution that requires a consumer to navigate various other Web
pages before viewing the long form as one that would not be deemed to
provide direct access pursuant to final Sec. 1005.18(b)(2)(xiii). The
comment also clarifies that trademark and product names and their
commonly accepted or readily understandable abbreviations comply with
the requirements of final Sec. 1005.18(b)(2)(xiii) that the Web site
URL be meaningfully named and provides an example.
18(b)(2)(xiv) Additional Content for Payroll Card Accounts
The Bureau's Proposal
As discussed in the section-by-section analysis of Sec. 1005.18(b)
above, the Bureau proposed to require the same short form and long form
disclosures for payroll card accounts (and government benefit accounts)
as for prepaid accounts generally. However, as discussed in detail
below, the Bureau also proposed in Sec. 1005.18(b)(2)(i)(A) to require
that the short form disclosure for payroll card accounts include a
statement at the top of the short form indicating that a consumer does
not have to accept the payroll card account and instructing the
consumer to ask the employer about other ways to receive
[[Page 84059]]
his or her wages instead of receiving them via the payroll card
account, in a form substantially similar to proposed Model Form A-
10(b). Proposed Sec. 1005.15(c)(2) would have included a similar
requirement for government benefit accounts, reflected in proposed
Model Form A-10(a).
Pursuant to the existing compulsory use prohibition in Sec.
1005.10(e)(2), no financial institution or other person may require a
consumer to establish an account for receipt of EFTs with a particular
institution as a condition of employment or receipt of a government
benefit. See also existing comment 10(e)(2)-1 and final comment
10(e)(2)-2. The Bureau believed 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. For this reason, the Bureau proposed 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 have
required that, when offering a payroll card account, a financial
institution must include a statement on the short form disclosure that
a consumer does not have to accept the payroll card account, and that a
consumer can ask about other ways to get wages or salary from the
employer instead of receiving them via the payroll card account, in a
form substantially similar to the language set forth in Model Form A-
10(b). Proposed Sec. 1005.18(b)(2)(i)(A) would have also cross-
referenced proposed Sec. 1005.15(c)(2) for requirements regarding what
notice to give a consumer when offering a government benefit account.
Comments Received
Many industry commenters, including industry trade associations
(including several that focus on payroll and employment issues),
issuing banks, program managers, payment networks, as well as several
employers, several State government agencies, and a think tank
commented on this aspect of the proposal. Specifically, they expressed
concern that the proposed compulsory use statement was negative and
implies that the payroll or government benefit card is an inferior
product, thereby discouraging its use. One commenter said the negative
statement would, in effect, ``warn away'' consumers from choosing a
payroll card account or government benefit card. A number of industry
commenters suggested alternative disclosure language that they said
would render more neutral the statement proposed by the Bureau.
Several industry commenters also asserted out that many States
allow employee wages paid only via electronic means; because there is
no paper check option for receiving wages, the commenters concluded
that unless the employee has a bank account that can receive direct
deposits, the payroll card account would be the sole way to receive
wages. Others noted that most State wage and hour laws already require
disclosure of information about all wage payment options before an
employee decides how to receive wages. One trade association stated
that the Bureau should not require financial institutions to list all
available wage payment options as part of the banner notice in the
final rule, as it would be difficult for employers operating in
multiple states who would need to have different forms for different
states, but also stated that it would support such a disclosure if it
were available as an alternative to the version the Bureau proposed.
Relatedly, as discussed in more detail in the section-by-section
analysis of Sec. 1005.18(b) above, some industry commenters generally
objected to the proposed short form disclosure requirement for payroll
card accounts (and government benefit accounts) citing, among other
things, State-required disclosure of certain fee discounts and waivers
as a factor distinguishing these accounts from GPR cards. Other
industry commenters recommended that the Bureau permit additional
disclosures on the short form for these products, such as disclosure of
State-required methods to access wages without incurring fees.
Conversely, a number of consumer group commenters supported the
proposed disclosure requirements for payroll card accounts and
government benefit accounts generally. Their comments underscored the
importance of the notice regarding payment options at the top of the
short form disclosure, with some recommending an even more conspicuous
disclosure, or an expanded disclosure explaining the benefit of direct
deposit to a bank account as generally cheaper and more advantageous to
the consumer than receiving funds via a payroll card account (or
government benefit account). Some consumer groups recommended that the
Bureau extend the banner notice requirement to other types of prepaid
accounts that are not subject to Regulation E's compulsory use
prohibition, such as those used to disburse students' financial aid,
insurance proceeds, tax refunds, and needs-tested government benefits
that are excluded from coverage under Regulation E generally. Some
consumer groups also urged disclosure of additional information, such
as alerting the consumer when payments stop (for example when the
consumer leaves the job or no longer qualifies for benefits),
instructing the consumer how to un-enroll from the prepaid program, and
explicitly stating that the employer cannot require acceptance of the
payroll card account as a condition of employment and cannot retaliate
against an employee that does not accept a payroll card account.
A nonprofit organization representing the interests of restaurant
workers submitted information gathered from a survey it conducted of
200 people employed by a company that compensates nearly half of its
140,000 hourly employees via payroll card. Survey results showed that,
among other problems, 63 percent of employees surveyed reported that
they were not told about all of the fees associated with the payroll
card before it was issued to them and 26 percent reported not being
allowed to choose an alternative method of payment.
As discussed in the section-by-section analysis of Sec.
1005.18(b)(2)(iii) above, the office of a State Attorney General
recommended free and unlimited withdrawal of wages via ATMs, stating
that its research in its State revealed that ATMs were the most common
way for payroll card accountholders to access their wages and that
accountholders regularly incurred fees for ATM transactions.
The Final Rule
For the reasons set forth in the proposal and herein, the Bureau is
adopting proposed Sec. 1005.18(b)(2)(i)(A), renumbered as Sec.
1005.18(b)(2)(xiv)(A), with certain modifications. First, the Bureau
has modified the proposed regulatory text to permit financial
institutions to choose between two statements regarding wage payment
options for payroll cards. Second, the Bureau has added, in new Sec.
1005.18(b)(2)(xiv)(B), a provision to the final rule permitting
financial institutions to include in the short form disclosure for
payroll card accounts a statement directing consumers to a particular
location outside the short form disclosure for information on ways the
consumer may access payroll card account funds and balance information
for free or for a reduced fee. In addition, for the reasons set forth
below, the Bureau is adopting four new comments
[[Page 84060]]
to further explain and clarify the requirements in final Sec.
1005.18(b)(2)(xiv)(A) and (B). Finally, the Bureau has made technical
modifications to the rule for conformity and clarity.
The Bureau is adopting this provision pursuant to its authority
under EFTA sections 904(a) and (c), and 913(2), and section 1032(a) of
the Dodd-Frank Act, as discussed above. EFTA section 913(2) prohibits a
person from requiring a consumer to establish an account for receipt of
EFTs with a particular financial institution as a condition of
employment or receipt of a government benefit. The Bureau believes it
is important for consumers to realize they have the option of not
receiving payment of wages or government benefits via a payroll card
account or government benefit account, and that receiving such notice
at the top of the short form disclosure will help to ensure consumers
are aware of this right and can thus exercise their right. Further, the
Bureau believes that requiring this disclosure 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 revision will assist consumers' understanding of the terms
and conditions of their prepaid accounts--namely, that consumers have a
choice regarding whether to accept the specific account. In addition,
the Bureau believes that this disclosure will, consistent with section
1032(a) of the Dodd-Frank Act, ensure that the features of the prepaid
accounts--again, that consumers have a choice regarding whether to
accept the specific account--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.
Statement Regarding Wage Payment Options Required by Sec.
1005.18(b)(2)(xiv)(A)
The Bureau disagrees with industry commenters' suggestion that the
statement regarding wage (or benefit) payment options is negative and
implies that payroll card accounts (and government benefit accounts)
are inferior products, thereby discouraging consumers from using them.
The Bureau examined this issue in its post-proposal consumer testing
and found that participants did not construe the language negatively,
confirming the Bureau's original understanding from the proposal.\440\
Participants were provided a prototype short form disclosure with the
statement language from the proposed rule (version one) or a disclosure
with the following language (version two): \441\ ``You have several
options to receive your wages [benefits]: direct deposit to your bank
account; direct deposit to your own prepaid card, or using this payroll
[benefits] card. Tell your employer [the government agency/office]
which option you want.''
---------------------------------------------------------------------------
\440\ See ICF Report at II 16-17 and 27.
\441\ Id. A version of the unbracketed language was used on a
prototype short form disclosure for a payroll card account; a
version of the bracketed language was used on a prototype short form
disclosure for a government benefit account; the wording and
punctuation in version two was also changed slightly for government
benefit accounts.
---------------------------------------------------------------------------
All testing participants understood both versions of the statement
language as saying that they did not have to accept their wages/
government benefits via that prepaid card. Also, while participants
understood from both versions that there were other ways to receive
their payments, those that received version two were able to identify
the specific options available to them. Finally, most participants
expressed essentially neutral feelings about both versions of the
statement and appeared to be drawing on past experiences, rather than
the language in the statement, to decide whether or not they would want
to use the payroll card account or the government benefit account.\442\
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\442\ Id.
---------------------------------------------------------------------------
Even though the Bureau's post-proposal consumer testing confirmed
that the proposed version of the statement regarding wage or benefit
payment options would not be perceived as negative by consumers and
that participants understood the statement, the Bureau has decided to
include in the final rule an alternative version of the statement
language which the Bureau believes would address commenters' concerns
and have the added advantage of providing concrete options to consumer
of how they can receive their funds.
The Bureau is thus finalizing Sec. 1005.18(b)(2)(xiv)(A), which
provides that for payroll card accounts, a financial institution must
disclose a statement that the consumer does not have to accept the
payroll card account and directing the consumer to ask about other ways
to receive wages or salary from the employer instead of receiving them
via the payroll card account using the following clause or a
substantially similar clause: ``You do not have to accept this payroll
card. Ask your employer about other ways to receive your wages.''
Alternatively, a financial institution may provide a statement that the
consumer has several options to receive wages or salary, followed by a
list of the options available to the consumer, and directing the
consumer to tell the employer which option the consumer chooses using
the following clause or a substantially similar clause: ``You have
several options to receive your wages: [list of options available to
the consumer]; or this payroll card. Tell your employer which option
you choose.'' This statement must be located above the information
required by final Sec. 1005.18(b)(2)(i) through (iv), which are
located in the top line of the short form.
The statements regarding wage payment options in the final rule do
not incorporate much of the additional information recommended by some
consumer group commenters, such as explaining the benefit of direct
deposit and providing information on how to un-enroll from the payroll
card account. The Bureau declines to add such information because the
design of the short form disclosure seeks a balance between the
disclosure of key information necessary for consumer acquisition and
use decisions and the brevity and clarity necessary for optimal
consumer comprehension and engagement. While space constraints are less
severe in the context of payroll card accounts and government benefit
accounts than in retail locations, the Bureau is still concerned that
adding this information would affect this balance and risk information
overload. In response to recommendations to make the statement more
conspicuous, the Bureau believes that its relative length and position
at the top of the short form disclosure already provide heightened
conspicuousness.
New comment 18(b)(2)(xiv)(A)-1 makes clear that financial
institutions offering payroll card accounts may choose which of the two
statements required by final Sec. 1005.18(b)(2)(xiv)(A) to use in the
short form disclosure. The list of options required in the second
statement might include the following, as applicable: Direct deposit to
the consumer's bank account, direct deposit to the consumer's own
prepaid account, paper check, or cash. The comment also clarifies that
a financial institution may, but is not required to, provide more
specificity as to whom consumers must ask or inform of their choice of
wage payment method, such as specifying the employer's Human Resources
Department. The Bureau notes that, based on comments received, direct
deposit to the consumer's own prepaid account is often not recognized
as an option to receiving wages via the payroll card account for
consumers. The Bureau believes that this is an important option
[[Page 84061]]
of which consumers should be apprised, and has thus included it in
comment 18(b)(2)(xiv)(A)-1 in the list of enumerated wage payment
options when using the second version of the required statement.
New comment 18(b)(2)(xiv)(A)-2 cross-references Sec.
1005.15(c)(2)(i) for statement options for government benefit accounts.
In response to commenter recommendation that the Bureau extend the
notice requirement to other types of prepaid accounts, the Bureau
declines to require such a statement for other types of prepaid
accounts as it does not believe that to be necessary at this time.
However, new comment 18(b)(2)(xiv)(A)-3 clarifies that a financial
institution offering a prepaid account other than a payroll card
account or a government benefit account may, but is not required to,
include a statement in the short form disclosure regarding payment
options that is similar to either of the statements required for
payroll card accounts pursuant to final Sec. 1005.18(b)(2)(xiv)(A) or
government benefit accounts pursuant to final Sec. 1005.15(c)(2)(i).
For example, a financial institution issuing a prepaid account to
disburse student financial aid proceeds may disclose a statement such
as the following: ``You have several options to receive your financial
aid payments: direct deposit to your bank account, direct deposit to
your own prepaid card, paper check, or this prepaid card. Tell your
school which option you choose.'' The Bureau believes consumers would
benefit from knowing their options and thus is clarifying that this
disclosure may be provided by financial institutions for other types of
prepaid accounts, but declines to require such a statement for other
types of prepaid accounts as requested by some consumer group
commenters.
Statement Regarding State-Required Information or Other Fee Discounts
and Waivers Permitted by Sec. 1005.18(b)(2)(xiv)(B)
Some industry commenters voiced concern regarding the interplay
between the short form disclosure required for payroll card accounts
(and government benefit accounts) and disclosure of information
required by State law and other fee discounts and waivers for these
products.\443\ In response to these concerns, the Bureau is adopting
new Sec. 1005.18(b)(2)(xiv)(B) which states that, for payroll card
accounts, a financial institution may, but is not required to, include
a statement in one additional line of text directing the consumer to a
particular location outside the short form disclosure for information
on ways the consumer may access payroll card account funds and balance
information for free or for a reduced fee. This statement must be
located directly below any statements disclosed pursuant to final Sec.
1005.18(b)(3)(i) and (ii) (regarding variable fees), or, if no such
statements are disclosed, above the statement required by final Sec.
1005.18(b)(2)(x) (regarding overdraft credit features). In addition,
for the reasons set forth below, the Bureau is adopting new comment
18(b)(2)(xiv)(B)-1. The Bureau is also adopting a similar provision for
government benefit accounts in final Sec. 1005.15(c)(2)(ii).
---------------------------------------------------------------------------
\443\ See, e.g., the section-by-section analysis of Sec.
1005.18(b)(2)(iii) above regarding ATM withdrawal fees.
---------------------------------------------------------------------------
The Bureau believes that some commenters may have misunderstood the
proposed short form disclosure as prohibiting inclusion near the short
form disclosure of State-required information regarding the payroll
card account (or government benefit account), particularly State-
mandated methods to access the full amount of wages for free each pay
period. However, neither the proposed rule nor this final rule's
segregation requirements prohibit such disclosures near, but outside,
of the short form. Final Sec. 1005.18(b)(7)(iii), as discussed in
detail below, provides that the short form and long form disclosures
must be segregated from other information and must contain only
information that is required or permitted for those disclosures by
final Sec. 1005.18(b). Thus, while additional information may not be
added to the short form, there is no prohibition in the proposed or
final rule against including other information, such as the State-
required disclosures or other fee discounts and waivers, on the same
page as the short form. Moreover, because payroll card accounts and
government benefit accounts are not subject to the same space
constraints as prepaid accounts sold in retail locations, the short
form disclosure for such accounts likely can accommodate additional
information on the same page as the short form disclosure.
The Bureau examined the potential feasibility of the optional
statement in final Sec. 1005.18(b)(2)(xiv)(B) during its post-proposal
consumer testing. Specifically, testing was conducted to ascertain
whether consumers understood the relationship between specific
information provided on the same page as (but outside) the short form
to the information inside the short form.\444\ The discounts/waivers
listed below the short form were generally related to a fee that was
asterisked in the prototype short form to indicate the fee can be
lower.\445\ To help direct participants' attention to these additional
disclosures, the short form included the following statement below the
asterisk statement: ``See below for free ways to access your funds and
balance information.'' In addition, in one round of testing,
participants were provided with both a prototype short form and a long
form to see if they could locate information about specific fees that
were not included within the short form. In post-proposal consumer
testing, the majority of participants understood and could use this
information.\446\ Based on this testing, the Bureau believes that
consumers will be able to understand the connection between information
in the short form and other information that financial institutions may
include on the same page as, but outside, the short form disclosure.
The Bureau believes that permitting such a statement in the short form
for payroll card accounts (and government benefit accounts) will not
disrupt consumer engagement and comprehension and would help industry
accommodate for any potential discrepancies between Federal and State
disclosure requirements.
---------------------------------------------------------------------------
\444\ See ICF Report II at apps. B and C for the forms shown to
participants during the Bureau's post-proposal consumer testing. The
tested information included: First three out-of-network ATM
withdrawals per month free; one free bank teller cash withdrawal per
month; and balance information available for free online, via mobile
app, and by calling automated customer service.
\445\ Id. The tested information included: first three out-of-
network ATM withdrawals per month free; one free bank teller cash
withdrawal per month; and balance information available for free
online, via mobile app, and by calling automated customer service.
\446\ In the first round of post-proposal testing, four of nine
participants understood how the information in the short form
disclosure related to the additional disclosures appearing below the
short form. Id. at 17. The Bureau believes more participants would
have made the link to this information if the prototype payroll card
account short form had not been tested last; the Bureau believes
participants stopped reading the content of the asterisk disclosure
because they assumed they already knew what it said from the
previous versions they had reviewed. In the second round, all 11
participants were able to use the information below the short form
or the information in the long form to correctly respond to queries
as to whether certain fees could be lower than the fees cited within
the short form. Id. at 28-29. In the second round of the Bureau's
post-proposal consumer testing, the prototype government benefit
short form was the first form shown to participants. Id. at 20-21.
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New comment 18(b)(2)(xiv)(B)-1 provides several examples of how a
financial institution might disclose in the short form for payroll card
accounts
[[Page 84062]]
a statement directing consumers to outside the short form to find
information on conditions for a consumer to access funds and balance
information for free or for a reduced fee in accordance with Sec.
1005.18(b)(2)(xiv)(B). Specifically, the comment states that, for
example, a financial institution might include the following line of
text in the short form disclosure: ``See below for free ways to access
your funds and balance information'' and then list below, but on the
same page as, the short form disclosure several ways consumers can
access their payroll card account funds and balance information for
free. Alternatively, the financial institution might direct the
consumer to another location for that information, such as by stating
``See the cardholder agreement for free ways to access your funds and
balance information.'' The comment also notes that a similar statement
is permitted for government benefit accounts pursuant to final Sec.
1005.15(c)(2)(ii).
18(b)(3) Short Form Disclosure of Variable Fees and Third-Party Fees
and Prohibition on Disclosure of Finance Charges
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(i)(C) would have set forth how, within
the confines of the proposed short form disclosure, financial
institutions could disclose fees that may vary. As noted in the
proposal and above, in many instances, prepaid accounts may have
certain fees that vary depending on how a consumer uses the account.
The proposal gave the example of monthly periodic fees that are, for
some prepaid account programs, waived when a consumer receives direct
deposit or when the monthly balance exceeds a certain amount. The
Bureau was concerned that in some instances, these conditional
situations could become complicated and difficult to explain on a short
form disclosure, particularly for multiple fees. The Bureau believed
that allowing multiple, complex disclaimers on a single form would be
complicated and make comprehension and comparisons more difficult.
Thus, the Bureau proposed Sec. 1005.18(b)(2)(i)(C), which would
have provided 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
must 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 text
explaining that the fee could be lower, in a form substantially similar
to the clause set forth in the proposed Model Forms A-10(a) through
(d). Proposed Sec. 1005.18(b)(2)(i)(C) would have also stated that a
financial institution must use the same symbol and text for all fees
that could be lower, but may use any other part of the prepaid account
product's packaging material or its Web site to provide more detail
about how a specific fee type may be lower. Proposed Sec.
1005.18(b)(2)(i)(C) would have further stated that a financial
institution must not disclose any additional third-party fees imposed
in connection with any of the fees disclosed pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(1) through (8).
Proposed comment 18(b)(2)(i)(C)-1 would have provided examples of
how to disclose variable fees on the short form disclosure in
accordance with proposed Sec. 1005.18(b)(2)(i)(C). The proposed
comment would have also clarified that proposed Sec.
1005.18(b)(2)(i)(C) does not permit a financial institution to 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. That information would also have been required to be
disclosed in the long form pursuant to proposed Sec.
1005.18(b)(2)(ii)(A). Proposed comment 18(b)(2)(i)(C)-2 would have
explained that third parties could include service providers and other
entities, regardless of whether the entity is an agent of the financial
institution. The Bureau believed 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 recognized 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,
proposed to require that this information be disclosed on the long
form, pursuant to 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. The Bureau believed that the 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 they could qualify for a lower fee.
Comments Received
Comments regarding disclosure of variable fees. A number of
industry commenters, including industry trade associations, program
managers, issuing banks, a payment network, and a law firm writing on
behalf of a coalition of prepaid issuers, as well as several State
government agencies and a think tank, recommended that the Bureau
eliminate the requirement to disclose the highest fee for a fee that
varies in favor of more fulsome disclosure of the price variations for
that fee. They said disclosing the highest fee, with a symbol linked to
a statement explaining that the fee may be lower depending on how and
where the prepaid account is used, would mislead consumers by failing
to provide them with information critical to making meaningful
decisions, such as more detailed information within the short form on
how they can take advantage of fee waivers and discounts. Some industry
commenters said it would be counterintuitive for consumers to check
other areas of the packaging for such discounts and pointed to
confusion over the asterisk in the Bureau's pre-proposal consumer
testing as indicating the Bureau's proposed system would not work. One
trade association added that required disclosure of the highest fee
would restrict fee models and limit innovation.
Many of these industry commenters recommended alternatives to
disclosure of the highest fee, such as permitting disclosure in the
short form of the full variation of fees or requiring disclosure of the
highest fee only if the issuer chooses not to disclose the fee
variations. Others recommended disclosing the most common, highest and
lowest, lower end, median, or a range of fees. Some recommended
disclosing a graphic showing the proportion of consumers paying the
highest fee or permitting a de minimis exception allowing disclosure of
a lower fee if that lower price is within a close range of the highest
fee. Two consumer groups specifically addressed this portion of the
proposal, praising the Bureau for the short form disclosure's balance
between simplicity and completeness, and saying that too much
information reduces consumer understanding. One of the commenters
stated that it is important for the consumer to know the highest fee,
that financial institutions have alternative places to highlight how to
avoid a higher fee, and that disclosing the highest fee also encourages
consumers to turn to the long form disclosure to find out about fee
waivers and discounts. The other consumer group
[[Page 84063]]
commenter stated that the required disclosure of the highest fee may
encourage lowering fees but could also mislead consumers regarding the
actual cost of a feature, particularly with regard to the cash reload
fee, suggesting that the required disclosure of the highest fee may
provide an incentive to industry to eliminate discounts, such as waiver
of the periodic fee with direct deposit. This commenter suggested that
the Bureau monitor and assess the impact of requiring disclosure of the
highest fee.
Several industry commenters, including an issuing bank and a trade
association specifically recommended permitting inclusion in the short
form disclosure of the conditions under which the monthly fee could be
waived, citing the importance of this fee and the prevalence of
discounts and waivers applicable to this fee as crucial to consumer
decisions in choosing a prepaid card. A consumer group said its
research showed that 14 of 66 prepaid cards disclose that the monthly
fee can be waived entirely if the consumer takes certain actions.
Comments regarding single disclosure of like fees. Some commenters
recommended permitting a single disclosure in the short form in place
of required two-tier fees, i.e., those provisions requiring disclosure
of two fee variations under a single fee or fee type, when the fee
amount is the same for both fees. As noted above, two trade
associations, an issuing bank, and the office of a State Attorney
General made this recommendation specifically for the per purchase fee
disclosure that would have been required under proposed Sec.
1005.18(b)(2)(i)(B)(2) (final Sec. 1005.18(b)(2)(ii) requires
disclosure of a single per purchase fee) and a program manager made
this recommendation for the ATM withdrawal fees under proposed Sec.
1005.18(b)(2)(i)(B)(3).
Comments regarding disclosure of third-party fees. Several industry
commenters, including issuing banks and an industry trade association
commented on the Bureau's proposal to prohibit the disclosure of third-
party fees in the short form. The trade association and two issuing
banks generally recommended against mandating disclosure of third-party
fees as impractical because, they said, the amount of the fees and the
timing and frequency of changes to the fees is often outside the
control of the financial institution. Specifically regarding the short
form, they recommended permitting a general disclaimer regarding third-
party fees or an example to show when such a fee may occur. Another
issuing bank recommended that third-party fees should be permitted, but
not required, to be disclosed in the short form. Comments related to
disclosure of third-party fees in the short form specifically for cash
reloads are addressed in more detail in the section-by-section analysis
of Sec. 1005.18(b)(2)(iv) above. In that particular circumstance, some
commenters expressed concern that failing to reflect third-party fees
in connection with the proposed disclosure of the cash reload fee in
the short form might create consumer confusion given that it is a
standard industry practice for reload network providers or third-party
retailers, not the financial institutions that issue prepaid accounts,
to provide and charge for the reloading of cash into prepaid accounts.
In addition to confusing consumers, commenters suggested this outcome
would result in a competitive disadvantage for financial institutions
that offer proprietary systems, which are usually less expensive than
third-party systems, and thereby dissuade financial institutions from
offering this service.
Comments regarding disclosure of finance charges. Although the
Bureau did not specifically solicit comment on disclosure in the short
form of finance charges, several consumer group commenters addressed
this issue in their comments regarding the proposed statement on
overdraft credit features. As discussed above, these consumer groups
recommended that the Bureau require disclosure in the short form of the
actual fees charged for overdraft credit features, which one consumer
group said would otherwise permit the issuer to hide the ball by
calling such fees by other names. The Bureau received no comments from
industry specifically about disclosure of finance charges in the short
form disclosure.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(i)(C), renumbered as Sec. 1005.18(b)(3), with
certain modifications. While the Bureau is adopting the proposed
requirement to disclose the highest fee when the amount of a fee can
vary in final Sec. 1005.18(b)(3)(i), it is also adopting new Sec.
1005.18(b)(3)(ii) to give financial institutions the option to disclose
more detailed fee waiver or discount information specifically for the
periodic fee required to be disclosed by final Sec.
1005.18(b)(2)(i).\447\ In addition, the Bureau is adopting new Sec.
1005.18(b)(3)(iii) permitting, as an alternative to certain two-tier
fee disclosures, disclosure of a single fee amount when the amount is
the same for both fees. With regard to third-party fees, the Bureau is
adopting in new Sec. 1005.18(b)(3)(iv) a more explicit general
prohibition on inclusion of third-party fees in the short form
disclosure, while also providing more detail in new Sec.
1005.18(b)(3)(v) with regard to the special provision in final Sec.
1005.18(b)(2)(iv) to include third-party cash reload fees. Final Sec.
1005.18(b)(3)(vi) prohibits disclosure in the short form of finance
charges as described in Regulation Z Sec. 1026.4(b)(11) imposed in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Sec. 1026.61.
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\447\ See final comment 18(b)(2)(ix)(C)-1 for specific guidance
regarding disclosure of fee variations in additional fee types.
---------------------------------------------------------------------------
Finally, the Bureau has made technical modifications to the rule
and related commentary for conformity and clarity and, for the reasons
set forth below, the Bureau has revised proposed comments
18(b)(2)(i)(C)-1 and 2, renumbered as 18(b)(3)(i)-1 and 18(b)(3)(iv)-1,
respectively, and has added new comments 18(b)(3)(ii)-1, 18(b)(3)(iii)-
1, 18(b)(3)(v)-1, and 18(b)(3)(vi)-1 to provide additional
clarification and guidance regarding the requirements set forth in
final Sec. 1005.18(b)(3).
Disclosure of Variable Fees Generally and for the Periodic Fee
Final Sec. 1005.18(b)(3)(i) generally provides that if the amount
of any fee that is required to be disclosed in the short form
disclosure could vary, a financial institution shall disclose the
highest amount it may impose for that fee, followed by a symbol, such
as an asterisk, linked to a statement explaining that the fee could be
lower depending on how and where the prepaid account is used, using the
following clause or a substantially similar clause: ``This fee can be
lower depending on how and where this card is used.'' Except as
provided in final Sec. 1005.18(b)(3)(ii), a financial institution must
use the same symbol and statement for all fees that could vary. The
linked statement must be located above the statement required by final
Sec. 1005.18(b)(2)(x). As discussed in more detail below, final rule
Sec. 1005.18(b)(3)(ii) provides an alternative for periodic fees
disclosed pursuant to Sec. 1005.18(b)(2)(i) where a financial
institution can disclose either the asterisk statement pursuant to
Sec. 1005.18(b)(3)(i) or can disclose specific information about fee
waiver or reduction for the periodic fee.
[[Page 84064]]
As discussed above in connection with the periodic fee disclosure
under Sec. 1005.18(b)(2)(i), the Bureau acknowledges the concerns
expressed by commenters regarding the need to provide more information
about how such fees can vary. However, for the reasons discussed below,
the Bureau believes that providing the same level of tailoring and
detail with regard to all other fees on the short form would
substantially increase the complexity of the form and decrease its
usefulness to consumers as an introductory overview of account pricing.
Accordingly, the Bureau believes that the best balance is to allow more
flexibility with regard to periodic fees while maintaining the
proposal's approach to variations in other fees. The Bureau continues
to believe that information on fee variations for all other fees could
not be disclosed in a manner that is both engaging and comprehensible
to consumers. The design of the short form disclosure seeks a balance
between the disclosure of key information necessary for consumer
purchase and use decisions and the brevity and clarity necessary for
optimal consumer comprehension and engagement. Incorporating into the
short form disclosure multiple complex disclaimers, often featuring a
variety of conditions under which consumers may receive fee waivers or
discounts or obtain fee waivers or discounts for a certain time period,
would disrupt this balance.
Further, many of the alternatives recommended by commenters, such
as disclosing a range of fees or using a graphic to show the proportion
of consumers paying the highest fees, posed a degree of complexity the
Bureau also believes would disrupt this balance. In addition, as
opposed to alternatives recommended by commenters such as disclosing
the median, lowest, or most common fee, the Bureau believes, as stated
in the proposal, it is paramount for consumers to know the maximum they
could pay for a particular fee. In this way, consumers will not be
surprised by being charged fees higher than they expected and, as
pointed out by a consumer group commenter, the linked statement can
incent consumers to turn to other sources to learn about available
discounts and waivers. As the Bureau explained in the proposal,
financial institutions have the alternative of explaining these fee
variations elsewhere, such as on other parts of the packaging or on
their Web sites. In addition, financial institutions must disclose
these details in the long form disclosure pursuant to final Sec.
1005.18(b)(4)(ii), discussed below. The Bureau believes that once the
standardized short form disclosure is used by all prepaid account
programs, it will not be counterintuitive, as asserted by some industry
commenters, to look outside of its contours for additional information
like fee waivers and discounts.
In response to the consumer group commenter raising concerns and
recommending that the Bureau monitor and assess the impact of requiring
disclosure of the highest fee, the Bureau notes that the commenters'
concerns regarding disclosure of periodic fees and fees for cash
reloads are specifically addressed in the final rule, respectively, by
Sec. 1005.18(b)(3)(ii) and (v). Also, the Bureau intends to continue
to monitor the issues addressed in this rule, including disclosure of
the highest fee.
In response to the industry commenter citing to the Bureau's pre-
proposal consumer testing as indicating that the proposed system for
disclosing fee variation with an asterisk linked to a generic statement
that fees could be lower would confuse consumers, the cited testing
actually revealed the opposite: Participants were confused by multiple
asterisks linked to the details of fee variations for specific fees.
The Bureau's post-proposal consumer testing supports adoption of the
proposed system in that, although some misconceptions persisted, most
participants understood the significance of the presence or absence of
the asterisk when linked to fees other than the monthly fee.\448\
---------------------------------------------------------------------------
\448\ See ICF Report II at 10-11 and 21.
---------------------------------------------------------------------------
As discussed above, some commenters recommended that the Bureau
permit fuller fee disclosure in the short form for waivers and
discounts of the monthly fee. The Bureau recognizes that the monthly
fee is a key fee and is one of the most commonly waived or discounted
prepaid account fees. The Bureau understands such waivers and discounts
are based on the consumer meeting one or a combination of the following
conditions: Having direct deposit into the prepaid account, making a
set number of transactions per month, or loading a minimum amount of
money per month into the prepaid account.
The Bureau followed up on this issue in its post-proposal consumer
testing. In addition to an asterisk linking the highest fees to a
statement indicating the fee can be lower depending on how and where
the card is used, the Bureau also tested adding a dagger symbol
([dagger]) after the highest fee disclosed for the periodic fee, linked
to an additional line of text located above the asterisked statement,
describing variations in the monthly fee due to waivers and discounts
when certain conditions are met.\449\ The Bureau's post-proposal
consumer testing examined participant comprehension of various versions
of the language and in various scenarios.\450\ Most participants who
saw the form with the dagger language correctly linked the dagger to
the associated text and understood that the circumstances under which
the monthly fee could be waived and most participants who saw the form
with only the generic asterisk language linked to the monthly fee
correctly linked the asterisk to the associated text and understood the
monthly fee could be lower in some situations.\451\ Thus, regardless of
the version shown, all participants understood that the monthly fee
could be waived in some situations, and all were able to correctly
identify those situations.
---------------------------------------------------------------------------
\449\ See ICF Report II at apps. B and C for copies of the
prototype short form disclosures tested.
\450\ Participants variously examined a single prototype short
form in isolation, compared two prototype short forms with differing
versions of the dagger language, and compared one prototype short
form that included dagger language to a short form that did not
include dagger language (but which did link the monthly fee to the
more generic asterisk statement). See ICF Report II at 11 and 21-22.
\451\ Id. In addition to successfully following the dagger
symbol to the appropriate text, some participants also linked the
monthly fee to the text associated with the more generic asterisk
language which, while applicable, was not intended.
---------------------------------------------------------------------------
The primacy of the periodic fee, prevalence of fee variations
associated with the periodic fee, successful consumer testing of
disclosure of fee variation for the monthly fee, and both industry and
consumer group comments suggesting particular consideration regarding
disclosure of the periodic fee have led the Bureau to adopt new Sec.
1005.18(b)(3)(ii), which permits financial institutions an alternative
disclosure for a periodic fee that may vary. Specifically, if the
amount of the periodic fee disclosed in the short form disclosure
pursuant to final Sec. 1005.18(b)(2)(i) could vary, as an alternative
to the disclosure required by final Sec. 1005.18(b)(3)(i), the
financial institution may disclose the highest amount it may impose for
the periodic fee, followed by a symbol, such as a dagger, that is
different from the symbol the financial institution uses pursuant to
final Sec. 1005.18(b)(3)(i), to indicate that a waiver of the fee or a
lower fee might apply, linked to a statement in one additional line of
text disclosing the waiver or reduced fee amount and explaining the
circumstances under
[[Page 84065]]
which the fee waiver or reduction may occur. The linked statement must
be located directly above or in place of the linked statement required
by final Sec. 1005.18(b)(3)(i), as applicable.
The Bureau believes that this optional addition to the short form
disclosure will help consumers better understand nuances regarding this
important fee without serious compromise to the overall integrity of
the short form design, especially in light of the reduction of
information disclosed in the short form pursuant to the final rule.
See, e.g., removal of two-tiered fees from Sec. 1005.18(b)(2)(ii),
reduction of three incidence-based fees to two additional fee types
disclosed pursuant to Sec. 1005.18(b)(2)(ix), and permitted single
disclosure for like fees pursuant to Sec. 1005.18(b)(3)(iii).
Final comment 18(b)(3)(i)-1 provides an example illustrating the
general disclosure requirements of variable fees pursuant to final
Sec. 1005.18(b)(3)(i). The comment also explains that, except as
described in final Sec. 1005.18(b)(3)(ii), final Sec.
1005.18(b)(3)(i) does not permit a financial institution to describe in
the short form disclosure the specific conditions under which a fee may
be reduced or waived, but the financial institution could use, for
example, any other part of the prepaid account's packaging or other
printed materials to disclose that information. The comment also
explains that the conditions under which a fee may be lower are
required to be disclosed in the long form disclosure pursuant to Sec.
1005.18(b)(4)(ii).
New comment 18(b)(3)(ii)-1 explains that, if the amount of the
periodic fee disclosed in the short form pursuant to final Sec.
1005.18(b)(2)(i) could vary, a financial institution has two
alternatives for disclosing the variation, as set forth in final Sec.
1005.18(b)(3)(i) and (ii), and provides an illustrative example of both
alternatives.
Single Disclosure of Like Fees
In new Sec. 1005.18(b)(3)(iii), the final rule provides that, as
an alternative to the two-tier fee disclosures required by final Sec.
1005.18(b)(2)(iii), (v), and (vi) and any two-tier fee required by
Sec. 1005.18(b)(2)(ix), a financial institution may disclose a single
fee amount when the amount is the same for both fees. New comment
18(b)(3)(iii)-1 provides examples illustrating how to provide a single
disclosure for like fees on both the short form disclosure and the
multiple service plan short form disclosure. The Bureau believes that
permitting disclosure of a single fee amount for a two-tier fee
disclosure where the same fee is charged for both variations creates
efficiency by simplifying and shortening the short form disclosure
without sacrificing consumer comprehension. The Bureau's post-proposal
consumer testing confirmed that, for example, participants shown a
short form with a single ATM withdrawal fee seemed to understand that
the company providing the prepaid account would not charge different
fees depending on what network the cardholder used.\452\
---------------------------------------------------------------------------
\452\ See ICF Report II at 13-14.
---------------------------------------------------------------------------
Disclosure of Third-Party Fees
For the reasons set forth in herein, the Bureau is adopting the
proposed general prohibition on inclusion of third-party fees in the
short form explicitly in its own provision of the final rule in Sec.
1005.18(b)(3)(iv). Specifically, final Sec. 1005.18(b)(3)(iv) states
that, except as provided in final Sec. 1005.18(b)(3)(v) with regard to
cash reload fees, a financial institution may not include any third-
party fees in a disclosure made pursuant to final Sec. 1005.18(b)(2).
New comment 18(b)(3)(iv)-1 explains that fees imposed by another party,
such as a program manager, for services performed on behalf of the
financial institution are not third-party fees and therefore must be
disclosed pursuant to final Sec. 1005.18(b)(3)(iv). For example, if a
program manager performs customer service functions for a financial
institution's prepaid account program, and charges a fee for live agent
customer service, that fee must be disclosed pursuant to final Sec.
1005.18(b)(3)(iv).
As discussed above, the Bureau received several comments in support
of the Bureau's proposed exclusion of third-party fees from the short
form disclosure. In response to the comments recommending that
additional information or disclaimers be provided in the short form
with regard to third-party fees, the Bureau believes that the abridged
nature of the short form disclosure cannot accommodate disclosing all
variable and third-party fees and that the comprehensive design of the
long form disclosure is better suited to inform consumers about the
details of fee variations and third-party fees. See the section-by-
section analysis of Sec. 1005.18(b)(4)(ii) below.
For the reasons set forth in the section-by-section analysis of
Sec. 1005.18(b)(2)(iv) above, the Bureau is requiring disclosure in
the short form of third-party fees for cash reloads. This requirement
is principally set forth in final Sec. 1005.18(b)(2)(iv), and is
supplemented by new Sec. 1005.18(b)(3)(v). Final Sec.
1005.18(b)(3)(v) provides that any third-party fee included in the cash
reload fee disclosed in the short form pursuant to final Sec.
1005.18(b)(2)(iv) must be the highest fee known by the financial
institution at the time it prints, or otherwise prepares, the short
form disclosure required by final Sec. 1005.18(b)(2). A financial
institution is not required to revise its short form disclosure to
reflect a cash reload fee change by a third party until such time that
the financial institution manufactures, prints, or otherwise produces
new prepaid account packaging materials or otherwise updates the short
form disclosure. Thus, whether for a prepaid account program with
packaging material or for one with only online or oral disclosures, the
financial institution must update the short form to disclose a third-
party cash reload fee change when it otherwise updates its short form
disclosure. New comment 18(b)(3)(v)-1 provides several examples
illustrating when a financial institution must update its short form
disclosure to reflect a change in a third-party cash reload fee.
As explained in the section-by-section analysis of Sec.
1005.18(b)(2)(iv) above, the Bureau believes it is important to
disclose cash reload fees for proprietary and non-proprietary cash
reload systems alike. However, the Bureau does not believe it would be
appropriate to require financial institutions to reprint or otherwise
reissue their short form disclosures whenever a third party changes its
fees for cash reloads, as the financial institution may not always have
control over when a third party changes its fees. Rather, the Bureau
believes it is appropriate to require financial institutions to update
the disclosure of these third-party fees when the financial institution
manufactures, prints, or otherwise produces new packaging materials or
until such time that the financial institution otherwise updates the
short form disclosure.
Prohibition on Disclosure of Finance Charges
In new Sec. 1005.18(b)(3)(vi), the final rule provides that a
financial institution may not include in a disclosure made pursuant to
Sec. 1005.18(b)(2)(i) through (ix) any finance charges as described in
Regulation Z Sec. 1026.4(b)(11) imposed in connection with a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in Sec. 1026.61. New comment 18(b)(3)(vi)-1 explains that if a
financial institution imposes a higher fee or charge on the asset
feature of a prepaid account with a covered separate credit feature
accessible by a hybrid prepaid-credit
[[Page 84066]]
card than the amount of a comparable fee or charge it imposes on any
prepaid account in the same prepaid account program that does not have
such a credit feature, it must disclose on the short form for purposes
of Sec. 1005.18(b)(2)(i) through (vii) and (ix) the amount of the
comparable fee rather than the higher fee. This comment also cross-
references final Sec. 1005.18(g)(2) and related commentary.
As discussed in more detail above, the Bureau has made a strategic
decision to focus the bulk of the short form disclosure on usage of the
prepaid account itself (i.e., the asset feature of the prepaid
account). The possibility that consumers may be offered an overdraft
credit feature for use in connection with the prepaid account is
addressed in the short form pursuant to final Sec. 1005.18(b)(2)(x),
which requires the following statement if such a feature may be
offered: ``You may be offered overdraft/credit after [x] days. Fees
would apply.'' The Bureau believes this statement, informing consumers
whether an overdraft credit feature is offered for the particular
prepaid account and, if so, the conditionality of the feature, the
duration of the mandatory waiting period, and that fees would apply, is
sufficient information for consumers for the purposes of the short
form. The Bureau believes inclusion of finance charges in the short
form fee disclosures would confuse consumers, obfuscating information
about the fees that the Bureau believes are most important to consumers
when shopping for a prepaid account.
Thus, the Bureau believes that it is appropriate to exclude any
finance charges related to an overdraft credit feature that may be
offered at a later date to some prepaid consumers from general
disclosure on the short form, including in the disclosures regarding
additional fee types under both final Sec. 1005.18(b)(2)(viii) and
(ix). If consumers are interested in such a feature, they can look to
the Regulation Z disclosures in the long form pursuant to final Sec.
1005.18(b)(4)(vii) (as well as the main fee disclosure pursuant to
final Sec. 1005.18(b)(4)(ii) for finance charges imposed on the asset
features of the prepaid account), discussed below, for more details.
18(b)(4) Long Form Disclosure Content
In addition to the short form, the proposed rule would have
required financial institutions to provide a long form disclosure
providing all fees and certain other specified information prior to the
consumer's acquisition of a prepaid account. Proposed Sec.
1005.18(b)(2)(ii) would have provided that, in accordance with proposed
Sec. 1005.18(b)(1), a financial institution shall provide the
disclosures listed in proposed Sec. 1005.18(b)(2)(ii)(A) through (E).
In contrast to the short form, where the Bureau proposed very specific
formatting requirements and model forms that would provide a safe
harbor for compliance, the Bureau did not specify as detailed
formatting requirements with regard to the long form in the proposal.
It included proposed Sample Form A-10(e) as one possible way to
organize the detailed fee information, but noted that long forms might
vary more widely depending on the number of fees and conditions and
therefore solicited comment on whether to provide a model form.
The Bureau did not receive any comments specifically regarding
whether to provide a long form as a sample form or a model form. More
general comments received regarding the Bureau's proposal to require
financial institutions to provide long form disclosures pre-
acquisition, and the Bureau's reasons for finalizing that requirement
overall, are discussed in the section-by-section analysis of Sec.
1005.18(b) above.
The Bureau is adopting proposed Sec. 1005.18(b)(2)(ii), renumbered
as Sec. 1005.18(b)(4), with minor modifications for clarity. The final
rule requires that, in accordance with final Sec. 1005.18(b)(1), a
financial institution shall provide a disclosure setting forth the fees
and information listed in final Sec. 1005.18(b)(4)(i) through (vii)
for a prepaid account, as applicable. Specific revisions and additions
to the enumerated list of fees and information required in the long
form disclosure are discussed in the section-by-section analyses of
Sec. 1005.18(b)(4)(i) through (vii) below.
The Bureau is finalizing Sample Form A-10(f) rather than providing
a specific model long form (which would have provided safe harbor). In
light of the variation in long forms that may occur where financial
institutions have different fee structures and conditions, the Bureau
has also revised the text of the final rule from the proposed version
to remove language that would have required the long form to be in
substantially similar format to the sample form. The Bureau believes
this change will further underscore the fact that financial
institutions are afforded discretion in formatting the long form in a
way that will best convey the amount and nature of the information that
is required to be provided under the rule. Thus, Sample Form A-10(f) is
provided as an example that financial institutions may, but are not
required to, incorporate or emulate in their own long form disclosures.
18(b)(4)(i) Title for Long Form Disclosure
Upon further consideration, the Bureau is adopting the final rule
with an additional requirement in new Sec. 1005.18(b)(4)(i) to include
in the first line of the long form a heading stating the name of the
prepaid account program and that the long form disclosure contains a
list of all fees for that particular prepaid account program. See also
final Sec. 1005.18(b)(7)(i)(B). The Bureau understands that financial
institutions typically include such a heading on fee disclosures
contained in prepaid account agreements now. The Bureau believes that
providing a title or heading to the long form, such as the one shown as
an example in Sample Form A-10(f) (``List of all fees for XYZ Prepaid
Card''), will help orient consumers to the long form disclosure as a
comprehensive repository for fees and other key information about the
particular prepaid account, particularly in contrast to the short form
which provides an abridged list of fees and information.
18(b)(4)(ii) Fees
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(ii)(A) would have required the
financial institution to disclose in the long form 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 had to
disclose the amount of the fee and the conditions, if any, under which
the fee may be imposed, waived, or reduced. This would include, to the
extent known, any third-party fee amounts that may apply. Proposed
Sec. 1005.18(b)(2)(ii)(A) would also have required that if such third-
party fees may apply but the amount of those fees are not known, a
financial institution would have had to instead include a statement
indicating that third-party fees may apply without specifying the fee
amount. Under the proposal, a fee imposed by a third party that acts as
an agent of the financial institution for purposes of the prepaid
account always would have had to be disclosed.
Proposed Sec. 1005.18(b)(2)(ii)(A) would have also stated that a
financial institution may not utilize any symbols, such as asterisks,
to explain the conditions under which any fee may be imposed. The
Bureau believed it is important that consumers be able to easily follow
the information in the long form, and that, when financial
[[Page 84067]]
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.
The Bureau also proposed to add commentary to explain the format of
the long form disclosure. Specifically, proposed comment
18(b)(2)(ii)(A)-1 would have explained 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 can qualify for a
lower fee. The proposed comment would have further explained that
relevant conditions to disclose 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 have explained 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 have clarified 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. 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 have clarified that the financial institution
should instead 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. Similarly, if a consumer must enroll in an additional service
to avoid incurring a fee for another service, neither of those services
should disclose a fee of ``$0,'' but should instead list each fee
amount imposed if a consumer does not enroll. The proposed comment also
would have provided 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 should be
included in the explanatory column in the long form.
Proposed comment 18(b)(2)(ii)(A)-3 would have provided guidance on
the disclosure of third-party fees in the long form disclosure.
Specifically, the proposed comment would have explained that, for
example, a financial institution that offers balance updates to a
consumer via text message would disclose that mobile carrier data
charges may apply for each text message a consumer receives. Regarding
the requirement in proposed Sec. 1005.18(b)(2)(ii)(A), 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
have provided an example that any fees that the provider of a cash
reload service who has a relationship with the financial institution
may impose would have had to be disclosed in the long form.
Comments Received
In the context of recommending against requiring the long form
disclosure altogether, a number of industry commenters--including an
industry trade association, program managers, and issuing banks--
asserted that the amount and complexity of the information proposed to
be included in the long form disclosure would overwhelm consumers. See
the section-by-section analysis Sec. 1005.18(b) above for discussion
of such comments and the Bureau's reasoning for finalizing the overall
requirement to disclose the long form.
With regard to recommendations for the specific content of the long
form disclosure, two issuing banks requested that the Bureau limit the
proposed requirement to disclose on the long form all fees that may be
imposed in connection with a prepaid account by eliminating disclosure
of optional, incidental services. The commenters said such features
generally are not available at the time of purchase and are disclosed
in a prepaid account program's terms and conditions at the time the
consumer elects such services. The commenter asserted that mandating
disclosure of fees connected with such services would add complexity to
the long form disclosure and discourage financial institutions from
creating new features and enhanced functionality due to the burden of
having to update the disclosure and distribute new packaging.
Two consumer group commenters and individual consumers who
submitted comments as part of a comment submission campaign organized
by a national consumer advocacy group generally supported the long form
disclosures' proposed scope and urged the Bureau to add additional
content requirements, such as disclosure of when funds become available
after consumer deposits via ATM, teller, and remote deposit capture;
free ways to get cash such as cash back at point of sale when making a
purchase; and the number of surcharge-free ATM withdrawals available to
the consumer. One consumer group commenter suggested that the Bureau's
proposed sample long form disclosure was ambiguous in certain places
regarding fees disclosure, particularly with respect to payroll card
account fees.
An industry trade association recommended that free services and
features be disclosed as ``$0'' in the long form instead of the two
options in proposed comment 18(b)(2)(ii)(A)-2 of ``$0'' or ``free.''
Several industry commenters, including trade associations, issuing
banks, program managers, and a payment network recommended eliminating
the requirement to disclose third-party fees in the long form
disclosure. They said it is not practical to disclose third-party fees
because the amount, timing, and frequency of such fees are outside of
the control of the financial institution and because any changes in
such fees would require updates to the long form disclosure and change-
in-fee notices. Some industry commenters urged the Bureau to require
instead a general disclosure that third-party fees may apply or a more
specific disclosure that third-party fees apply with information on how
to obtain the specific fee information. A consumer group supported the
disclosure of third-party fees in the long form as a method of creating
a fair comparison among financial institutions that use third parties
to load cash into prepaid accounts and those with proprietary cash
reload systems.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(ii)(A), renumbered as Sec. 1005.18(b)(4)(ii), with
certain modifications. Most significantly, as explained below, the
final rule contains several additional accommodations regarding
disclosure of third-party fees in the long form. The Bureau is also
adopting proposed comments 18(b)(2)(ii)(A)-1 through -4, renumbered as
18(b)(4)(ii)-1 through -4, with certain revisions as discussed below.
Finally, the Bureau has made
[[Page 84068]]
technical modifications to the rule and commentary for conformity and
clarity.
The Bureau is adopting this provision pursuant to its authority
under EFTA sections 904(a) and (c), and 905(a), and section 1032(a) of
the Dodd-Frank Act. The Bureau believes that pre-acquisition
disclosures of all fees for prepaid accounts will, consistent with EFTA
section 902 and section 1032(a) of the Dodd-Frank Act, assist
consumers' understanding of the terms and conditions of their prepaid
accounts, and 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 the account. The Bureau also believes that the long
form disclosure will, in many ways, be similar to what many financial
institutions currently disclose regarding prepaid accounts' fee
structures in their prepaid account agreements, although pursuant to
final Sec. 1005.18(b) the long form disclosure will be provided to
consumers as a stand-alone document before they acquire a prepaid
account (unless the exception in final Sec. 1005.18(b)(1)(ii) or (iii)
applies).\453\
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\453\ See also final Sec. 1005.18(f)(1) regarding requirements
for initial disclosures.
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Disclosure of all fees and conditions and disclosure of features
without a charge. Final Sec. 1005.18(b)(4)(ii) requires disclosure in
the long form of all fees that may be imposed in connection with a
prepaid account, including fees that may be imposed by a third party,
if known by the financial institution. The Bureau is finalizing as
proposed the requirement that the financial institution disclose the
amount of each fee and the conditions, if any, under which the fee may
be imposed, waived, or reduced. The final rule also requires that a
financial institution may not use any symbols, such as an asterisk, to
explain conditions under which any fee may be imposed. The final rule
further states that a financial institution may, but is not required
to, include in the long form disclosure any service or feature it
provides or offers at no charge to the consumer.
As discussed above, some industry commenters urged the Bureau not
to require disclosure of all fees on the long form. The Bureau believes
that this requirement is necessary to help consumers understand, both
prior to and after purchase, the terms and conditions of their prepaid
accounts and ensure that account features are fully, accurately, and
effectively disclosed in a manner that permits consumer understanding
of the costs, benefits, and risks associated with the prepaid account.
Furthermore, because the short form discloses a limited number of fees
and few conditions, this requirement is necessary so that the long form
disclosure can provide the full amount of information unabridged.
As discussed in the section-by-section analysis of Sec. 1005.18(b)
above, the Bureau believes there should be a comprehensive disclosure
to which a consumer can turn prior to purchasing a prepaid account for
straightforward information on all fees and the circumstances under
which they may be imposed. The Bureau is not requiring disclosure in
the long form of additional information related to fees as requested by
some commenters because the Bureau believes disclosing fee amounts and
the conditions under which they may be imposed provides consumers with
the most important information they need to have access to pre-
acquisition. The Bureau has observed that many financial institutions
include details in their account agreements' fee schedules about free
services, and the Bureau encourages financial institutions to continue
to do so. To provide support to the proposed commentary regarding how
to disclose free services and features, the Bureau has added to the
regulatory text a sentence stating that a financial institution may,
but is not required to, include in the long form disclosure any service
or feature it provides or offers at no charge to the consumer.
While the Bureau is generally permitting formatting flexibility on
the long form disclosure, the Bureau also is adopting the prohibition
in the proposed rule against using any symbol, such as an asterisk, to
explain the conditions in the long form disclosure under which any fee
may be imposed. The Bureau continues to believe that it is important
that consumers can easily follow the information in the long form
disclosure and, absent the space constraints of the short form
disclosure, the financial institution is able to explain any
information about fees directly instead of relying on consumers to
notice symbols and then associate them with explanatory text.
Regarding the consumer group's comment that the Bureau's proposed
sample long form disclosure was ambiguous in certain places regarding
fees disclosure, particularly with respect to payroll card account
fees, the Bureau notes that the sample long form is meant to provide an
example to aid financial institutions in complying with the
requirements of final Sec. 1005.18(b)(4). Financial institutions,
including those offering payroll card accounts, should ensure that
their long form disclosures accurately reflect the fees and features of
their prepaid accounts.
Final comment 18(b)(4)(ii)-1 explains that the requirement in final
Sec. 1005.18(b)(4)(ii) that a financial institution disclose in the
long form all fees that may be imposed in connection with a prepaid
account and is not limited to just fees for EFTs or the right to make
transfers. It further explains that the requirement to disclose all
fees in the long form includes any finance charges imposed on the
prepaid account as described in Regulation Z Sec. 1026.4(b)(11)(ii) in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Sec. 1026.61 but does not
include finance charges imposed on the covered separate credit feature
as described in Sec. 1026.4(b)(11)(i). The comment cross-references
comment 18(b)(7)(i)(B)-2 for guidance on disclosure of finance charges
as part of the Sec. 1005.18(b)(4)(ii) fee disclosure in the long form.
The comment also clarifies that a financial institution may also be
required to include finance charges in the Regulation Z disclosures
required pursuant to final Sec. 1005.18(b)(4)(vii).
Final comment 18(b)(4)(ii)-2 elaborates on the disclosure of
conditions in the long form. The comment provides several examples
illustrating how a financial institution would disclose the amount of
each fee and the conditions, if any, under which the fee may be
imposed, waived, or reduced. The comment also clarifies that a
financial institution may, but is not required to, include on the long
form disclosure additional information or limitations related to the
service or feature for which a fee is charged, such as, for cash
reloads, any limit on the amount of cash a consumer may load into the
prepaid account in a single transaction or during a particular time
period. Finally, the comment clarifies that the general requirement in
final Sec. 1005.18(b)(4)(ii) does not apply to individual fee waivers
or reductions granted to a particular consumer or group of consumers on
a discretionary or case-by-case basis.
Final comment 18(b)(4)(ii)-3 addresses disclosure of a service or
feature without a charge. It reiterates the provision in the rule that
a financial institution may, but is not required to, list in the long
form disclosure any service or feature it provides or offers at no
charge to the consumer. For example, a financial institution may list
``online bill pay'' in its long form disclosure and indicate a fee
amount of ``$0'' when the financial institution does not charge
[[Page 84069]]
consumers a fee for that feature. The Bureau agrees that such services
should be disclosed as $0, rather than ``free,'' as requested by one
industry commenter, because having a single standardized approach is
shorter, simpler, and clearer for consumers to use to compare fees
across prepaid accounts.
Comment 18(b)(4)(ii)-3 further explains, however, that where a fee
is waived or reduced under certain circumstances or where a service or
feature is available for an introductory period without a fee, the
financial institution may not list the fee amount as ``$0'' or
``free.'' Rather, the financial institution must list the highest fee,
accompanied by an explanation of the waived or reduced fee amount and
any conditions for the waiver or discount. The comment also provides
several examples.
As discussed in more detail in the section-by-section analysis of
Sec. 1005.18(b) above, the Bureau does not believe that financial
institutions change the fee schedules for prepaid accounts often,
particularly for those sold at retail locations, and changes may
require pulling and replacing or providing appropriate change-in-terms
notices.
If a financial institution is making available a new optional
service for all prepaid accounts in a particular prepaid account
program, a financial institution may provide new customers disclosures
in accordance with Sec. 1005.7(c) post-acquisition, without needing to
pull and replace card packaging that does not reflect that new optional
feature in any disclosure contained inside the package in accordance
with Sec. Sec. 1005.7 and 1005.18(b)(1)(ii)(C), (b)(4)(ii), and
(f)(1). The Bureau intends to monitor financial institutions' practices
in this area, however, and may consider additional requirements in a
future rulemaking if necessary.
Disclosure of third-party fees. With regard to disclosure of third-
party fees in the long form, the Bureau is finalizing the general
proposed requirement that financial institutions disclose in the long
form any third-party fee amounts known to the financial institution
that may apply, but making changes regarding the wording and updating
of the disclosure to address commenter concerns.
Specifically, the final rule provides that for any such third-party
fee disclosed, the financial institution may, but is not required to,
include a statement that the fee is accurate as of or through a
specific date, a statement that the third-party fee is subject to
change, or both statements. As in the proposal, if a third-party fee
may apply but the amount of that fee is not known by the financial
institution, the final rule requires that the long form disclosure
include a statement indicating that the third-party fee may apply
without specifying the fee amount.
The Bureau moved language clarifying disclosure of fees by a party
acting on behalf of the financial institution from the proposed
regulatory text to the commentary in the final rule. Specifically,
comment 18(b)(4)(ii)-4 clarifies that fees imposed by another party,
such as a program manager, for services performed on behalf of the
financial institution are not third-party fees and therefore must be
disclosed on the long form pursuant to final Sec. 1005.18(b)(4)(ii).
The final rule also provides that a financial institution is not
required to revise the long form disclosure required by Sec.
1005.18(b)(4) to reflect a fee change by a third party until such time
that the financial institution manufactures, prints, or otherwise
produces new prepaid account packaging materials or otherwise updates
the long form disclosure. Thus, whether for a prepaid account program
with packaging material or for one with only online or oral
disclosures, the financial institution must update the long form to
disclose a third-party fee change when it otherwise updates its long
form disclosure. Final comment 18(b)(4)(ii)-4 provides an example
illustrating a disclosure on the long form of a third-party fee when
that fee is known to a financial institution and an example of when it
is not.
As discussed in the section-by-section analysis of Sec.
1005.18(b)(3) above, the comprehensive design of the long form
disclosure is better suited to inform consumers about the details of
fee variations and third-party fees than the short form disclosure for
which, due to its abridged nature, the final rule disallows disclosure
of most third-party fees. Indeed, the Bureau believes that the
comprehensiveness of the long form disclosure would be compromised by
the exclusion of third-party fees, which would result in consumers not
being made aware of all fees they could incur in connection with the
prepaid account. The Bureau believes the final rule strikes an
appropriate balance by requiring disclosure in the long form of third-
party fees but providing, among other things, a safe harbor regarding
reprinting or otherwise updating the long form disclosure when a third-
party fee changes and a general statement for situations in which a
financial institution does not know the amount of the third-party fee.
Disclosing the date as of or through which a third-party fee is
accurate, the fact that the third-party fee is subject to change, or
both provides flexibility to alert consumers to the limitations of the
financial institution's knowledge about third-party fees. The Bureau
also believes that it reduces the need to require instantaneous updates
as third-party fees shift. Regarding the safe harbor for reprinting due
to third-party fee changes, the Bureau believes it is appropriate to
require updates of these third-party fees when the financial
institution prints new packaging materials or, if there are no
packaging materials, when the financial institution otherwise updates
the long form disclosure.
18(b)(4)(iii) Statement Regarding Registration and FDIC or NCUA
Insurance
Proposed Sec. 1005.18(b)(2)(ii)(D) would have required that the
long form also include the disclosure required in the short form under
proposed Sec. 1005.18(b)(2)(i)(B)(13) regarding FDIC (or NCUSIF) pass-
through deposit (or share) insurance, when appropriate.
The Bureau received one comment regarding the disclosure of FDIC or
NCUSIF insurance in the long form. A consumer group recommended that,
in addition to requiring disclosure of the statement regarding
insurance eligibility required in the short form (see final Sec.
1005.18(b)(2)(xi)), the Bureau require disclosure of additional
information about the benefit of the insurance or the consequence of
the lack of such coverage in a separate box for important notices. The
consumer group also recommended specific language for such a notice.
As noted above, one consumer group also requested that the Bureau
consider adding additional information to the registration and
insurance disclosure in the short form, such as an explanation of what
protections in addition to insurance eligibility registration provides
or more fulsome information about the implications of insurance
coverage. As discussed in connection with Sec. 1005.18(b)(2)(xi), the
Bureau is declining to add any more information to the registration/
insurance disclosure in the short form disclosure, but has concluded
that it would be useful to require financial institutions to provide
more detailed information about insurance coverage in the long form
disclosure. See final Sec. 1005.18(b)(4)(iii).
Thus, for the reasons set forth herein, the Bureau is finalizing
proposed Sec. 1005.18(b)(2)(ii)(D), renumbered as Sec.
1005.18(b)(4)(iii), with substantial modifications. Specifically, the
Bureau
[[Page 84070]]
is requiring a more fulsome disclosure regarding insurance, as well as
the statement directing the consumer to register the account, where
applicable. The Bureau has made other technical modifications to the
rule for conformity and clarity.
Unlike the proposal, final Sec. 1005.18(b)(2)(xi) requires that
financial institutions disclose a statement regarding eligibility for
FDIC deposit insurance or NCUA share insurance, as appropriate, rather
than just a statement in situations where the prepaid account was not
eligible for insurance. Final Sec. 1005.18(b)(2)(xi) also requires
that the statement direct the consumer to register the prepaid account
for insurance and other account protections, where applicable, which
had been a separate provision in the proposal. In addition, final Sec.
1005.18(b)(4)(iii) requires an explanation of FDIC or NCUA insurance
coverage and the benefit of such coverage or the consequence of the
lack of such coverage, as applicable. New comment 18(b)(4)(iii)-1
provides examples illustrating how this disclosure might be made for
FDIC and NCUA insurance in certain circumstances, and cross-references
final comment 18(b)(2)(xi)-1 for guidance as to when NCUA insurance
coverage should be disclosed instead of FDIC insurance coverage.
As discussed in the section-by-section analysis of Sec.
1005.18(b)(2)(xi), the Bureau is persuaded by commenters, the results
of its post-proposal consumer testing, and information received during
the interagency consultation process that the registration and
insurance disclosures should be combined, and that both the existence
as well as the lack of insurance eligibility should be disclosed. The
Bureau also believes that mirroring the Sec. 1005.18(b)(2)(xi)
disclosure in the long form will assist consumers in comparison
shopping and reinforce the need to register prepaid accounts, where
applicable.
As discussed above, while the Bureau's post-proposal consumer
testing confirmed that some consumers erroneously equate FDIC coverage
with fraud or theft protection, a number of participants understood
that the insurance protects consumers' funds in the case of bank
insolvency.\454\ Absent the space limitations of the short form
disclosure, the Bureau believes the long form disclosure provides an
optimal opportunity to briefly, but more fully, explain the
implications of insurance coverage or lack thereof. The Bureau does not
believe it necessary to prescribe the exact content of this disclosure
because circumstances may vary for a particular prepaid account
program; thus, the final rule requires only that the long form include
(in addition to the statement required in the short form pursuant to
final Sec. 1005.18(b)(2)(xi)) an explanation of FDIC or NCUA insurance
coverage and the benefit of such coverage or the consequence of the
lack of such coverage, as applicable.
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\454\ See ICF Report II at 15 and 26. In the first round of
post-proposal testing, two out of nine participants understood that
FDIC insurance is meant to protect their money in case of a bank
failure; in the second round, approximately half of the 11
participants understood this.
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As noted above in the section-by-section analysis of Sec.
1005.18(b)(2)(xi), the final rule refers to NCUA, rather than NCUSIF,
insurance for credit unions. After further consideration and based on
information received during the interagency consultation process, the
Bureau believes the term ``NCUA'' may be more meaningful to consumers
than ``NCUSIF'' and has revised the disclosures accordingly in both
final Sec. 1005.18(b)(2)(xi) and (4)(iii).
18(b)(4)(iv) Statement Regarding Overdraft Credit Features
Under the proposed rule, fees relating to overdraft and certain
other credit features would have been subject to the general
requirement in proposed Sec. 1005.18(b)(2)(ii)(A) to disclose all fees
and the condition under which they may be imposed, as well as the
requirement in proposed Sec. 1005.18(b)(2)(ii)(B) to provide certain
Regulation Z disclosures if, at any point, a covered credit plan might
have been offered in connection with the prepaid account. The proposed
rule would not have required a basic statement in the long form
regarding whether an overdraft or credit feature could be provided at
all in connection with the prepaid account, parallel to the proposed
statement in the short form.
Several consumer groups recommended that the long form, as the more
comprehensive disclosure, should indicate whether the financial
institution offers overdraft or other credit features in connection
with that prepaid account program. The Bureau agrees that the long form
disclosure, like the short form disclosure, should include an explicit
statement as to whether or not the prepaid account offers any overdraft
or credit feature because this is key information for consumers to
consider in making their purchase and use decisions regarding prepaid
accounts. See the section-by-section analysis of Sec. 1005.18(b)(2)(x)
above for further discussion of this disclosure requirement generally.
While a financial institution offering a prepaid account program with
an overdraft credit feature must disclose in the long form any fees
that are imposed in connection with the prepaid account pursuant to
final Sec. 1005.18(b)(4)(ii), the Bureau believes a more explicit
statement regarding the existence or lack of such a feature is also
appropriate, as the availability of such a feature may not be obvious
depending on the nature of the fees imposed in connection with the
overdraft credit feature and where they are imposed (i.e., on the
prepaid account or on the covered separate credit feature). Moreover,
inclusion of this statement makes the short form and long form
disclosures parallel with regard to the disclosure of the existence of
such a feature and, if one may be offered, the duration of the waiting
period, and that fees would apply.
For these reasons, the Bureau is adopting the final rule with the
additional requirement in new Sec. 1005.18(b)(4)(iv) to disclose in
the long form the same statement regarding overdraft credit features
required in the short form pursuant to final Sec. 1005.18(b)(2)(x).
18(b)(4)(v) Statement Regarding Financial Institution Contact
Information
Proposed Sec. 1005.18(b)(2)(ii)(C) would have required disclosure
of the telephone number, mailing address, and Web site of the person or
office that a consumer may 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 periodic statements pursuant to existing Sec. 1005.9(b),
or to notify the person or office when a consumer believes that an
unauthorized EFT has occurred as required by existing Sec.
1005.7(b)(2) and proposed Sec. 1005.18(d)(1)(ii).
Having received no comments on this portion of the proposal, and
for the reasons set forth herein, the Bureau is adopting proposed Sec.
1005.18(b)(2)(ii)(C), renumbered as Sec. 1005.18(b)(4)(v), with
technical modifications for conformity and clarity. The Bureau believes
that it is axiomatic for the comprehensive long form disclosure to
include the contact information for the financial institution or its
service provider through which consumers may obtain information about
their prepaid accounts and provide notice of unauthorized transfers.
[[Page 84071]]
18(b)(4)(vi) Statement Regarding CFPB Web Site and Telephone Number
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(ii)(D) would have required disclosure
of the URL of the Web site of the Consumer Financial Protection Bureau,
and a telephone number a consumer can contact and the URL a consumer
can visit to submit a complaint about a prepaid account. As discussed
in the proposal and the section-by-section analysis of Sec.
1005.18(b)(2)(xii) above, 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 prepaid account disclosures. The Bureau also
believed that consumers would benefit from seeing on the long form
disclosure the Consumer Financial Protection Bureau's Web site and
telephone number that they can use to submit a complaint about a
prepaid account.
Comments Received
As discussed in the section-by-section analysis of Sec.
1005.18(b)(2)(xii) above, a group advocating on behalf of business
interests opposed disclosing contact information for the Bureau in both
the short form and long form disclosures. The commenter suggested that
disclosure in the long form of a Bureau Web site URL and telephone
number through which consumers could submit complaints about prepaid
cards would undermine the relationship between financial institutions
and their customers. The commenter said consumers should be encouraged
to raise issues about their prepaid cards directly with the financial
institution rather than directing those issues to the Bureau. An
issuing bank similarly opposed the proposed requirement to include in
the long form contact information through which consumers could submit
complaints about their prepaid accounts, saying that the statement
casts prepaid cards in a negative light. The commenter instead
supported disclosure of a neutral statement referring consumers to the
Bureau for more information about prepaid products.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(ii)(D), renumbered as Sec. 1005.18(b)(4)(vi), with
certain modifications. Specifically, for clarity, the Bureau has added
to the regulatory text the specific language for this statement. In
addition, the Bureau made technical modifications to the rule for
conformity and clarity.
Final Sec. 1005.18(b)(4)(vi) requires inclusion in the long form
of a statement directing the consumer to a Web site URL of the Bureau
(cfpb.gov/prepaid) for general information about prepaid accounts, and
a statement directing the consumer to the Bureau telephone number (1-
855-411-2372) and Web site URL (cfpb.gov/complaint) to submit a
complaint about a prepaid account, using the following clause or a
substantially similar clause: ``For general information about prepaid
accounts, visit cfpb.gov/prepaid. If you have a complaint about a
prepaid account, call the Consumer Financial Protection Bureau at 1-
855-411-2372 or visit cfpb.gov/complaint.'' In the final rule, the
Bureau has added the word ``general'' to the statement that the Bureau
Web site provides ``general information'' about prepaid accounts for
parity with final Sec. 1005.18(b)(2)(xii).
The Bureau is not persuaded by industry commenters that it should
not include these disclosure requirements in the final rule. In the
same vein, regarding the long form disclosure of the telephone number
and Web site URL for submitting a complaint, the Bureau believes it
both logical and crucial to inform consumers of an available resource
that can help them connect with financial institutions so their
complaints about prepaid accounts can be heard and addressed. Indeed,
the Bureau included a similar requirement in the Remittance Rule;
there, remittance transfer providers must disclose the Bureau's contact
information on the receipt provided in conjunction with a remittance
transfer.\455\ In the preamble to the final Remittance Rule, the Bureau
explained that such a disclosure requirement was necessary to ensure
consumer complaints about remittance transfer providers were
centralized in one place.\456\
---------------------------------------------------------------------------
\455\ Sec. 1005.31(b)(2)(vi).
\456\ 77 FR 6194, 6229 (Feb. 7, 2012).
---------------------------------------------------------------------------
18(b)(4)(vii) Regulation Z Disclosures for Overdraft Credit Features
The Bureau's Proposal
Proposed Sec. 1005.18(b)(2)(ii)(B) would have required the
financial institution to include in the long form the disclosures
described in Regulation Z Sec. 1026.60(a), (b), and (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. Regulation Z Sec. 1026.60 sets forth disclosure
requirements for credit and charge card application and solicitations
commonly referred to as ``Schumer Box'' disclosures. Section 1026.60(b)
lists the required disclosure elements, Sec. 1026.60(a) contains
general rules for such disclosures, and Sec. 1026.60(c) contains
specific requirements for direct mail and electronic applications and
solicitations. Proposed Sec. 1005.18(b)(2)(ii)(B) would have explained
that a credit plan that would be a credit card account under proposed
Regulation Z Sec. 1026.2(a)(15) could be structured either as a credit
plan that could be accessed through the same device that accesses the
prepaid account, or through an account number where extensions of
credit are permitted to be deposited directly only into particular
prepaid accounts specified by the creditor offering the plan.
The Bureau recognized that Regulation Z does not require these
disclosures to be provided until a consumer is actually solicited for a
credit plan. The Bureau, however, believed it would be 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 would
have been required to be disclosed in the short form 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 in the proposal, the Bureau believed it would be
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 30 days after registering a particular prepaid account
pursuant to proposed Sec. 1005.18(g) and proposed Regulation Z Sec.
1026.12(h).
Proposed comment 18(b)(2)(ii)(B)-1 would have clarified that the
disclosures described in Regulation Z Sec. 1026.60(a), (b), and (c)
must appear in the form required under Sec. 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 recognized 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 believed, 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.
[[Page 84072]]
Comments Received
An issuing bank opposed the proposed requirement to include the
above-cited Regulation Z disclosures along with the long form
disclosure, arguing that providing this level of detail regarding a
potential overdraft or credit feature of a prepaid account is not
logical at the pre-acquisition stage. It cautioned the information
disclosed will likely be outdated by the time a consumer seeks or is
offered such credit, and suggested that consumers may become confused
or angry if the actual credit terms offered differ from those disclosed
in the long form, which it said is likely considering the mandatory 30-
day waiting period before solicitation and infrequency with which the
proposed rule would have required updating disclosures in a retail
location. It stated that this would result in stale Regulation Z
disclosures, including the APR, that could be more than a year old at
the time a consumer would actually apply for credit. The commenter
suggested that the disclosures would confuse consumers who, upon seeing
them in the long form disclosure, will likely assume credit is being or
will be offered to them. The commenter also expressed concern that
consumers seeking credit who do not ultimately qualify for it may be
confused or angered and suspect the financial institution has engaged
in discrimination or false advertising. Finally, the commenter
expressed concern that consumers who do obtain credit may be confused
by being provided with the Regulation Z disclosures again at the time
of solicitation and, perhaps, with changed terms. In sum, the commenter
recommended that the Bureau remove this long form requirement as likely
to provide little consumer benefit but rather lead to significant
consumer misunderstanding.
A consumer group commenter supported disclosure of the Regulation Z
and E information on the same page, if possible.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(2)(ii)(B), renumbered as Sec. 1005.18(b)(4)(vii),
with certain modifications. The Bureau is also finalizing proposed
comment 18(b)(2)(ii)(B)-1, renumbered as 18(b)(4)(vii)-1, with certain
revisions and is adding new comment 18(b)(4)(vii)-2, as discussed
below.
Specifically, final Sec. 1005.18(b)(4)(vii) requires that, as part
of the long form disclosure, the disclosures required by Regulation Z
Sec. 1026.60(e)(1) must be given, in accordance with the requirements
for such disclosures in Sec. 1026.60, if a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in Sec.
1026.61, may be offered to a consumer in connection with the prepaid
account. Under the proposal, a financial institution would have been
required to include the Regulation Z disclosures pursuant to Sec.
1026.60(a), (b), and (c). While the content required for disclosures
given under Regulation Z Sec. 1026.60(b) and (e)(1) are largely the
same, the disclosures pursuant to Sec. 1026.60(e)(1) are tailored for
credit card applications and solicitations made available to the
general public--commonly referred to as ``take one'' disclosures--which
the Bureau believes to be more apt for inclusion in the long form.
As discussed in the proposal and in the section-by-section analysis
of Sec. 1005.18(b)(2)(x) above, the Bureau believes it is important
for consumers to be informed of the key costs and terms of an overdraft
credit feature in order to be able to make informed purchase and use
decisions with regard to both prepaid accounts and associated overdraft
credit features--even though they may not be eligible for the feature
until after a waiting period or at all. In response to the comment
suggesting that such information may become stale and cause consumer
confusion or worse, the Bureau notes that Regulation Z Sec.
1026.60(e)(1) permits inclusion in a prominent location in the
disclosure of the date the required information was printed, including
a statement that the required information was accurate as of that date
and is subject to change after that date, as well as a statement and
contact information regarding any change in the required information
since it was printed. The Bureau has also added an additional provision
to Sec. 1005.18(b)(4)(vii), discussed below, limiting the requirement
to update these disclosures. For an overview of the Bureau's overall
approach to regulating overdraft credit features offered in conjunction
with prepaid accounts, see the Overview of the Final Rule's Amendments
to Regulation Z section below.
Final Sec. 1005.18(b)(4)(vii) also provides that a financial
institution may, but is not required to, include above the Regulation Z
disclosures required by Sec. 1005.18(b)(4)(vii), a heading or other
explanatory information introducing the overdraft credit feature. Given
the organization of the long form disclosure and the placement of the
Regulation Z disclosures at the end, the Bureau believes it is
appropriate to provide financial institutions this option in case they
deem it necessary or appropriate to include brief additional text to
orient or explain to consumers to the ensuing disclosures.
Finally, the final rule provides that a financial institution is
not required to revise the disclosures required by final Sec.
1005.18(b)(4)(vii) to reflect a change in the fees or other terms
disclosed therein until such time as the financial institution
manufactures, prints, or otherwise produces new prepaid account
packaging materials or otherwise updates the long form disclosure. In
conjunction with the final rule's incorporation of the Regulation Z
Sec. 1026.60(e)(1) disclosures, the Bureau believes it would be
inefficient to require financial institutions to update their long form
disclosures (and their initial disclosures, pursuant to final Sec.
1005.18(f)(2)), each time a change is made to the fees and terms
required to be included in the credit portion of that disclosure. The
Bureau has thus added this exception, which mirrors the exception for
third-party fees in final Sec. 1005.18(b)(4)(ii) discussed above.
Final comment 18(b)(4)(vii)-1 provides guidance on where these
disclosures must be located in the long form. Specifically, it states
that if the financial institution includes the disclosures described in
Regulation Z Sec. 1026.60(e)(1), pursuant to final Sec.
1005.18(b)(7)(i)(B), such disclosures must appear below the disclosures
required by final Sec. 1005.18(b)(4)(vi). If the disclosures provided
pursuant to Regulation Z Sec. 1026.60(e)(1) are provided in writing,
these disclosures must appear in the form required by Sec.
1026.60(a)(2), and to the extent possible, on the same page as the
other disclosures required by final Sec. 1005.18(b)(4). The Bureau
continues to believe that consumers could more easily review these
Regulation Z disclosures if they are on the same page as the rest of
the long form information, although the Bureau understands that this
may not be possible depending on the length of the prepaid account
program's long form.
Final comment 18(b)(4)(vii)-2 explains that the updating exception
in Sec. 1005.18(b)(4)(vii) does not extend to any finance charges
imposed on the prepaid account as described in final Regulation Z Sec.
1026.4(b)(11)(ii), in connection with a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in final Sec.
1026.61 that are required to be disclosed on the long form pursuant to
final Sec. 1005.18(b)(4)(ii). This comment
[[Page 84073]]
also cross-references final comment 18(b)(4)(ii)-1.
18(b)(5) Disclosure Requirements Outside the Short Form Disclosure
The proposed rule did not include a prepaid account's purchase
price or activation fee in the static portion of the short form
disclosure. However, proposed comment 18(b)(2)(i)(B)(8)(I)-2 would have
explained, among other things, that the price for purchasing or
activating a prepaid account could be disclosed as an incidence-based
fee for purposes of proposed Sec. 1005.18(b)(2)(i)(B)(8)(I). (To
qualify as an incidence-based fee under the proposal, the purchase
price or activation fee would have had to be one of up to three fees,
other than those disclosed as a static fee in the short form 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.)
An industry trade association recommended against requiring
disclosure of the purchase price in the short form because, it said,
consumers already are sufficiently alerted to its display on the
packaging of the prepaid account or by the retailer. An issuing bank,
on the other hand, recommended disclosure of the purchase price in the
short form because, it said, consumers lack clarity on this fee in
certain situations, such as when confronted with hundreds of prepaid
cards in some retail settings. Several industry commenters, including
an issuing bank, a program manager, and a trade association,
recommended requiring disclosure of the activation fee instead of the
purchase price. Several industry commenters recommended against
requiring disclosure of the activation fee in the short form as an
incidence-based fee because, they said, it is not a common fee and
would be disclosed in the terms and conditions for the prepaid account.
They suggested the activation fee be added as a static fee to the short
form, perhaps in lieu of one of the incidence-based fees, if the
Bureau's research indicated the fee was common enough. Otherwise, they
recommended it be disclosed only in the long form.
A consumer group agreed that the purchase price should not be
disclosed in the short form as a static fee because it would take up
scarce space when there is no fee (such as for online purchases of
prepaid accounts), the purchase price can be conspicuously disclosed on
other parts of the packaging, consumers already take notice of the
price they have to pay for a prepaid card, and it is a one-time fee
such that disclosing it within the short form would overemphasize it
and mislead consumers to compare it with recurring fees. It also said
that, for prepaid account programs where consumers frequently buy new
prepaid cards, the purchase price may appear in any case as an
incidence-based fee. Conversely, a consumer group urged requiring
disclosure of the purchase price and any activation fee; another
consumer group specifically recommended disclosure of the purchase
price as a static fee or, alternatively, as a potential incidence-based
fee. In support of its recommendation, this latter commenter said its
research indicated that nearly half of regular GPR users purchase new
cards after exhausting their funds on their current card. Moreover, it
said, being charged a purchase fee at the point of purchase does not
mean the consumer understands that fee is reducing the amount of funds
being loaded onto the card at purchase. It also warned that consumers
could confuse the ``purchase fee'' with the ``per purchase fee.''
Individual consumers who submitted comments as part of a comment
submission campaign organized by a national consumer advocacy group
recommended that the short form disclosure include the purchase price.
With regard to branding, one industry commenter urged the Bureau to
clarify that identification within the short form of the name of the
prepaid issuer and the name of the prepaid account program would not
violate the requirements of the rule.
For the reasons set forth below, the Bureau is adopting new Sec.
1005.18(b)(5) and comments 18(b)(5)-1 and -2 to address issues of the
disclosure of the purchase price and activation fee as well as
identification of the financial institution and the prepaid account
program. The final rule requires that, at the time a financial
institution provides the short form, it must also disclose the
following information: the name of the financial institution; the name
of the prepaid account program; the purchase price for the prepaid
account, if any; and the fee for activating the prepaid account, if
any. Pursuant to final Sec. 1005.18(b)(7)(iii), short form disclosures
must contain only information required or permitted under final Sec.
1005.18(b)(2). Thus, the information required by Sec. 1005.18(b)(5)
must appear outside of the confines of the short form disclosure.
New Sec. 1005.18(b)(5) sets forth the required location for the
above-referenced disclosures. In a setting other than a retail
location, this information must be disclosed in close proximity to the
short form. In a retail location, this information, other than the
purchase price, must be disclosed on the exterior of the access
device's packaging material. In a retail location, the purchase price
must be disclosed either on the exterior of or in close proximity to
the prepaid account access device's packaging materials. As described
in more detail below, new comment 18(b)(5)-1 clarifies the content of
the disclosure and comment 18(b)(5)-2 clarifies its location, including
the meaning of ``close proximity.''
The Bureau agrees that, because the purchase price invariably is
disclosed on the packaging or otherwise at the point of purchase prior
to acquisition of a prepaid account, it is unnecessary to use the
limited space in the short form to disclose this one-time fee as a
static fee. The Bureau likewise agrees that it is unnecessary to use
the limited space in the short form to disclose the activation fee as a
static fee, as it is not a common fee and if charged is only incurred
once. The Bureau also believes that including these fees as potential
additional fee types in the disclosure under final Sec.
1005.18(b)(2)(ix) is neither an optimal way to alert consumers to the
cost of purchasing or activating a prepaid account nor a good use of
the additional fee type disclosure. Because the Bureau believes it is
important for consumers to be aware of this fee prior to purchase in
all situations, it is requiring that the purchase price and activation
fee be disclosed, but outside the short form disclosure.
To ensure that consumers see the purchase price, it must be
disclosed in close proximity to the short form--except that in a retail
location the financial institution has the option to disclose the
purchase price on the exterior of the packaging for the prepaid account
access device (other than in the short form) or in close proximity to
the display of packaging. The Bureau understands that at present, the
purchase price for prepaid accounts sold at retail is disclosed either
on the exterior of the prepaid account access device's packaging or
displayed near the packaging by the retailer. In an effort not to
disturb this system, the Bureau is permitting disclosure of the
purchase price in a retail location either on the exterior of or in
close proximity to the prepaid account access device's packaging
material. The Bureau believes that either location would provide
consumers with ample opportunity to be alerted to a prepaid account's
purchase price.
[[Page 84074]]
While the activation fee is not a common fee, unless it is plainly
disclosed prior to acquisition when it does exist, the Bureau is
concerned that it likely would not be noticed by many consumers before
they acquire the prepaid account. The Bureau has observed that, similar
to purchase price, financial institutions that charge activation fees
for prepaid accounts sold at retail often conspicuously disclose the
activation fee on the front of the packaging. The Bureau believes that
it is important that consumers be informed if a prepaid account they
are considering charges an activation fee. The Bureau also believes
that, considering that activation fees are uncommon, incurred once, and
that in the current marketplace the Bureau has observed such fees
disclosed on the front of the packaging in a retail setting, it is
appropriate to require the disclosure outside the confines of the short
form but in close proximity to it--and, in retail locations, on the
exterior of the access device's packaging material. The Bureau believes
this requirement will more clearly apprise consumers of when the
activation fee is charged and the amount of the fee.
Regarding the general issue of branding, branding information is
not permitted to be included within the short form. However, the Bureau
recognizes the importance to both industry and consumers of connecting
the short form disclosure with the prepaid account's commercial
identity. The Bureau understands that it is common industry practice
for financial institutions offering prepaid accounts at retail to
include this information on the exterior of their packaging. The Bureau
believes it is important for this information to be readily available
for all prepaid programs, not just those sold at retail. For this
reason, the Bureau is requiring, pursuant to new Sec. 1005.18(b)(5),
that the name of the financial institution and the name of the prepaid
program be disclosed outside the short form but in close proximity to
it or, in retail locations, on the exterior of the prepaid account
access device's packaging material.
New comment 18(b)(5)-1 clarifies that, in addition to the
disclosures required by final Sec. 1005.18(b)(5), a financial
institution may, but is not required to, also disclose the name of the
program manager or other service provider involved in the prepaid
account program.
New comment 18(b)(5)-2 provides additional guidance regarding the
location requirement of the rule and the meaning of ``close
proximity.'' The comment explains that, for example, if a financial
institution provides the short form online, the information required by
final Sec. 1005.18(b)(5) is deemed disclosed in close proximity to the
short form disclosure if it appears on the same Web page as the short
form disclosure. If the financial institution offers the prepaid
account in its own branch locations and provides the short form
disclosure on the exterior of its preprinted packaging materials, the
information required by final Sec. 1005.18(b)(5) is deemed disclosed
in close proximity to the short form disclosure if the information
appears on the exterior of the packaging. If the financial institution
provides written short form disclosures in a manner other than on
preprinted packaging materials, such as on paper, the information
required by final Sec. 1005.18(b)(5) is deemed disclosed in close
proximity to the short form if it appears on the same piece of paper as
the short form disclosure. If the financial institution provides the
short form disclosure orally, the information required by final Sec.
1005.18(b)(5) is deemed disclosed in close proximity to the short form
disclosure if it is provided immediately before or after disclosing the
fees and information required pursuant to final Sec. 1005.18(b)(2).
Comment 18(b)(5)-2 also explains that, for prepaid accounts sold in
a retail location pursuant to the retail location exception in final
Sec. 1005.18(b)(1)(ii), final Sec. 1005.18(b)(5) requires the
information other than purchase price be disclosed on the exterior of
the access device's packaging material. If the purchase price, if any,
is not also disclosed on the exterior of the packaging, disclosure of
the purchase price on or near the sales rack or display for the
packaging materials is deemed disclosed in close proximity to the short
form disclosure.
18(b)(6) Form of Pre-Acquisition Disclosures
Proposed Sec. 1005.18(b)(3) would have set forth the requirements
for how the short form and long form disclosures must be presented.
Specifically, proposed Sec. 1005.18(b)(3)(i) would have set forth
general requirements for written, electronic, and oral disclosures.
Proposed Sec. 1005.18(b)(3)(ii) would have provided requirements
regarding whether these disclosures must be made in a retainable form.
Proposed Sec. 1005.18(b)(3)(iii) would have set forth parameters for
the tabular form in which the disclosures must be presented, including
specific requirements for short forms presenting fee disclosures for
multiple service plans. The Bureau has renumbered these provisions,
each discussed in detail below, under Sec. 1005.18(b)(6) in the final
rule.
18(b)(6)(i) General
18(b)(6)(i)(A) Written Disclosures
Proposed Sec. 1005.18(b)(3)(i)(A) would have required that the
short form and long form disclosures be provided in writing, except as
provided in proposed Sec. 1005.18(b)(3)(iii)(B) and (C) for electronic
and oral disclosures. The Bureau believed consumers could best review
the terms of a prepaid account before acquisition when seeing these
disclosures in written form.
The Bureau did not receive any comments specific to this proposed
general requirement to provide the short form and long form disclosure
in writing, and therefore, is adopting proposed Sec.
1005.18(b)(3)(i)(A), renumbered as Sec. 1005.18(b)(6)(i)(A), with
minor modifications for clarity. The final rule states that, except as
provided in final Sec. 1005.18(b)(6)(i)(B) and (C), the disclosures
required by final Sec. 1005.18(b) must be in writing.
18(b)(6)(i)(B) Electronic Disclosures
The Bureau's Proposal
Currently, Sec. 1005.4(a)(1) permits disclosures required by
Regulation E to be provided in electronic form, subject to compliance
with consumer consent and other applicable provisions of the E-Sign
Act. 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 if
certain delivery format requirements are met. Before receiving such
consent, the E-Sign Act requires financial institutions to make clear
to a consumer that the consumer has 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 the consumer's
relationship with the financial institution, and to inform a consumer
of how the consumer could withdraw consent and update information
needed to contact the consumer electronically, among other
requirements. The E-Sign Act also requires financial institutions to
retain records of any disclosures that have been provided to a consumer
electronically so that the consumer can access them later.
When the Bureau issued regulations on remittance transfers in
subpart B of Regulation E, the Bureau altered the general requirement
to provide disclosures in writing, such that
[[Page 84075]]
pursuant to Sec. 1005.31(a)(2) remittance transfer providers may
provide pre-payment disclosures electronically when remittance
transfers are requested electronically. Comment 31(a)(2)-1 explains
that in such circumstances, the pre-payment disclosures may be provided
without regard to the consumer consent and other applicable provisions
of the E-Sign Act.
The Bureau similarly proposed to modify Regulation E's default
requirements for pre-acquisition disclosures for prepaid accounts.
Specifically, proposed Sec. 1005.18(b)(3)(iii)(B) would have required
a financial institution to provide the short form and long form
disclosures 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. Although the Bureau
believed that consumers can best review the terms of a prepaid account
before acquiring it when seeing the terms in written form, it
recognized that in certain situations, it is not practicable to provide
written disclosures. For example, when a consumer acquires a prepaid
account via the internet, the Bureau believed that a financial
institution could not easily provide written (non-electronic)
disclosures to a consumer pre-acquisition.
Proposed Sec. 1005.18(b)(3)(i)(B) also would have stated that
short form and long form disclosures required by proposed Sec.
1005.18(b)(2)(i) and (ii) must 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 have provided that these electronic
disclosures need not meet the consumer consent and other applicable
provisions of the E-Sign Act. Last, proposed Sec. 1005.18(b)(3)(i)(B)
would have required that disclosures provided to a consumer through a
Web site where required by proposed Sec. 1005.18(b)(1)(ii)(C) and as
described in proposed Sec. 1005.18 (b)(2)(i)(B)(11) must be made in an
electronic form using a machine-readable text format that is accessible
via both web browsers and screen readers.
Similar to pre-payment disclosures for remittance transfers, the
Bureau believed that altering the general Regulation E requirement for
electronic disclosures in Sec. 1005.4(a)(1) was necessary to ensure
that consumers receive relevant information at the appropriate time.
The Bureau believed that during the pre-acquisition time period for
prepaid accounts, it was important for consumers who decide to go
online to acquire prepaid accounts to see the relevant disclosures for
that prepaid account product in electronic form. The Bureau also said
it 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 prepaid accounts'
Web sites, consumers cannot make an informed acquisition decision.
Accordingly, the Bureau believed that, for acquisition of prepaid
products via the internet or mobile applications, it would be more
appropriate to require financial institutions to provide pre-
acquisition disclosures electronically.
As discussed above, Sec. 1005.4(a)(1) requires that financial
institutions comply with the E-Sign Act when providing disclosures
electronically. The Bureau did not propose to require such compliance
for prepaid accounts that are acquired through the internet or mobile
applications. Proposed Sec. 1005.18(b)(3)(i)(B) only would have
required that electronic short form and long form disclosures for
prepaid accounts acquired through the internet be provided
electronically in a manner which is reasonably expected to be
accessible in light of how a consumer acquired the prepaid account. The
Bureau believed that if a consumer has acquired a prepaid account
through a Web site, it is reasonable to expect that the consumer would
be able to view electronic disclosures on a Web site, and no E-Sign
consent would be necessary. The Bureau also noted in the proposal that
the requirement in proposed Sec. 1005.18(b)(3)(i)(B) would apply only
to the pre-acquisition disclosure of the short form and long form
disclosures for prepaid accounts acquired over the internet or via
mobile applications. It would not have altered the application of Sec.
1005.4(a)(1) to prepaid accounts after acquisition nor to any other
type of account.
The Bureau also proposed comment 18(b)(3)(i)(B)-1, which would have
explained how to disclose the short form and long form electronically.
Specifically, the proposed comment would have explained that a
financial institution may, at its option, provide the short form and
long form disclosures on the same Web page or on two different Web
pages as long as the disclosures were provided in accordance with the
pre-acquisition disclosure requirements in proposed Sec.
1005.18(b)(1)(i). The Bureau recognized, 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.
Sometimes the disclosures are buried several pages deep or are only
accessible to a consumer after the consumer completes some form of
registration or otherwise logs onto the Web site. The Bureau generally
believed that pre-acquisition 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, as addressed in proposed Sec. 1005.18(b)(1) and
proposed comment 18(b)(1)-2.
Proposed comment 18(b)(3)(i)(B)-2 would have provided guidance with
respect to the lack of an E-sign requirement for prepaid account pre-
acquisition disclosures. The proposed comment would have clarified
that, for example, if a consumer is acquiring the 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 comment 18(b)(3)(i)(B)-3 would have clarified that a
disclosure would not comply with the requirement in Sec.
1005.18(b)(3)(i)(B) regarding machine-readable text if it was not
provided in a textual format that can be read automatically by internet
search engines or other computer systems.
Comments Received
Several industry commenters, including industry trade associations,
program managers, and a digital wallet provider as well as some
consumer groups commented on the Bureau's proposal regarding electronic
disclosure of the short form and long form. The Bureau received no
comments regarding the requirement that disclosures be provided in
machine-readable text.
Industry commenters primarily asked for clarification regarding the
placement and treatment of the short form and long form disclosures in
an online setting. Some commenters indicated that prepaid cards
increasingly will be marketed and acquired via the internet, including
through mobile applications and wearable devices. Commenters said that
the rule, as proposed, did not sufficiently address how to comply when
providing the short form and long form disclosures via these electronic
delivery methods. One commenter noted that the prescriptive font size
and other form and formatting requirements of the proposed rule remove
the flexibility to shrink or resize disclosures to fit onto mobile
screens, which could result in a confusing and frustrating user
experience in which it would be impossible to view the entire
disclosure
[[Page 84076]]
at once without zooming out to a wider view.
One consumer group supporting the proposed requirement regarding
electronic disclosure of the short form and long form urged the Bureau
to additionally require that financial institutions also provide the
disclosures in writing if they issue physical cards. Another consumer
group expressed concern that consumers may not see the electronic
disclosures and recommended that the Bureau require they be prominently
displayed on financial institutions' Web sites. It also urged the
Bureau to adopt specific rules regarding location of the short form and
long form disclosures on the financial institution's Web site.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(3)(i)(B), renumbered as Sec. 1005.18(b)(6)(i)(B),
with certain modifications. First, the Bureau has added requirements to
the final rule that electronic disclosures be provided in a responsive
form and viewable across all screen sizes. Second, the Bureau has made
technical modifications to the rule and comments for consistency and
clarity. Third, in response to the comments discussed above, the final
rule and commentary more specifically address how to provide the
required disclosures through electronic means. Fourth, in the final
rule the Bureau has removed proposed comment 18(b)(3)(i)(B)-2 because
it believes the rule is clear that financial institutions may provide
disclosures electronically without regard to consumer consent and other
applicable provisions of the E-Sign Act. Finally, final comments
18(b)(6)(i)(B)-1 and -2 now specifically address access to the required
disclosures on Web sites and final comment 18(b)(6)(i)(B)-3, which
addresses machine-readable text, is adopted generally as proposed.
The final rule requires that the disclosures required by final
Sec. 1005.18(b) must be provided in electronic form when a consumer
acquires a prepaid account through electronic means, including via a
Web site or mobile application, and must be viewable across all screen
sizes. The Bureau has added the requirement that these disclosures be
viewable across all screen sizes to clarify that they must be able to
be seen by consumers regardless of the electronic method used. The
final rule also states that the long form disclosure must be provided
electronically through a Web site when a financial institution is
offering prepaid accounts at a retail location pursuant to the retail
location exception in final Sec. 1005.18(b)(1)(ii). The rule also
finalizes the proposed requirements that electronic disclosures must be
provided in a manner which is reasonably expected to be accessible in
light of how a consumer is acquiring the prepaid account, in a
responsive form, and using machine-readable text that is accessible via
web browsers or mobile applications, as applicable, and via screen
readers. Also, the final rule, like the proposed rule, provides that
electronic disclosures provided pursuant to final Sec. 1005.18(b) need
not meet the consumer consent and other application provisions of the
E-Sign Act.
Final comment 18(b)(6)(i)(B)-1 explains the rule's requirement that
electronic disclosures be provided in a manner which is reasonably
expected to be accessible in light of how a consumer is acquiring the
prepaid account. Specifically, the comment states that, for example, if
a consumer is acquiring a prepaid account via a Web site or mobile
application, it would be reasonable to expect that a consumer would be
able to access the disclosures required by final Sec. 1005.18(b) on
the first page or via a direct link from the first page of the Web site
or mobile application or on the first page that discloses the details
about the specific prepaid program. The comment also cross-references
final comment 18(b)(1)(i)-2 for additional guidance on placement of the
short form and long form disclosures on a Web page. The additions to
comment 18(b)(6)(i)(B)-1 respond to comments requesting clarification
regarding the required location of the short form and long form
disclosures when provided via electronic means.
In response to commenters' concerns discussed above, new comment
18(b)(6)(i)(B)-2 specifically addresses how to provide the required
disclosures in a way that responds to smaller screen sizes. The comment
clarifies that, in accordance with the requirement in final Sec.
1005.18(b)(6)(i)(B) that electronic disclosures be provided in a
responsive form, electronic disclosures provided pursuant to final
Sec. 1005.18(b) must be provided in a way that responds to different
screen sizes, for example, by stacking elements of the disclosures in a
manner that accommodates consumer viewing on smaller screens, while
still meeting the other formatting requirements set forth in final
Sec. 1005.18(b)(7). For example, the disclosures permitted by final
Sec. 1005.18(b)(2)(xiv)(B) or (3)(ii) must take up no more than one
additional line of text in the short form disclosure. The comment
explains that if a consumer is acquiring a prepaid account using a
mobile device with a screen too small to accommodate these disclosures
on one line of text in accordance with the size requirements set forth
in final Sec. 1005.18(b)(7)(ii)(B), a financial institution is
permitted to display the disclosures permitted by final Sec.
1005.18(b)(2)(xiv)(B) and (3)(ii), for example, by stacking those
disclosures in a way that responds to smaller screen sizes, while still
meeting the other formatting requirements in final Sec. 1005.18(b)(7).
The Bureau's source code for web-based disclosures provides an example
of stacking.\457\
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\457\ See www.consumerfinance.gov/prepaid-disclosure-files.
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Final comment 18(b)(6)(i)(B)-3, which addresses machine-readable
text, clarifies that a disclosure would not be deemed to comply with
Sec. 1005.18(b)(6)(i)(B) if it was not provided in a form that can be
read automatically by internet search engines or other computer
systems. As noted in the proposal, this textual format could include,
for example, JSON, XML, or a similar format.
18(b)(6)(i)(C) Oral Disclosures
The Bureau proposed Sec. 1005.18(b)(3)(i)(C), which would have
stated that disclosures required by proposed Sec. 1005.18(b)(2)(i)
must be provided orally when a consumer acquires a prepaid account
orally by telephone as described in proposed Sec. 1005.18(b)(2)(iii).
Proposed Sec. 1005.18(b)(3)(i)(C) would have also stated that
disclosures provided to a consumer through the telephone number
described in proposed Sec. 1005.18(b)(2)(i)(B)(11) also must be made
orally. The Bureau believed that when a consumer acquires a 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 would not be practicable for a financial
institution to provide these disclosures in written form, and therefore
it would be appropriate for oral disclosures to be provided.
The Bureau did not receive any comments specific to proposed Sec.
1005.18(b)(3)(i)(C) and therefore, is adopting this provision generally
as proposed, renumbered as Sec. 1005.18(b)(6)(i)(C), with technical
modifications to the rule for conformity and clarity. Specifically, the
Bureau has made clear that this provision applies both when a consumer
is acquiring a prepaid account in a retail location and
[[Page 84077]]
orally by telephone. The Bureau continues to believe that when
consumers acquire a prepaid account orally by telephone or in a retail
location, consumers should nonetheless have the benefit of pre-
acquisition disclosures. Thus, final Sec. 1005.18(b)(6)(i)(C) states
that disclosures required by final Sec. 1005.18(b)(2) and (5) must be
provided orally when a consumer acquires a prepaid account orally by
telephone as described in final Sec. 1005.18(b)(1)(iii). For prepaid
accounts acquired in retail locations or orally by telephone,
disclosures required by final Sec. 1005.18(b)(4) provided by telephone
pursuant to final Sec. 1005.18(b)(1)(ii)(B) or final Sec.
1005.18(b)(1)(iii)(B) also must be made orally.
18(b)(6)(ii) Retainable Form
The Bureau's Proposal
Proposed Sec. 1005.18(b)(3)(ii) would have provided that, except
for disclosures provided to a consumer through the telephone number
described in proposed Sec. 1005.18(b)(2)(i)(B)(11) or disclosures
provided orally pursuant to proposed Sec. 1005.18(b)(1)(iii),
disclosures required by proposed Sec. 1005.18(b)(2)(i) and (ii) must
be made in a retainable form. Proposed comment 18(b)(3)(ii)-1 would
have explained 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.
As noted in the proposal, Sec. 1005.13(b) contains recordkeeping
requirements applicable to Regulation E generally. However, the Bureau
did not believe it was necessary that the oral disclosures provided to
a consumer for a prepaid account acquired orally by telephone or the
long form disclosure accessed by a consumer via telephone pre-
acquisition in a retail store be retainable. Pursuant to proposed Sec.
1005.18(f), after having acquired a prepaid account orally (or by any
other means), a consumer would have received the long form disclosure
in the initial disclosures provided for the prepaid account. Further,
the long form disclosure would also generally 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. The Bureau also did not believe it would be practicable
to provide retainable forms of oral disclosures. The Bureau did,
however, believe that providing retainable forms of written and
electronic disclosures would be feasible.
Comments Received
One consumer group commented regarding the proposed retainability
requirement. It supported the proposed requirement generally but
recommended that the Bureau clarify that electronic disclosures
provided via a pop-up window must be able to be easily printed to
comply with the rule.
The Final Rule
For the reasons set forth herein, and in the absence of comments
raising concerns about the proposed retainability requirement, the
Bureau is adopting proposed Sec. 1005.18(b)(3)(ii), renumbered as
Sec. 1005.18(b)(6)(ii), with certain modifications. The Bureau has
added additional specificity to this provision to clarify exceptions to
the retainability requirements for certain disclosures permitted or
required under the final rule. The Bureau has also added to the final
rule a cross-reference to Sec. 1005.4(a)(1), which generally requires
that disclosures provided pursuant to Regulation E be in a form
consumers may keep, and conforms the language in the final rule to
parallel that of Sec. 1005.4(a)(1). In addition, as set forth below,
the Bureau is adopting revisions to comment 18(b)(3)(ii)-1, renumbered
as comment 18(b)(6)(ii)-1. Finally, the Bureau has made technical
modifications to the rule for conformity and clarity.
Final Sec. 1005.18(b)(6)(ii) provides that, pursuant to Sec.
1005.4(a)(1), disclosures required by Sec. 1005.18(b) must be made in
a form that a consumer may keep, except for disclosures provided orally
pursuant to final Sec. 1005.18(b)(1)(ii) or (iii), long form
disclosures provided via SMS as permitted by final Sec.
1005.18(b)(2)(xiii) for a prepaid account sold at retail locations
pursuant to the retail location exception in final Sec.
1005.18(b)(1)(ii), and the disclosure of a purchase price pursuant to
final Sec. 1005.18(b)(5) that is not disclosed on the exterior of the
packaging material for a prepaid account sold at a retail location
pursuant to the retail location exception in final Sec.
1005.18(b)(1)(ii).
The Bureau continues to believe that its modification to the
general retainability requirement in Regulation E for oral disclosures
(and certain other disclosures) is appropriate, as the Bureau does not
believe it would be practicable to provide retainable forms of oral
disclosures. The Bureau also notes that the requirements of final Sec.
1005.18(b)(1)(ii)(D) and (f)(1) will ensure that even consumers who
acquire prepaid accounts orally by telephone or who access the long
form disclosure for prepaid accounts sold at retail locations either
orally or via SMS will receive the long form disclosure in a retainable
format, albeit after they acquire the prepaid account.
Final comment 18(b)(6)(ii)-1 illustrates the retainability
requirement with an example stating that a short form disclosure with a
tear strip running through it would not be deemed retainable because
use of the tear strip to gain access to the prepaid account access
device inside the packaging would destroy part of the short form
disclosure. Electronic disclosures are deemed retainable if the
consumer is able to print, save, and email the disclosures from the Web
site or mobile application on which they are displayed. Therefore, a
pop-up window or modal \458\ from which a consumer can only print,
save, or email the disclosure by taking a screen shot of it would not
satisfy the rule's retainability requirement.
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\458\ Modal windows, also known as dialog boxes or lightboxes,
are ``pop-up'' elements that appear in front of a Web page, blocking
the main page below. Similar to pop-up windows or system alerts,
modals are unique because they prevent interaction with the page
underneath.
---------------------------------------------------------------------------
The Bureau declines to require that electronic disclosures provided
via a pop-up window be easily printed, as requested by a consumer group
commenter because the Bureau believes such a standard is subjective and
may be imprecise. The Bureau also cautions against the use of pop-up
windows or modals from which it is difficult for consumers to figure
out how to print or to actually print. Providing electronic disclosures
in a manner which a consumer is not able to retain them by printing,
saving, or emailing would not comply with this final rule and would be
contrary to the general retainability requirement for disclosures
provided under Regulation E.
18(b)(6)(iii) Tabular Format
18(b)(6)(iii)(A) General
The Bureau's Proposal
The Bureau set forth in proposed Sec. 1005.18(b)(3)(iii) the
tabular format requirements that would be used to present the short and
long form disclosures. Specifically, proposed Sec.
1005.18(b)(3)(iii)(A) would have required 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. It also would
have
[[Page 84078]]
required that long form disclosures required by proposed Sec.
1005.18(b)(2)(ii) that are provided in writing or electronically shall
be in a form of a table substantially similar to proposed Sample Form
A-10(e).
The Bureau had observed that most (though not all) financial
institutions currently use some sort of table to disclose fees in their
prepaid account agreements, although each institution generally selects
different fees to highlight and presents them in different orders. The
Bureau also noted that financial institutions 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 and find them across various formats to
determine the best product for their needs.
The Bureau's pre-proposal consumer testing revealed that few
participants researched prepaid accounts before acquisition,
particularly when they acquired their accounts in retail stores. The
Bureau believed that one of the reasons that consumers do not often
engage in comparison shopping is because doing so is not
straightforward. At retail, prepaid accounts are often displayed behind
counters, close to check-out lanes at ends of aisles, and in other
often crowded or difficult to access areas which the Bureau believed
can limit careful review of a product's terms. The Bureau believed 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 comparison shopping challenging. Although
some variation is inevitable because each financial institution offers
different services in connection with its prepaid accounts, the Bureau
believed that requiring use of a standardized form to disclose fee
information would be appropriate to minimize variation in presentation
format. Additionally, in the case of the short form disclosure, a
standardized form also would keep many of the fee types listed
constant.
The Bureau proposed a sample form for the long form disclosure
instead of a model form for the short form disclosure. The Bureau
believed long form disclosures could vary depending on the number of
fees included in the form and the extent of relevant conditions that
would have had to be disclosed in connection with each fee.
Comments Received
While many commenters critiqued certain aspects of the proposed
form and format of the short form and long form disclosures, the Bureau
received no specific comments regarding the proposed general tabular
format requirement for those disclosures. See the section-by-section
analysis of Sec. 1005.18(b)(7)(i) below for discussion of comments
regarding grouping and other format requirements.
The Final Rule
For the reasons set forth herein, and in the absence of comments,
the Bureau is adopting Sec. 1005.18(b)(3)(iii)(A) as proposed,
renumbered as Sec. 1005.18(b)(6)(iii)(A), with certain modifications
for clarity and to set forth more explicitly the content required in
the tabular format.
The final rule requires that when a short form disclosure is
provided in writing or electronically, the information required by
final Sec. 1005.18(b)(2)(i) through (ix) shall be provided in the form
of a table. Except as provided in final Sec. 1005.18(b)(6)(iii)(B),
the short form disclosures required by final Sec. 1005.18(b)(2) shall
be provided in a form substantially similar to Model Forms A-10(a)
through (d), as applicable. The final rule requires that specific
sections of the short form disclosure be in a tabular format. The
Bureau continues to believe that this standardized format will increase
consumer comprehension and enhance comparability among prepaid
accounts, thereby creating a system under which consumers have the
tools to make improved purchase and use decisions with regard to
prepaid accounts.
The final rule, like the proposed rule, also requires that when a
long form disclosure is provided in writing or electronically, the
information required by final Sec. 1005.18(b)(4)(ii) shall be provided
in the form of a table. Sample Form A-10(f) provides an example of the
long form disclosure required by final Sec. 1005.18(b)(4) when the
financial institution does not offer multiple service plans. The Bureau
has removed the proposed requirement that the table in the long form be
substantially similar to the table in the proposed sample form in favor
of the statement that Sample Form A-10(f) provides an example of the
long form disclosure. As discussed in the section-by-section analysis
of Sec. 1005.18(b)(4) above, the sample form for the long form
disclosure, unlike the model forms for the short form disclosures, does
not impose a ``substantially similar'' requirement. Unlike the short
form disclosure, the Bureau believes that the comprehensive content of
the long form, together with the wide variety of fees, fee types, and
conditions under which those fees are imposed across financial
institutions, is likely not suitable for a strictly standardized
content and format design.
Because the long form disclosures, unlike the standardized short
form disclosure, could vary substantially, the Bureau continues to
believe that it is more appropriate to provide a sample form as an
example that financial institutions may, but are not required to,
incorporate or emulate in their own long form disclosures, rather than
a model form that would only provide a safe harbor if financial
institutions adhered closely to its parameters. Thus, in the regulatory
text of the final rule, the Bureau has replaced any reference to long
form content required to be disclosed in a form substantially similar
to a sample form with language indicating that the sample form provides
an example of the long form disclosure.
18(b)(6)(iii)(B) Multiple Service Plans
The Bureau's Proposal
As an alternative to proposed Sec. 1005.18(b)(3)(iii)(A) (which
would have applied to products with a single fee schedule), proposed
Sec. 1005.18(b)(3)(iii)(B) would have set forth tabular format
requirements for prepaid products offering multiple service plans.
Specifically, proposed Sec. 1005.18(b)(3)(iii)(B)(1) would have stated
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 in the short form disclosure by
proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7) may be provided for
each service plan together in one table, in a form substantially
similar to 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 have
further stated that when disclosing multiple service plans on one short
form, the information that would have been 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 have
permitted a financial institution to disclose the information required
by proposed Sec. 1005.18(b)(2)(i)(B)(1) through (8) 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
[[Page 84079]]
Model Forms A-10(c) or (d). Finally, proposed Sec.
1005.18(b)(3)(iii)(B)(1) would have stated that regardless of whether a
financial institution discloses fee information for 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) must only be
disclosed once.
As discussed in the proposal and herein, the Bureau believed that
it was important for short and long form disclosures to have a
standardized format in order to facilitate consumer comparison of
multiple products and the ability to understand key fee and service
information about a prepaid product. The Bureau also recognized,
however, that financial institutions offering multiple service plans on
one prepaid account needed flexibility to disclose information about
multiple plans to a consumer. The Bureau therefore proposed 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. The
Bureau explained that, a financial institution, at its option, could
also choose to disclose only 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 believed that these options would give financial
institutions the flexibility to accommodate disclosure of multiple
service plans, while also maintaining the simplicity of the tabular
short form and long form designs to facilitate consumers' comparison
shopping.
In the Bureau's pre-proposal consumer testing, some participants
were confused by short forms that included multiple service plans
similar to the one in proposed 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 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 believed 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 sought 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.
In the proposal, the Bureau also acknowledged 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 requirement in proposed Sec. 1005.18(b)(2)(i)(C) that
financial institutions would have to disclose the highest 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 consumers were to opt into a monthly
plan, however, they could be charged a periodic fee higher than $0. The
Bureau therefore also sought 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 have stated 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 believed that 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 proposed comment 18(b)(3)(iii)(B)-1, which
would have provided additional guidance on the proposed definition of
multiple service plans. Specifically, proposed comment
18(b)(3)(iii)(B)-1 would have stated 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. A financial
institution may 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)(B).
Comments Received
Several industry commenters, including industry trade associations,
a program manager, and an issuing bank, commented on the proposed
multiple service plan short form disclosure and recommended that the
Bureau adopt a final rule permitting such disclosures for prepaid
account loyalty programs and other current and future innovative fee
structures. Some commenters asserted that the proposed rule failed to
contemplate loyalty programs and thus urged the Bureau to permit use of
the multiple service plan short form disclosure for such programs.
Commenters also asserted that the rule as proposed would stymie future
innovation of new fee plans by limiting use of the multiple service
plan short form disclosure to plans already in existence.
Several consumer groups urged the Bureau to eliminate the multiple
service plan short form disclosure. They believed the multiple service
plan short form disclosure compared poorly with the general short form
disclosure, saying it was too complex and confusing, defeated the
comparison-shopping purpose of the short form disclosure, failed to
disclose all the information in the short form (such as the two-tier
distinction between certain fees, including the in-network and out-of-
network ATM withdrawal and balance inquiry fees), and lacked the top-
line emphasis on key fees. Some of these groups also expressed concern
that financial institutions seeking to minimize emphasis on certain of
their fees might use the complexity of the multiple service plan short
form disclosure to hide expensive fees, such as by starting with a pay-
as-you-go plan with no monthly fee before disclosing higher fees for
other plans.
Some consumer groups suggested that the Bureau require disclosure
of the default fee plan in short forms at retail, and require that
short form disclosures for the other plans be provided inside the
packaging material or at the time the consumer chooses to switch to
another fee plan. In other contexts that do not have the same space
constraints as retail settings, such as online or at bank branches,
consumer groups said the Bureau should require disclosure of
[[Page 84080]]
separate short forms for each distinct fee plan.
The Final Rule
The Bureau is adopting final Sec. 1005.18(b)(6)(iii)(B) largely as
proposed, but has divided the provision regarding multiple service plan
short form disclosures to separately address disclosure of the default
service plan and disclosure of all service plans. Other modifications
to these provisions are described in turn below.
18(b)(6)(iii)(B)(1) Short Form Disclosure for Default Service Plan
For the reasons set forth herein, the Bureau is adopting the
portion of proposed Sec. 1005.18(b)(3)(iii)(B)(1) that addressed the
option to disclose a short form only for a multiple service plan's
default plan, renumbered Sec. 1005.18(b)(6)(iii)(B)(1) with technical
modifications to the rule for conformity and clarity.
Final Sec. 1005.18(b)(6)(iii)(B)(1) provides that when a financial
institution offers multiple service plans within a particular prepaid
account program and each plan has a different fee schedule, the
information required by final Sec. 1005.18(b)(2)(i) through (ix) may
be provided in the tabular format described in final Sec.
1005.18(b)(6)(iii)(A) for the service plan in which a consumer is
initially enrolled by default upon acquiring a prepaid account. New
comment 18(b)(6)(iii)(B)(1)-1 clarifies that, pursuant to the
requirement in Sec. 1005.18(b)(3)(i) to disclose the highest amount a
financial institution may impose for a fee disclosed pursuant to Sec.
1005.18(b)(2)(i) through (vii) and (ix), a financial institution would
not be permitted to disclose any short-term or promotional service
plans as a default service plan.
In accordance with Sec. 1005.18(b)(3)(i), a financial institution
providing a short form for a multiple service plan's default plan only
must disclose the highest fees under the default plan but not the
highest fees across all service plans. The Bureau believes that to
require otherwise would distort the information disclosed about the
default service plan, leading to potential consumer confusion.
The Bureau notes that financial institutions disclosing the default
plan can inform consumers of the prepaid program's other service plan
options outside the short form disclosure, such as on other portions of
the packaging, online, or via the telephone; further, disclosure of all
plan information is required in the long form pursuant to final Sec.
1005.18(b)(4) discussed below. The Bureau also notes that nothing in
the final rule would prohibit a financial institution from providing a
short form disclosure for each of its service plans separately (such as
on its Web site or in other acquisition scenarios without the same
space constraints as in retail locations) though, if doing so, the
Bureau encourages financial institutions to make clear to consumers
which plan, if any, is the default plan.
18(b)(6)(iii)(B)(2) Short Form Disclosure for Multiple Service Plans
For the reasons set forth herein, the Bureau is adopting the
portion of proposed Sec. 1005.18(b)(3)(iii)(B)(1) that addressed the
option to use a modified short form to disclose multiple service plans,
renumbered Sec. 1005.18(b)(6)(iii)(B)(2), with certain modifications
as described below for clarity. In addition, for the reasons set forth
below, the Bureau has modified comment 18(b)(3)(iii)(B)-1, renumbered
as comment 18(b)(6)(iii)(B)(2)-1. The Bureau has also made other
technical modifications for conformity.
Final Sec. 1005.18(b)(6)(iii)(B)(2) provides that, as an
alternative to disclosing the default service plan pursuant to Sec.
1005.18(b)(6)(iii)(B)(1), when a financial institution offers multiple
service plans within a particular prepaid account program and each plan
has a different fee schedule, fee disclosures required by final Sec.
1005.18(b)(2)(i) through (vii) and (ix) may be provided in the form of
a table with separate columns for each service plan in a form
substantially similar to Model Form A-10(e). Column headings must
describe each service plan included in the table, using the terms
``Pay-as-you-go plan,'' ``Monthly plan,'' ``Annual Plan,'' or
substantially similar terms. For multiple service plans offering
preferred rates or fees for the prepaid accounts of consumers who also
use another non-prepaid service, column headings must describe each
service plan included in the table for the preferred- and non-preferred
service plans, as applicable.
The Bureau has substantially redesigned the multiple service plan
short form disclosure in order to address many of the concerns raised
by consumer group commenters as described above. The short form
disclosure for multiple service plans includes the following changes:
Expansion of the multi-columned table to disclose all required fees
pursuant to final Sec. 1005.18(b)(2)(i) through (vii) and (ix)
together, rather than separating out fees that vary across plans from
fees that do not; use of bold-face type for the fees listed pursuant to
final Sec. 1005.18(b)(2)(i) through (iv) to mirror the general short
form disclosure's emphasis on the top-line fees; and addition of rows
to separately disclose the two-tier fees for in-network and out-of-
network ATM withdrawals and balance inquiries. See Model Form A-10(f).
The Bureau's post-proposal consumer testing indicated that the
redesigned short form disclosure for multiple service plans markedly
improved the disclosure's usability. Participants were able to navigate
a prototype short form disclosure for multiple service plans and to use
the disclosure to find specific information about particular plans.
Moreover, the relative complexity of the form, although off-putting to
some participants, did not appear to alter testing results.\459\ Most
participants quickly understood that the columns in the table
represented different potential fee plans and all were generally able
to compare fees in that form with the fees in a general short form
disclosure. In light of comments received on the proposed version of
the multiple service plan short form and the results of the Bureau's
post-proposal consumer testing of the redesigned form, the Bureau is
finalizing the rule permitting use of a short form disclosure for
multiple service plans.
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\459\ See ICF Report II at 16 and 26-27.
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The Bureau recognizes that financial institutions offering multiple
service plans may not have a default plan or may find a requirement to
disclose only a short form for the default plan overly restrictive and
choose instead to discontinue their multiple service plan programs. The
Bureau does not intend to disfavor any prepaid account program over
another in its rule and seeks to avoid potential disruption to prepaid
account programs offering multiple service plans. While the Bureau
acknowledges that the relative complexity and density of the multiple
service plan short form disclosure may render it somewhat less consumer
friendly than the general short form disclosure, the Bureau believes
the redesigned form will provide financial institutions with
flexibility to accommodate disclosure of products with multiple service
plans, while also retaining much of the standardization of the short
form design that facilitates comprehension and comparison shopping for
consumers.
As referenced above, the rule sets forth specific requirements for
the column headings required to describe each service plan. The Bureau
is finalizing the proposed requirement to use the terms ``Pay-as-you-go
plan,'' ``Monthly plan,'' ``Annual Plan,'' or substantially similar
terms. To illustrate,
[[Page 84081]]
final comment 18(b)(6)(iii)(B)(2)-1 states that, for example, a
financial institution that offers a prepaid account program with one
service plan for which 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, may use the short form disclosure for
multiple service plans pursuant to final Sec.
1005.18(b)(6)(iii)(B)(2).
As noted above, some industry commenters requested that the Bureau
allow use of the multiple service plan short form for loyalty plans;
this issue was addressed in proposed comment 18(b)(3)(iii)(B)-1. For
clarity, the Bureau has addressed use of the multiple service plan
short form for loyalty plans in the regulatory text of the final rule
as described above. Final comment 18(b)(6)(iii)(B)(2)-1 reiterates that
a financial institution that offers a prepaid account program with
preferred rates or fees for the prepaid accounts of consumers who also
use another non-prepaid service (e.g., a mobile phone service), often
referred to as ``loyalty plans,'' may also use the short form
disclosure for multiple service plans pursuant to final Sec.
1005.18(b)(6)(iii)(B)(2). The comment also explains that pricing
variations based on whether a consumer elects to use a specific feature
of a prepaid account, such as waiver of the monthly fee for consumers
electing to receive direct deposit, does not constitute a loyalty plan.
Final comment 18(b)(6)(iii)(B)(2)-1 also cross-references final comment
18(b)(3)(iii)-1.ii for guidance on how to provide a single disclosure
for like fees for multiple service plan short form disclosures.
18(b)(6)(iii)(B)(3) Long Form Disclosure
Proposed Sec. 1005.18(b)(3)(iii)(B)(2) would have required that
the information required 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 did not receive any
comments regarding this portion of the proposal.
The Bureau is adopting proposed Sec. 1005.18(b)(3)(iii)(B)(2),
renumbered as Sec. 1005.18(b)(6)(iii)(B)(3), with a minor modification
as described below, as well as with technical modifications for
conformity and clarity.
Final Sec. 1005.18(b)(6)(iii)(B)(3) states that the information in
the long form disclosure required by final Sec. 1005.18(b)(4)(ii) must
be presented in the form of a table for all service plans. The Bureau
has removed the proposed requirement that the table be substantially
similar to proposed Sample Form A-10(g) and has also removed that
proposed sample form from the final rule. As discussed in the section-
by-section analysis of Sec. 1005.18(b)(4) and Sec.
1005.18(b)(6)(iii)(A) above, the final rule does not impose a
substantially similar requirement for the sample form for the long form
disclosure, unlike the model forms for the short form disclosures. This
is because unlike the short form disclosure, the comprehensive content
of the long form, together with the wide variety of fees, fee types,
and conditions under which those fees are imposed across financial
institutions, is not suitable for a strictly standardized content and
format design. As discussed in the section-by-section analysis of
Appendix A-10 Model Forms and Sample Forms for Financial Institutions
Offering Prepaid Accounts (Sec. Sec. 1005.15(c) and 1005.18(b)) below,
to provide more flexibility to industry, the Bureau is not providing a
sample form for a long form disclosure with multiple service plans. The
Bureau notes that Sample Form A-10(f) provides an example of a tabular
format for the long form disclosure.
18(b)(7) Specific Formatting Requirements for Pre-Acquisition
Disclosures
18(b)(7)(i) Grouping
18(b)(7)(i)(A) Short Form Disclosure
The Bureau's Proposal
Proposed Sec. 1005.18(b)(4)(i)(A) would have contained several
formatting requirements for the short form disclosure. First, proposed
Sec. 1005.18(b)(4)(i)(A) would have stated that the information that
would have been required by proposed Sec. 1005.18(b)(2)(i)(A) or
proposed Sec. 1005.15(c)(2), when applicable, must be grouped
together. Proposed Sec. 1005.18(b)(4)(i)(A) would have further stated
that the information that would have been required by proposed Sec.
1005.18(b)(2)(i)(B)(1) through (4) must generally be grouped together
and in the order they appear in the form of proposed Model Forms A-
10(a) through (d). The Bureau believed that grouping the fees that
would have been required to be disclosed by proposed Sec.
1005.18(b)(2)(i)(B)(1) through (4) in the top line of the short form
disclosure would more effectively direct consumers' attention to these
fees. The Bureau also believed 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.
Proposed Sec. 1005.18(b)(4)(i)(A) would have further stated that
the information required by proposed Sec. 1005.18(b)(2)(i)(B)(5)
through (9) must generally be grouped together and in the order they
appear in the form of proposed Model Forms A-10(a) through (d). The
textual information required by proposed Sec. 1005.18(b)(2)(i)(B)(10)
through (14) must be generally grouped together and in the order they
appear in proposed Model Forms A-10(a) through (d). The Bureau
recognized that some consumers may focus only on fee information and
not review textual information, and noted that, in its pre-proposal
consumer testing many participants did not notice some of the textual
information included on prototype short forms until the facilitator
pointed it out to them.
The Bureau also proposed in Sec. 1005.18(b)(4)(i)(A) that the Web
site URL disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(11)
must not exceed 22 characters and must be meaningfully named. See the
section-by-section analysis of Sec. 1005.18(b)(2)(xiii) above for a
discussion of this requirement in the final rule.
Comments Received
Several industry commenters addressed the proposed grouping or
other related format requirements for the prepaid disclosures. A
program manager supported the proposed grouping requirements saying
they are reasonable and very similar to current disclosures, but
cautioned that the short form disclosure format requirements would
crowd out or dilute other critical information and oblige industry to
extensively redesign current packaging. Another program manager said
the rigidity of the format of the short form disclosure would limit the
ability of industry to offer new types of prepaid cards. Two industry
trade associations said the rule was unclear regarding the extent to
which a financial institution could depart from the format of the
required disclosures. In a comment generally addressing the format of
the proposed disclosures, an issuing bank recommended that the short
form and long form disclosures have the same format to avoid confusion
and be recognizable.
The Final Rule
For the reasons set forth herein and in the absence of comments
opposing the specific grouping requirements of the short form, the
Bureau is adopting proposed Sec. 1005.18(b)(4)(i)(A), renumbered as
Sec. 1005.18(b)(7)(i)(A),
[[Page 84082]]
with minor modifications. First, the Bureau has added references to the
grouping requirements for the payroll card account disclosures set
forth in final Sec. 1005.18(b)(2)(xiv)(A) and (B). Second, the Bureau
has made technical modifications to the rule for conformity and
clarity.
The Bureau is adopting the proposed grouping requirements for the
short form disclosure essentially as proposed. As stated in the
proposal, the Bureau designed the top line of the short form disclosure
to direct consumers' attention to what it believes are the most
important fees for consumers to know in advance of acquiring a prepaid
account. With regard to the statement regarding wage or salary payment
options required for payroll card account (and government benefit
account) short form disclosures, the Bureau believes that consumers
understanding that their job (or government benefit) is not contingent
upon their acceptance of the payroll card (or government benefit card)
is of paramount importance in the short form disclosure. As in the
proposed rule, the final rule generally groups fees together and non-
fee information together. Similar to the proposed rule, the final rule
also groups together the statements regarding fees that can vary,
including new provisions Sec. 1005.18(b)(3)(ii) (variable fee
disclosure for the periodic fee) and Sec. 1005.18(b)(2)(xiv)(B)
(State-required information or other fee discounts and waivers for
payroll card accounts and government benefit accounts).
The Bureau has made minor changes to the proposed grouping
requirements. First, to conform to the principle stated above to group
fees together and group other information together, the Bureau has
relocated the statement regarding overdraft and credit, required by
final Sec. 1005.18(b)(2)(x), from the fee section in the proposed rule
to a location among the non-fee other information. To more effectively
connect the fee section with the statement regarding the number of
additional fee types, required by final Sec. 1005.18(b)(2)(viii)(A),
the Bureau relocated this statement to the fee section. Finally, the
new statement required by final Sec. 1005.18(b)(2)(viii)(B) directing
consumers to the disclosure of additional fee types required by final
Sec. 1005.18(b)(2)(ix) is located immediately after the statement
regarding the number of additional fee types charged and immediately
before the disclosure of any actual additional fee types.
Specifically, the final rule requires that the information required
in the short form disclosure by final Sec. 1005.18(b)(2)(i) through
(iv) must be grouped together and provided in that order. The
information required by final Sec. 1005.18(b)(2)(v) through (ix) must
be generally grouped together and provided in that order. The
information required by final Sec. 1005.18(b)(3)(i) and (ii), as
applicable, must be generally grouped together and in the location
described by Sec. 1005.18(b)(3)(i) and (ii). The information required
by final Sec. 1005.18(b)(2)(x) through (xiii) must be generally
grouped together and provided in that order.
The final rule also provides that the statement regarding wage or
salary payment options for payroll card accounts required by final
Sec. 1005.18(b)(2)(xiv)(A) must be located above the information
required by final Sec. 1005.18(b)(2)(i) through (iv), as described in
final Sec. 1005.18(b)(2)(xiv)(A). The statement regarding State-
required information or other fee discounts or waivers permitted by
final Sec. 1005.18(b)(2)(xiv)(B), when applicable, must appear in the
location described in final Sec. 1005.18(b)(2)(xiv)(B).
In response to comments generally addressing the format and
formatting requirements of the short form and long form disclosures,
the Bureau states that those requirements, together with the content
requirements for the disclosures, were designed to create companion
disclosures intended to facilitate consumers' prepaid account purchase
and use decisions. The Bureau intended these disclosures to play very
different but complementary roles and, thus, purposefully gave them
different formats. The abridged nature of the short form, with its
emphasis on key fees and information, versus the comprehensive nature
of the long form, with its requirement to disclose, among other things,
all fees and the conditions under which they may be imposed, require
different formats that together create a synergistic whole.
Regarding the comments questioning the extent to which a financial
institution could depart from the required format, financial
institutions must comply with the disclosure requirements set forth in
the final rule but the Bureau notes that the regulatory text and
commentary contain additional information and direction clarifying
specific requirements in the final rule, including a number of optional
modifications. Also the Bureau is providing the model and sample forms
to provide concrete illustrations of the requirements under the
rule.\460\ For examples of short form disclosures that comply with the
grouping requirements of final Sec. 1005.18(b)(7)(i)(A), see Model
Forms A-10(a) through (d). Model Forms A-10(a) and (b) illustrate the
grouping requirements specifically for payroll card accounts and
government benefit accounts, respectively. Model Forms A-10(c) and (d)
illustrate the grouping requirements for short form disclosures in
general, including those sold in retail locations. Model Form A-10(e)
illustrates the short form grouping requirements specifically for
prepaid account programs with multiple service plans disclosed pursuant
to final Sec. 1005.18(b)(6)(iii)(B)(2); these grouping requirements
are addressed in detail in final Sec. 1005.18(b)(7)(i)(C) discussed
below.
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\460\ For the convenience of the prepaid industry and to help
reduce development costs, the Bureau is also providing native design
files for print and source code for web-based disclosures for all of
the model and sample forms included in the final rule. These files
are available at www.consumerfinance.gov/prepaid-disclosure-files.
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18(b)(7)(i)(B) Long Form Disclosure
The Bureau's Proposal
The Bureau proposed 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 have
required 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 believed
that disclosing fees in categories would 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 have required that text
describing the conditions under which a fee may be imposed must appear
in the table directly to the right of the numeric fee amount disclosed
pursuant to proposed Sec. 1005.18(b)(2)(ii)(A). The information
required by proposed Sec. 1005.18(b)(2)(ii)(B) (that is, the
Regulation Z disclosures regarding overdraft and other credit features)
must be generally grouped together. The information required by
proposed Sec. 1005.18(b)(2)(ii)(C) through (E) (that is, the telephone
number, Web site and mailing address; the statement regarding FDIC
insurance, if applicable; and the Bureau Web site and telephone
number), must be generally grouped together.
Comments Received
The Bureau received two comments from industry on the grouping
[[Page 84083]]
requirements of the long form disclosure. Both commenters requested
that the Bureau provide examples of the categories of function required
under the proposal in the long form disclosure.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(4)(i)(B), renumbered as Sec. 1005.18(b)(7)(i)(B),
with modifications to reflect additional content added by other
provisions of the final rule. The Bureau has also made technical
modifications to the rule for conformity and clarity. Finally, the
Bureau has added new comments 18(b)(7)(i)(B)-1 and-2 to provide
guidance regarding the requirements of final Sec. 1005.18(b)(7)(i)(B).
First, the final rule addresses the grouping requirement for new
Sec. 1005.18(b)(4)(i), the title or heading for the long form
disclosure. The final rule provides that the information required by
new Sec. 1005.18(b)(4)(i) be located in the first line of the long
form disclosure.
The final rule, like the proposed rule, generally requires that
like categories be grouped together in the long form disclosure.
Regarding the disclosure in the long form of all fees and the
conditions under which they may be imposed, the final rule, like the
proposed rule, requires that the information required by final Sec.
1005.18(b)(4)(ii) be generally grouped together and organized under
subheadings by the category of function for which a financial
institution may impose the fee.
While the proposed rule would have required that text describing
the conditions under which a fee may be imposed must appear in the
table directly to the right of the numeric fee amount disclosed, the
final rule relaxes this requirement. In the final rule, the text
describing the conditions under which a fee may be imposed must appear
in the table required by final Sec. 1005.18(b)(6)(iii)(A) in close
proximity to the fee amount. The Bureau continues to believe that
disclosing fees in categories will aid consumers in navigating the long
form disclosure which, with the disclosure of all of a prepaid
account's fees, could be much longer than the short form disclosure and
will benefit from such organization. The Bureau has observed that many
financial institutions currently organize the fees schedules in their
prepaid account agreements in this manner. With regard to the change to
``close proximity'' in the final rule, the Bureau believes that, while
the short form disclosure necessitates stricter requirements to achieve
more precise standardization, financial institutions should have more
discretion in the long form. To this end, the sample form for the long
form disclosure, as opposed to the model forms for the short form
disclosures, serves as an example of a disclosure structure financial
institutions may emulate or use to develop their own long form
disclosure.
In response to the industry commenters requesting examples of the
categories of function required in the long form disclosure, the Bureau
directs financial institutions to the sample long form disclosure,
Sample Form A-10(f). The sample form is provided as an example that
financial institutions may, but are not required to, incorporate or
emulate in developing their own long form disclosures. The following
categories of function that appear in the sample form can serve as
examples of categories that financial institutions might use in
designing their long form disclosures: Get started (disclosing the
purchase price), Monthly usage (disclosing the monthly fee), Add money
(disclosing fees for direct deposit and cash reload), Spend money
(disclosing bill payment fees), Get cash (disclosing ATM withdrawal
fees), Information (disclosing customer service and ATM balance inquiry
fees), Using your card outside the U.S. (disclosing fees for
international transactions, international ATM withdrawals, and
international ATM balance inquiries), and Other (disclosing the
inactivity fee). Financial institutions may use some or all of the
categories in the sample form or may create their own categories.
Regarding the statements in the long form disclosure, the rule
requires that the information in the long form disclosure required by
final Sec. 1005.18(b)(4)(iii) through (vi) be generally grouped
together, provided in that order, and appear below the information
required by final Sec. 1005.18(b)(4)(ii). As in the short form
disclosure, the Bureau believes that grouping together like categories
of information here will improve readability and enhance consumer
comprehension.
Finally, the final rule explains that if, pursuant to final Sec.
1005.18(b)(4)(vii), the financial institution includes the disclosures
described in Regulation Z Sec. 1026.60(e)(1), such disclosures must
appear below the disclosures required by final Sec. 1005.18(b)(4)(vi).
New comment 18(b)(7)(i)(B)-1 provides an example illustrating the
meaning of close proximity as used in the final Sec.
1005.18(b)(7)(i)(B). The comment states that, for example, a financial
institution is deemed to comply with this requirement if the text
describing the conditions is located directly to the right of the fee
amount in the long form disclosure, as illustrated in Sample Form A-
10(f). The comment also cross-references final comment 18(b)(6)(i)(B)-2
regarding stacking of electronic disclosures for display on smaller
screen sizes. As discussed above, that comment describes how compliance
with the requirements of Sec. 1005.18(b)(7)(i)(B) may be achieved, for
example, through stacking of the long form disclosure for a consumer
viewing it on an electronic device with a smaller screen size.
New comment 18(b)(7)(i)(B)-2 explains how to create a subheading by
category of function for any finance charges that may be imposed on a
prepaid account as described in Regulation Z Sec. 1026.4(b)(11)(ii) in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Sec. 1026.61. The comment
explains that, pursuant to Sec. 1005.18(b)(7)(i)(B), the financial
institution may, but is not required to, group all finance charges
together under a single subheading. The comment goes on to say that
this includes situations where the financial institution imposes a
higher fee or charge on the asset feature of a prepaid account with a
covered separate credit feature accessible by a hybrid prepaid-credit
card than the amount of a comparable fee or charge it imposes on any
prepaid account in the same prepaid account program that does not have
such a credit feature. The comment illustrates this with an example of
a financial institution that charges on the prepaid account a $0.50 per
transaction fee for each transaction that accesses funds in the asset
feature of a prepaid account and a $1.25 per transaction fee for each
transaction where the hybrid prepaid-credit card accesses credit from
the covered separate credit feature in the course of the transaction.
In this case, the financial institution is permitted to disclose the
$0.50 per transaction fee under a general transactional subheading and
disclose the additional $0.75 per transaction fee under a separate
subheading together with any other finance charges that may be imposed
on the prepaid account.
18(b)(7)(i)(C) Multiple Service Plan Disclosure
The Bureau proposed 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 form, the
[[Page 84084]]
fees that would have been 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, and the fees that are the same across
all service plans must be grouped together. See proposed Model Form A-
10(f). Proposed Sec. 1005.18(b)(4)(i)(C) would have further stated
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
believed that, when a financial institution chooses to disclose
multiple service plans together on one short form, it would be 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 sought
comment on whether this grouping distinction for short forms that
include multiple service plans makes sense.
Proposed Sec. 1005.18(b)(4)(i)(C) also would have stated that when
providing disclosures for multiple service plans on one short form in
compliance with proposed Sec. 1005.18(b)(3)(iii)(B)(1), 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. The Bureau believed 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 made sense that these fees would be grouped
with the fees that are the same across all service plans.
The Bureau received comments from industry and consumer groups
regarding the multiple service plan short form generally, which are
addressed in the section-by-section analysis of Sec.
1005.18(b)(6)(iii)(B) above. Most relevant to this provision were the
comments from several consumer groups that urged the Bureau to
eliminate the multiple service plan short form disclosure. The Bureau
did not receive any comments, however, specific to proposed Sec.
1005.18(b)(4)(i)(C).
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(4)(i)(C), renumbered as Sec. 1005.18(b)(7)(i)(C),
with substantial modifications to reflect the redesigned short form for
multiple service plans as discussed in the section-by-section analysis
of Sec. 1005.18(b)(6)(iii)(B) above.
The final rule's grouping requirements correspond to the formatting
requirements for the redesigned short form disclosure for multiple
service plans set forth in final Sec. 1005.18(b)(6)(iii)(B)(2).
Similar to the grouping requirements in the short form and long form
disclosures, the final rule's grouping requirements for short form
disclosures for multiple service plans conform to the principle of
grouping fees together and grouping other information together.
Specifically, final Sec. 1005.18(b)(7)(i)(C) requires that when
providing a short form disclosure for multiple service plans pursuant
to final Sec. 1005.18(b)(6)(iii)(B)(2), in lieu of the requirements in
final Sec. 1005.18(b)(7)(i)(A) for grouping of the disclosures
required by final Sec. 1005.18(b)(2)(i) through (iv) and (v) through
(ix), the information required by final Sec. 1005.18(b)(2)(i) through
(ix) be grouped together and provided in that order. Model Form A-10(e)
illustrates the grouping requirements specifically for short form
disclosures with multiple service plans disclosed pursuant to final
Sec. 1005.18(b)(6)(iii)(B)(2).
18(b)(7)(ii) Prominence and Size
The Bureau's Proposal
Proposed Sec. 1005.18(b)(4)(ii)(A) through (D) would have set
forth the prominence and size requirements for the short form and long
form disclosures. Generally, the Bureau believed that the information
provided to consumers in the short form and long form disclosure should
appear in a large enough font size to ensure that consumers can easily
read the information. Further, the Bureau observed in its pre-proposal
consumer testing that some participants had to use reading glasses or
otherwise struggled to read existing prepaid account disclosures and
that many participants reported a preference for larger font sizes to
facilitate their ability both to read and to understand disclosures.
Thus, the Bureau 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 believed that
the proposed relative font sizes for the disclosures made on the short
form would ensure that consumers' attention is quickly drawn to the
most important information about a prepaid account (i.e., the top-line
fees).
The Bureau also noted in the proposal that the proposed minimum
font sizes were likely also the maximum sizes that could be used on the
short form disclosure to ensure that it will still fit on most
packaging material currently used in retail settings. In other
acquisition scenarios, when space constraints are not as much of an
issue, the Bureau expected that financial institutions would use larger
versions of the short form disclosure. For example, when distributing
disclosures for payroll card accounts in printed form, financial
institutions could use a 8.5x11 inch piece of paper to present a larger
version of the short form disclosure, as long as the form maintains the
visual hierarchy of the information as reflected in the proposed
relative font size requirements. Proposed Sec.
1005.18(b)(4)(ii)(B)(2), discussed in more detail below, would have
required that the statement disclosed pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(10), and the telephone number and Web site 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 believed that it is particularly
important for a consumer to see this information on the short form
disclosure, and that making it more prominent than the other textual
language on the short form could help to draw consumers' attention to
these disclosures.
Comments Received
The Bureau received few comments regarding the proposed prominence
and size requirements. A digital wallet provider commented that the
prescriptive font size and other format and formatting requirements of
the proposed rule would remove the flexibility to shrink or resize
disclosures to fit onto mobile screens, resulting in a confusing and
frustrating user experience as it would be impossible to view the
entire disclosure at once without zooming out to a wider view.\461\ A
trade association recommended that the Bureau preempt State laws
regarding font size where compliance with both the proposed font size
and State law would be impracticable, specifically citing a Maryland
law requiring a minimum 12-point font for its required payroll card
account disclosures that the commenter indicated would make it
difficult to fit the short form on one page. A consumer group commenter
recommended that the Bureau require larger font size for disclosures
provided in non-retail settings. It said that while small print may be
unavoidable in retail stores, font size was not similarly constrained
in other locations such as Web sites, bank branches, and in
[[Page 84085]]
settings in which payroll card accounts and government benefit accounts
are offered.
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\461\ See the section-by-section analysis of Sec.
1005.18(b)(6)(i)(B) above for the Bureau's response to this
commenter's concern and other issues relating to electronic
disclosures.
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The Final Rule
The Bureau is adopting proposed Sec. 1005.18(b)(4)(ii)(A) through
(D), renumbered as Sec. 1005.18(b)(7)(ii)(A) through (D), generally as
proposed with additional specificity for certain requirements and other
modifications as discussed below. The Bureau is also adopting new
comments 18(b)(7)(ii)-1 and -2 to provide additional clarification
regarding type size requirements in final Sec. 1005.18(b)(7)(ii). See
the section-by-section analyses of Sec. 1005.18(b)(7)(ii)(A), (B),
(C), and (D) below for prominence and size requirements with respect to
typeface and type color generally as well as specific requirements
regarding the general short form disclosure, the long form disclosure,
and the multiple service plan short form disclosure, respectively.
The Bureau is finalizing the proposed visual hierarchy of
information for the short form disclosure created by requiring minimum
type sizes in descending order because, as explained in the proposal,
this format quickly garners consumers' attention, directing it first to
the information the Bureau's research indicates is most important to
consumers when selecting a prepaid account. The final rule also retains
the actual type size requirements as proposed, with the addition of
size requirements for newly-created permissible or required disclosures
or those that were unspecified in the proposed rule. The Bureau
continues to believe that the size requirements will ensure that
consumers can read and understand the disclosures without struggling to
see small print while also accommodating the existing packaging
constraints for prepaid accounts sold at retail locations. Also, in the
final rule, the Bureau has replaced ``font'' size with ``type'' size
for clarity, as the term font can refer to both type size and type
style. Finally, instead of stating that disclosures must be made in the
``corresponding pixel size'' for electronic disclosures when providing
the minimum type size for each element of the disclosures, the final
rule includes the actual corresponding pixel size for each type size
specified.
The Bureau declines to mandate type size requirements that vary
depending on the setting in which consumers receive the pre-acquisition
disclosures. As discussed above, the Bureau designed the minimum type
sizes requirements for the short form disclosure, that appear in final
Sec. 1005.18(b)(7)(ii)(B) and (D), to accommodate the existing
packaging constraints related to the sale of prepaid accounts on J-
hooks displays in retail locations. Financial institutions are
encouraged, but not required, to use larger type sizes when providing
pre-acquisition disclosures for prepaid accounts in less space-
restrictive settings. For example, financial institutions offering
prepaid accounts online, in a bank branch, in the context of payroll
card accounts and government benefit accounts, and in other similar
circumstances are encouraged to provide the short form disclosure in a
type size that exceeds the minimum requirements in the rule to enhance
both consumer engagement and comprehension of the prepaid account's
terms.
To illustrate this, both the proposed and final model forms for
government benefit accounts and payroll card accounts use type sizes
that exceed the regulatory minimum. See Model Forms A-10(a) and (b).
Even when disclosing other information on the same page as the short
form disclosure, such as when exercising the option to display State-
required information or other fees and discounts on the same page as
(but outside) the short form disclosure for these products pursuant to
final Sec. Sec. 1005.15(c)(2)(ii) and 1005.18(b)(2)(xiv)(B), the
Bureau believes the required disclosures can exceed the minimum size
requirements set forth in the final rule. To that end, new comment
18(b)(7)(ii)-1 explains that a financial institution may provide
disclosures in a type size larger than the required minimum to enhance
consumer comprehension in any acquisition scenario, as long as the
financial institution complies with the type/pixel size hierarchy set
forth in final Sec. 1005.18(b)(7)(ii). New comment 18(b)(7)(ii)-2
clarifies that references in final Sec. 1005.18(b)(7)(ii) to ``point''
size correspond to printed disclosures and references to ``pixel'' size
correspond to disclosures provided via electronic means.
The Bureau declines to follow the recommendation of an industry
commenter that the Bureau preempt certain State law font size
requirements that it believes would be impracticable to reconcile with
the Bureau's font size requirements. Section 1005.12(b) addresses
standards for when inconsistent State law is preempted, but the Bureau
does not read the comment to argue that the Bureau's font size
requirements are inconsistent with any State law requirements.
Moreover, the Bureau notes that financial institutions can provide
short form disclosures for payroll accounts in a larger font and on
8.5'' x 11'' or larger paper, as they are not subject to the same space
constraints, for example, as are many retail locations.
In addition, as explained in the section-by-section analysis of
Sec. 1005.18(b)(7)(iii) below generally regarding State-required
information not permitted within the short form disclosure, financial
institutions are free to disclose State-required information outside
the confines of the short form disclosure, even on the same page as the
short form disclosure. In fact, as discussed in the section-by-section
analysis of Sec. 1005.18(b)(2)(xiv)(B), the final rule permits
inclusion in the short form disclosure of a statement directing the
consumer to a particular location outside the short form disclosure for
certain information (ways the consumer may access payroll card account
funds and balance information for free or for a reduced fee). Financial
institutions have the option of providing other State-required
information, including information complying with State conspicuousness
requirements, in the location referenced in the short form disclosure
pursuant to Sec. 1005.18(b)(2)(xiv)(B) or in any other location the
financial institution sees fit outside the short form disclosure.
Because financial institutions have these options outside the short
form disclosure to disclose information required by or otherwise comply
with the laws of specific States, the Bureau does not believe either
further modification to this final rule nor preemption of State law
regarding prominence and size is necessary or appropriate.
18(b)(7)(ii)(A) General
Proposed Sec. 1005.18(b)(4)(ii)(A) would have required that all
text used to disclose information pursuant to proposed Sec.
1005.18(b)(2) be in a single, easy-to-read type face. All text included
in the tables required to be disclosed pursuant to proposed Sec.
1005.18(b)(3)(iii) must be all black or one color type and printed on a
white or other neutral contrasting background whenever practical. The
Bureau believed that contrasting colors for the text and the background
of the short form and long form disclosures would make it easier for
consumers to read the disclosures. The Bureau did not receive any
comments on this proposed requirement.
For the reasons set forth herein, and in the absence of comments,
the Bureau is adopting proposed Sec. 1005.18(b)(4)(ii)(A), renumbered
as Sec. 1005.18(b)(7)(ii)(A), with technical
[[Page 84086]]
modifications for conformity and clarity. In addition, for the reasons
set forth below, the Bureau is adopting new comment 18(b)(7)(ii)(A)-1.
The final rule requires that all text used to disclose information
in the short form or in the long form disclosure pursuant to final
Sec. 1005.18(b)(2), (3)(i) and (ii), and (4) be in single, easy-to-
read type that is all black or one color and printed on a background
that provides a clear contrast. The Bureau has removed the proposed
requirement that the background be provided in clear contrast to the
type whenever practical because the Bureau does not believe there is a
circumstance under which providing a clear contrast would not be
practical. As stated in the proposal, 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 and
comprehend the disclosure.
New comment 18(b)(7)(ii)(A)-1 explains that a financial institution
complies with the color requirements if, for example, it provides the
disclosures required by final Sec. 1005.18(b)(2), (3)(i) and (ii), and
(4) printed in black type on a white background or white type on a
black background. While the Bureau continues to believe that using
black/white for the text and a contrasting white/black for the
background of the disclosures would provide an ideal presentation, it
also recognizes that using other similarly dark colors for text with a
neutral background color could also provide clear contrast. For
example, as noted in the proposal, the Bureau believes that the
statement at the top of the short form disclosure for payroll card
accounts required by final Sec. 1005.18(b)(2)(xiv)(A) disclosed in
black type on a grey background, if the background of the rest of the
short form disclosure is white, could provide a clear contrast that
would help alert consumers to that notice. See, e.g., final Model Form
A-10(b).
The comment also explains that, pursuant to final Sec.
1005.18(b)(7)(ii)(A), the type and color may differ between the short
form disclosure and the long form disclosure provided for a particular
prepaid account program. For example, a financial institution may use
one font/type style for the short form disclosure for a particular
prepaid account program and use a different font/type style for the
long form disclosure for that same prepaid account program. Similarly,
a financial institution may use black type for the short form
disclosure for a particular prepaid account program and use blue type
for the long form disclosure for that same prepaid account program.
The Bureau notes that neither final Sec. 1005.18(b)(7)(ii)(A) nor
anything else in the final rule specifies the minimum type size or
other prominence requirements for the disclosures required outside the
short form by final Sec. 1005.18(b)(5).
18(b)(7)(ii)(B) Short Form Disclosure
18(b)(7)(ii)(B)(1) Fees and Other Information
The Bureau's Proposal
Proposed Sec. 1005.18(b)(4)(ii)(B)(2) would have required that the
fee amounts disclosed by proposed Sec. 1005.18(b)(2)(i)(B)(1) through
(4) be more prominent than the other parts of 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 believed that consumers commonly
incur these top-line fees when a financial institution imposes charges
for these services. In the Bureau's pre-proposal consumer testing,
participants reported that these fee disclosures were the most
important to them.\462\ The Bureau recognized that a financial
institution may not charge all of the fees identified in proposed Sec.
1005.18(b)(2)(i)(B)(1) through (4). For example, a financial
institution might not charge any per purchase fees when it imposes a
monthly fee. The Bureau, however, still believed 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. The
Bureau also proposed that pixel sizes used correspond to the font sizes
specified because font sizes can vary when applied in electronic
contexts. Though the font sizes may differ, the Bureau explained that
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.
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\462\ See ICF Report I at i.
---------------------------------------------------------------------------
Additionally, the Bureau proposed in Sec. 1005.18(b)(4)(ii)(B)(2)
that the 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 for the information required by proposed Sec.
1005.18(b)(2)(i)(B)(1) through (4). As discussed in the recap of the
proposal above, the Bureau believed that, while these other fees are
important for a consumer to know pre-acquisition, the Bureau believed
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) also would have required
that the disclosures required by proposed Sec. 1005.18(b)(2)(i)(B)(10)
through (14) appear in a minimum seven-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)(5) through (9) (that is, the ATM balance inquiry
fees, customer service fee, inactivity fee, incidence-based fees, and
the statement regarding overdraft services and other credit features).
Additionally, the statement disclosed pursuant to proposed Sec.
1005.18(b)(2)(i)(B)(10), and the telephone number and Web site URL
disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(11) would have
had to be more prominent than the information disclosed pursuant to
proposed Sec. 1005.18(b)(2)(i)(B)(12) through (14) and (b)(2)(i)(C).
Proposed Sec. 1005.18(b)(4)(ii)(B)(2) would have also stated that
text used to distinguish each of the two fees that would have been
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 as required by
proposed Sec. 1005.18(b)(2)(i)(B)(7) must appear in a minimum six-
point font or the corresponding pixel size and appear in no larger a
font than what is used for information required to be disclosed by
proposed Sec. 1005.18(b)(2)(i)(B)(9) through (12). The Bureau believed
that this descriptive information was less important than the actual
fee information and therefore should be in a smaller font or pixel
size.
The Bureau did not receive any comments specifically regarding the
prominence and size requirements in proposed Sec.
1005.18(b)(4)(ii)(B)(2).
The Final Rule
For the reasons set forth herein, and in the absence of comments
opposing the specific prominence and size requirements for the fees and
other information in the short form disclosure, the Bureau is adopting
proposed Sec. 1005.18(b)(4)(ii)(B)(2), renumbered as Sec.
1005.18(b)(7)(ii)(B)(1), as proposed with certain modifications. The
Bureau is adopting the actual size requirements as proposed, with the
[[Page 84087]]
addition of size requirements that were unspecified in the proposed
rule. The Bureau has also replaced the proposed requirement that
certain portions of the short form disclosure be more prominent with
the more specific requirement that such disclosures appear in bold-
faced type to clarify that other methods of illustrating prominence,
such as italicized type, would not be deemed compliant. Finally, the
Bureau has made technical modifications to the rule for conformity and
clarity.
As stated in the proposal and above, the top line of the short form
disclosure uses prominence and relative type size to highlight what the
Bureau's research indicates are the fees that are most important to
consumers when selecting a prepaid account. Thus, the final rule
requires that the information required by final Sec. 1005.18(b)(2)(i)
through (iv) appear as follows: Fee amounts in bold-faced type; single
fee amounts in a minimum type size of 15 points (or 21 pixels); two-
tier fee amounts for ATM withdrawal in a minimum type size of 11 points
(or 16 pixels) and in no larger a type size than what is used for the
single fee amounts; and fee headings in a minimum type size of eight
points (or 11 pixels) and in no larger a type size than what is used
for the single fee amounts.
Echoing the proposed rule, the next rung of the visual hierarchy
for the short form disclosure includes the remaining fees and the
statements regarding additional fee types. The Bureau continues to
believe that this information, while important, is not as crucial as
the top-line information in driving consumer acquisition decisions and,
thus, merits disclosure in a relatively smaller type size. Thus, the
final rule requires that the information required by final Sec.
1005.18(b)(2)(v) through (ix) appear in a minimum type size of eight
points (or 11 pixels) and appear in the same or a smaller type size
than what is used for the fee headings required by final Sec.
1005.18(b)(2)(i) through (iv).
As in the proposed rule, the final rung of the visual hierarchy for
the short form disclosure includes the statements required by final
Sec. 1005.18(b)(2)(x) through (xiii). The Bureau believes that this
information, while important, is secondary to the fee information
provided in larger type above the statements. Thus, the final rule
requires that the information required by final Sec. 1005.18(b)(2)(x)
through (xiii) appear in a minimum type size of seven points (or nine
pixels) and appear in no larger a type size than what is used for the
information required to be disclosed by final Sec. 1005.18(b)(2)(v)
through (ix).
While the proposal would have required that certain disclosures in
the short form be more prominent than other parts of the disclosure,
the final rule specifies that those disclosures appear in bold-faced
type. The Bureau believes that the statement regarding the number of
additional fee types should be in bold-faced type to alert consumers
that the short form does not disclose all fee types that the consumer
may incur using that particular prepaid account and to inform them of
the total number of additional fee types that could be charged. As
discussed in the section-by-section analysis of Sec.
1005.18(b)(2)(viii) above, in the Bureau's post-proposal consumer
testing, participants expressed interest in knowing more about these
fee types.\463\ Relatedly, the Bureau believes it is important to
direct consumers to the source from which consumers can learn about
these additional fee types and other information about the prepaid
account program. The Bureau believes that standardized and consistent
use of bold-faced type for elements the Bureau believes merit greater
prominence supports the overall goal of the short form disclosure to
provide consumers with clear and easy-to-read information that will
enhance their prepaid account purchase and use decisions. Therefore,
the final rule requires that the statements disclosed pursuant to final
Sec. 1005.18(b)(2)(viii)(A) and (x) and the telephone number and Web
site URL disclosed pursuant to final Sec. 1005.18(b)(2)(xiii), where
applicable, must appear in bold-faced type. For the reasons set forth
in the section-by-section analysis of Sec. 1005.18(b)(2)(x) above, the
Bureau believes the statement regarding the availability of an
overdraft credit feature must stand out to consumers.
---------------------------------------------------------------------------
\463\ See ICF Report II at 11.
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Finally, the final rule sets forth the smallest type size
requirements for the remaining elements of the short form disclosure,
which provide the details of certain fees. The final rule requires that
text used to distinguish each of the two-tier fees pursuant to final
Sec. 1005.18(b)(2)(iii), (v), (vi), and (ix), to explain that the fee
required by final Sec. 1005.18(b)(2)(vi) applies ``per call,'' where
applicable, or to explain the conditions that trigger an inactivity fee
and that the fee applies monthly, or for the applicable time period,
pursuant to final Sec. 1005.18(b)(2)(vii) appear in a minimum type
size of six points (or eight pixels) and appear in no larger a type
size than what is used for the information required by Sec.
1005.18(b)(2)(x) through (xiii).
18(b)(7)(ii)(B)(2) Variable Fees
Proposed Sec. 1005.18(b)(4)(ii)(B)(3) would have required that the
explanatory text for variable fees disclosed pursuant to proposed Sec.
1005.18(b)(2)(i)(C), when applicable, must appear in a minimum seven-
point font or the corresponding pixel size and appear in no larger the
font than what is used for the information required to be disclosed by
proposed Sec. 1005.18(b)(2)(i)(B)(5) through (8). The Bureau believed
that this explanatory text should be in the same font size as the rest
of the textual information included on the short form disclosure.
The Bureau did not receive any comments on the prominence and size
requirements for variable fees in proposed Sec.
1005.18(b)(4)(ii)(B)(3).
For the reasons set forth herein, and in the absence of comments
opposing the specific prominence and size requirements regarding
variable fees in the short form disclosure, the Bureau is adopting
proposed Sec. 1005.18(b)(4)(ii)(B)(3), renumbered as Sec.
1005.18(b)(7)(ii)(B)(2), with certain modifications. The Bureau is
adopting the actual size requirements for disclosing variable fee as
proposed, with the addition of size requirements that were unspecified
in the proposed rule. The Bureau has also made technical modifications
to the rule to for conformity and clarity.
In keeping with the rationale set forth in the proposed rule, the
final rule conforms the size of the explanatory text and symbols for
variable fees pursuant to final Sec. 1005.18(b)(3)(i) and (ii) with
the type size of the rest of the statements required in the short form
disclosure. Thus, the final rule requires that the symbols and
corresponding statements regarding variable fees disclosed in the short
form pursuant to final Sec. 1005.18(b)(3)(i) and (ii), when
applicable, appear in a minimum type size of seven points (or nine
pixels) and appear in no larger a type size than what is used for the
information required by final Sec. 1005.18(b)(2)(x) through (xiii). A
symbol required next to the fee amount pursuant to final Sec.
1005.18(b)(3)(i) and (ii) must appear in the same type size or pixel
size as what is used for the corresponding amount.
18(b)(7)(ii)(B)(3) Payroll Card Account Additional Content
Proposed Sec. 1005.18(b)(4)(ii)(B)(1) would have provided that the
information required by proposed Sec. 1005.18(b)(2)(i)(A) and proposed
Sec. 1005.15(c)(2) (that is, the payroll card
[[Page 84088]]
account and government benefit account banner notices) must 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) (that
is, the top-line fees in the short form).
The Bureau did not receive any comments regarding the prominence
and size requirements in proposed Sec. 1005.18(b)(4)(ii)(B)(1).
For the reasons set forth herein, and in the absence of comments
opposing the specific prominence and size requirements regarding the
payroll card account and government benefit account banner notices in
the short form disclosure, the Bureau is adopting proposed Sec.
1005.18(b)(4)(ii)(B)(1), renumbered as Sec. 1005.18(b)(7)(ii)(B)(3),
with certain modifications. The Bureau is adopting the final rule with
the addition of size requirements for new Sec. 1005.18(b)(2)(xiv)(B).
The Bureau has also made technical modifications to the rule for
conformity and clarity. These revisions have been carried through to
final Sec. 1005.15(c)(2), the parallel provision addressing additional
content requirements in the government benefit account section.
As discussed above, the Bureau continues to believe that the
statement regarding wage or salary payment options required in the
short form disclosure pursuant to final Sec. 1005.18(b)(2)(xiv)(A) is
key information for consumers being offered payroll card accounts to
know before they choose whether or not to accept the payroll card
account. For this reason, the Bureau believes the type size of the
statement should be no larger than, but generally the same size as, the
top-line fee headings. Thus, the final rule requires the statement
regarding wage or salary payment options for payroll card accounts
required by final Sec. 1005.18(b)(2)(xiv)(A), when applicable, appear
in a minimum type size of eight points (or 11 pixels) and appear in no
larger a type size than what is used for the fee headings required by
final Sec. 1005.18(b)(2)(i) through (iv).
Because the new disclosure permitted for payroll card accounts by
final Sec. 1005.18(b)(2)(xiv)(B) regarding State-required information
and other fee discounts or waivers is a statement similar to and
located near the statements required by final Sec. 1005.18(b)(3)(i)
and (ii) and those required by final Sec. 1005.18(b)(2)(x) through
(xiii), the final rule requires the statement regarding State-required
information and other fee discounts and waivers permitted final Sec.
1005.18(b)(2)(xiv)(B) to appear in the same type size used to disclose
variable fee information pursuant to final Sec. 1005.18(b)(3)(i) and
(ii), or, if none, the same type size used for the information required
by final Sec. 1005.18(b)(2)(x) through (xiii).
18(b)(7)(ii)(C) Long Form Disclosure
Proposed Sec. 1005.18(b)(4)(ii)(C) would have provided that the
disclosures required by proposed Sec. 1005.18(b)(2)(ii) (that is, the
fees and other information in the long form disclosure) must appear in
a minimum eight-point font or the corresponding pixel size. The Bureau
believed that the long form disclosure, which would list all of a
prepaid account's fees, need only appear in a font that is clear enough
for consumers to read. The Bureau did not believe any part of the long
form disclosure should be more prominent than another part. Thus, the
Bureau did not propose any rules regarding the relative font size of
information disclosed in the long form.
The Bureau did not receive any comments regarding the prominence
and size requirements for the long form disclosure in proposed Sec.
1005.18(b)(4)(ii)(C).
For the reasons set forth in the proposal, and in the absence of
comments opposing the prominence and size requirements regarding the
long form disclosure, the Bureau is adopting proposed Sec.
1005.18(b)(4)(ii)(C), renumbered as Sec. 1005.18(b)(7)(ii)(C), with
technical modifications for conformity and clarity. Final Sec.
1005.18(b)(7)(ii)(C) provides that the long form disclosures required
by final Sec. 1005.18(b)(4) must appear in a minimum type size of
eight points (or 11 pixels). The final rule does not impose any
additional prominence or size requirements for the long form
disclosure.
18(b)(7)(ii)(D) Multiple Service Plan Short Form Disclosure
Proposed Sec. 1005.18(b)(4)(ii)(D) would have required 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. Disclosures required
by proposed Sec. 1005.18(b)(2)(i)(B)(10) through (14) must appear in
the font sizes set forth in proposed Sec. 1005.18(b)(4)(ii)(B)(2).
The Bureau did not receive any comments on the prominence and size
requirements for the multiple service plan short form in proposed Sec.
1005.18(b)(4)(ii)(D).
For the reasons set forth below, and in the absence of comments
opposing the prominence and size requirements regarding the short form
disclosure for multiple service plans, the Bureau is adopting proposed
Sec. 1005.18(b)(4)(ii)(D), renumbered as Sec. 1005.18(b)(7)(ii)(D),
with certain modifications. The Bureau generally is adopting the size
requirements for the multiple service plan short form disclosure as
proposed but with additional prominence and size requirements to
address the redesigned short form disclosure for multiple service plans
and, upon further consideration, to include specifications that were
not addressed in the proposed rule. The Bureau has made technical
modifications to the rule for conformity and clarity.
The design structure and increased density and complexity of the
short form disclosure for multiple service plans, as compared to the
general short form disclosure, requires more simplified uniform size
requirements. Thus, the final rule requires that, when providing a
short form disclosure for multiple service plans pursuant to final
Sec. 1005.18(b)(6)(iii)(B)(2), the fee headings required by final
Sec. 1005.18(b)(2)(i) through (iv) must appear in bold-faced type.
With this requirement, the disclosure of these fees will somewhat mimic
the focus on the top-line disclosures in the general short form. The
information required by final Sec. 1005.18(b)(2)(i) through (xiii)
must appear in a minimum type size of seven points (or nine pixels),
except the following must appear in a minimum type size of six points
(or eight pixels) and appear in no larger a type size than what is used
for the information required by final Sec. 1005.18(b)(2)(i) through
(xiii): Text used to distinguish each of the two-tier fees required by
final Sec. 1005.18(b)(2)(iii) and (v); text used to explain that the
fee required by final Sec. 1005.18(b)(2)(vi) applies ``per call,''
where applicable; text used to explain the conditions that trigger an
inactivity fee pursuant to final Sec. 1005.18(b)(2)(vii); and text
used to distinguish that fees required by Sec. 1005.18(b)(2)(i) and
(vii) apply monthly or for the applicable time period.
18(b)(7)(iii) Segregation
The Bureau's Proposal
Proposed Sec. 1005.18(b)(5) would have explained that disclosures
that would have been required under Sec. 1005.18(b) that are provided
in writing or electronically must be segregated from
[[Page 84089]]
everything else and could contain only information that is directly
related to the disclosures required under Sec. 1005.18(b). The Bureau
believed it was important that only the information it would have
required to be disclosed be included on the short form and long form
disclosures. The Bureau noted that 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 believed it
was important to limit the amount of information permitted in the
required disclosures to protect the integrity of their design.
Comments Received
A number of industry commenters, including trade associations and
program managers, as well as several employers and a local government
agency commented on the proposed segregation provision, recommending
that the Bureau eliminate the segregation requirements for payroll card
account disclosures to permit inclusion in the short form and long form
of State-required information for prepaid accounts. Some commenters
said that much of this information could not be feasibly or lawfully
disclosed on other parts of the packaging material or online and would
require a third disclosure form in addition to the short form and long
form disclosures just to disclose State-required information.
The Final Rule
For the reasons set forth herein, the Bureau is adopting proposed
Sec. 1005.18(b)(5), renumbered as Sec. 1005.18(b)(7)(iii), with
technical modifications for conformity and clarity. The Bureau is also
adopting new comment 18(b)(7)(iii)-1.
As discussed in the proposal, to preserve the design integrity of
the short form and long form disclosures, which the Bureau believes
will facilitate consumer engagement and optimal consumer comprehension,
it is necessary that the information in these disclosures be restricted
to that required or permitted under this final rule. Thus, the final
rule requires that the short form and long form disclosures required by
final Sec. 1005.18(b)(2) and (4) must be segregated from other
information and must contain only information that is required or
permitted for those disclosures by final Sec. 1005.18(b).
New comment 18(b)(7)(iii)-1 addresses information permitted outside
the short form and long form disclosures. Specifically, the comment
explains that the segregation requirement does not prohibit the
financial institution from providing information elsewhere on the same
page as the short form disclosure, such as the information required by
final Sec. 1005.18(b)(5) (that is, the names of the financial
institution and prepaid account program and any purchase price or
activation fee), additional disclosures required by State law for
payroll card accounts, or any other information the financial
institution wishes to provide about the prepaid account. Similarly, the
comment explains that the segregation requirement does not prohibit a
financial institution from providing the long form disclosure on the
same page as other disclosures or information, or as part of a larger
document, such as the prepaid account agreement, cross-referencing
Sec. 1005.18(b)(1) and (f)(1).
Thus, as long as the long form disclosure remains intact and free
of extraneous information not required or permitted within its
structure, neither the segregation requirement nor any other part of
the final rule prohibits disclosure of the long form as part of the
cardholder agreement. Thus, the long form may be disclosed as a
separate document or may be inserted intact within another document
such as the cardholder agreement.
The Bureau declines to exclude payroll card accounts from the
segregation requirements of final Sec. 1005.18(b)(7)(iii), as
requested by some commenters. The Bureau believes it is necessary to
preserve the design integrity of the short form and long form
disclosures for all types of prepaid accounts. The Bureau notes that,
pursuant to final Sec. 1005.18(b)(4)(ii), all fees and conditions,
including those required by State law, must be disclosed in the long
form disclosure. Thus, inclusion of State-required information in the
long form (with regard to fees and the conditions under which they may
be imposed for the prepaid account) would not only not violate the
segregation requirements of final Sec. 1005.18(b)(7)(iii) but
exclusion of this information would violate the requirements of final
Sec. 1005.18(b)(4)(ii) to disclose all fees and conditions. The Bureau
acknowledges, however, that State laws may have other specific
presentation requirements for their disclosures that may not correspond
to the final rule's requirements for the long form as set forth in
final Sec. 1005.18(b)(4)(ii) and (6)(iii)(A) and thus may necessitate
additional disclosure in a format that complies with those
requirements.
With regard to the short form disclosure, see the section-by-
section analysis of Sec. 1005.18(b)(2)(xiv)(B) above for discussion of
how State-required and other fee discounts and waivers may be disclosed
in conjunction with the short form disclosure. Pursuant to final Sec.
1005.18(b)(2)(xiv)(B), the final rule permits disclosure in the short
form for payroll card accounts (and government benefit accounts
pursuant to final Sec. 1005.15(c)(2)(ii)) of a statement directing
consumers to State-required information and other fee discounts and
waivers, whether this information is located on the same page as (but
outside) the short form disclosure or in another location such as the
cardholder agreement or on a Web site.
Also, because payroll card accounts (and government benefit
accounts) are not provided in retail locations where space may be
limited, the Bureau is not persuaded by arguments that State-required
information cannot be provided in other ways such as on the same page
but outside the short form disclosure, on another portion of the
packaging for the prepaid account, or in a package of information
accompanying the account.
18(b)(8) Terminology of Pre-Acquisition Disclosures
For the reasons set forth below, the Bureau is adopting the final
rule with the addition of Sec. 1005.18(b)(8), which requires that fee
names and other terms must be used consistently within and across the
disclosures required by final Sec. 1005.18(b). New comment 18(b)(8)-1
provides an example illustrating this requirement. The comment also
clarifies that a financial institution may substitute the term prepaid
``account'' for the term prepaid ``card'' as appropriate, wherever it
is used in final Sec. 1005.18(b).
A consumer group commenter recommended that the Bureau require
uniform terms across disclosures to prevent use of a variety of
terminology for certain required fees and information. The Bureau
agrees that use of consistent terminology within and across the short
form and long form disclosures for a particular prepaid account program
will enhance consumer comprehension, and thus is adopting new Sec.
1005.18(b)(8). The Bureau declines to eliminate the ``substantially
similar'' requirement for various terms throughout final Sec.
1005.18(b)(2) and replace it with a less flexible standard. Thus, the
final rule generally does not require the uniform use of a specific
term for particular fees across all short form disclosures. The Bureau
believes it can achieve a degree of standardization across short form
disclosures that will enhance consumer engagement and comprehension by
[[Page 84090]]
requiring that the terms used be substantially similar to the terms set
forth in the rule and model forms without mandating universal use of a
specific term. Moreover, the Bureau believes the safe harbor afforded
to financial institutions using the short form disclosure model forms
will encourage financial institutions to use the specific terminology
in the model forms where appropriate.
However, as set forth in the comment 18(b)(8)-1, a financial
institution may use the terms prepaid ``account'' and prepaid ``card''
interchangeably in the short and long forms, as appropriate. The Bureau
is allowing use of these terms because they may be used synonymously in
the prepaid context, particularly in light of the terminology used in
this final rule, but the Bureau recognizes that in some cases one of
the terms may be more apt than the other.
18(b)(9) Prepaid Accounts Acquired in Foreign Languages
The Bureau's Proposal
Regulation E generally permits, but does not require, that
disclosures be made in a language other than English, provided that
where foreign language disclosures are provided the disclosures are
made available in English upon a consumer's request.\464\ When the
Bureau issued its remittance transfer regulation (subpart B of
Regulation E), it 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.\465\ The Bureau
amended Regulation E in this way pursuant to a statutory mandate in
section 1073 of the Dodd-Frank Act.
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\464\ Sec. 1005.4(a)(2).
\465\ ICF Report II at 11.
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The Bureau proposed to modify the general Regulation E foreign
language requirement for prepaid accounts such that proposed Sec.
1005.18(b)(6) would have required 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. Proposed Sec.
1005.18(b)(6) would have also required a financial institution to
provide the long form disclosure required 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. Proposed comment 18(b)(6)-1 would have provided several
examples as to when financial institutions would have to provide the
short form and long form disclosures in a foreign language.
Comments Received
The Bureau received several comments from industry, consumer
groups, and one State government agency addressing this aspect of the
proposal. Specifically, the consumer groups and the State government
agency generally supported requiring financial institutions to provide
pre-acquisition disclosures in the foreign language the financial
institution uses in connection with the acquisition of a prepaid
account. Some of these commenters argued that, if financial
institutions market prepaid accounts in a foreign language, or
otherwise reach out to non- and limited-English speaking consumers,
they should also be required to provide the disclosures in that
language. One commenter urged the Bureau to require financial
institutions to provide disclosures in commonly spoken languages.
Another commenter explained that providing disclosures in a consumer's
preferred language gives non- and limited-English speaking families
accurate information regarding their prepaid accounts and creates an
inclusive culture that consumers seek when making financial decisions.
Another commenter requested that the Bureau extend this requirement to
all required disclosures, not just the pre-acquisition disclosures.
Some of the consumer groups urged the Bureau to further expand the
proposed foreign language requirements to require foreign language
support for live customer service calls in any language the financial
institution uses in connection with the marketing or acquisition of a
prepaid account. Some commenters stated that customer service
representatives (and interpreters) should be both fluent in the spoken
language and knowledgeable about prepaid accounts to ensure that
communication with non- and limited-English speaking consumers is as
effective as communication with other consumers. One commenter
explained that deploying a customer service representative (or an
interpreter) that does not have the necessary expertise can result in
the dissemination of inaccurate information. Other commenters stated
that customer service calls in foreign languages also enable non- and
limited-English speaking consumers to obtain account balances, request
transaction information, access general account information, and
exercise dispute rights. See the section-by-section analysis of Sec.
1005.18(c)(1) for a discussion of the comments received on foreign
language support for customer service calls as it relates to accessing
account information.
Two industry trade associations and a coalition of prepaid account
issuers agreed that, where a financial institution engages in a
deliberate marketing program to solicit consumers in a foreign
language, it may be reasonable to require disclosures in that same
language. One of the commenters explained that, in those situations,
financial institutions control the languages used in the marketing
programs and can determine whether it makes business sense to develop
and implement disclosures in a particular language.
The Bureau received several comments from industry, including from
industry trade associations, and a law firm writing on behalf of a
coalition of prepaid issuers, arguing, however, that the foreign
language disclosure requirement, as proposed, would discourage
financial institutions from servicing non- and limited-English speaking
consumers in their preferred languages, especially at branch locations
and call centers. Several commenters argued that the ``by telephone''
and ``in person'' components of the proposed requirement could actually
be detrimental to consumers because employees of a financial
institution would be prohibited from engaging with them in their
preferred languages if the financial institution did not have pre-
acquisition disclosures available in those languages. These commenters
stated that the proposed requirement would also undermine financial
institutions' efforts to service communities with a high number of non-
and limited-English speaking consumers (by hiring staff with specific
language abilities and establishing branches and offices in those
areas), which they stated is generally supported by other bank
regulators. Several commenters urged the Bureau to apply instead the
current foreign language disclosure requirements under Regulation E to
prepaid accounts.\466\ However, these commenters requested
[[Page 84091]]
that, if the Bureau proceeds with the proposed requirement, the term
``principally uses a foreign language'' not cover certain situations,
such as responses to consumer-initiated inquiries; interactions with
consumers through the use of an interpreter; and interactions where the
financial institution knows, based on a prior relationship or
interaction, that the consumer prefers a language other than English.
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\466\ As discussed above, Regulation E generally permits, but
does not require, that disclosures be made in a language other than
English, provided that where foreign language disclosures are
provided the disclosures are made available in English upon a
consumer's request. See Sec. 1005.4(a)(2).
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These industry commenters argued that the requirement as proposed
would also impose significant compliance burdens on financial
institutions. These commenters explained that financial institutions
would need to train their employees to speak only in English, or in the
specific languages for which pre-acquisition disclosures are available,
if the topic of prepaid accounts comes up while assisting consumers.
These commenters stated that customer service interactions that are in
person or over the telephone could implicate hundreds of languages,
thereby making compliance with the proposed requirements virtually
impossible. These commenters further stated that financial institutions
cannot always control the languages spoken at a retail setting, by a
program manager, or even at branch locations. In addition, these
commenters stated that financial institutions cannot ensure that third-
party providers, such as employers and government agencies, will comply
with the requirement because financial institutions might not know
whether a language other than English is spoken at the time of
acquisition.
One industry commenter urged the Bureau not to require financial
institutions to provide the long form disclosure in English upon
request in addition to providing the disclosures in a foreign language,
as it did not believe it would be necessary or customary to do so.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing proposed
Sec. 1005.18(b)(6), renumbered as Sec. 1005.18(b)(9), pursuant to its
authority under EFTA sections 904(a) and (c), 905(a), and section
1032(a) of the Dodd-Frank Act, with several modifications explained
below. The Bureau believes that certain foreign language disclosures
are 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, consistent with section 1032(a) of the Dodd-
Frank Act, the foreign language disclosures will 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.
Final Sec. 1005.18(b)(9)(i) sets forth the general foreign
language disclosure requirements for prepaid accounts. Specifically, it
requires a financial institution to provide the pre-acquisition
disclosures required by Sec. 1005.18(b) in a foreign language, if the
financial institution uses that same foreign language in connection
with the acquisition of a prepaid account in the following
circumstances: (1) The financial institution principally uses a foreign
language on prepaid account packaging material; (2) the financial
institution principally uses a foreign language to advertise, solicit,
or market a prepaid account and provides a means in the advertisement,
solicitation, or marketing material that the consumer uses to acquire
the prepaid account by telephone or electronically; or (3) the
financial institution provides a means for the consumer to acquire a
prepaid account by telephone or electronically principally in a foreign
language.
The Bureau is finalizing in Sec. 1005.18(b)(9)(i) the general
requirement from the proposal that a financial institution must provide
the pre-acquisition disclosures in a foreign language, if the financial
institution principally uses that foreign language on prepaid account
packaging material, by telephone, or on the Web site a consumer uses to
acquire a prepaid account. The Bureau is clarifying in final Sec.
1005.18(b)(9)(i) that the requirement to provide the pre-acquisition
disclosures in a foreign language applies only in connection with the
acquisition of a prepaid account. In addition, the Bureau has replaced
the phrase ``on the Web site'' with ``electronically'' in final Sec.
1005.18(b)(9)(i) to more clearly cover all situations in which a
consumer can electronically acquire a prepaid account, such as by
clicking on a link provided by the financial institution on an
advertisement accessed on a mobile device, for example. The Bureau
continues to believe that if a financial institution provides a way for
a consumer to acquire a prepaid account in a foreign language, the
financial institution is making a deliberate effort to obtain the
consumer's business and therefore should be required to provide the
pre-acquisition disclosures in that foreign language. The Bureau also
believes that if a financial institution principally uses a foreign
language on the interface that a consumer sees or uses to initiate the
process of acquiring a prepaid account, the consumer should receive
pre-acquisition disclosures in that foreign language to ensure they are
able to understand the required disclosures.
However, the Bureau has removed from final Sec. 1005.18(b)(9)(i)
the proposed requirement to provide the pre-acquisition disclosures in
a foreign language if the financial institution principally uses that
foreign language in person, as requested by several commenters. The
Bureau agrees with commenters that servicing non- and limited-English
speaking consumers in their preferred language is critical and would
not want to discourage employees of financial institutions at branch
locations from using their foreign language abilities to assist these
consumers. Similarly, the Bureau understands the importance of
servicing communities with a high number of non- and limited-English
speaking consumers and does not seek to stifle efforts made by
financial institutions to reach out to these communities.\467\ In
addition, the Bureau understands that financial institutions cannot
always know or control the languages that are spoken at branch
locations or in other in-person environments (particularly when those
locations are operated by third parties), and that providing
disclosures in every possible language their employees speak might not
be feasible. The Bureau believes that by not including the in-person
trigger in final Sec. 1005.18(b)(9)(i), financial institutions will be
able to better comply with this requirement while not discouraging them
from servicing non- and limited-English speaking consumers.
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\467\ See CFPB's Financial Education Programs Serving Immigrant
Populations (July 2016), available at http://www.consumerfinance.gov/data-research/research-reports/financial-education-programs-serving-immigrant-populations/.
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The Bureau has added a trigger for when a financial institution
principally uses a foreign language to advertise, solicit, or market a
prepaid account and provides a means in the advertisement,
solicitation, or marketing material for the consumer to acquire a
prepaid account by telephone or electronically, in response to the
comments it received. The Bureau agrees with commenters that if a
financial institution deliberately targets consumers by advertising,
soliciting, or marketing to them in a foreign language, the financial
institution should be required to provide the pre-acquisition
disclosures in that same language. The Bureau
[[Page 84092]]
believes it is particularly important to require financial institutions
to provide the disclosures in a foreign language, if in addition to
deliberately targeting consumers, financial institutions use those same
communications to drive consumers to a specific telephone number or Web
site to acquire a prepaid account.
Final Sec. 1005.18(b)(9)(ii) provides that a financial institution
required to provide pre-acquisition disclosures in a foreign language
pursuant to final Sec. 1005.18(b)(9)(i) must also provide the
information required to be disclosed in its pre-acquisition long form
disclosure pursuant to Sec. 1005.18(b)(4) in English upon a consumer's
request and on any part of the Web site where it discloses this
information in a foreign language. The Bureau believes that the ability
to obtain the long form disclosure information in English will be
beneficial to consumers in various situations, such as when a family
member is assisting a non-English speaking consumer to manage his
prepaid account but only reads English. Further, this requirement is
consistent with existing Sec. 1005.4(a)(2), which requires that
disclosures made under Regulation E in a language other than English be
made available in English upon the customer's request. The Bureau has
observed that many financial institutions that offer prepaid accounts
in a foreign language already provide the pre-acquisition disclosures
and the initial disclosures in both English and the foreign language
without a request from the consumer, which the Bureau believes is
beneficial for consumers. The Bureau has also revised the internal
paragraph references within final Sec. 1005.18(b)(9) and related
commentary to conform to numbering changes in this final rule and has
made other technical revisions for organizational purposes.
The Bureau is finalizing proposed comment 18(b)(6)-1, renumbered as
comment 18(b)(9)-1, with examples that reflect the changes to Sec.
1005.18(b)(9)(i) and that illustrate situations in which a financial
institution must provide the pre-acquisition disclosures in a foreign
language and situations in which it is not required to provide the
disclosures.
The Bureau is adopting new comment 18(b)(9)-2 to clarify when a
foreign language is principally used. This comment explains that all
relevant facts and circumstances determine whether a foreign language
is principally used by the financial institution to advertise, solicit,
or market under final Sec. 1005.18(b)(9). Whether a foreign language
is principally used is determined at the packaging material,
advertisement, solicitation, or marketing communication level, not at
the prepaid account program level or across the financial institution's
activities as a whole. A financial institution that advertises a
prepaid account program in multiple languages would evaluate its use of
foreign language in each advertisement to determine whether it has
principally used a foreign language therein.
The Bureau is adopting new comment 18(b)(9)-3 to explain the term
``advertise, solicit, or market.'' This comment clarifies that any
commercial message, appearing in any medium, that promotes directly or
indirectly the availability of prepaid accounts constitutes
advertising, soliciting, or marketing for purposes of Sec.
1005.18(b)(9). This comment also provides examples illustrating
advertising, soliciting, and marketing. The Bureau notes that
advertising, soliciting, and marketing could include, for example,
outreach via social media. New comment 18(b)(9)-3 resembles comment
31(g)(1)-2, which corresponds to the foreign language disclosure
requirements for remittance transfers in Sec. 1005.31(g)(1). However,
new comment 18(b)(9)-3 has been altered to accommodate for the
differences between how consumers acquire prepaid accounts and how they
initiate remittance transfers. For example, the Bureau did not include
in new comment 18(b)(9)-3 specific examples from comment 31(g)(1)-2
related to advertisements, solicitations, and marketing communications
at an office because scenarios at an office do not usually apply in the
prepaid account context.\468\ In addition, the Bureau believes that
leaving these examples out of new comment 18(b)(9)-3 avoids confusion
related to the proposed in person trigger that was removed from this
final rule. Thus, final Sec. 1005.18(b)(9) would not apply to general
advertisements, solicitations, and marketing communications that are in
a foreign language and displayed at a retail or branch location that do
not meet any of the triggers in Sec. 1005.18(b)(9)(i)(A) through (C).
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\468\ These examples include announcements in a foreign language
on a public address system at an office; printed material in a
foreign language on any exterior or interior sign at an office; and
point-of-sale displays in a foreign language at an office. See
comment 31(g)(1)-2.
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The Bureau is adopting new comment 18(b)(9)-4 to explain the
requirements in final Sec. 1005.18(b)(9)(ii), which states that a
financial institution required to provide pre-acquisition disclosures
in a foreign language pursuant to Sec. 1005.18(b)(9)(i) must also
provide the information required to be disclosed in its pre-acquisition
long form disclosure pursuant to Sec. 1005.18(b)(4) in English upon a
consumer's request and on any part of the Web site where it discloses
this information in a foreign language. New comment 18(b)(9)-4
clarifies that a financial institution required to provide pre-
acquisition disclosures in a foreign language pursuant to Sec.
1005.18(b)(9)(i) may, but is not required to, provide the English
version of the pre-acquisition long form disclosure information
required by final Sec. 1005.18(b)(4) in accordance with the
formatting, grouping, size and other requirements set forth in final
Sec. 1005.18(b) for the long form disclosure.
The Bureau declines to implement at this time other suggestions
made by several commenters, which include requiring foreign language
support for customer service calls; requiring customer service
representatives and interpreters to be both fluent in a foreign
language and knowledgeable about prepaid accounts; and requiring all
disclosures, not just pre-acquisition disclosures, to be provided in a
foreign language. The Bureau believes these measures are beyond the
scope of this rulemaking and therefore declines to adopt them now. The
Bureau is also concerned that imposing additional requirements in this
final rule would discourage financial institutions from servicing non-
or limited-English speaking consumers and from offering prepaid
accounts in foreign languages. The Bureau understands that the costs
associated with such requirements involve hiring and retaining trained
personnel fluent in other languages, which may be cost prohibitive for
many financial institutions. In addition, the Bureau has focused on the
pre-acquisition disclosures because it believes that they present a
reasonable and appropriate step forward focusing on the most important
information at the stage that the consumer is acquiring the prepaid
account. But for the reasons discussed above, the Bureau declines to
insert additional requirements in this final rule.
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 EFT. Section 1005.9(b),
which implements EFTA section 906(c), generally requires a periodic
statement for each monthly cycle in which an EFT occurred or, if there
are no such transfers, a periodic
[[Page 84093]]
statement at least quarterly.\469\ 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.\470\
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\469\ 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).
\470\ See Sec. Sec. 1005.4(a)(1) and 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 Sec. 1005.18(b), financial institutions can
provide for payroll card accounts 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)).
As discussed below, the Bureau proposed 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 electronic account transaction history, and at least 18
months written account transaction history upon request. Proposed Sec.
1005.18(c)(3) would have required financial institutions to disclose
all fees assessed against the account, in any electronic or written
account transaction histories and on periodic statements. In addition,
the Bureau proposed in Sec. 1005.18(c)(4) to require financial
institutions to disclose, in any electronic or written account
transaction histories and on periodic statements, monthly and annual
summary totals of the amount of all fees imposed on the prepaid
account, and the total amounts of deposits to and debits from the
prepaid account.
As discussed in detail in the section-by-section analyses that
follow, the Bureau is finalizing Sec. 1005.18(c) generally as proposed
with several modifications. Specifically, final Sec. 1005.18(c)(1)
requires 12 months of electronic account transaction history and 24
months of written account transaction history instead of 18 months for
both. The Bureau is also adopting new Sec. 1005.18(c)(2) to provide a
modified version of the periodic statement alternative for prepaid
accounts when a consumer's identity cannot be or has not been verified
by the financial institution. Furthermore, the Bureau is finalizing
proposed Sec. 1005.18(c)(2), renumbered as Sec. 1005.18(c)(3), as
proposed to require that the history of electronic and written account
transactions include the information set forth in Sec. 1005.9(b),
which lists the various items that must be included in a periodic
statement, such as detailed transaction information and fees assessed.
In addition, the Bureau is finalizing proposed Sec. 1005.18(c)(3),
renumbered as Sec. 1005.18(c)(4), generally as proposed to require a
financial institution to disclose the amount of any fees assessed
against the account, whether for EFTs or otherwise, on any periodic
statement provided pursuant to Sec. 1005.9(b) and on any history of
account transactions provided or made available by the financial
institution. Finally, the Bureau has modified proposed Sec.
1005.18(c)(4), renumbered as Sec. 1005.18(c)(5), to require financial
institutions to provide the summary totals of the amount of all fees
assessed by the financial institution against the consumer's prepaid
account for the prior calendar month and for the calendar year to date;
the Bureau is not finalizing the proposed requirement that financial
institutions provide summary totals of all deposits to and debits from
a consumer's prepaid account.
18(c)(1) Periodic Statement Alternative
Periodic Statement Requirement Generally
The Bureau's Proposal
As discussed above, existing Sec. 1005.18(b) states that 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)). The Bureau proposed to extend
this alternative to all prepaid accounts, with certain modifications,
as described in the section-by-section analyses of Sec.
1005.18(c)(1)(i) through (iii) below.
Comments Received
The Bureau received a number of comments regarding whether the
Regulation E periodic statement requirement should be applied to
prepaid accounts. Many consumer groups supported such a requirement,
arguing that the periodic statement is an important tool for managing
consumer finances, as consumers use information about their account
usage when making financial decisions. One commenter also argued that
receiving periodic statements encourages consumers to monitor their
accounts on a regular basis for errors and unauthorized transactions.
Another commenter requested that the Bureau require financial
institutions to provide annual statements for record-keeping and tax-
preparation purposes.
Several of these commenters and one State government agency argued
that consumers should have the option to sign up for paper periodic
statements for free or a nominal fee, instead of having to call each
time to make a request--taking up customer service resources and
possibly incurring a fee. These commenters argued that periodic
statements in paper form are essential for recordkeeping purposes,
especially for older consumers and consumers with no internet or
electronic access. These commenters also argued that paper periodic
statements are more convenient and easier to review for consumers who
find it difficult to remember passwords or log into their online
accounts, or for consumers who simply prefer paper over electronic
statements. One commenter stated that a myriad of regulations, laws,
and court procedures necessitate the continued availability of paper
periodic statements and noted several circumstances in which it
believed paper statements are necessary.
Conversely, some industry commenters, including issuing banks,
credit unions, and a credit union trade association, argued that
periodic statements should not be required for prepaid accounts,
considering the lifespan of a prepaid account is usually very short.
One commenter added that statements would not make sense particularly
for non-reloadable, low-value prepaid accounts, as these products are
anonymous and do not have the functionality or associated fees of
reloadable prepaid accounts, deposit
[[Page 84094]]
accounts, or other traditional bank accounts. Some commenters argued
that a periodic statement requirement would impose unnecessary costs
and recordkeeping burdens and provide consumers little value, as they
prefer immediate, electronic access to their account information and
transaction history. Regarding the form and content of the periodic
statement, a few credit union trade associations requested a model
form, and an issuing bank requested clarification regarding the
information that would be required on the statement.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing the
portion of the proposal that extends the Regulation E periodic
statement requirement to prepaid accounts. As stated above, the
requirement to provide consumers with a periodic statement for each
account that may be accessed by means of an EFT is required by EFTA
section 906(c), and the Bureau does not believe it would be appropriate
to completely exempt prepaid accounts from this requirement. The Bureau
also recognizes that access to account information--whether through a
periodic statement or the periodic statement alternative pursuant to
final Sec. 1005.18(c)(1) discussed below--is essential for consumers
to manage their prepaid accounts and to monitor account transactions
and fees on a regular basis.
The Bureau declines to require financial institutions to provide
periodic statements in paper form, as requested by several commenters.
The Bureau notes that Sec. 1005.4(a)(1) allows disclosures, including
periodic statements, required by Regulation E to be provided to the
consumer in electronic form, subject to compliance with the consumer-
consent and other applicable provisions of the E-Sign Act.\471\ The
Bureau does not believe it is necessary or appropriate at this time to
mandate paper statements for prepaid accounts. Regarding one
commenter's request for an annual statement, the Bureau believes
consumers will have sufficient access to account information through
periodic statements pursuant to Sec. 1005.9(b) or through electronic
and written account transaction histories pursuant to the periodic
statement alternative in final Sec. 1005.18(c)(1).
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\471\ 15 U.S.C. 7001 et seq.
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The Bureau does not believe it is necessary to provide additional
information or guidance about the form and content of the periodic
statement, as requested by some commenters. Because prepaid accounts
are subject to Regulation E by virtue of this final rule, the
requirements for periodic statements set forth in Sec. 1005.9(b), as
well as the general disclosure requirements in Sec. 1005.4, apply to
prepaid accounts.\472\ The Bureau reminds financial institutions that
the requirement in final Sec. 1005.18(c)(5) to display the summary
totals of fees for the prior calendar month and the calendar year to
date applies to financial institutions providing periodic statements as
well as those following the alternative, as discussed below. The
requirement to provide a periodic statement under Regulation E is
separate from the requirement under final Regulation Z Sec. 1026.7(b)
with respect to a covered separate credit feature that is accessible by
a hybrid prepaid-credit card. See the section-by-section analyses of
Regulation Z Sec. Sec. 1026.6 and 1026.7(b) for additional information
regarding the Regulation Z periodic statement requirement.
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\472\ As discussed below, final Sec. 1005.18(c)(3) requires
that electronic and written account transaction histories under the
periodic statement alternative include all of the information set
forth in Sec. 1005.9(b).
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Periodic Statement Alternative Generally
Comments Received
The Bureau received several comments addressing the periodic
statement alternative generally. Several consumer groups, a State
government agency, industry trade associations, and a few credit unions
supported the proposal, arguing that the alternative would benefit
consumers and impose little to no additional burden on industry. These
commenters explained that the requirements to provide account
information by telephone and online are consistent with consumer
preference. These commenters further stated that the alternative would
impose no additional costs and burden for financial institutions that
currently provide periodic statements. One of the consumer groups urged
the Bureau to require all financial institutions to provide access to
account information as would be required under the proposed
alternative, even if financial institutions provide periodic statements
pursuant to Sec. 1005.9(b).
Conversely, several industry commenters, including credit union
trade associations, a credit union, and a think tank, argued that the
proposed alternative would provide no relief to financial institutions
and could in fact be equally or more costly and burdensome than
providing periodic statements, leaving financial institutions--
particularly credit unions--with few options. These commenters
explained that financial institutions that do not have the proper
infrastructure in place to meet the requirements of the alternative
would need to invest in system upgrades and Web site development and
coordinate with third-party data processors to obtain the information
needed to provide periodic statements or account transaction history.
Several of the credit union trade associations explained that most
credit unions rely on third parties to maintain their Web sites and to
provide the data for account transaction history; therefore, reliance
on the third parties to capture the required information and to make
necessary changes would require industry-wide coordination and may
result in higher fees. Several other credit union trade associations
argued that the proposed alternative would not be appropriate for
prepaid accounts because prepaid accounts are generally seen as short-
term or disposable products, and the consumer relationship typically
lasts as long as there are funds available on the account. Relatedly,
one think tank argued that government agencies would find it difficult
to manage beneficiaries' account transaction histories for 18 months.
The Final Rule
For the reasons discussed herein, the Bureau is finalizing Sec.
1005.18(c)(1) generally as proposed, with certain modifications as
discussed below. 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 create an exception
to the periodic statement requirements of EFTA section 906(c), because
the periodic statement alternative will assist consumers' understanding
of their prepaid account activity.
The Bureau believes the periodic statement alternative adopted by
the Board for payroll card accounts, with the modifications discussed
below, is appropriate to extend to all prepaid accounts. The Bureau
proposed to adopt the periodic statement alternative for prepaid
accounts, which was based on the on the alternative under the Payroll
Card Rule, to reduce some of the burden financial institutions would
have otherwise experienced if required to provide periodic statements
for prepaid accounts. The Bureau believes that the alternative it is
adopting not only helps reduce costs, but also strikes the
[[Page 84095]]
appropriate balance between providing consumers with access to their
account information and not unnecessarily burdening financial
institutions. Specifically, financial institutions that wish to provide
periodic statements may do so (either on paper or electronically with
E-Sign consent \473\), while financial institutions that find such an
approach problematic or undesirable--because of the cost, burden, or
otherwise--may instead follow the alternative. Regardless of which
option a financial institution chooses, consumers will have access to
account information either by virtue of a periodic statement or through
the methods required under the alternative (that is, account balance by
telephone, electronic account transaction history, and written account
transaction history upon request).
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\473\ See Sec. 1005.4(a)(1).
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The Bureau does not expect the alternative to be particularly
burdensome for most financial institutions. As noted in the Bureau's
Study of Prepaid Account Agreements and other public studies, many
financial institutions already follow the existing alternative from the
Payroll Card Rule.\474\ Because consumers need reliable access to
account information to manage their prepaid accounts and to assist them
when making financial decisions generally, the Bureau believes it is
appropriate to require that financial institutions must either provide
a periodic statement or follow the alternative. Reliable access to
account information is especially important since prepaid accounts have
become more prevalent in recent years and are increasingly being used
as replacements for traditional checking accounts; that is, they are no
longer universally seen or used as short-term or disposable products.
Regarding commenters' concerns about the costs and burden associated
with the alternative, the Bureau believes the modifications it has made
to the length of time electronic and written account transaction
histories must cover, as discussed below, will help alleviate those
concerns.
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\474\ See Study of Prepaid Account Agreements at 18 tbl.5. 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; 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)); 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. See id. at 19 tbl.6 and 21
tbl.8. See also Ctr. for Fin. Services Innovation, 2016 Prepaid
Industry Scorecard: Assessing Quality in the Prepaid Industry with
CFSI's Compass Principles, at 4 (Mar. 2016), available at http://www.cfsinnovation.com/Document-Library/2016-Prepaid-Scorecard (2016
CFSI Scorecard); 2014 Pew Study at 19-20.
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The Bureau declines to require all financial institutions to
provide access to account information as required under the
alternative, even if they provide periodic statements, as requested by
a commenter, as it does not believe it to be necessary or appropriate
to do so at this time. As discussed above, the Bureau proposed to adopt
the periodic statement alternative for prepaid accounts in order to
reduce some of the burden financial institutions experience with regard
to mailing periodic statements. Requiring a financial institution to
provide access to account information pursuant to the alternative,
despite its election to provide periodic statements, would contradict
the intended purpose of the alternative.
Other Methods of Access to Account Information
Comments Received
The Bureau sought comment on the methods of access consumers need
to their account information and on other alternatives to the Payroll
Card Rule's approach regarding access to account information. The
Bureau received several industry and consumer group comments in
response to this request. All of these commenters generally supported
the idea that consumers should have access to their prepaid account
information. However, commenters were divided on whether the Bureau
should require other methods of access--in addition to the periodic
statement requirement pursuant to Sec. 1005.9(b) and the periodic
statement alternative provided by final Sec. 1005.18(c)(1)--and
whether such access should be provided at no cost to the consumer.
Several consumer groups urged the Bureau to require free text
message and email alerts and free access to customer service, arguing
that these methods are essential tools for consumers to successfully
manage their accounts. These commenters argued that imposing fees to
access account information discourages consumers, especially those
experiencing financial hardship, from monitoring transactions and
exercising their error resolution rights under Regulation E. These
commenters explained that text messages and email alerts provide a
quick and easy way for consumers to be notified about low account
balances and transactions made. One commenter stated that offering text
message updates available at no charge can help consumers that have
limited internet access and also assist financial institutions in
identifying fraud and other unauthorized transactions more quickly. In
addition, these commenters explained that consumers need access to
customer service for a variety of reasons, such as to ask questions,
check balances, dispute charges, and verify the receipt of wages and
other transactions. Several commenters requested that the Bureau
require foreign language support for customer service calls,
particularly if a financial institution uses a foreign language in
connection with the marketing or acquisition of a prepaid account.
On the other hand, industry commenters argued against a requirement
to provide other methods of access for account information at no cost
to the consumer. These commenters stated that text message and email
alerts should be optional, so that financial institutions can determine
the needs of their customers without unnecessary restrictions. These
commenters also stated that providing various methods of access to
account information can be costly to industry and therefore financial
institutions should be permitted to charge consumers reasonable fees
for certain methods of access.
The Final Rule
The Bureau has considered the above comments and declines to
require financial institutions to provide other methods of access to
account information at this time. The Bureau is concerned that
requiring financial institutions to provide free text message and email
alerts and free access to customer service could increase technological
and operational costs and burdens, including the hiring and training of
additional customer service personnel. The Bureau also believes that
financial institutions can assess the methods of access that best meet
the needs of their customers. For example, the Bureau is aware that
many financial institutions already provide free text message and email
alerts and access to customer service, as the competitive nature of the
industry is moving financial institutions to offer these services.\475\
However, the Bureau
[[Page 84096]]
believes that the periodic statement requirement of Sec. 1005.9(b) or
the periodic statement alternative in final Sec. 1005.18(c)(1) is
sufficient at this time to ensure that all prepaid consumers have
access to their account information.
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\475\ The CFSI found that 60 percent of the prepaid market
sampled (11 of 22 cards) allows users to customize alerts (compared
to 30 percent of the market sampled (7 of 18 cards) in 2014). The
CFSI noted that 11 cards allow cardholders to set a ``low balance''
threshold and receive an email or text alert when their balance
falls below that threshold. Five cards also allow users to select
notifications of transactions or withdrawals over a certain dollar
amount. See 2016 CFSI Scorecard at 2, 9. See also 2014 Pew Study at
19-20.
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Regarding commenters' request that the Bureau require financial
institutions to provide foreign language support for customer service,
the Bureau does not believe such a requirement is necessary or
appropriate at this time. The Bureau understands that financial
institutions that market prepaid accounts in foreign languages
generally offer customer service support in those languages and that
some offer foreign language customer service support, particularly in
Spanish, even if they do not engage in foreign language marketing.
However, the Bureau has concerns about the costs and burdens to
industry, if it were to formalize such a requirement in this final
rule. While consumers will have the right to obtain, in certain
situations, pre-acquisition disclosures in a foreign language pursuant
to final Sec. 1005.18(b)(9), the Bureau is concerned that a foreign-
language customer-service requirement here could deter financial
institutions from offering prepaid accounts in foreign languages
because financial institutions would have to ensure, among other
things, that live customer service in a foreign language is available
at all times. However, the Bureau will continue to monitor industry
practice in this area and may revisit this issue in a future
rulemaking.
18(c)(1)(i)
The Bureau's Proposal
As noted above, under the Payroll Card Rule, a financial
institution is not required to furnish periodic statements pursuant to
Sec. 1005.9(b) if it instead follows the periodic statement
alternative for payroll card accounts in existing Sec. 1005.18(b)(1).
Existing Sec. 1005.18(b)(1)(i) requires a financial institution to
provide access to the consumer's account balance through a readily
available telephone line. The Bureau proposed to extend this
requirement as proposed Sec. 1005.18(c)(1)(i) to all prepaid accounts.
As discussed in the section-by-section analysis of Sec.
1005.15(d)(1)(i) above, the periodic statement alternative for
government benefit accounts 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 EFT). The Bureau sought 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. The Bureau also requested 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 and for parity
with proposed Sec. 1005.18.
Comments Received
A number of commenters, including consumer groups, an office of a
State Attorney General, a State government agency, and a credit union,
supported the proposal to extend to prepaid accounts the first part of
the periodic statement alternative to provide access to a consumer's
account balance through a readily available telephone line. In
addition, these commenters, as well as several labor organizations,
urged the Bureau to require free access to balance information at a
terminal for all prepaid accounts. They explained that terminals are
convenient and easy to use, especially for non-English speakers and
consumers who have difficulty navigating an automated menu over the
telephone. These commenters also noted that terminals provide account
balances in real-time and are valuable to consumers with limited
telephone and internet access.
Several consumer groups also argued that imposing fees to access
balance information at a terminal discourages consumers, especially
those experiencing financial hardship, from monitoring transactions and
exercising their error resolution rights under Regulation E. These
commenters noted that paying for such access is especially difficult
for consumers who are already experiencing financial hardship and that
consumers generally do not expect to be charged for checking their
balance information. They suggested that the cost of providing balance
information at a terminal is minimal and should be bundled with the
cost of withdrawals. However, one program manager challenged this
point, arguing that access to balance information at a terminal is the
most expensive method to check account balances because these
transactions would likely generate a cost to merchants and networks
that would likely then be assessed back to financial institutions.
Another program manager urged the Bureau not to require access to
balance information at a terminal given the costs to industry, and a
credit union specifically requested that financial institutions not be
required to provide access to balance information by both telephone and
at a terminal.
One industry commenter requested that the Bureau allow online
access to a digital wallet account balance as an alternative to
providing access via a readily accessible telephone line. This
commenter explained that consumers who use digital wallets must have a
means to access their accounts electronically, and that digital wallet
providers use email and other electronic communications as the primary
way to provide information to consumers. This commenter further
explained that, given the relationship between the consumer and the
digital wallet provider, it does not believe consumers of such products
wish to check their account balance via telephone.
The Final Rule
For the reasons discussed herein, the Bureau is finalizing Sec.
1005.18(c)(1)(i) as proposed. The Bureau believes that, as part of the
periodic statement alternative, access to balance information is
essential for consumers to use and manage their accounts, The Bureau
understands that providing such access through a readily available
telephone line is a common method of doing so. In addition, the Bureau
believes that most financial institutions already provide balance
information by telephone. Notwithstanding the consumer benefits of
accessing balance information at a terminal, the Bureau does not
believe that requiring such access for all prepaid accounts justifies
the additional costs to industry at this time, given that consumers can
obtain balance information through other, less expensive methods. The
Bureau also declines to exempt digital wallets that are prepaid
accounts from the requirement to provide balance information by
telephone under the periodic statement alternative, as requested by one
commenter, because balance information should be accessible by
telephone in the event online access to such information is
unavailable.
As explained in the proposal, the Bureau expects that a readily
available telephone line for providing balance information be a local
or toll-free telephone line that, at a minimum, is available during
standard business hours. Further, the Bureau expects that, in most
cases, financial institutions would provide 24-hour access to
[[Page 84097]]
balance information through an automated line, which would ensure that
consumers could access balance information at their convenience. The
Bureau reminds financial institutions that neither they nor their
service providers are permitted to charge consumers a fee for accessing
balance information by telephone, when providing that information as
part of the periodic statement alternative pursuant to final Sec.
1005.18(c)(1)(i).
18(c)(1)(ii) and 18(c)(1)(iii)
The Bureau's Proposal
Existing Sec. 1005.18(b)(1)(ii) requires financial institutions to
provide an electronic history of the consumer's payroll card account
transactions, such as through a Web site, that covers at least 60 days
preceding the date the consumer electronically accesses the account.
The Bureau proposed to extend this existing requirement in Sec.
1005.18(b)(1)(ii) to prepaid accounts in proposed 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 proposed to extend
this time period because it believed 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 believed that a consumer may
realize during any given year that he or she needs financial records
from the prior calendar year and that access to 18 months of prepaid
account history would give the consumer six months into the next
calendar year. In addition, based on pre-proposal outreach to prepaid
account providers and publicly available studies, the Bureau believed
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 would be minimal.
Existing Sec. 1005.18(b)(1)(iii) requires financial institutions
to provide a written history of the consumer's payroll card account
transactions promptly in response to an oral or written request, that
covers at least 60 days preceding the date the financial institution
receives the consumer's request. Similar to the requirement to provide
electronic account transaction history, the Bureau proposed to extend
this requirement to all prepaid accounts in 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. The Bureau also
proposed to extend to all prepaid accounts existing comment 18(b)-1,
which requires that the account transactions histories provided under
existing Sec. 1005.18(b)(1)(ii) and (iii) reflect transactions once
they have been posted to the account, renumbered as proposed comment
18(c)-1. In addition, the Bureau also proposed to extend to all prepaid
accounts existing comment 18(b)-2 regarding retainability of electronic
account history renumbered as proposed comment 18(c)-2.
The Bureau recognized that in certain situations, consumers'
requests for written account information may exceed what would be
required under the proposal; therefore, the Bureau proposed to clarify
in proposed 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 have included 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.
Proposed comment 18(c)-4 would have explained 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 the request is received. In addition, this comment would have
explained that when a prepaid account has been closed or inactive for
18 months, the financial institution is no longer required to make any
account or transaction information available. The proposed comment
would have referenced 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.
Comments Received
The Bureau received many comments requesting that it modify the
time period that must be covered in a consumer's electronic and written
account transaction history. Most consumer groups supported the
Bureau's proposal to provide at least 18 months of account transaction
history, noting the consumer benefits of having a longer time period
and arguing that the impact on industry should be minimal because data
storage costs continue to decrease and consumers rarely request copies
of their account transaction history. These commenters also argued
that--contrary to the Bureau's proposal--financial institutions should
not be permitted to charge a fee for providing written account
transaction history that is older than the required time period,
arguing that it should not cost more to print and mail older
information than it is to print and mail newer information.
A few consumer groups argued, however, that a 24-month time period
would be more appropriate than 18 months because consumers could
identify seasonal patterns, and October 15 tax filers could access
transactions earlier than March 15 of the previous year. One of these
commenters explained that it could take months for unauthorized
transactions to be recognized and months or years to complete fraud
investigations and resolve disputes with third parties. This commenter
also stated that 24 months would allow consumers to access a longer
period of account history, which would be particularly helpful to
consumers who are unable to print or save transaction history on a
regular basis. These commenters also requested that written account
transaction histories go back at least seven years, which they said
would be consistent with some document retention policies, so that
consumers who use prepaid accounts as primary transaction accounts
could look up older charges in the event of a tax audit or when
applying for a mortgage.
A number of industry commenters, including issuing banks and credit
unions, trade associations, and program managers, urged the Bureau to
shorten the proposed 18-month time period and, relatedly, stated that
financial institutions would need longer than the proposed nine-month
compliance period to implement the requirement as proposed. These
commenters argued that the potential costs to industry would outweigh
any consumer benefit, since, in their experience, consumers rarely
request 18 months of transaction history and do not currently use
account
[[Page 84098]]
transaction history for tax preparation purposes. Some industry
commenters requested a 60-day time period, which they stated would be
consistent with the current periodic statement alternative for payroll
card accounts and with the error resolution and limited liability
notification requirements under Regulation E. Other industry commenters
requested a time period of no longer than 12 months, arguing that most
financial institutions do not retain more than 12 months of account
transaction history in a real-time online format, and therefore,
requiring a longer time period would be problematic for financial
institutions. These commenters also stated that 12 months would be
sufficient for consumers to manage their accounts and would be
consistent with consumer expectation. Several other industry commenters
requested that the Bureau instead require financial institutions to
provide consumers with a copy of their written account transaction
history upon request once every 12 months at no cost and then allow
financial institutions to charge a reasonable fee for any subsequent
requests made during that 12-month time period. One of the credit union
commenters argued that the time period to provide account transaction
history should be left to the financial institution's discretion.
Several of these industry commenters argued that maintaining 18
months of account transaction history would result in significant costs
to financial institutions. These commenters explained that storing and
securing such information would lead to operational costs related to
upgrading systems, changing record retention policies and procedures,
and training personnel.\476\ Several credit union trade associations
argued that the proposed time period would be especially problematic
for credit unions because they retain limited historical account
information in their systems and rely on periodic statements if a
member requests information beyond what is in their systems.\477\
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\476\ These industry commenters also described specific actions
that they believed would increase costs and burden. These included
updating data processor systems (or developing interfaces with
third-party providers' processing systems); purchasing data storage
systems; and redesigning platforms and Web sites.
\477\ Under the Bureau's proposal, however, if a financial
institution provides a periodic statement, it would not have been
required to make available 18 months of electronic account
transaction history. The Bureau thus believes these commenters'
concerns regarding issues related to retaining a longer period of
account history are misplaced.
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Several industry commenters explained some of the differences
between the types of information needed to make available and provide
electronic and written account transaction histories and the costs
associated with maintaining each. These commenters stated that
generally, information in a real-time, online database is necessary to
make available electronic account transaction history, and archived
information is retrieved to provide written account transaction history
that extends beyond the time period retained in the real-time database.
These commenters stated that real-time information is usually archived
after 12 months of the account being opened or when the account is
closed, if sooner, and typically retained for several years. They
explained that real-time information is easier to access, but more
expensive to maintain than archived information, and archived
information is inexpensive to maintain, but can be difficult to access.
These commenters therefore concluded that maintaining 18 months of
electronic account transaction information would be costly because
maintaining that length of real-time information is expensive. These
commenters further argued that responding to one-off requests from
consumers for 18 months of written account transaction history would
also be problematic because archived information, although inexpensive
to maintain, is usually restricted to certain personnel or stored with
a third-party processor, who typically charges a fee to retrieve the
information. These commenters also argued that mailing account
transaction histories that cover a time period longer than 60 days
would increase printing and mailing costs.
Despite the costs associated with retrieving archived information,
these commenters stated that they would rather provide a longer period
of written account transaction history than make available a longer
period of electronic account transaction history, given that
maintaining electronic history is more expensive. However, because of
the cost and complexity associated with retrieving archived
information, these commenters requested that the Bureau allow financial
institutions to begin accumulating data as of the effective date of the
final rule (until they have built up to 18 months of accumulated
transaction history), rather than requiring financial institutions to
make available or provide the full length of account transaction
histories as of the effective date, to alleviate some of the compliance
burden.
A few program managers suggested further modifications that they
believed would help reduce the costs associated with the proposed
periodic statement alternative. Two of these program managers urged the
Bureau to allow financial institutions to charge a fee for responding
to requests for written account transaction histories. Another
requested that the Bureau expressly allow financial institutions to
inform consumers that they may request written history that covers less
than the required time period.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.18(c)(1)(ii) and (iii) with modifications to revise the time
periods a consumer's electronic and written account transaction history
must cover. Specifically, final Sec. 1005.18(c)(1)(ii) requires
financial institutions to make available electronic account transaction
history that covers at least 12 months preceding the date the consumer
electronically accesses the account, instead of 18 months as proposed.
Final Sec. 1005.18(c)(1)(iii) requires financial institutions to
provide written account transaction history that covers at least 24
months preceding the date the financial institution receives the
consumer's request, instead of 18 months as proposed. The Bureau
continues to believe that, based on how consumers are currently using
prepaid accounts, access to more than 60 days of electronic and written
account transaction history will be beneficial to consumers for a
variety of reasons, such as monitoring for unauthorized transactions,
tracking spending habits, demonstrating on-time bill payment, and
compiling year-end data for tax preparation purposes.
However, based on the response from industry commenters, the Bureau
is persuaded that providing 18 months of electronic account transaction
history could be particularly burdensome to industry, especially since
costs related to retaining electronic history increase as the time
period lengthens. The Bureau believes that 12 months of electronic
account transaction history is consistent with the length of history
consumers expect to access online and should not be problematic for
financial institutions since many already provide at least 12 months of
account transaction history, as discussed by industry commenters. The
Bureau thus believes this revision strikes the appropriate balance
between burden imposed on industry overall while, in conjunction with
final Sec. 1005.18(c)(1)(iii), ensuring that additional transaction
history will be available for consumers who need it. The Bureau reminds
financial institutions that neither they nor their
[[Page 84099]]
service providers are permitted to charge consumers a fee for accessing
electronic account transaction history when providing that information
as part of the periodic statement alternative pursuant to Sec.
1005.18(c)(1)(ii).
Considering the costs associated with maintaining electronic
account transaction history, as discussed by commenters, the Bureau
declines at this time to require financial institutions to provide
electronic account transaction history covering a time period longer
than 12 months. However, under the final rule, consumers will be able
to request 24 months of written account transaction history pursuant to
Sec. 1005.18(c)(1)(iii), which the Bureau believes adequately
addresses the various scenarios offered by consumer group commenters as
to why consumers may need access to a longer period of account
transaction history. In addition, the Bureau does not believe that the
time period for electronic account transaction histories should be left
to the financial institution's discretion, as requested by one
commenter, because consistency across the market reduces any potential
for consumer confusion and assures that sufficient history is available
for all consumers.
With regard to written account transaction histories, under the
final rule, consumers will benefit from having access to two full years
of transaction information if needed, without requiring industry to
absorb the expense of making that length of information available
electronically on an ongoing basis. The Bureau declines to require
financial institutions to provide seven years of written account
transaction history, as suggested by several commenters. The Bureau
believes that 24 months of written history upon request is sufficient
to meet the needs of consumers and does not believe it is necessary at
this time to require financial institutions to provide an even longer
written account history upon request at no cost. Based on information
received from industry commenters, the Bureau believes the requirement
to provide 24 months of written account transaction history, in
conjunction with the requirement to provide 12 months of electronic
account transaction history under final Sec. 1005.18(c)(1)(ii),
strikes an appropriate balance in providing consumers with the
information necessary to manage their accounts while not imposing undue
burden on industry. As explained by these commenters, maintaining
archived information, which a financial institution will likely need to
retrieve to provide 24 months of written history, is less expensive
than retaining the real-time information necessary for making
electronic history available online. Moreover, because, as explained by
some commenters, many financial institutions already retain several
years of archived data and consumers do not typically request long
periods of written history, the Bureau does not believe that
maintaining, retrieving, and providing 24 months of written history
upon request should be particularly burdensome to financial
institutions. The Bureau notes that financial institutions are not
required to provide written history for a longer period than what the
consumer actually wants; a financial institution may, for example,
inform consumers that they may request written history that covers less
than 24 months.
Furthermore, as explained in the proposal, the Bureau anticipates
that, in general, written transaction account histories will be sent
the next business day or soon after a financial institution receives
the consumer's oral or written request. Financial institutions may also
designate a specific telephone number for consumers to call and a
specific address for consumers to write to request a written copy of
their account transaction history.
Regarding industry commenters' concerns about the proposed nine-
month compliance period, final Sec. 1005.18(h)(1) imposes a general
effective date of October 1, 2017 for this final rule. However, final
Sec. 1005.18(h)(3)(i) provides an accommodation for financial
institutions that do not have readily accessible the data necessary to
make available 12 months of electronic account transaction history
pursuant to final Sec. 1005.18(c)(1)(ii) or 24 months of written
account transaction history upon request pursuant to final Sec.
1005.18(c)(1)(iii) on October 1, 2017. Specifically, in that case, the
financial institution may make available or provide the electronic and
written histories using the data for the time period it has until the
financial institution has accumulated the data necessary to comply in
full with the requirements of final Sec. 1005.18(c)(1)(ii) and (iii).
See the section-by-section analysis of Sec. 1005.18(h) below for
additional information about the final rule's effective dates and
related accommodations.
The Bureau received no comments specifically addressing proposed
comment 18(c)-1. Accordingly, the Bureau is finalizing comment 18(c)-1
as proposed. This comment explains that the electronic and written
history of the consumer's account transactions provided under final
Sec. 1005.18(c)(1)(ii) and (iii), respectively, shall reflect
transfers once they have been posted to the account. Thus, a financial
institution does not need to include transactions that have been
authorized but that have not yet posted to the account.
The Bureau received no comments regarding proposed comment 18(c)-2.
Accordingly, the Bureau is finalizing comment 18(c)-2 as proposed. This
comment explains that the electronic history required under final Sec.
1005.18(c)(1)(ii) must be made available in a form that the consumer
may keep, as required under Sec. 1005.4(a)(1). Financial institutions
may satisfy this requirement if they make the electronic history
available in a format that is capable of being retained. For example, a
financial institution satisfies the requirement if it provides
electronic history on a Web site in a format that is capable of being
printed or stored electronically using a web browser.
The Bureau is finalizing comment 18(c)-3 substantially as proposed,
with minor modifications for consistency with the revised time periods
in the regulatory text. Specifically, final comment 18(c)-3 clarifies
that financial institutions may charge a fee for providing written
account transaction history that is older than 24 months. This comment
also provides examples of requests that exceed the requirements of
final Sec. 1005.18(c)(1)(iii) and which therefore a financial
institution may charge a fee. In addition, the Bureau has revised the
internal paragraph references to conform to other numbering changes in
this final rule.
The Bureau declines at this time to permit financial institutions
to charge consumers a fee for providing the written account transaction
history required by final Sec. 1005.18(c)(1)(iii), as suggested by
some commenters. As with the electronic account transaction history
required by Sec. 1005.18(c)(1)(ii), the Bureau believes it is
necessary for consumers to have free access to at least 24 months of
written account transaction history to effectively manage their prepaid
accounts. The Bureau believes 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. The Bureau reminds
financial institutions that neither they nor their service providers
are permitted to charge consumers a fee for requesting written account
transaction history when providing that information as part
[[Page 84100]]
of the periodic statement alternative pursuant to Sec.
1005.18(c)(1)(iii).
For the final rule, the Bureau has divided proposed comment 18(c)-4
into two, numbered as final comments 18(c)-4 and -5, to discuss the
requirements for electronic and written account transaction history
separately. The Bureau is finalizing the portion of comment 18(c)-4
addressing electronic account transaction history, with several
modifications. Specifically, final comment 18(c)-4 no longer explains
that 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 the request is received. In addition, final comment 18(c)-4 no
longer states that 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. Given the revised
time periods that electronic and written account transaction histories
must cover, the Bureau has also removed from final comment 18(c)-4 the
references to written account transaction history and, as discussed
below, is adopting new comment 18(c)-5 to explain separately the
requirements for providing access to written account transaction
history. In addition, the Bureau has revised the internal paragraph
references in comment 18(c)-4 to conform to other numbering changes in
this final rule and has made several other modifications for clarity.
Specifically, final comment 18(c)-4 clarifies that, if a prepaid
account has been opened for fewer than 12 months, the financial
institution need only provide electronic account transaction history
pursuant to final Sec. 1005.18(c)(1)(ii) since the time of account
opening. Final comment 18(c)-4 also explains that, if a prepaid account
is closed or becomes inactive, as defined by the financial institution,
the financial institution need not make available electronic account
transaction history. This comment cross-references comment 9(b)-3.\478\
However, if an inactive account becomes active, the financial
institution must again make available 12 months of electronic account
transaction history. The Bureau does not believe it is necessary to
require financial institutions to continue making access to electronic
history available for closed and inactive accounts because consumers do
not typically expect to access this information electronically once an
account is closed or becomes inactive. The Bureau also believes that
not requiring financial institutions to provide electronic access for
closed and inactive accounts will reduce burden on industry relative to
the proposal, and consumers will still have access to such information,
if needed, in writing upon request as required by final Sec.
1005.18(c)(1)(iii).
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\478\ Existing comment 9(b)-3 provides that a financial
institution is not required to send periodic statements to consumers
whose accounts are inactive as defined by the financial institution.
---------------------------------------------------------------------------
As noted above, the Bureau is adopting new comment 18(c)-5 to
explain the requirements for providing access to written account
transaction history that had been addressed in proposed comment 18(c)-
4. The Bureau is adopting the requirements substantially as proposed,
with several minor modifications. Specifically, new comment 18(c)-5
explains that a financial institution may provide fewer than 24 months
of written account transaction history if the consumer requests a
shorter period of time. This comment also clarifies that, if a prepaid
account has been opened for fewer than 24 months, the financial
institution need only provide written account transaction history
pursuant to final Sec. 1005.18(c)(1)(iii) since the time of account
opening. Even if a prepaid account is closed or becomes inactive, the
financial institution must continue to provide upon request at least 24
months of written account transaction history preceding the date the
request is received. When a prepaid account has been closed or inactive
for 24 months or longer, the financial institution is no longer
required to make available any written account transaction history
pursuant to final Sec. 1005.18(c)(1)(iii). In addition, the Bureau has
revised the internal paragraph references in comment 18(c)-5 to conform
to other numbering changes in this final rule and has made several
other modifications for clarity.
18(c)(2) Periodic Statement Alternative for Unverified Prepaid Accounts
The Bureau is adopting new Sec. 1005.18(c)(2) to provide a
modified version of the periodic statement alternative for prepaid
accounts that cannot be or have not been verified by the financial
institution. Specifically, for prepaid accounts that are not payroll
card accounts or government benefit accounts, the final rule does not
require a financial institution to provide written account transaction
history pursuant to final Sec. 1005.18(c)(1)(iii) for any prepaid
account for which the financial institution has not completed its
consumer identification and verification process as described in final
Sec. 1005.18(e)(3)(i)(A) through (C).
The Bureau did not receive any comments on this issue, but upon
further consideration, believes this modification to the periodic
statement alternative would be appropriate, particularly in light of
the modifications the Bureau has made to the error resolution
requirements for unverified accounts in final Sec. 1005.18(e)(3). The
Bureau believes that the limited nature of prepaid accounts that cannot
be or have not been verified by a financial institution does not
justify requiring financial institutions to provide written account
transaction histories upon request for these accounts. The Bureau
believes that these accounts do not typically remain active for more
than 12 months, and even if they do, they are usually only used to
conduct a limited number of transactions. In addition, a financial
institution will not likely have a physical address for an unverified
prepaid account, and therefore, cannot mail a copy of the consumer's
written account transaction history. The Bureau believes, however, that
consumers of these accounts still need to have access to balance
information by telephone as well as electronic account transaction
history in order to manage their accounts.
The Bureau is adopting new comment 18(c)-6 to provide further
guidance on the periodic statement alternative for unverified accounts
provided in Sec. 1005.18(c)(2). Specifically, comment 18(c)-6 explains
that, if a prepaid account is verified, a financial institution must
provide written account transaction history upon the consumer's request
that includes the period during which the account was not verified,
provided the period is within the 24-month time frame specified in
final Sec. 1005.18(c)(1)(iii).
18(c)(3) Information Included on Electronic or Written Histories
Under existing Sec. 1005.18(b)(2), the history of electronic and
written account transactions for payroll card accounts 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 proposed to extend this existing requirement to all prepaid
accounts 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 the requirement unchanged.
[[Page 84101]]
The Bureau received comments from an issuing bank, an industry
trade association, and a program manager on this provision, stating
that they agreed with the Bureau's proposal to leave this provision
unchanged. Accordingly, the Bureau is finalizing Sec. 1005.18(c)(2),
renumbered as Sec. 1005.18(c)(3), as proposed.
18(c)(4) Inclusion of All Fees Charged
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 EFTs or account
maintenance. The Bureau notes that Regulation DD requires that periodic
statements disclose all fees debited to accounts covered by that
regulation.\479\ 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.'' \480\ Because some prepaid accounts, as proposed
to be defined under Regulation E, may not also constitute accounts as
defined under Regulation DD (or the corresponding regulations
applicable to credit unions),\481\ the Bureau proposed 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 EFTs and account maintenance.
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\479\ Regulation DD Sec. 1030.6(a)(3).
\480\ Regulation DD Sec. 1030.2(a).
\481\ See 12 CFR part 707.
---------------------------------------------------------------------------
Proposed Sec. 1005.18(c)(3) would have stated 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 EFTs or otherwise. The Bureau received no comments
on this portion of the proposal.
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.18(c)(3), renumbered as Sec. 1005.18(c)(4), substantially as
proposed, with several modifications for clarity. 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 modify the periodic statement requirements
of EFTA section 906(c) to require inclusion of all fees charged. These
revisions will assist consumers' understanding of their prepaid account
activity. In addition, the Bureau is also using its disclosure
authority pursuant to section 1032(a) of the Dodd-Frank Act because the
Bureau believes that comprehensive disclosure of fee information will
help ensure that the features of prepaid accounts are fully,
accurately, and effectively disclosed to consumers, over the term of
the product or service, in a manner that permits consumers to
understand the costs, benefits, and risks associated with prepaid
accounts.
Final Sec. 1005.18(c)(4) states that a financial institution must
disclose the amount of any fees assessed against the account, whether
for EFTs or otherwise, on any periodic statement provided pursuant to
Sec. 1005.9(b) and on any history of account transactions provided or
made available by the financial institution.
The Bureau is also adopting new comment 18(c)-7 to further clarify
the requirements of final Sec. 1005.18(c)(4). Specifically, this
comment explains that a financial institution that furnishes a periodic
statement pursuant to Sec. 1005.9(b) for a prepaid account must
disclose the amount of any fees assessed against the account, whether
for EFTs or otherwise, on the periodic statement as well as on any
electronic or written account transaction history the financial
institution makes available or provides to the consumer. For example,
if a financial institution sends periodic statements and also makes
available the consumer's electronic account transaction history on its
Web site, the financial institution must disclose the amount of any
fees assessed against the account, whether for EFTs or otherwise, on
the periodic statement and on the consumer's electronic account
transaction history made available on its Web site. Likewise, a
financial institution that follows the periodic statement alternative
in final Sec. 1005.18(c)(1) must disclose the amount of any fees
assessed against the account, whether for EFTs or otherwise, on the
electronic history of the consumer's account transactions made
available pursuant to final Sec. 1005.18(c)(1)(ii) and any written
history of the consumer's account transactions provided pursuant to
final Sec. 1005.18(c)(1)(iii).
The Bureau sought 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. The Bureau
received no comments on this issue and the Bureau is making no
additional changes to final Sec. 1005.18(c)(4) other than those
discussed herein.
18(c)(5) Summary Totals of Fees
The Bureau's Proposal
Proposed Sec. 1005.18(c)(4) would have required financial
institutions to 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 have been 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)(1)(ii) or otherwise, and on any written history of
account transactions provided pursuant to proposed Sec.
1005.18(c)(1)(iii). The Bureau's proposed summary total of fees
requirement was similar to the requirement to disclose fees and
interest in open-end credit plans under Regulation Z.\482\
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\482\ See Regulation Z Sec. 1026.7(b)(6).
---------------------------------------------------------------------------
Proposed comment 18(c)-5 would have explained that if a financial
institution provides periodic statements pursuant to Sec. 1005.9(b),
the total fees, deposits, and debits may be disclosed for each
statement period rather than for each calendar month, if different.
Proposed comment 18(c)-5 would have also explained that the fees that
must be included in the summary total include those that are required
to be disclosed pursuant to proposed Sec. 1005.18(b)(2)(ii)(A). For
example, an institution would have been required to include the fee it
charges a consumer for using an out-of-network ATM in the summary total
of fees, but it would not have been required to 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 have explained that the
summary total of fees should be net of any fee reversals and that 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
have explained that the total deposits and total debits
[[Page 84102]]
must include all deposits to and debits from the prepaid account, not
just those deposits and debits that are the result of EFTs.
Comments Received
The Bureau received comments from several consumer groups, who
supported this portion of the proposal and argued that setting apart
monthly and year-to-date fee totals would help consumers understand the
costs associated with their accounts and how to minimize fees. These
commenters stated that financial institutions should also be required
to include a statement that indicates actions consumers can take to
lower their fees, such as using network ATMs.
Several industry groups, including program managers, issuing banks,
credit unions, and a trade association generally supported this portion
of the proposal and the goal of providing consumers access to
information needed to manage their prepaid accounts, but cautioned that
implementing the requirement as proposed would require more time than
the proposed nine-month compliance period and would require costly
system updates. For example, a credit union explained that the proposed
summary total of fees requirement would be complex and burdensome for a
financial institution that houses its data with a third-party processor
and stated that retrieving the data to perform the analysis would be
costly. In addition, an issuing bank explained that the proposal would
require changes to the prepaid account processing infrastructure design
and stated that those changes would be inconsistent with how statements
are calculated for checking and other consumer asset accounts that tend
to share the same processing infrastructure. A government benefits card
program manager argued that, because the summary totals requirement
would take significant time and investments to implement, the Bureau
should exempt government benefit accounts from this aspect of the
proposal. A program manager argued that the summary totals requirement
would not be appropriate for non-reloadable products. A program manager
requested that, for financial institutions that do not have the data to
calculate the summary totals as of the final rule's effective date, the
requirement be implemented on a going-forward basis only.
Regarding the proposed requirement to disclose the summary totals
of fees specifically, these commenters stated that they recognize the
value in providing aggregated fees paid over time and therefore support
the overall goal the Bureau seeks to achieve by including this
provision. However, several industry commenters, including program
managers and issuing banks, urged the Bureau to require financial
institutions to include in the summary totals of fees only fees that
are discernible to the financial institution. These commenters
explained that a transaction that includes a third-party fee, such as
an out-of-network ATM fee, may not separate the fee portion from the
total amount and therefore determining the fee amounts for each
consumer would be costly and burdensome. These commenters also stated
that financial institutions cannot provide details about or accurately
disclose those fees. An issuing bank stated that a financial
institution also cannot determine whether a fee was waived due to the
consumer's relationship with the third party. One consumer group
argued, however, that financial institutions can determine the amounts
of third-party fees. This commenter explained that, if a consumer
withdraws $40 in cash from an ATM that charges a $2.50 out-of-network
fee, the withdrawal will appear as $42.50, and the financial
institution would be able to discern the $2.50 third-party fee. A
payroll card program manager requested that the Bureau allow financial
institutions to provide a form disclaimer regarding fees that are
outside of the financial institution's control or an example showing
consumers when such fees may occur. Another program manager requested
that the Bureau allow financial institutions to distinguish fees for
using a prepaid account (such as per transaction fees), optional fees,
and third-party fees.
Several industry commenters also suggested other modifications to
this aspect of the proposal, which they believed would minimize the
costs and burdens to industry. For example, a credit union requested
that financial institutions not be required to provide paper statements
displaying the summary totals of fees and argued that displaying fees
on electronic statements is sufficient and the most appropriate way to
communicate with consumers. Another credit union and a program manager
requested that the year-to-date calculation be eliminated. The credit
union argued that consumers usually find year-to-date totals confusing
and can instead calculate their own totals using the information
available online. On the other hand, another program manager argued
that that the proposed summary by calendar month is overly proscriptive
and inconsistent with consumer usage and preference. This commenter
explained that the transaction history begins on the date of the first
transaction (not the first day of the month) and continues until the
account is closed or becomes inactive for a period of time.
One issuing bank opposed this portion of the proposal altogether,
arguing that providing summary totals of fees would not help consumers
understand how to limit such fees, unless the summary distinguishes
behavior-based fees (i.e., fees that apply to certain conduct engaged
in by the accountholder, such as out-of-network ATM fees) from service-
based fees (i.e., fees that apply to all accountholders without regard
to conduct, such as monthly fees). This commenter also requested, if
the Bureau decides to finalize this portion of the proposal, that the
Bureau clarify definitions for the terms fee, deposit, and debit.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing proposed
Sec. 1005.18(c)(4), renumbered as Sec. 1005.18(c)(5), with
modifications as described below. 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 modify the periodic statement requirements of EFTA section
906(c) to require 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 section 1032(a) of the Dodd-Frank Act
because the Bureau believes that disclosure of these summary totals of
fees will help ensure 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.
The Bureau is finalizing the requirement that financial
institutions provide the summary totals of the amount of all fees
assessed by the financial institution against the consumer's prepaid
account for the prior calendar month and for the calendar year to date.
The Bureau has removed the requirement that financial institutions
provide summary totals of all deposits to and debits from a
[[Page 84103]]
consumer's prepaid account from the final rule.
The Bureau believes the final rule will provide consumers important
information for better understanding and managing their prepaid
accounts. The Bureau agrees with commenters that displaying the summary
totals of fees is valuable to consumers and believes the requirement
will be an important consumer education and money management tool that
will help consumers understand the actual costs of using their prepaid
accounts. The Bureau believes that this requirement will be beneficial
to consumers of all prepaid accounts, including government benefit
accounts, and is therefore not exempting any accounts from this
requirement. The Bureau is not, however, requiring financial
institutions to include a statement that indicates actions consumers
can take to lower their fees, as requested by consumer group
commenters. The Bureau does not believe such a requirement justifies
the additional costs to financial institutions at this time. However,
the Bureau believes it is beneficial for financial institution to
educate and inform consumers on how to avoid fees, as many do
currently. The Bureau will continue to monitor industry practice and
may revisit this issue at a later time.
The Bureau believes that not requiring financial institutions to
provide the summary totals of all deposits to and debits from a prepaid
account will not harm consumers. The Bureau believes that consumers
likely know how much money is deposited into and debited out of their
accounts and can easily calculate this information by using the data
from their transaction history and account balance. In addition, the
Bureau believes that the modification to limit the summary totals
requirement to fees only and the modifications to the rule's effective
date discussed below addresses industry commenters' concerns about not
having sufficient time to implement the requirement.
The Bureau is finalizing the proposed portion of Sec.
1005.18(c)(4) (renumbered as Sec. 1005.18(c)(5)) that requires the
summary totals of fees to appear on any periodic statement for a
prepaid account provided pursuant to Sec. 1005.9(b) and on any history
of account transactions provided or made available by the financial
institution pursuant to final Sec. 1005.18(c)(1)(ii) and (iii). As
discussed in the section-by-section analysis of Sec. 1005.18(c)(1)
above, consumers value receiving information about their accounts in
both electronic and paper forms. The Bureau believes that it is
important for consumers to have access to summary totals of fees for
their accounts regardless of the method by which they access their
account information.
The Bureau is not requiring that third-party fees, such as out-of-
network ATM fees and cash reload fees, be included in the summary
totals. Final Sec. 1005.18(c)(5) provides, in part, that the summary
totals consist of fees assessed by the financial institution against
the consumer's account, as explained further in comment 18(c)-8.ii,
discussed below. The Bureau agrees with industry commenters that, even
if financial institutions can determine whether third-party fees were
assessed against a prepaid account, requiring them to extract details
about such fees could be problematic for financial institutions,
especially for transactions that involve foreign currency conversion
calculations. The Bureau notes that third-party cash reload fees do not
need to be included in the summary totals of fees. This is different
from how cash reload fees are treated in the pre-acquisition
disclosures context, where financial institutions must include third-
party cash reload fees on the short form disclosure.\483\
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\483\ See final Sec. 1005.18(b)(2)(iv); see also final Sec.
1005.18(b)(3)(v).
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Regarding a program manager's request to permit financial
institutions to distinguish fees in the fee totals, noted above, the
Bureau agrees that allowing some flexibility in how financial
institutions display summary totals of fees may be beneficial to
consumers. The Bureau has clarified in comment 18(c)-9, discussed
below, that financial institutions may also include sub-totals of the
types of fees that make up the summary totals of fees. The Bureau
reminds financial institutions that all disclosures should be clear and
readily understandable as required by Sec. 1005.4(a), including the
summary totals of fees pursuant to final Sec. 1005.18(c)(5) and any
sub-totals thereof.
Regarding industry commenters' concerns about the proposed nine-
month effective date, final Sec. 1005.18(h)(1) imposes a general
effective date of October 1, 2017 for this final rule. However, final
Sec. 1005.18(h)(3)(ii) provides an accommodation for financial
institutions that do not have readily accessible the data necessary to
calculate the summary totals of fees pursuant to final Sec.
1005.18(c)(5) on October 1, 2017. Specifically, in that case, the
financial institution may provide the summary totals using the data it
has until the financial institution has accumulated the data necessary
to display the summary totals as required by final Sec. 1005.18(c)(5).
See the section-by-section analysis of Sec. 1005.18(h) below for
additional discussion regarding the final rule's effective date and
related accommodations.
The Bureau has modified proposed comment 18(c)-5, renumbered as
comment 18(c)-8, to reflect the revision to the regulatory text
discussed above, and to make several modifications for clarity. Also,
for clarity, the Bureau has divided this comment into two parts: Final
comment 18(c)-8.i explains the summary totals of fees requirement
generally and final comment 18(c)-8.ii clarifies the requirements
regarding third-party fees. Specifically, final comment 18(c)-8.i
explains that a financial institution that furnishes a periodic
statement pursuant to Sec. 1005.9(b) for a prepaid account must
display the monthly and annual fee totals on the periodic statement, as
well as on any electronic or written account transaction history the
financial institution makes available or provides to the consumer. For
example, if a financial institution sends periodic statements and also
makes available the consumer's electronic account transaction history
on its Web site, the financial institution must display the monthly and
annual fee totals on the periodic statement and on the consumer's
electronic account transaction history made available on its Web site.
Likewise, a financial institution that follows the periodic statement
alternative in final Sec. 1005.18(c)(1) must display the monthly and
annual fee totals on the electronic history of the consumer's account
transactions made available pursuant to final Sec. 1005.18(c)(1)(ii)
and any written history of the consumer's account transactions provided
pursuant to final Sec. 1005.18(c)(1)(iii). In addition, this comment
clarifies that, if a financial institution provides periodic statements
pursuant to Sec. 1005.9(b), fee totals may be disclosed for each
statement period rather than each calendar month, if different. This
comment also clarifies that the summary totals of fees should be net of
any fee reversals.
Final comment 18(c)-8.ii clarifies that a financial institution
may, but is not required to, include third-party fees in its summary
totals of fees provided pursuant to final Sec. 1005.18(c)(5). For
example, a financial institution must include in the summary totals of
fees the fee it charges a consumer for using an out-of-network ATM, but
it need not include any fee charged by an ATM operator, with whom the
financial institution has no relationship, for the consumer's use of
that operator's ATM.
[[Page 84104]]
Similarly, a financial institution need not include in the summary
totals of fees the fee charged by a third-party reload network for the
service of adding cash to a prepaid account at a point-of-sale
terminal.
The Bureau is also adopting new comment 18(c)-9 to clarify that a
financial institution may, but is not required to, also include sub-
totals of the types of fees that make up the summary totals of fees as
required by final Sec. 1005.18(c)(5). For example, if a financial
institution distinguishes optional fees (e.g., custom card design fees)
from fees to use the account, in displaying the summary totals of fees,
the financial institution may include sub-totals of those fees,
provided the financial institution also presents the combined totals of
all fees.
18(d) Modified Disclosure Requirements
The Bureau proposed 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 proposed to renumber existing Sec. 1005.18(c)(1)
and (2) as 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).
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). In preparing the proposal, 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 did not believe such a
modification was necessary.
The Bureau requested 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 sought comment on whether financial
institutions would face particular challenges in providing annual error
resolution notices to all prepaid consumers, as well as whether it
should have required 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.
Few commenters submitted feedback on this portion of the proposal.
An issuing bank urged the Bureau to shorten the written error
resolution notice it would be required to provide consumers by proposed
Sec. 1005.18(d)(1)(ii), and to permit financial institutions to post
the complete notice electronically instead of providing it in writing.
The commenter argued that the initial disclosures were generally too
lengthy, potentially leading to consumer inattention and confusion. A
consumer group commenter similarly urged the Bureau to simplify the
notice and require that it be distributed as a separate, stand-alone
form.
With respect to the annual error resolution notice and the
alternative in proposed Sec. 1005.18(d)(2), several industry
commenters, including trade associations, a program manager, and a
payment processor, argued that the Bureau should eliminate the annual
error resolution requirement, or narrow it to only apply to active and/
or registered prepaid accountholders. These commenters argued that
consumers do not want to receive unsolicited paper notices. A trade
association representing credit unions argued that both the annual and
periodic notices were unnecessary since the terms of these notices
remain static from year to year and could more simply be incorporated
into the cardholder agreement. A consumer group commenter argued by
contrast that the Bureau should retain a requirement to provide a
written annual notice for dormant accounts.
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.18(d) as proposed, with minor revisions for clarity and
consistency. 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 adopt an adjustment
to the error resolution notice requirement of EFTA section 905(a)(7),
to permit notices for prepaid accounts as described in final Sec.
1005.18(d)(2), in order to facilitate compliance with error resolution
requirements.
The Bureau has considered the modifications suggested by commenters
but declines to adopt tailored requirements for how and when financial
institutions must disclose information about consumers' rights related
to error resolution, limited liability, and access to account
information for prepaid accounts. The Bureau continues to believe that
it is appropriate to apply to all prepaid accounts the account access
and error resolution disclosure requirements that currently apply to
payroll card accounts. The Bureau believes that the existing regime
strikes an appropriate balance by providing consumers with enough
information to know about and exercise their rights without
overwhelming them with more information than they can process or put to
use.
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 EFTs. The Bureau proposed to extend to all
prepaid accounts the Payroll Card Rule's limited liability provisions
and error resolution provisions, including provisional credit. The
Bureau also proposed 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 into
final Sec. 1005.18(d)(1) and (2), these changes were 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 in detail in the section-by-section analyses of Sec.
1005.18(e)(1), (2), and (3) below, the Bureau proposed to modify
Regulation E's limited liability and error resolution timing
requirements for prepaid accounts to accommodate how account
information
[[Page 84105]]
would be delivered by financial institutions choosing to follow the
periodic statement alternative in proposed Sec. 1005.18(c)(1),
discussed above, and to except unverified prepaid accounts from the
limited liability and error resolution requirements.
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 and government benefit accounts, Sec. 1005.6(a)
provides that a consumer may be held liable for an unauthorized EFT
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.\484\ Pursuant to Sec. 1005.6(b)(1), 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. Pursuant to Sec.
1005.6, 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. Section 1005.6(b)(3) provides, in part, that a
consumer must report an unauthorized EFT 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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\484\ 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
EFTs; 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
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 made available
to the consumer 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.
The Bureau proposed to extend to all prepaid accounts the existing
limited liability provisions of Regulation E with modifications to
certain timing requirements for financial institutions following the
periodic statement alternative in proposed Sec. 1005.18(c)(1).\485\
The text of proposed Sec. 1005.18(e)(1) featured certain minor
modifications for consistency but otherwise was unchanged from existing
Sec. 1005.18(c)(3).
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\485\ The Bureau proposed an additional modification in Sec.
1005.18(e)(3), discussed below, to provide an exception to the
requirement to provide limited liability protection when a financial
institution had 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
had been provided to the consumer.
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Several consumer groups urged the Bureau to harmonize the liability
limitations provided under Regulation E with those provided in
Regulation Z for credit cards. Under Regulation Z Sec. 1026.12(b), a
cardholder's liability for an unauthorized transfer cannot exceed $50;
the payment networks' dispute rules, which apply to network-branded
prepaid cards, generally apply the Regulation Z limitations on
liability. The commenters argued that it is confusing to have different
liability limitation amounts potentially apply to a transaction on the
same card. The commenters argued that the limitation amounts in
Regulation E should be reduced to $50, in line with the limitation
amounts in Regulation Z.
The Bureau is adopting Sec. 1005.18(e)(1) as proposed, with minor
revisions for clarity and consistency. 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 under EFTA 904(c) to modify the timing
requirements of EFTA 909(a). In addition, the Bureau has considered the
modifications suggested by commenters, but declines to revise the
liability limitations for prepaid accounts set forth in Sec.
1005.18(e)(1). The dollar amount a consumer may be liable for an
unauthorized transfer is specified by statute in EFTA section 909(a)(1)
and (2). These limitations already apply to payroll card accounts and
government benefit accounts. The Bureau is not persuaded that the
process of identifying or resolving errors with respect to prepaid
accounts is sufficiently different from the process applied with
respect to payroll card accounts or government benefit accounts to
warrant a separate limited liability regime. Further, the Bureau
believes that adopting a different limited liability regime for prepaid
accounts than the regime currently in existence accounts generally
under Regulation E would require many financial institutions to change
their practices, since, as the Bureau noted in the proposal, the vast
majority of programs reviewed in the Bureau's Study of Prepaid Account
Agreements already limit consumer liability in accordance with existing
Regulation E provisions.\486\
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\486\ The Bureau found in its Study of Prepaid Account
Agreements that 87.44 percent of agreements for GPR card programs
and 64.28 percent of all other programs' agreements provided full
limited liability protections to consumers. See Study of Prepaid
Account Agreements at 16 tbl.4. Similarly, CFSI found in its 2014
study of the prepaid industry 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. See 2014 CFSI
Scorecard at 12.
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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 and government benefit
accounts, in Sec. 1005.11. Specifically, Sec. 1005.11(c)(1) and
(3)(i) requires that a financial institution, after receiving notice
that a consumer believes an EFT 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 10
business days (20 business days if the EFT 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
[[Page 84106]]
within three business days. After determining that an error occurred,
the financial institution must correct an error within one business
day.\487\ 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.
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\487\ See Sec. 1005.11(c)(1).
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Existing Sec. 1005.11(c)(2) provides that if the financial
institution is unable to complete the investigation within 10 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 10 business days of receiving the error notice.\488\ Pursuant to
Sec. 1005.11(c)(2)(i)(A), 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.
Pursuant to Sec. 1005.11(d)(2), 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).
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\488\ The financial institution has 90 days (instead of 45) if
the claimed unauthorized EFT 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 made available to the
consumer reflects the alleged error, 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 alleged 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.
The Bureau's Proposal
The Bureau proposed 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). The text of
proposed Sec. 1005.18(e)(2) updated internal paragraph citations to
reflect other numbering changes made in the proposal, but otherwise was
unchanged from existing Sec. 1005.18(c)(4). Notably, as set forth in
greater detail in the section-by-section analysis of Sec.
1005.18(e)(3) below, the Bureau also proposed an exception to the
requirement to provide limited liability and error resolution when a
financial institution had 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 had been provided to the consumer. The Bureau proposed
to extend to all prepaid accounts existing comment 18(c)-1 regarding
the 120-day error resolution safe harbor provision, renumbered as
comment 18(e)-1 and with the reference to payroll card accounts changed
to prepaid accounts. The Bureau also proposed to extend existing
comment 18(c)-2, regarding consumers electronically accessing their
account history, to all prepaid accounts, renumbered as comment 18(e)-
2. In that proposed comment, the reference to payroll card account was
changed to prepaid account, plus one substantive modification to
clarify 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 Bureau also proposed to add an additional
sentence to the end of proposed comment 18(e)-2 to explain that a
consumer would not be 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 proposed to extend existing comment 18(c)-3, regarding
untimely notice of error by a consumer, to all prepaid accounts,
renumbered as comment 18(e)-3 and with internal paragraph citations
updated to reflect other numbering changes made in the proposal. The
last sentence of the existing 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 proposed to specifically note
that compliance with Sec. 1005.6 included compliance with the
extension of time limits provided in Sec. 1005.6(b)(4).
Comments Received
Most industry commenters and all consumer group commenters
generally supported the proposal to extend to all prepaid accounts the
error resolution provisions currently applicable to payroll card
accounts. At the same time, several industry commenters argued that
prepaid accounts may have a higher incidence of fraudulently asserted
errors than other accounts covered by Regulation E for a number of
reasons, including that prepaid accounts are often purchased
anonymously; prepaid cards are easier to abandon and are more
frequently abandoned by consumers who quickly spend down the balance
and discard the card; and prepaid consumers may not have any other
ongoing relationship with the issuing bank or program manager.
Requiring financial institutions to provide error resolution rights to
all prepaid accounts, they argued, would thus result in unsustainable
fraud losses for industry, leading to market exit and rising consumer
costs. These commenters did not, however, provide any data or
particular details in support of their assertions. To avoid this
result, these commenters urged the Bureau to limit the application of
the error resolution provisions to prepaid accounts in certain
respects.
Several industry commenters, including issuing banks, program
managers, a payment network, and an industry trade association, urged
the Bureau not to require error resolution for certain types of prepaid
accounts, such as reload packs or cards that cannot be reloaded.\489\
These commenters argued that these products are not transaction account
substitutes, and as such should not receive the same protections as
other accounts covered under Regulation E. In addition, the commenters
argued that fraudulently asserted error claims are more likely to occur
on non-reloadable cards, since the cards are mostly unregistered and
used for a short period of time. The commenters also stated that the
operating margins on these types of cards are slim and argued that,
therefore, the costs of providing complete limited liability and error
[[Page 84107]]
resolution protections, including provisional credit, would outweigh
any profits and thus force providers of such products to pass on costs
to consumers or exit the market.
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\489\ Several industry commenters requested that the Bureau
exempt all non-reloadable prepaid cards, including reload packs,
from the definition of prepaid account in proposed Sec.
1005.2(b)(3), thereby excluding such cards from all rule
requirements, including error resolution and limited liability
requirements. These comments are discussed in the section-by-section
analysis of Sec. 1005.2(b)(3) above.
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Some industry commenters, including several issuing banks, a
payment network, and a number of trade associations, expressed
particular concern about the requirement to extend provisional credit
to prepaid accounts. The issuing bank commenters confirmed that they
currently extend provisional credit where appropriate for most types of
prepaid accounts. These issuing banks and other industry commenters
argued, however, that a mandate requiring them to extend provisional
credit would increase their fraud-related costs by emboldening
wrongdoers to submit more fraudulent error claims. The commenters urged
the Bureau to take one of several approaches to limit the provisional
credit requirement. One group of commenters, including several issuing
banks and a trade association, suggested that the provisional credit
requirement be limited to prepaid accounts held by consumers with whom
the issuer has an ``ongoing relationship,'' as evidenced, for example,
by repeated electronic deposits to the prepaid account. Another group
of commenters, including an industry trade association and an issuing
bank, urged the Bureau not to require provisional credit for accounts
or transaction types that exhibit characteristics correlated with a
heightened risk of fraud. Commenters suggested varied and at times
inconsistent ideas about what these characteristics might be, ranging
from, for example, the age of the account, how soon after account
opening the alleged error occurred, or whether the transaction occurred
at the point of sale or at an ATM.
Commenters who recommended limiting provisional credit also argued
that the aggregate amount of fraud losses related to provisional credit
increases as the time period within which a financial institution must
provide provisional credit decreases, and that 10 business days is not
long enough to complete an investigation for errors asserted on prepaid
accounts. Accordingly, a number of commenters urged the Bureau to
extend the 10 business days permitted under Sec. 1005.11(c)(1) to 20
business days for all prepaid accounts, and 30 business days for
prepaid accounts held by consumers who do not have an ongoing
relationship with the financial institution. Similarly, a payment
network and a law firm writing on behalf of a coalition of prepaid
issuers requested that financial institutions have flexibility to delay
granting provisional credit beyond 10 business days where a factors-
based test indicated that there was a significant risk of loss related
to the extension of provisional credit.
Consumer advocates, by contrast, argued against rolling back the
provisional crediting requirements. They noted that prepaid accounts
are used in substantially similar ways as traditional consumer
transaction accounts and thus should receive protections for funds lost
due to unauthorized use in the same timeframe as other accounts covered
by Regulation E. The commenters 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 into their prepaid accounts. Without
provisional credit, in the event of an unauthorized transfer, a
consumer could be without critical funds for the duration of the
financial institution's investigation--up to 45 days, or 90 days in
certain circumstances.
Several consumer groups also commented on the timelines in proposed
Sec. 1005.18(e)(2) governing when a consumer must report an
unauthorized transfer in order to receive error resolution protections,
arguing that the current regime is confusing. For example, they noted
that the 120-day safe harbor in proposed Sec. 1005.18(e)(2)(ii) is not
disclosed on the error resolution notice required by proposed Sec.
1005.18(d)(1)(ii).\490\ Consumers may not be aware, therefore, that a
different time limit applies to their prepaid account, and may believe
their error was timely reported when in fact it was not, or they may
fail to report an error that they believed was no longer timely when in
fact it was. In addition, the commenters stated that many consumers do
not receive paper statements and never access their account information
online, so, they argued, a timeline that runs from the date they access
their account information should not apply to them. For these reasons,
the consumer groups urged the Bureau to adopt a single, uniform time
limit of 120 days from the date the transaction was posted to the
consumer's account. A number of trade associations representing credit
unions also argued that the error resolution reporting timeline should
run from the date the transaction was posted to the consumer's account,
for the reason that the posting date is an objective and easily
discernible point in time. These commenters, however, urged the Bureau
to make the timeline a uniform 60 days from the date the transaction
was posted.
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\490\ As discussed above, these provisions were proposed largely
unchanged from existing Sec. 1005.18(c)(4)(ii) and (2),
respectively. See also appendix A-7.
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The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.18(e)(2) and comments 18(e)-1, -2, and -3 largely as proposed,
with minor revisions for clarity and consistency. 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).
The Bureau has considered the comments regarding the implications
of extending all of Regulation E's error resolution requirements to
prepaid accounts. The Bureau acknowledged in the proposal that prepaid
accounts might present unique fraud risks that other transaction
accounts may not. The Bureau also acknowledges that these risks may be
especially heightened with respect to prepaid accounts that have not
been or cannot be registered or whose cardholder identity has not or
cannot be verified. It was for these reasons that the Bureau proposed
in Sec. 1005.18(e)(3) to exempt financial institutions from the
requirement to provide limited liability or error resolution
protections, including provisional credit, for accounts with respect to
which the financial institution had not completed its consumer
identification and verification process. The Bureau is finalizing a
limited exemption as to provisional credit, as discussed in the
section-by-section analysis of Sec. 1005.18(e)(3) below, but is not
exempting financial institutions from the general requirement to
provide limited liability and error resolution protections for such
accounts.
The Bureau is not persuaded by commenters that the unique risks
posed by prepaid accounts warrant modifications to Regulation E's
limited liability and error resolution regime beyond the final rule's
accommodation for provisional credit on unverified accounts. Indeed,
the Bureau understands that most prepaid issuers already provide error
resolution with respect to most prepaid accounts, in compliance with
the Payroll Card
[[Page 84108]]
Rule \491\ (though, as discussed in the section-by-section analysis of
Sec. 1005.18(e)(3) below, the Bureau understands that most financial
institutions do not provide provisional credit for accounts that cannot
be registered). Indeed, in its Study of Prepaid Account Agreements, 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.\492\ The
Bureau notes that industry commenters did not dispute the findings of
the Bureau's Study nor did they provide any data or particular details
in support of their premise that the Bureau's codification of their own
existing practices would result in unsustainable fraud losses for the
industry. The Bureau thus does not believe that modifications to
Regulation E's limited liability and error resolution regime for all
prepaid accounts is necessary, and in fact the Bureau has scaled back
the exclusion for unverified accounts in proposed Sec. 1005.18(e)(3),
discussed below.
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\491\ As discussed above, the FMS Rule requires that the issuer
of a prepaid card that receives a Federal payment must 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. In addition, 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 example, requires
provisional credit to be given after five days for unauthorized
transactions occurring over its network, unless certain exceptions
apply.
\492\ See Study of Prepaid Account Agreements at 13 tbl.3.
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. The Bureau found that 17 of these
agreements provided full error resolution protections with
provisional credit, three provided error resolution with limitations
on provisional credit, and two provided error resolution without
provisional credit. See id.
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The Bureau also declines to categorically exempt non-reloadable
cards from the error resolution requirements, as some industry
commenters had urged. The Bureau notes that non-reloadable cards can be
used to disburse large sums of money to consumers. For example, prepaid
accounts that are used to disburse insurance proceeds, tax refunds, or
non-recurring employment benefits such as bonuses or termination
payments are--or could be--non-reloadable. The funds held in such
accounts may be particularly important to a consumer, who may have, for
example, lost a home or a job; error resolution is especially critical
for a consumer in that position who has been victimized by fraud. The
Bureau does not anticipate that the requirement to provide error
resolution rights to non-reloadable cards specifically should place a
significant regulatory burden on industry.\493\
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\493\ Pursuant to final Sec. 1005.2(b)(3)(i)(D) and comment
2(b)(3)(i)-8.v, an account whose only function is to make a one-time
transfer of funds into a separate prepaid account, such as a reload
pack, is excluded from the final rule. As such, the request to
specifically exempt them from Sec. 1005.18(e) is moot.
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Likewise, the Bureau declines to exempt certain types of accounts
or transactions from the requirement to provisionally credit a
consumer's account in the event a financial institution takes longer
than permitted by Sec. 1005.11(c)(1) (or Sec. 1005.11(c)(3)(i), as
applicable) to investigate an error. The Bureau understands, as noted
by consumer group commenters, that consumers who use prepaid accounts
may have limited liquid assets and may place or hold a substantial
portion of those assets in the prepaid account. Without provisional
credit, in the event of an unauthorized transaction or other error, a
consumer could be without access to those funds for as long as 90 days,
a period of time that could cause a significant disruption to the
consumer's household finances. In addition, the Bureau notes that there
appears to be no industry consensus around the criteria the Bureau
should use as a proxy for an account or transaction's relative
riskiness for purposes of determining whether it should be excluded
from the provisional credit requirements.\494\ Finally, although a
significant proportion of industry comment letters voiced some
opposition to the proposed provisional crediting requirements, the
Bureau understands that most financial institutions are already
providing error resolution, including provisional credit, for most
prepaid accounts. Therefore, once again, the Bureau does not believe
that requiring provisional credit for most prepaid account types should
add significant additional costs or otherwise be problematic for
industry.
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\494\ The Bureau recognized this issue in the proposal. In
discussing potential alternatives to the proposed limited liability
and error resolution regime, the Bureau considered and rejected
several criteria for evaluating an account's riskiness, such as
whether the account had been opened for a certain period of time or
whether it received direct deposits, concluding that each had
serious drawbacks. See 79 FR 77102, 77184 (Dec. 23, 2014).
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With respect to the suggestions that the Bureau extend the time
periods that apply before a financial institution must extend
provisional credit, the Bureau notes that, under both the proposal and
the final rule, the 20-day time frame requested by some commenters
already applies in some circumstances--specifically, financial
institutions may take up to 20 business days to investigate errors
asserted with respect to transfers that occurred within 30 days of the
date of the first deposit into the account.\495\ In other words, new
accounts, which some commenters indicated are more prone to fraudulent
error claims, are already given a longer provisional crediting time
frame under Regulation E.
---------------------------------------------------------------------------
\495\ See Sec. 1005.11(c)(3)(i).
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With respect to the suggestion that financial institutions have 30
business days to investigate errors before provisionally crediting the
consumer's account, the Bureau notes that, depending on calendar
timing, 30 business days could be nearly as long or longer than the 45
calendar days financial institutions currently have to investigate
claims when provisional credit is provided.\496\ Thus, a rule that
extended the pre-provisional credit investigation period to 30 business
days would in effect be doing away with the provisional credit
requirement altogether for prepaid accounts. For the reasons stated
above, the Bureau believes that provisional credit is an important
consumer protection, especially for consumers who rely on a prepaid
account as the primary means to store and transact with their funds.
The Bureau declines to adjust the investigation time periods in such a
way as to essentially obviate the provisional credit requirements for
prepaid accounts. Finally, with respect to the time limits that apply
to a consumer's timely reporting of an error, the Bureau also declines
to revise the applicable limits as requested by some commenters. Again,
the Bureau notes that the 60-day limit governing how long a consumer
has to report an unauthorized transfer is set by statute in EFTA
section 908(a). The Bureau did not intend to generally revise that
timeline in this rulemaking.
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\496\ Depending on holiday schedules and other factors, 30
business days could be longer than 45 calendar days. For example, 30
business days from December 1, 2016 would end on January 17, 2017,
whereas 45 calendar days from December 1, 2016 would end two days
earlier, on January 15, 2017.
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The Bureau is adopting proposed comment 18(e)-3 with a revision to
correct an existing scrivener's error.
[[Page 84109]]
That comment previously stated that financial institutions were not
required to comply with the requirements of Sec. 1005.11 with respect
to transfers that occurred more than 60 days prior to when a consumer
accessed the account or the financial institution sent a written
account history. This is a misstatement of existing Sec.
1005.18(c)(4)(i)(A) and (B) (renumbered in this final rule as Sec.
1005.18(e)(2)(i)(A) and (B)), which state that financial institutions
must comply with Sec. 1005.11 with respect to notices of error
received by the earlier of 60 days after the consumer accesses the
account or 60 days after the financial institution sends a written
history of the account upon the consumer's request.
18(e)(3) Error Resolution for Unverified Accounts
The Bureau's Proposal
Proposed Sec. 1005.18(e)(3) would have provided that for prepaid
accounts that are not payroll card accounts or government benefit
accounts, if a financial institution disclosed 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 would not be 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 its collection of consumer identifying information
and identity verification.\497\ However, once the consumer's identity
had been verified, a financial institution would have had to 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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\497\ Relatedly, the Bureau proposed 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 the section-by-section analysis of Sec.
1005.18(b)(2)(xi) above.
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Proposed comment 18(e)-4 would have explained that for the purpose
of compliance with proposed Sec. 1005.18(e)(3), consumer identifying
information could include the consumer's full name, address, date of
birth, and Social Security number or other government-issued
identification number. The comment would have also explained 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 was based on the date the
consumer contacted the financial institution to report the unauthorized
transfer or alleged error, not the date the financial institution
completed its customer identification and verification process. Comment
18(e)-4 would have further explained 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)
began 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 stated its understanding 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 \498\ and the
payment card networks' operating rules, among other things, the Bureau
understood that customer identification and verification was 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 believed that providers thus had 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.
---------------------------------------------------------------------------
\498\ See 31 CFR 1022.210(d)(1)(iv).
---------------------------------------------------------------------------
Collection of consumer identifying information and verification of
identity under proposed Sec. 1005.18(e)(3) would have included
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 expected 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 was 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 proposed to adopt the exemption for unverified
accounts because it understood that a financial institution could face
difficulties in determining whether an unauthorized transaction
occurred if it did not know a prepaid accountholder's identity. For
example, a financial institution could 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 believed that financial institutions would follow the
customer identification and verification requirements set forth in
FinCEN's CIP requirements for banks in 31 CFR 1020.220 or for providers
and sellers of prepaid access in 31 CFR 1022.210(d)(1)(iv). However, it
sought comment on whether FinCEN's regulations, as discussed above,
were the appropriate standard to use for identification and
verification of prepaid accountholders, or whether some other standard
should be used. Further, the Bureau anticipated that when a consumer
called 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 believed that providers had 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. However, the Bureau sought comment on the accuracy of this
assumption, and on whether the Bureau should impose a time limit for
completion of the customer identification and verification process.
Comments Received
All consumer group commenters expressed support for the Bureau's
decision to extend error resolution and limited liability protections
to prepaid accounts. Several consumer group commenters detailed at
great length the importance of providing consumers--especially
consumers who may have a hard time making ends meet--with recourse if
their accounts are subject to error or fraud. Thus, while a number of
consumer groups expressed cautious support for the proposed limitation
on protections for unregistered accounts, stating that they believed it
struck a
[[Page 84110]]
good balance between protecting consumers and ensuring that the rule
does not encourage additional fraudulent activity, a number of consumer
groups urged the Bureau to revise proposed Sec. 1005.18(e)(3) to
require complete limited liability and error resolution for additional
account or transaction types. Specifically, one consumer group urged
the Bureau to always require limited liability and error resolution
where the consumer has a proof of purchase, while another consumer
group urged the Bureau to always require the protections with respect
to send-money transactions since, it asserted, innocent errors were
more likely to occur with respect to that type of transaction. Two
other consumer groups asked the Bureau to expand the exclusion of
government benefit accounts and payroll card accounts in proposed Sec.
1005.18(e)(3) to explicitly extend to other account types with respect
to which the financial institution collects personally identifiable
information in order to disburse the funds. For example, they noted
that, for accounts such as those used to disburse student loans or
insurance proceeds, the financial institution must collect personally
identifiable information about the account recipient before
distributing the access device. For such accounts, the financial
institution has the information it needs to verify a consumer's
identity, and as such, should not be eligible for the exemption from
the requirement to provide limited liability and error resolution
protections.
In addition, two consumer groups expressed concern that the
Bureau's decision to exempt unregistered accounts from the requirement
to provide error resolution and limited liability protections would
incentivize issuers to avoid registering accounts. They urged the
Bureau to require registration for all prepaid accounts, arguing that,
if registration were not a requirement, financial institutions may try
to prevent consumers from registering, and then use the fact of an
account's non-registration and verification as a pretext for not
providing that account with complete limited liability and error
resolution protections. Going further, a city government agency for
consumer affairs objected to any limitation on protections for
unregistered accounts, arguing that consumers who do not have a chance
to register their accounts before becoming victims of fraud nonetheless
deserve equal protections under Regulation E.
Several industry commenters expressed support for the Bureau's
approach in proposed Sec. 1005.18(e)(3) of not requiring limited
liability or error resolution for accounts for which the financial
institution had not completed its collection and verification of
consumer identifying information. By contrast, there was significant
industry opposition to the provision requiring that, once an account
was registered and verified, financial institutions provide limited
liability and error resolution rights, including provisional credit,
for transactions that occurred prior to registration. One trade
association stated that, for prepaid accounts for which customer
identification and verification is attempted but cannot be completed,
it would support those accounts receiving some error resolution
protections pending completion of the process, but not provisional
credit. Other commenters, including a number of trade associations, a
program manager, and a payment processor, argued on the one hand that
applying limited liability and error resolution provisions to pre-
registration errors would greatly increase fraud losses, since it was
extremely difficult to investigate an error that occurred before the
financial institution knew the identity of the cardholder. On the other
hand, these commenters argued that requiring full limited liability and
error resolution protections for pre-registration errors would not
confer significant additional benefits on consumers since it was
unlikely that an error or fraudulent transaction would occur prior to
registration.
A program manager and a credit union objected to proposed Sec.
1005.18(e)(3) for slightly different reasons: They viewed it as a
requirement that financial institutions conduct consumer identification
and identity verification for all prepaid accounts. The program
manager, which manages non-reloadable, non-registrable prepaid cards,
among other products, argued that not only did the exemption require
financial institutions to offer account registration, but it
essentially obligated financial institutions to undertake a robust
identity verification process with respect to each consumer. Otherwise,
consumers could register their accounts with fake names and still be
entitled to provisional credit. The Bureau's proposal, the commenter
argued, would therefore extend an account registration requirement to
accounts that are not currently required to perform such a process
under FinCEN regulations, such as single-use or non-reloadable
accounts. Such a change to industry practice, it argued, would
necessitate major software and systems revisions at a great cost to
financial institutions and their customers.
With respect to the Bureau's request for comment on whether it
should require financial institutions to adopt a specific standard for
collecting and verifying a consumer's identity, several industry
commenters, including program managers and a trade association, argued
that financial institutions should retain discretion with respect to
which registration standard they adopt. They argued further that,
whereas the FinCEN standard is effective and should be deemed
sufficient for purposes of analyzing whether the financial institution
had adequate consumer identification procedures in place, it should not
be adopted as the required standard because the goals underlying the
FinCEN customer identification requirements--preventing money
laundering--differ from those of the proposed rule. Another industry
commenter disagreed, arguing that the Bureau should require a single
uniform standard for consumer identification and verification, and that
the FinCEN standard should be the standard adopted. According to this
commenter, the FinCEN standard has been effective in monitoring and
preventing fraud for other transaction account types, and as such
should prove effective for screening the identities of prepaid
accountholders as well.
The Final Rule
For the reasons discussed herein, the Bureau is finalizing Sec.
1005.18(e)(3) and related commentary with several substantive
revisions. Specifically, the Bureau has revised the limitation on a
financial institution's requirement to provide limited liability and
error resolution protections for unregistered accounts. Under the final
rule, financial institutions must provide limited liability and error
resolution protections for all accounts, regardless of whether the
financial institution has completed its consumer identification and
verification process with respect to the account. However, for accounts
with respect to which the financial institution has not completed its
identification and verification process (or for which the financial
institution has no process), the financial institution may take up to
the maximum length of time permitted under Sec. 1005.11(c)(2)(i) or
(3)(ii), as applicable, from receipt of a notice of error to
investigate and determine whether an error occurred without
provisionally crediting a consumer's account. The Bureau has made
several changes to Sec. 1005.18(e)(3) and its commentary to conform
the
[[Page 84111]]
proposed text to this revised formulation. In addition, it has added
regulatory text and commentary, explained in more detail below, to
address when a financial institution has completed its consumer
identification and verification process, and to clarify that if, at the
time the financial institution was required to provisionally credit an
account, the financial institution had not yet completed its
identification and verification process, the financial institution need
not provisionally credit the account.
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 under EFTA section
904(c) to finalize Sec. 1005.18(e)(3) with a modified limitation on
financial institutions' requirement to provide limited liability and
error resolution for accounts that have not completed the consumer
identification and verification process.
As explained in greater detail below, the Bureau is adopting Sec.
1005.18(e)(3) revisions to clarify, in response to industry comments,
that it is not requiring financial institutions to adopt a consumer
identification and verification process for all prepaid accounts.
Because it is concerned that this revision, on its own, would result in
a class of un-registrable prepaid accounts that do not receive any
limited liability or error resolution protections, however, the Bureau
has also revised the scope of the exception in proposed Sec.
1005.18(e)(3). Under the final rule, financial institutions must
provide limited liability and error resolution protections for all
accounts, regardless of whether the financial institution has completed
its consumer identification and verification process with respect to
the account. However, for accounts with respect to which the financial
institution has not completed its identification and verification
process (or for which the financial institution has no process), the
financial institution may take up to the maximum length of time
permitted under Sec. 1005.11(c)(2)(i) or (3)(ii), as applicable, from
receipt of a notice of error to investigate and determine whether an
error occurred without provisionally crediting a consumer's account.
The Bureau agrees with commenters that the proposed rule left open
the question of whether financial institution had to adopt a consumer
identification and verification process, or whether certain prepaid
account types that do not offer or require an account registration
process could continue to allow their customers to use the cards
anonymously. The Bureau believes that there are legitimate reasons a
consumer may opt for a particular account type--such as certain non-
reloadable cards--that allows him or her to remain anonymous.
Similarly, the Bureau is sensitive to industry's concerns that
requiring financial institutions to adopt a consumer identification and
verification regime where they previously did not have one would result
in increased costs and, potentially, decreased consumer access to
certain prepaid account products. Accordingly, the Bureau has declined
to finalize a requirement that all prepaid accounts offer some sort of
registration process.
However, the Bureau is also concerned that financial institutions
will choose not to offer registration or to delay completing
registration as a way to avoid having to provide provisional credit. To
that end, the Bureau is adopting new comment 18(e)-5, which provides an
example of when a financial institution has not concluded the consumer
identification and verification process with respect to a particular
consumer: The example describes a financial institution that initiates
the identification and verification process by collecting identifying
information about a consumer and informing the consumer of the nature
of the outstanding information, but, despite efforts to obtain
additional information from the consumer, is unable to conclude the
process because of conflicting information about the consumer. For the
same reasons, the Bureau is finalizing a clarification in new comment
18(e)-5 stating that a financial institution may not delay completing
its customer identification and verification process or refuse to
verify a consumer's identity based on a consumer's assertion of an
error. The Bureau believes that, as stated above, financial
institutions have an incentive to encourage consumers to register their
accounts to increase the functionality and thus the longevity of
consumers' use of their accounts.
To clarify that it is not requiring financial institutions to adopt
a consumer identification and verification process for prepaid
accounts, the Bureau has finalized a provision that makes clear that
financial institutions that do not offer a process by which a
consumer's identifying information is collected and identity verified
have not completed the consumer identification and verification process
with respect to that account. As such, and as described in more
specific detail below, with respect to such accounts that cannot be
registered, the financial institution may avail itself of the limited
exemption from the provisional credit requirements.
The Bureau is concerned, however, that adding this clarification
would expand the scope of the limited exemption in proposed Sec.
1005.18(e)(3) in ways that would leave many vulnerable consumers
unprotected. The Bureau agrees with the numerous consumer groups that
emphasized the importance of limited liability and error resolution for
prepaid consumers. In addition, 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 necessary to avoid consumer confusion as to
what protections apply to similar accounts. Indeed, the Bureau notes
that its testing showed that prepaid consumers currently expect prepaid
products to be accompanied by protections for error or unauthorized
use.\499\
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\499\ See, e.g., ICF Report I 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.'').
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The Bureau is concerned, therefore, that Sec. 1005.18(e)(3), as
revised by the clarification discussed above regarding un-registrable
accounts, would leave such accounts without any limited liability and
error resolution protections enforceable under Federal law during its
entire existence, instead of only during the limited time before which
a consumer registers his or her card. The Bureau did not intend to
leave this entire class of prepaid accounts without such consumer
protections. At the same time, as stated above, the Bureau acknowledges
industry's concerns about the potential costs of having to extend
provisional credit for accounts where the financial institution does
not know and has not verified the consumer's identity.
To balance these concerns, the Bureau has revised the proposed
limitation on the requirement to provide limited liability and error
resolution protections in proposed Sec. 1005.18(e)(3). Rather than
limit the requirement to provide any limited liability and error
resolution protections, the final rule only limits the requirement to
extend provisional credit for accounts with respect to which the
[[Page 84112]]
financial institution has not completed its consumer identification and
verification process. Thus, under new Sec. 1005.18(e)(3)(i), with
respect to accounts other than payroll card or government benefit
accounts, a financial institution may take up to the maximum length of
time permitted under Sec. 1005.11(c)(2)(i) or (3)(ii), as applicable,
from receipt of a notice of error to investigate and determine whether
an error occurred without provisionally crediting a consumer's account
if the financial institution has not completed its consumer
identification and verification process with respect to that prepaid
account. In effect, revised Sec. 1005.18(e)(3)(i) now operates as an
additional exception to Sec. 1005.11(c)(2)(i), akin to existing Sec.
1005.11(c)(2)(i)(A) and (B). As discussed above, the Bureau has added a
new Sec. 1005.11(c)(2)(i)(C) to make that clear. The Bureau is
likewise adding a reference to new Sec. 1005.11(c)(2)(i)(C) in Sec.
1005.18(e)(3)(i) to clarify its operation.
The Bureau believes this revision is necessary to ensure that all
prepaid account consumers have some recourse when they experience an
unauthorized or erroneous transfer. While the Bureau considered whether
to require limited liability and error resolution for unregistered
accounts only when the accounts cannot be registered, the Bureau
believes it is preferable to treat all unregistered accounts uniformly.
Once again, the Bureau also believes this approach will help reduce
consumer confusion as to what protections apply to similar accounts,
especially in light of the Bureau's observations that prepaid consumers
currently expect prepaid products to be protected against unauthorized
use and other errors. Furthermore, the Bureau understands that, by
revising the proposed limitation on the requirement to provide limited
liability and error resolution as described herein, the Bureau is
aligning Sec. 1005.18(e)(3) with current industry practice. The Bureau
believes the narrower limitation in revised Sec. 1005.18(e)(3)(i)
addresses the majority of industry's concerns. Again, the Bureau
understands that most prepaid issuers already offer limited liability
and error resolution protections with respect to most account types
they offer.\500\ Indeed, many issuing bank commenters confirmed that
they provide some limited liability and error resolution protections--
but no provisional credit--for accounts that have not or cannot be
registered. As such, the Bureau believes that the final rule generally
reflects current industry practice and should not place a significant
increased burden on financial institutions.
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\500\ See Study of Prepaid Account Agreements at 16 tbl.4; 2014
CFSI Scorecard at 12.
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The Bureau is also revising the scope of the exclusion in Sec.
1005.18(e)(3) beyond government benefit and payroll card accounts. As
it noted in the proposal, the Bureau agrees with commenters that
financial institutions providing prepaid accounts for purposes such as
student financial aid disbursement or insurance payments should not be
able to avail themselves of the exclusion in Sec. 1005.18(e)(3),
because consumer identifying information is typically collected and
verified by the financial institution or its service provider prior to
or as part of the acquisition process for those accounts.\501\ In the
proposal, the Bureau expressly excluded government benefit and payroll
card accounts from Sec. 1005.18(e)(3) for a similar reason--that is,
because it believed financial institutions often conduct the consumer
identification and verification at the onset of the relationship with a
government benefit or payroll card account customer.\502\ However, it
did not expressly exclude from Sec. 1005.18(e)(3) other types of
accounts that similarly collect and verify consumer information prior
to or during the acquisition process. The Bureau is now finalizing
commentary that clarifies that such accounts cannot avail themselves of
Sec. 1005.18(e)(3).
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\501\ 79 FR 77102, 77185 (Dec. 23, 2014).
\502\ Id. The Bureau also wanted to ensure that payroll card and
government benefit accounts maintained the same level or limited
liability and error resolution protections they had under existing
Regulation E.
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Specifically, new comment 18(e)-6 states that a financial
institution that collects and verifies consumer identifying
information, or that obtains such information after it has been
collected and verified by a third party, prior to or as part of the
account acquisition process, is deemed to have completed its consumer
identification and verification process with respect to that account.
The reference to a third party collecting the verified information is
intended to codify the Bureau's understanding, stated in the proposal,
that collection and verification of information can be done by the
financial institution directly, as well as by a service provider or
agent of the institution. The comment provides an example of a
financial institution that obtains from a university the identifying
information necessary to disburse funds to students via the financial
institution's prepaid account. Such a financial institution, the
example states, would be deemed to have completed its consumer
identification and verification process with respect to those students'
accounts.
Next, the Bureau believes that financial institutions should
maintain discretion with respect to the type of consumer identification
and verification process they adopt. As such, the Bureau is not
finalizing a requirement that financial institutions adopt the FinCEN
registration process, nor any other specific process for how to
identify and verify an account, except that it is finalizing the
guidance in proposed comment 18(e)-4 that consumer identifying
information may include the consumer's full name, address, date of
birth, and Social Security number, or other government-issued
identification number. The Bureau notes, however, that on March 21,
2016, the Board, the FDIC, the NCUA, the OCC, and FinCEN issued
interagency guidance to clarify that the FinCEN registration
requirements apply to the cardholders of general purpose prepaid cards
that have the features of an account and are issued by a bank.\503\
Specifically, the guidance states that a general purpose prepaid card
should be treated as an account if it provides a customer with the
ability to reload funds or provides a consumer with access to credit or
overdraft features.
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\503\ Bd. of Governors of the Fed. Reserve Sys., Fed. Deposit
Ins. Corp., Nat'l Credit Union Admin., Office of the Comptroller of
the Currency, Fin. Crimes Enforcement Network, Interagency Guidance
to Issuing Banks Applying Customer Identification Program
Requirements to Holders of Prepaid Cards (Mar. 21, 2016), available
at http://www.federalreserve.gov/bankinforeg/srletters/sr1607.pdf.
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Instead of adopting a single standard for consumer registration,
the Bureau is adopting several provisions and commentary to clarify
when, for purposes of Sec. 1005.18(e)(3)(i), a financial institution
can assert that it has not completed its consumer identification and
verification process. Together, the new provisions are intended to make
clear that a financial institution is only required to extend
provisional credit for accounts where it actually knows and has
verified the consumer's identity.
Specifically, pursuant to new Sec. 1005.18(e)(3)(ii)(A), a
financial institution has not completed its consumer identification and
verification process where it has not concluded its consumer
identification and verification process, provided the financial
institution has disclosed to the consumer the risks of not registering
the account using a notice that is substantially similar to the model
notice contained in paragraph (c) of appendix
[[Page 84113]]
A-7. Next, new Sec. 1005.18(e)(3)(ii)(B) states that a financial
institution has not completed the identification and verification
process where it has concluded the process but could not verify the
consumer's identity, again provided the financial institution has
disclosed to the consumer the risks of not registering the account
using a notice that is substantially similar to the model notice
contained in paragraph (c) of appendix A-7. Although consumers will now
receive limited liability and error resolution protections, except
provisional credit, before their account is registered with the
financial institution, the Bureau believes it is still important that
consumers understand that their protections are more limited until they
register their accounts. As such, the Bureau is still requiring
financial institutions to provide a notice substantially similar to the
model notice contained in paragraph (c) of appendix A-7 in order to
qualify for Sec. 1005.18(e)(3)(ii)(A) and (B).\504\
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\504\ The Bureau has revised the content of the notice to
reflect the revisions to Sec. 1005.18(e)(3) discussed herein. Those
changes are discussed in the section-by-section analysis of appendix
A-7 below.
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Finally, as stated earlier, new Sec. 1005.18(e)(3)(ii)(C) sets
forth that a financial institution has not completed the process where
the financial institution does not have a consumer identification and
registration process by which the consumer can register the prepaid
account. To qualify for this provision, a financial institution need
not provide the notice in paragraph (c) of appendix A-7 since the
consumer cannot register his or her card to obtain provisional credit
protections. For the same reason, the Bureau has revised proposed
comment 18(e)-4. The proposed comment would have recounted that
proposed Sec. 1005.18(e)(3) provided that, in order to take advantage
of the exception from the requirement to comply with the limited
liability and error resolution requirements, a financial institution
would have had to disclose to the consumer the risks of not registering
a prepaid account using a notice substantially similar to paragraph (c)
of appendix A-7. Since the requirement to provide the notice in
paragraph (c) of appendix A-7 now appears in Sec. 1005.18(e)(3)(ii)(A)
and (B), but not in Sec. 1005.18(e)(3)(ii)(C), the statement is no
longer accurate, and as such has been removed.
With respect to the requirement in proposed Sec. 1005.18(e)(3)
that, once an account is verified, financial institutions must provide
limited liability and error resolution protections for pre-verification
errors, the Bureau has considered the comments objecting to this aspect
of the proposal, but is finalizing the general approach in new Sec.
1005.18(e)(3)(iii). To conform the proposed provision to the revisions
discussed above (narrowing the scope of the exclusion set forth in
final Sec. 1005.18(e)(3)(i)), new Sec. 1005.18(e)(3)(iii) states
that, if a consumer's account has been verified, a financial
institution must comply with the provisions set forth in Sec.
1005.11(c) in full with respect to any errors that satisfy the timing
requirements of Sec. 1005.11, or the modified timing requirements of
Sec. 1005.18(e), as applicable, including with respect to errors that
occurred prior to verification. Thus, under the revised exclusion
approach, once an account has been verified, financial institutions
that take longer than 10 business days (or 20 business days, as
applicable) to investigate a timely error report must provisionally
credit the account with respect to an error, whether it occurred before
or after the account was verified, in compliance with the applicable
time limitations set forth in Sec. 1005.11(c).
The Bureau agrees with industry commenters that it is unlikely that
there will be many unauthorized transfers between the time a consumer
acquires a prepaid account and the time the consumer is able to
register the account.\505\ As such, the Bureau does not believe that a
requirement to provide provisional credit protections for pre-
registration transactions on a previously unregistered account should
place a substantial burden on industry. The Bureau believes, however,
that to the extent there are errors prior to verification, these could
be significant--they could, for example, involve the initial amount the
consumer loaded onto the account at acquisition, which could be a
significant sum. Further, the Bureau notes that existing provisions in
Sec. 1005.11 already accommodate for potential fraudulent error claims
asserted with respect to new accounts. Under both the proposed and
final rule, new accounts would receive the benefit of the extended 20-
business day investigation timeline set forth in Sec.
1005.11(c)(3)(i).\506\ Further, as set forth below, if, at the time the
financial institution was supposed to provisionally credit the account,
the financial institution had not yet completed its consumer
identification and verification process, the financial institution is
not required to extend provisional credit to that account.
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\505\ Existing customer identification requirements, such as
those imposed under the FinCEN Prepaid Access Rule, limit the
functionality of most prepaid accounts prior to registration. Most
GPR prepaid cards purchased online or by telephone require full
customer identification and verification before a card is mailed to
the consumer. For GPR cards purchased at retail, some financial
institutions require the cardholder to call or go online to provide
identifying information before the card can be used; if the
verification process fails, the card functionality is limited to
that of a gift card.
\506\ The Bureau notes further that Regulation E permits
financial institutions to ask for written confirmation of a
consumer's oral error notification; if the institution does not
receive the confirmation it seeks within 10 business days of an oral
notice of error, the financial institution is not required to
provide provisional credit with respect to that error claim. See
Sec. 1005.11(c)(2)(i)(A).
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The Bureau has made two other substantive revisions to address the
timing requirements governing a financial institution's obligation to
provide limited liability and error resolution rights once a consumer's
account has been verified. First, the Bureau has removed a large
portion of proposed comment 18(e)-4, which addressed the timelines for
a consumer's timely report and a financial institution's timely
investigation of an unauthorized transfer for accounts that were
previously unverified. Because the final rule requires financial
institutions to provide limited liability and error resolution rights
to accounts regardless of whether or not they have been verified, the
substance of that portion of the proposed comment is no longer
applicable.
Second, as referenced above, the Bureau is adopting new Sec.
1005.18(e)(3)(iii)(A) to address circumstances where a financial
institution verifies an account after a consumer reports an
unauthorized transfer. Specifically, new Sec. 1005.18(e)(3)(iii)(A)
addresses a situation where, at the time the financial institution is
required to provisionally credit the account, the financial institution
has not yet completed its identification and verification process with
respect to that account. New Sec. 1005.18(e)(3)(iii)(A) states that,
under that circumstance, the financial institution may take up to the
maximum length of time permitted under Sec. 1005.11(c)(2)(i) (45 days)
or (3)(ii) (90 days) to investigate and determine whether an error
occurred, without provisionally crediting the account. The Bureau
believes this clarification is necessary, as without it, a financial
institution could be retroactively liable for failing to extend
provisional credit in a timely manner pursuant to Sec. 1005.11(c)(1),
even though, under new Sec. 1005.18(e)(3)(i), it was not required to
extend such credit yet since it had not
[[Page 84114]]
completed its consumer identification and verification process.
In addition to the changes outlined above, the Bureau has made
several minor revisions for clarity and conformity with revisions to
other parts of the rule.
18(f) Disclosure of Fees and Other Information
The Bureau's Proposal
EFTA section 905(a)(4) requires that financial institutions
disclose to consumers, as part of an account's terms and conditions,
any charges for EFTs 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 EFTs or for the right to make transfers must be disclosed.
Proposed Sec. 1005.18(f) would have required a financial
institution to disclose any fees imposed by a financial institution for
EFTs or the right to make such transfers and to 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 would have been required to 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. Proposed Sec. 1005.18(f) would have also
required a financial institution to include all of the information
required to be disclosed in the long form disclosure and be provided in
a form substantially similar to proposed Sample Form A-10(e).
Comments Received
The Bureau received comments from an industry trade association,
issuing banks and a credit union, and program managers on this aspect
of the proposal. These commenters generally supported full disclosure
of all fees, not just fees related to EFTs. However, some expressed
concern that proposed Sec. 1005.18(f)'s inclusion of the long form
disclosure would be duplicative, given that prepaid accounts would also
be subject to other disclosure requirements under Regulation E as well.
Specifically, these commenters argued that requiring financial
institutions to provide the short form, long form, and initial
disclosures is redundant and would result in information overload and
consumer confusion. One issuing credit union urged the Bureau not to
require financial institutions to include the long form disclosure in
the initial disclosures, while an issuing bank suggested that the
Bureau require the long form disclosure be delivered only as part of
the initial disclosures. See the section-by-section analysis of Sec.
1005.18(b) above for a more detailed discussion of the comments
received on the pre-acquisition long form disclosure generally.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing proposed
Sec. 1005.18(f), renumbered as Sec. 1005.18(f)(1), generally as
proposed, with certain modifications for clarity as explained below.
The Bureau is adopting this provision pursuant to its authority under
EFTA section 904(c) to adjust the requirement in EFTA section
905(a)(4), which is implemented in existing Sec. 1005.7(b)(5), for
prepaid accounts, and its authority under section 1032(a) of the Dodd-
Frank Act. The Bureau believes that disclosure of all fees for prepaid
accounts will, consistent with EFTA section 902 and section 1032(a) of
the Dodd-Frank Act, assist consumers' understanding of the terms and
conditions of their prepaid accounts, and 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.
The Bureau believes that it is important that the initial account
disclosures provided to consumers list all fees that may be imposed in
connection with a prepaid account. The Bureau believes that because
consumers will likely reference these disclosures 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 EFTs. In addition, the Bureau believes that most financial
institutions are already disclosing all fees in the terms and
conditions accompanying prepaid accounts. Regulation DD, which
implements the Truth in Savings Act, 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.\507\ Because some prepaid accounts as defined by this final
rule may not also constitute accounts as defined under Regulation DD
(or the corresponding regulations applicable to credit unions),\508\
final Sec. 1005.18(f)(1) in conjunction with the long form disclosure
requirements in final Sec. 1005.18(b)(4) will ensure that prepaid
account consumers receive fee disclosures that include all fees, not
just those related to EFTs or the right to make transfers.
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\507\ Regulation DD Sec. 1030.4(b)(4).
\508\ See 12 CFR part 707.
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Final Sec. 1005.18(f)(1) provides that a financial institution
must include, as part of the initial disclosures given pursuant to
Sec. 1005.7, all of the information required to be disclosed in its
pre-acquisition long form disclosure pursuant to final Sec.
1005.18(b)(4). The Bureau is adopting new comment 18(f)-1, which
clarifies that a financial institution may, but is not required to,
disclose the information required by final Sec. 1005.18(b)(4) in
accordance with the formatting, grouping, size and other requirements
set forth in final Sec. 1005.18(b) for the long form disclosure as
part of its initial disclosures provided pursuant to Sec. 1005.7; a
financial institution may choose to do so, however, in order to satisfy
other requirements in final Sec. 1005.18.\509\ The Bureau believes
these revisions streamline the proposed language and make clearer the
Bureau's intent as to when the long form disclosure itself must be
provided.
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\509\ See, e.g., final Sec. 1005.18(b)(1)(ii) regarding the
retail location exception.
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Relatedly, the Bureau is adopting new Sec. 1005.18(f)(2) to avoid
any uncertainty as to when a change-in-terms notice is required.
Specifically, this provision makes clear that the change-in-terms
notice provisions in Sec. 1005.8(a) apply to any change in a term or
condition that is required to be disclosed under Sec. 1005.7 or final
Sec. 1005.18(f)(1). New Sec. 1005.18(f)(2) also provides, however,
that if a financial institution discloses the amount of a third-party
fee in its pre-acquisition long form disclosure pursuant to final Sec.
1005.18(b)(4)(ii) and initial disclosures pursuant to final Sec.
1005.18(f)(1), the financial institution is not required to provide a
change-in-terms notice solely to reflect a change in that fee amount
imposed by the third party.
New Sec. 1005.18(f)(2) also states that if a financial institution
provides pursuant to Sec. 1005.18(f)(1) the Regulation Z disclosures
required by Sec. 1005.18(b)(4)(vii) for an overdraft credit feature,
the financial institution is not required to provide a change-in-terms
notice solely to reflect a change in the fees or other terms disclosed
therein.\510\ New comment 18(f)-2
[[Page 84115]]
explains that the exception provided in new Sec. 1005.18(f)(2) does
not extend to any finance charges imposed on the prepaid account as
described in final Regulation Z Sec. 1026.4(b)(11)(ii) in connection
with a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in new Sec. 1026.61 that are required to be
disclosed pursuant to Sec. 1005.18(b)(4)(ii). This comment also
references comment 18(b)(4)(ii)-1. See the section-by-section analysis
of Sec. 1005.18(b)(4)(vii) above for a detailed discussion of this
disclosure requirement in the final rule.
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\510\ The Bureau notes that Regulation Z, 12 CFR 1026.60(e)(4)
requires that the disclosures given pursuant to Sec. 1026.60(e)(1),
which are required to be provided when an overdraft credit feature
is offered in connection with a prepaid account pursuant to Sec.
1005.18(b)(4)(vii), must be accurate as of the date of printing. A
variable APR is accurate if it was in effect within 30 days before
printing.
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18(f)(3) Disclosures on Prepaid Account Access Devices
The Bureau proposed Sec. 1005.18(b)(7) to require a financial
institution to disclose on the prepaid account device itself the name
of the financial institution, a Web site URL, and a telephone number
that a consumer can use to access information about the prepaid
account. Proposed Sec. 1005.18(b)(7) would have provided that, if a
financial institution did not provide a physical access device in
connection with a prepaid account, this disclosure would have been
required to appear at the URL or other entry point a consumer must
visit to access the prepaid account electronically. Proposed Sec.
1005.18(b)(7) would have also stated that a 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 have
clarified 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 received no comments regarding these proposed
requirements for disclosures on prepaid account devices. The Bureau is
thus finalizing proposed Sec. 1005.18(b)(7), renumbered as Sec.
1005.18(f)(3), substantially as proposed, with modifications as to the
location of this disclosure at an electronic entry point to the
account. The Bureau has also removed from the regulatory text the
explanation regarding disclosures made on an accompanying document and
included it in final comment 18(f)-3, as discussed below. The Bureau is
finalizing this provision pursuant to its authority under EFTA sections
904(a) and (c), and 905(a), and section 1032(a) of the Dodd-Frank Act,
because it will assist consumers in better understanding the terms and
conditions of their prepaid accounts, even after they have acquired the
account.
The Bureau is also finalizing proposed comment 18(b)(7)-1,
renumbered as comment 18(f)-3, with modifications to clarify the
examples for why a consumer might use the information disclosed on an
access device to contact the financial institution. Specifically, this
comment now clarifies that the financial institution must provide this
information to allow consumers to, for example, contact the financial
institution to learn about the terms and conditions of the prepaid
account, obtain prepaid account balance information, request a copy of
transaction history pursuant to final Sec. 1005.18(c)(1)(iii) if the
financial institution does not provide periodic statements pursuant to
Sec. 1005.9(b), or notify the financial institution when the consumer
believes that an unauthorized EFT occurred as required by Sec.
1005.7(b)(2) and final Sec. 1005.18(d)(1)(ii). Final comment 18(f)-3
also clarifies that a 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 does not constitute a disclosure on the access device. 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, even if they
are not in the location where they retained the disclosures or are
unable to access disclosures via the internet.
18(g) Prepaid Accounts Accessible by Hybrid Prepaid-Credit Cards
The Bureau's Proposal
The proposal would have added proposed Sec. 1005.18(g)(1) to set
forth timing rules related to when a credit card plan under Regulation
Z could be linked to a prepaid account. The proposal also would have
added proposed Sec. 1005.18(g)(2) to set forth rules related to the
terms applicable to a prepaid account when a credit card plan could be
is linked to a prepaid account. For the reasons discussed below, the
Bureau has not adopted proposed Sec. 1005.18(g)(1). The Bureau is
finalizing proposed Sec. 1005.18(g)(2) as Sec. 1005.18(g) with
revisions, as discussed below. For organizational purposes, proposed
Sec. 1005.18(g)(2) is discussed first, followed by a discussion of
proposed Sec. 1005.18(g)(1).
Proposed Sec. 1005.18(g)(2) would have set forth rules related to
the terms applicable to a prepaid account when a credit card plan could
be linked to a prepaid account. Specifically, proposed Sec.
1005.18(g)(2) would have provided 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, 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.
The proposal would have added proposed comment 18(g)-1 to cross-
reference provisions in Regulation Z that would have provided guidance
on when a program would have constituted a credit plan under the
proposal (see proposed Regulation Z Sec. 1026.2(a)(20) and proposed
Regulation Z comment 2(a)(20)-2.ii) and would have provided guidance on
when an access device for a prepaid account would have been a credit
card under the proposal (see existing Regulation Z Sec.
1026.2(a)(15)(i), and proposed Regulation Z comment 2(a)(15)-2.i.F).
Proposed comment 18(g)-2.i would have provided guidance on the
applicability of the restriction in proposed Sec. 1005.18(g)(2).
Specifically, proposed comment 18(g)-2.i would have explained 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, a financial institution that
establishes or holds such a prepaid
[[Page 84116]]
account would have been prohibited from applying 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 would have explained that
proposed 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 have provided 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 would have included 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 have cross-referenced proposed Regulation Z
Sec. 1026.4(b)(2) and proposed Regulation Z comment 4(b)(2)-1.iii and
iv, which would have provided additional guidance on fees that would
have related to an extension of credit, carrying a credit balance, or
credit availability.
Proposed comment 18(g)-2.iii also would have provided 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 have related to an extension of credit, carrying a credit
balance, or credit availability. The proposed examples would have
included (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 would have provided examples that
illustrate the prohibition in proposed Sec. 1005.18(g)(2).
Comments Received
The Bureau did not receive any industry comments on this specific
aspect of the proposal. One consumer group commenter expressed concern
that under proposed comment 18(g)-2.i, a financial institution may
offer different terms on two separate card programs, one that has the
potential for a credit feature accessed by prepaid card that is a
credit card and one that does not. This commenter expressed concern
that a financial institution could steer consumers who want to activate
such a credit feature to an entirely different prepaid account that has
additional fees or other features, including one that is not even
offered to the general public, but is only offered to consumers who
have asked about or likely to opt in to such a credit feature.
This commenter also noted the partial list of terms and conditions
set forth in proposed comment 18(g)-2 where a financial institution
under the proposal would not have been able to vary these terms and
conditions between consumers who do and do not link a credit feature to
the prepaid account that would make the prepaid card into a credit
card. The commenter urged the Bureau to add load or transfer fees to
this list of fees. The commenter believed that a financial institution
should not be permitted to charge a higher or lower fee on the prepaid
account for loading funds if the consumer links the credit feature to
his or her prepaid account.
The Final Rule
The Bureau is finalizing proposed Sec. 1005.18(g)(2), renumbered
as Sec. 1005.18(g), with revisions for consistency with final
Regulation Z Sec. Sec. 1026.4 and 1026.61.\511\ The Bureau is not
adopting proposed Sec. 1005.18(g)(1), for reasons discussed below. New
Sec. 1005.18(g)(1) provides that except as provided in new Sec.
1005.18(g)(2), with respect to a prepaid account program where
consumers may be offered a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined by new Regulation Z Sec.
1026.61, a financial institution must provide to any prepaid account
without a covered separate credit feature the same account terms,
conditions, and features that it provides on prepaid accounts in the
same prepaid account program that have such a credit feature. New Sec.
1005.18(g)(2) provides that a financial institution is not prohibited
under new Sec. 1005.18(g)(1) from imposing a higher fee or charge on
the asset feature of a prepaid account with a covered separate credit
feature accessible by a hybrid prepaid-credit card than the amount of a
comparable fee or charge that it imposes on any prepaid account in the
same prepaid account program that does not have such a credit feature.
As discussed in the section-by-section analysis of Regulation Z Sec.
1026.4(b)(11)(ii) below, new Regulation Z Sec. 1026.4(b)(11)(ii)
provides that with regard to a covered separate credit feature and an
asset feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card as defined in new Regulation Z Sec. 1026.61, any
fee or charge imposed on the asset feature of the prepaid account is a
finance charge to the extent that the amount of the fee or charge
exceeds comparable fees or charges imposed on prepaid accounts in the
same prepaid account program that do not have a credit feature
accessible by a hybrid prepaid-credit card.
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\511\ The Regulation Z proposal would have provided 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 a credit
plan that allows deposits directly only into particular prepaid
accounts specified by the creditor. Proposed Sec. 1005.18(g)(2)
would have provided that where a credit card plan subject to
Regulation Z that is accessed by such an account number may be
offered at any point to the consumer, 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)-1
would have discussed when these account numbers were credit cards
under Regulation Z. Proposed comment 18(g)-2 would have provided
guidance how proposed Sec. 1005.18(g)(2) would have applied to
credit card plans accessed by these account numbers. For the reasons
set forth in the section-by-section analysis of Regulation Z Sec.
1026.2(a)(15)(i) below, the final rule does not adopt the provisions
related to the account numbers that would have made these account
numbers into credit cards under Regulation Z. Thus, provisions in
proposed Sec. 1005.18(g)(2) and proposed comments 18(g)-1 and -2
related to these account numbers have not been adopted.
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As discussed in more detail in the section-by-section analysis of
Regulation Z Sec. 1026.61(a)(2) below, a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Regulation Z Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Regulation Z
Sec. 1026.61 and a credit card under final Regulation Z Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
The Bureau is adopting new Sec. 1005.18(g) 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
[[Page 84117]]
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.'' \512\
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 one-time
debit card transactions by providing consumers who do not opt in with
less favorable terms, conditions, or features than consumers who do opt
in.'' \513\
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\512\ See existing Sec. 1005.17(b)(3), which was numbered as
Sec. 205.17(b)(3) in the Board's rules.
\513\ 74 FR 59033, 59044 (Nov. 17, 2009).
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The Bureau believes that a similar requirement should be extended
here for similar reasons. As discussed in the section-by-section
analysis of Regulation Z Sec. 1026.12(a)(1) below, a covered separate
credit feature may be added to a previously issued prepaid card only
upon the consumer's application or specific request and only in
compliance with new Regulation Z Sec. 1026.61(c). New Regulation Z
Sec. 1026.61(c) requires that with respect to a covered separate
credit feature that could be accessible by a hybrid prepaid-credit card
at any point, a card issuer must not do any of the following until 30
days after the prepaid account has been registered: (1) Open a covered
separate credit feature accessible by the hybrid prepaid-credit card;
(2) make a solicitation or provide an application to open a covered
separate credit feature accessible by the hybrid prepaid-credit card;
or (3) allow an existing credit feature that was opened prior to the
consumer obtaining the prepaid account to become a covered separate
credit feature accessible by the hybrid prepaid-credit card.
The Bureau believes some institutions could otherwise effectively
compel the consumer to apply for or request a covered separate credit
feature as described above by providing consumers who do not make such
an application or request with less favorable terms, conditions, or
features than consumers who do make such applications or requests. For
example, an institution could waive the monthly fee for holding a
prepaid account for consumers who apply for or request that a covered
separate credit feature be connected to the prepaid account, but not
waive the monthly fee for consumers who do not make such an application
or request.
The Bureau is revising the commentary to Sec. 1026.18(g) from the
proposal to be consistent with new Regulation Z Sec. Sec.
1026.4(b)(11)(ii) and 1026.61. New comment 18(g)-1 provides that new
Regulation Z Sec. 1026.61 defines the term covered separate credit
feature accessible by a hybrid prepaid-credit card. The Bureau also is
adding new comment 18(g)-2.i to provide that new Regulation Z Sec.
1026.61(a)(5)(ii) defines the term ``asset feature.'' Under new
Regulation Z Sec. 1026.61(a)(5)(ii), the term ``asset feature'' means
an asset account that is a prepaid account, or an asset subaccount of a
prepaid account. New comment 18(g)-2.ii provides that new Sec.
1005.18(g) applies to account terms, conditions, and features that
apply to the asset feature of the prepaid account. New Sec. 1005.18(g)
does not apply to the account terms, conditions, or features that apply
to the covered separate credit feature, regardless of whether it is
structured as a separate credit account or as a credit subaccount of
the prepaid account that is separate from the asset feature of the
prepaid account.
The final rule moves proposed comment 18(g)-2.i to comment 18(g)-3
and revises it to be consistent with new Regulation Z Sec. 1026.61.
New comment 18(g)-3 provides that under new Sec. 1005.18(g), a
financial institution may offer different terms on different prepaid
account programs. For example, the terms may differ between a prepaid
account program where a covered separate credit feature accessible by a
hybrid prepaid-credit card is not offered in connection with any
prepaid accounts within the prepaid account program, and a prepaid
account program where a covered separate credit feature accessible by a
hybrid prepaid-credit card may be offered to some consumers in
connection with their prepaid accounts. The Bureau notes concerns
expressed by the consumer group commenter that financial institutions
could steer consumers who want to activate a credit feature accessible
by a prepaid card that is a credit card to an entirely different
prepaid account that has additional fees or other features, including
one that is not even offered to the general public, but is only offered
to consumers who have asked about or likely to opt in to such a credit
feature. Nonetheless, at this time, the Bureau retains the flexibility
for financial institutions to impose different fees on different
prepaid account programs. The Bureau will monitor whether financial
institutions are structuring prepaid account programs in an attempt to
evade the provisions in new Sec. 1005.18(g).
The final rule moves proposed comment 18(g)-2.ii to new comment
18(g)-4 and revises it to be consistent with new Regulation Z Sec.
1026.61. New comment 18(g)-4 provides that account terms, conditions,
and features subject to new Sec. 1005.18(g) include, but are not
limited to (1) interest paid on funds deposited into the asset feature
of the prepaid account, if any; (2) fees or charges imposed on the
asset feature of the prepaid account; \514\ (3) the type of access
device provided to the consumer. For instance, an institution may not
provide a PIN-only card on prepaid accounts without a covered separate
credit feature that is accessible by a hybrid prepaid-credit card,
while providing a prepaid card with both PIN and signature-debit
functionality for prepaid accounts in the same prepaid account program
with such a credit feature; (4) minimum balance requirements on the
asset feature of the prepaid account; or (5) account features offered
in connection with the asset feature of the prepaid account, such as
online bill payment services.
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\514\ See new comment 18(g)-5 discussed below for additional
guidance on how new Sec. 1005.18(g) applies to fees or charges
imposed on the asset feature of the prepaid account.
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The final rule moves proposed comment 18(g)-2.iii through iv to new
comment 18(g)-5 and revises it to be consistent with final Regulation Z
Sec. Sec. 1026.4 and 1026.61. New comment 18(g)-5.i provides that with
respect to a prepaid account program where consumers may be offered a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined by new Regulation Z Sec. 1026.61, new Sec. 1005.18(g)
only permits a financial institution to charge the same or higher fees
on the asset feature of a prepaid account with a covered separate
credit feature than the amount of a comparable fee it charges on
prepaid accounts in the same prepaid account program that do not have a
such a credit feature. This comment explains that new Sec. 1005.18(g)
prohibits a financial institution from imposing a lower fee or charge
on prepaid accounts with a covered separate credit feature than the
amount of a comparable fee or charge it charges on prepaid accounts in
the same prepaid account program without such a credit feature. This
comment also states that with regard to a covered separate credit
feature and an asset feature of a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in new Regulation
Z Sec. 1026.61, a fee or charge imposed on the asset feature of the
prepaid account generally is a finance charge under final Regulation Z
Sec. 1026.4(b)(11)(ii) to the extent that the amount of the fee or
[[Page 84118]]
charge exceeds the amount of a comparable fee or charge imposed on
prepaid accounts in the same prepaid account program that do not have
such a credit feature.
As discussed in more detail below, new comment 18(g)-5.ii through
iv also provides illustrations of how new Sec. 1005.18(g) applies to
fees or charges imposed on the asset feature of a prepaid account with
regard to a covered separate credit feature and an asset feature on a
prepaid account that are both accessible by a hybrid prepaid-credit
card as defined in new Regulation Z Sec. 1026.61.
Transaction Fees To Access Prepaid Account Funds
New comment 18(g)-5.ii provides three examples that illustrate how
new Sec. 1005.18(g) applies to per transaction fees for each
transaction to access funds available in the asset feature of the
prepaid account. For example, assume that a consumer has selected a
prepaid account program where a covered separate credit feature
accessible by a hybrid prepaid-credit card may be offered. For prepaid
accounts without such a credit feature, the financial institution
charges $0.50 for each transaction conducted that accesses funds
available in the prepaid account. For prepaid accounts with a credit
feature, the financial institution also charges $0.50 on the asset
feature for each transaction conducted that accesses funds available in
the asset feature of the prepaid account. New comment 18(g)-5.ii.A
provides that for purposes of new Sec. 1005.18(g), the financial
institution is imposing the same fee for each transaction that accesses
funds in the asset feature of the prepaid account, regardless of
whether the prepaid account has a covered separate credit feature
accessible by a hybrid prepaid-credit card. New comment 18(g)-5.ii.A
also states that with regard to a covered separate credit feature and
an asset feature of a prepaid account that are both accessible by a
hybrid prepaid-credit card as those terms are defined in new Regulation
Z Sec. 1026.61, the $0.50 per transaction fee imposed on the asset
feature for each transaction that accesses funds available in the asset
feature of the prepaid account is not a finance charge under new Sec.
1026.4(b)(11)(ii). This comment cross-references new Regulation Z Sec.
1026.4(b)(11)(ii) and comment 4(b)(11)(ii)-1 for a discussion of the
definition of finance charge with respect to fees or charges imposed on
the asset feature of a prepaid account with regard to a covered
separate credit feature and an asset feature of a prepaid account that
are both accessible by a hybrid prepaid-credit card as defined in new
Regulation Z Sec. 1026.61.
As set forth in new comment 18(g)-5.ii.B, if in the above example
with respect to prepaid accounts with a covered separate credit
feature, the financial institution imposes a $1.25 fee for each
transaction conducted that accesses funds available in the asset
feature of the prepaid account for prepaid accounts with a covered
separate credit feature, the financial institution is permitted to
charge a higher fee under new Sec. 1005.18(g)(2) on prepaid accounts
with a covered separate credit feature than it charges on prepaid
accounts without such a credit feature. The $0.75 excess in this
example is a finance charge under new Regulation Z Sec.
1026.4(b)(11)(ii).
Nonetheless, as discussed in new comment 18(g)-5.ii.C, if in the
above example for prepaid accounts with a covered separate credit
feature, the financial institution imposes a $0.25 fee for each
transaction conducted that accesses funds available in the asset
feature of the prepaid account, the financial institution is in
violation of new Sec. 1005.18(g) because it is imposing a lower fee on
the asset feature of a prepaid account with a covered separate credit
feature than it imposes on prepaid accounts in the same program without
such a credit feature.
Fees Related to Covered Separate Credit Features
New comment 18(g)-5.iii and iv provides additional guidance on the
type of fees that are considered comparable fees to fees imposed on
prepaid accounts for credit extensions from covered separate credit
features accessible by hybrid prepaid-credit cards. This guidance is
consistent with the guidance provided in Regulation Z comment
4(b)(11)(ii)-1.ii and iii with respect to the definition of finance
charge in new Regulation Z Sec. 1026.4(b)(11)(ii).
In developing these rules, as set forth in new Regulation Z Sec.
1026.61(a)(2)(i)(B) and comment 61(a)(2)-4.ii, the Bureau was conscious
that there were two potentially distinct types of credit extensions
that could occur on a covered separate credit feature. The first type
of credit extension is where the hybrid prepaid-credit card accesses
credit in the course of authorizing, settling, or otherwise completing
a transaction conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers. The second type of credit
extension is where a consumer makes a standalone draw or transfer of
credit from the covered separate credit feature, outside the course of
any transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers. For example, a consumer may use
the prepaid card at the prepaid account issuer's Web site to load funds
from the covered separate credit feature outside the course of a
transaction conducted with the card to obtain goods or services, obtain
cash, or conduct P2P transfers. Because the two scenarios involve
different sets of activities, the range of fees that are likely to be
triggered is also likely to be different. New comment 18(g)-5.iii and
iv therefore provides separate guidance on the comparable fees under
new Sec. 1005.18(g) with respect to each of the two types of credit
extensions.
Credit extensions from the covered separate credit feature within
the course of a transaction. Comment 18(g)-5.iii provides guidance for
credit extensions where the hybrid prepaid-credit card accesses credit
from the covered separate credit feature in the course of authorizing,
settling, or otherwise completing a transaction conducted with the card
to obtain goods or services, obtain cash, or conduct P2P transfers.
Specifically, comment 18(g)-5.iii provides that where the hybrid
prepaid-credit card accesses credit from a covered separate credit
feature in the course of authorizing, settling, or otherwise completing
such a transaction, any per transaction fees imposed on the asset
feature of the prepaid account, including load and transfer fees, with
such a credit feature should be compared to the per transaction fees
for each transaction to access funds in the asset feature of a prepaid
account that is in the same prepaid account program but does not have
such a credit feature. Thus, per transaction fees for a transaction
that is conducted to load or draw funds into a prepaid account from
some other source are not comparable for purposes of new Sec.
1005.18(g).
To illustrate these principles, comment 18(g)-5.iii sets forth a
set of several examples explaining how new Sec. 1005.18(g) applies in
situations in which credit is accessed from a covered separate credit
feature in the course of authorizing, settling, or otherwise completing
a transaction conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers.
New comment 18(g)-5.iii.A provides the following example: Assume
that a prepaid account issuer charges $0.50 on prepaid accounts for
each transaction that accesses funds in the asset feature of the
prepaid accounts without a covered separate credit feature. Also,
[[Page 84119]]
assume that the prepaid account issuer charges $0.50 per transaction on
the asset feature of prepaid accounts in the same prepaid program where
the hybrid prepaid-credit card accesses credit from a covered separate
credit feature in the course of a transaction. In this case, for
purposes of new Sec. 1005.18(g), the financial institution is imposing
the same fee for each transaction it pays, regardless of whether the
transaction accesses funds available in the asset feature of the
prepaid accounts without a covered separate credit feature, or is paid
from credit from a covered separate credit feature in the course of
authorizing, settling or otherwise completing a transaction conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers. Also, for purposes of new Regulation Z Sec.
1026.4(b)(11)(ii), the $0.50 per transaction fee imposed on the asset
feature of the prepaid account with a covered separate credit feature
is not a finance charge.
As described in new comment 18(g)-5.iii.B, if the prepaid account
issuer in the above example instead charged $1.25 on the asset feature
of a prepaid account for each transaction where the hybrid prepaid-
credit card accesses credit from the covered separate credit feature in
the course of the transaction, the financial institution is permitted
to charge the higher fee under new Sec. 1005.18(g) for transactions
that access the covered separate credit feature in the course of the
transaction than the amount of the comparable fee it charges for each
transaction that accesses funds available in the asset feature of the
prepaid accounts without such a credit feature. The $0.75 excess is a
finance charge under new Regulation Z Sec. 1026.4(b)(11)(ii).
Nonetheless, as discussed in new comment 18(g)-5.iii.C, if in the
above example, the financial institution imposes $0.25 on the asset
feature of the prepaid account for each transaction conducted where the
hybrid prepaid-credit card accesses credit from the covered separate
credit feature in the course of the transaction, the financial
institution is in violation of new Sec. 1005.18(g) because it is
imposing a lower fee on the asset feature of a prepaid account with a
covered separate credit feature than the amount of the comparable fee
it imposes on prepaid accounts in the same program without such a
credit feature.
Comment 18(g)-5.iii.D provides another example. Assume a prepaid
account issuer charges $0.50 on prepaid accounts for each transaction
that accesses funds in the asset feature of the prepaid accounts
without a covered separate credit feature. Assume also that the prepaid
account issuer charges both a $0.50 per transaction fee and a $1.25
transfer fee on the asset feature of prepaid accounts in the same
prepaid program where the hybrid prepaid-credit card accesses credit
from a covered separate credit feature in the course of a transaction.
In this case, both fees charged on a per-transaction basis for the
credit transaction (i.e., a combined fee of $1.75 per transaction) must
be compared to the $0.50 per transaction fee to access funds in the
asset feature of the prepaid account without a covered separate credit
feature. The financial institution is permitted to charge a higher fee
under new Sec. 1005.18(g) for transactions that access the covered
separate credit feature in the course of the transaction than the
amount of the comparable fee it charges for each transaction that
accesses funds available in the asset feature of the prepaid accounts
without such a credit feature. The $1.25 excess is a finance charge
under new Regulation Z Sec. 1026.4(b)(11)(ii).
Comment 18(g)-5.iii.E provides the last in this set of examples.
Assume a prepaid account issuer charges $0.50 on prepaid accounts for
each transaction that accesses funds in the asset feature of the
prepaid accounts without a covered separate credit feature, and charges
a load fee of $1.25 whenever funds are transferred or loaded from a
separate asset account, such as from a deposit account via a debit
card, in the course of a transaction on prepaid accounts without a
covered separate credit feature. Assume also that the prepaid account
issuer charges both a $0.50 per transaction fee and a $1.25 transfer
fee on the asset feature of prepaid accounts in the same prepaid
program where the hybrid prepaid-credit card accesses credit from a
covered separate credit feature in the course of a transaction. In this
case, both fees charged on a per-transaction basis for the credit
transaction (i.e., a combined fee of $1.75 per transaction) must be
compared to the per transaction fee (i.e., the fee of $0.50) to access
funds available in the asset feature of the prepaid accounts on a
prepaid account without a covered separate credit feature. Per
transaction fees for a transaction that is conducted by drawing funds
into a prepaid account from some other source (i.e., the fee of $1.25)
are not comparable for purposes of new Sec. 1005.18(g). The financial
institution is permitted to charge a higher fee under new Sec.
1005.18(g) for transactions that access the covered separate credit
feature in the course of the transaction than the amount of the
comparable fee it charges for each transaction to access funds
available in the asset feature of the prepaid accounts without such a
credit feature. The $1.25 excess is a finance charge under new
Regulation Z Sec. 1026.4(b)(11)(ii).
For the reasons set forth in more detail in the section-by-section
analysis of Regulation Z Sec. 1026.4(b)(11)(ii) below, the Bureau
believes that the above standard for determining comparable fees with
respect to fees or charges imposed on the asset feature of prepaid
accounts accessible by hybrid prepaid-credit cards will help prevent
evasion of the rules set forth in the final rule with respect to hybrid
prepaid-credit cards. The Bureau believes that many prepaid cardholders
who wish to use covered separate credit features may not have other
deposit accounts or savings accounts from which they can transfer funds
to prevent an overdraft on the prepaid account in the course of
authorizing, settling, or otherwise completing a transaction conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers to prevent an overdraft on the prepaid account. As a result,
the Bureau does not believe that a per transaction fee for credit drawn
or transferred from a covered separate credit feature accessible by a
hybrid prepaid-credit card during the course of a transaction should be
allowed to be compared with a per transaction fee for a service that
many prepaid cardholders who wish to use covered separate credit
features may not be able to use. For this reason, the Bureau believes
that it is appropriate to limit the comparable fee in this case to per
transaction fees imposed on prepaid accounts for transactions that
access funds in the prepaid account in the same prepaid account program
that does not have a covered separate credit feature. All prepaid
accountholders can use prepaid accounts to make transactions that
access available funds in the prepaid account, so these types of
transactions will be available to all prepaid accountholders.
Credit extensions from a covered separate credit feature outside
the course of a transaction. Comment 18(g)-5.iv provides guidance for
credit extensions where a consumer draws or transfers credit from the
covered separate credit feature outside the course of a transaction
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers. For example, a consumer may use the prepaid card
at the prepaid account issuer's Web site to load funds from the covered
separate credit feature outside the course of a transaction conducted
[[Page 84120]]
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers.
Comment 18(g)-5.iv provides that load or transfer fees imposed for
draws or transfers of credit from the covered separate credit feature
outside the course of a transaction are compared only with fees, if
any, to load funds as a direct deposit of salary from an employer or a
direct deposit of government benefits that are charged on prepaid
accounts without a covered separate credit feature. Fees imposed on
prepaid accounts without a covered separate credit feature for a one-
time load or transfer of funds from a separate asset account or from a
non-covered separate credit feature are not comparable for purposes of
new Sec. 1005.18(g).
Comment 18(g)-5.iv provides examples to illustrate this guidance.
The first example set forth in comment 18(g)-5.iv.A relates to loads to
transfer funds from a non-covered separate credit feature.
Specifically, assume a prepaid account issuer charges a $1.25 load fee
to transfer funds from a non-covered separate credit feature, such as a
non-covered separate credit card account, into prepaid accounts that do
not have a covered separate credit feature and does not charge a fee
for a direct deposit of salary from an employer or a direct deposit of
government benefits on those prepaid accounts. Assume the prepaid
account issuer charges $1.25 on the asset feature of a prepaid account
with a covered separate credit feature to load funds from the covered
separate credit feature outside the course of a transaction. In this
case, the load or transfer fees imposed for draws or transfers of
credit from the covered separate credit feature outside the course of a
transaction (i.e., the fee of $1.25) are compared with the fees to load
funds as a direct deposit of salary from an employer or a direct
deposit of government benefits that are charged on prepaid accounts
without a covered separate credit feature (i.e., the fee of $0). Fees
imposed on prepaid accounts without a covered separate credit feature
for a one-time load or transfer of funds from a separate asset account
(i.e., the fee of $1.25) is not comparable for purposes of new Sec.
1005.18(g). In this case, the financial institution is permitted to
charge a higher fee under new Sec. 1005.18(g) for transactions that
access the covered separate credit feature on prepaid accounts with a
credit feature than the amount of the comparable fee it charges on
prepaid accounts in the same program without such a credit feature. The
$1.25 fee imposed on the asset feature of the prepaid account with a
separate credit feature is a finance charge under new Regulation Z
Sec. 1026.4(b)(11)(ii).
As set forth in comment 18(g)-5.iv.B, a second example relates to a
one-time transfer of funds from a separate asset account. In this
second example, assume that a prepaid account issuer charges a $1.25
load fee for a one-time transfer of funds from a separate asset
account, such as from a deposit account via a debit card, to a prepaid
account without a covered separate credit feature and does not charge a
fee for a direct deposit of salary from an employer or a direct deposit
of government benefits on those prepaid accounts. Assume the prepaid
account issuer charges $1.25 on the asset feature of a prepaid account
with a covered separate credit feature to load funds from the covered
separate credit feature outside the course of a transaction. In this
case, the load or transfer fees imposed for draws or transfers of
credit from the covered separate credit feature outside the course of a
transaction (i.e., the fee of $1.25) are compared with the fees to load
funds as a direct deposit of salary from an employer or a direct
deposit of government benefits that are charged on prepaid accounts
without a covered separate credit feature (i.e., the fee of $0). Fees
imposed on prepaid accounts without a covered separate credit feature
for a one-time load or transfer of funds from a separate asset account
(i.e., the fee of $1.25) is not comparable for purposes of new Sec.
1005.18(g). In this case, the financial institution is permitted to
charge a higher fee under new Sec. 1005.18(g) for transactions that
access the covered separate credit feature on prepaid accounts with a
credit feature than the amount of the comparable fee it charges on
prepaid accounts in the same program without such a credit feature. The
$1.25 fee imposed on the asset feature of the prepaid account with a
covered separate credit feature is a finance charge under new
Regulation Z Sec. 1026.4(b)(11)(ii).
For the reasons set forth in more detail in the section-by-section
analysis of Regulation Z Sec. 1026.4(b)(11)(ii) below, the Bureau
believes that many prepaid accountholders who wish to use covered
separate credit features may not have other asset accounts, such as
checking accounts or savings accounts, or other credit accounts, from
which they can draw or transfer asset funds or credit for deposit into
the prepaid account outside the course of a transaction conducted with
the card to obtain goods or services, obtain cash, or conduct P2P
transfers. As a result, the Bureau does not believe that load or
transfer fees for credit from a covered separate credit feature
accessible by a hybrid prepaid-credit card outside the course of a
transaction should be allowed to be compared with a load or transfer
fees from an asset account, or non-covered separate credit feature,
outside the course of a transaction. For this reason, the Bureau
believes that it is appropriate to limit the comparable fee in this
case to fees, if any, to load funds as a direct deposit of salary from
an employer or a direct deposit of government benefits that are charged
on prepaid accounts without a covered separate credit feature. The
Bureau believes that such direct deposit methods commonly are offered
on most types of prepaid accounts and that most prepaid accountholders
who wish to use covered separate credit feature are able to avail
themselves of these methods.\515\
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\515\ The Bureau understands that prepaid account issuers
currently offering overdraft services condition consumer eligibility
on receipt of a regularly-occurring direct deposit in excess of a
specified threshold.
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Proposed Sec. 1005.18(g)(1)
The proposal would have added proposed Sec. 1005.18(g)(1) that
generally would have restricted 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 days after the prepaid
account has been registered. Specifically, proposed Sec.
1005.18(g)(1)(i) would have restricted 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 days after the prepaid
accounts have been registered. For purposes of proposed Sec.
1005.18(g)(1), the term solicitation would have meant 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 \516\ for a credit or charge card would be a solicitation
for purposes of proposed Sec. 1005.18(g)(1).
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\516\ 15 U.S.C. 1681a(l).
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Proposed Sec. 1005.18(g)(1)(ii) would have restricted 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 days
[[Page 84121]]
after the prepaid accounts have been registered. Proposed Sec.
1005.18(g)(1)(iii) would have restricted 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 days
after the prepaid account has been registered. Proposed Sec.
1005.18(g)(1)(iii) was 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 Sec. 1005.18(g)(1) would have complemented a similar
proposed provision in Regulation Z, proposed Sec. 1026.12(h)
(renumbered as new Sec. 1026.61(c) in the final rule), which would
have required credit card issuers to wait at least 30 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.
In the proposal, the Bureau noted that proposed Sec. 1005.18(g)(1)
and proposed Regulation Z Sec. 1026.12(h) would have overlapped 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 institution would have been a ``card issuer'' under
existing Regulation Z Sec. 1026.2(a)(7) \517\ and the Bureau proposed
that both the requirements of proposed Regulation Z Sec. 1026.12(h)
and proposed Regulation E Sec. 1005.18(g)(1) would have applied to the
financial institution who also is a card issuer. Nonetheless, the
Bureau intended proposed Regulation E Sec. 1005.18(g)(1) and proposed
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)
would have been required to comply with proposed Regulation Z Sec.
1026.12(h). In addition, the financial institution that holds the
prepaid account would have been required to comply with proposed Sec.
1005.18(g)(1).
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\517\ 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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The Bureau has not finalized proposed Sec. 1005.18(g)(1) because
the Bureau believes the amendment is unnecessary in light of other
revisions in the final rule, as discussed below. As discussed in more
detail in the section-by-section analysis of Regulation Z Sec.
1026.2(a)(15)(i) below, the Regulation Z proposal provided that the
term ``credit card'' would have included 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. For the reasons set forth in the section-by-
section analysis of Regulation Z Sec. 1026.2(a)(15)(i) below, the
Bureau has decided not to adopt the provisions related to the account
numbers that would have made these account numbers into credit cards
under Regulation Z. Thus, the Bureau believes that the provisions in
proposed Sec. 1005.18(g)(1) are not needed to address covered separate
credit features accessible by hybrid prepaid-credit cards because those
credit features are addressed in new Regulation Z Sec. 1026.61(c).
As discussed in more detail in the section-by-section analysis of
Regulation Z Sec. 1026.61(a)(2) below, a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Regulation Z Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Regulation Z
Sec. 1026.61 and a credit card under final Regulation Z Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
New Regulation Z Sec. 1026.61(c) provides that with respect to a
covered separate credit feature that could be accessible by a hybrid
prepaid-credit card at any point, a card issuer must not do any of the
following until 30 days after the prepaid account has been registered:
(1) Open a covered separate credit feature accessible by the hybrid
prepaid-credit card; (2) make a solicitation or provide an application
to open a covered separate credit feature accessible by the hybrid
prepaid-credit card; or (3) allow an existing credit feature that was
opened prior to the consumer obtaining the prepaid account to become a
covered separate credit feature accessible by the hybrid prepaid-credit
card.
With respect to a hybrid prepaid-credit card, the financial
institution would be a ``card issuer'' under final Regulation Z Sec.
1026.2(a)(7).\518\ The Bureau does not believe that it is necessary to
include similar provisions to proposed Sec. 1005.18(g)(1) in
Regulation E that would cover a financial institution that offers a
hybrid prepaid-credit card that accesses a covered separate credit
feature. In this case, the financial institution is a card issuer under
final Regulation Z Sec. 1026.2(a)(7) and is covered by the provisions
in Regulation Z that apply to card issuers, including new Regulation Z
Sec. 1026.61(c).
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\518\ Under the final rule in Regulation Z comment 2(a)(7)-1.ii,
with respect to a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in new Regulation Z Sec.
1026.61where that credit feature is offered by an affiliate or
business partner of the prepaid account issuer as those terms are
defined in new Regulation Z Sec. 1026.61, the affiliate or business
partner offering the credit feature is an agent of the prepaid
account issuer and thus, is itself a card issuer with respect to the
hybrid prepaid-credit card. In this case, both the person offering
the covered separate credit feature and the financial institution
issuing the prepaid card are card issuers under final Regulation Z
Sec. 1026.2(a)(7).
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18(h) Effective Date
The Bureau's Proposal
The Bureau proposed, in general, a nine-month effective date for
its rulemaking on prepaid accounts. Specifically, proposed Sec.
1005.18(h)(1) would have stated 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, would have applied to prepaid
accounts nine months following the publication of the Bureau's final
rule
[[Page 84122]]
in the Federal Register. This would have included the disclosure
requirements in proposed Sec. 1005.18(b) and (f)(2), and would have
applied 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 have generally made applicable
to all prepaid accounts the requirements of EFTA and Regulation E, as
modified by the provisions of proposed Sec. 1005.18, including those
governing disclosures, access to prepaid account information, limited
liability and error resolution, among others, after nine months. For
instance, the new disclosure requirements would have applied
immediately at the nine-month mark for disclosures and other
information made available to consumers online or by telephone.
However, this first proposed effective date would not have required
immediate destruction or removal of previously printed materials
because it would have only required packages, cards, and other
materials printed on or after the nine month date to comply with the
rule's disclosure requirements in proposed Sec. 1005.18(b) and (f)(2).
Instead, the Bureau proposed a delayed effective date for certain
additional packaging-related changes, which would have been 12 months
following the publication of the final rule in the Federal Register.
This second date, in proposed Sec. 1005.18(h)(2), would have required
full compliance with the rule's disclosure requirements and would have
prohibited 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 had to remove from retail store shelves and other distribution
channels any prepaid accounts with disclosures not fully in compliance
with the rule.
For prepaid account packaging, access devices, and other printed
materials created prior to this first effective date, the Bureau
believed that nothing it proposed would trigger requirements under
existing Regulation E to provide a change-in-terms notice insofar as
the proposal would not have required increased fees, liability, or
fewer types of available EFTs for consumers.\519\ If, however,
financial institutions wished to avail themselves of the more limited
error resolution or limited liability requirements for existing
unregistered prepaid accounts where their existing terms provide
greater protections, the Bureau noted that a change-in-terms notice
might be required.
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\519\ See Sec. 1005.8(a) and 12 CFR 1030.5(a)(1).
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The Bureau also noted that, independent of the proposed rule,
financial institutions that wish to make substantive changes to prepaid
account fees or terms are often required by other laws 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. Such laws may include
operative state consumer protection and contract laws.
Comments Received
The Bureau received many comments from industry, including trade
associations, issuing banks, credit unions, program managers, payment
networks, a payment processor, and a law firm writing on behalf of a
coalition of prepaid issuers, arguing that the proposed nine- and 12-
month compliance periods would be insufficient to implement the changes
that would be required under the proposal.
These commenters argued that, due to the perceived complexity of
the proposal, industry would need more time to review the requirements
of the final rule and implement extensive system and operational
changes, which would include, among other things, revising internal
procedures and training staff. Commenters recommended a range of time
periods, starting at 12 months but generally converging around 18 to 24
months. One trade association, however, said that it found the proposed
nine- and 12-month effective dates reasonable. Commenters stated that
the rule will affect the entire prepaid industry at the same time and
will require coordination and planning among all industry participants,
including third-party vendors. They explained that high demand for
packaging manufacturers would strain resources and suppliers and cause
significant delays in the production process. Industry commenters also
expressed concern about the costs and waste associated with pulling and
replacing packaging with non-compliant disclosures. These commenters
stated that a longer compliance period would ensure that industry has
time to comprehensively implement the required changes, with minimal
business disruption, and avoid the destruction of millions of card
packages. These commenters also urged the Bureau to consider holiday
season system freezes and peak time demands when setting an effective
date for the final rule, as well as impacts related to the roll-out of
EMV-enabled cards and POS terminals. These commenters explained that,
as an industry practice, various entities involved in the prepaid value
chain observe a ``freeze period'' during which no major system updates
should take place, often due to increased volumes during certain times
of the year. The exact periods may differ for financial institutions,
program managers, data processors, and retail stores, but combined
generally span October through April.
Several commenters explained that industry would need more time
than the Bureau proposed to implement necessary system and operational
changes, in order to comply with specific aspects of the proposal. For
example, with respect to disclosures, several commenters stated that
the proposed requirements would, among other things, require industry
to design new disclosures that would appear on packaging materials,
which would need to be newly produced, and on Web sites and mobile
applications, which would need to be redesigned and reprogrammed. These
commenters explained that providing disclosures prior to the
acquisition of government benefit accounts, payroll card accounts, and
campus cards would require revisions to current procedures, training of
third parties and employees, enhanced monitoring of third-party
practices, and the removal and replacement of preprinted card stock. To
help mitigate the costs that would be associated with destroying unused
packaging material, several credit unions and credit union trade
associations urged the Bureau to consider a compliance period driven by
the expiration date on the card stock. These commenters explained that
some credit unions purchase card stock four years in advance of the
last expiration date, as cards are sold with a three-year expiration
date range. One industry trade association suggested that the Bureau
grant a safe harbor for any prepaid account packaging manufactured in
the ordinary course of business within 90 days of publication of the
final rule in the Federal Register. Another industry trade association
suggested that the Bureau grant an exemption for cards issued before a
certain date, allow financial institutions to exhaust the card stock
and notify consumers in a reasonable manner that additional rights
apply to the existing
[[Page 84123]]
cards, or impose a ``manufacture date'' after which all cards
manufactured must comply with the final rule. A payment network
suggested that the Bureau grant a safe harbor and allow financial
institutions to keep existing physical cards stocked at retail
locations and notify consumers of any changes either by sending change-
in-terms notices or by obtaining consumer consent upon registration.
This commenter added that this approach would both cure outdated
pricing on card packaging and also allow financial institutions to
introduce new features that have a fee.
Regarding the proposed access to account information requirements,
several commenters stated that displaying the proposed summary totals
of fees, deposits, and debits for the prior calendar month and the
calendar year to date in proposed Sec. 1005.18(c)(4) would require
financial institutions to map the fee information for each cardholder,
redesign online transaction history pages, and change the formatting
for paper statements. With respect to the proposed requirement to
provide 18 months of account transaction history under the periodic
statement alternative in proposed Sec. 1005.18(c)(1)(ii) and (iii),
several industry commenters stated that making the changes necessary to
provide 18 months of account history nine months after publication of
the final rule would be problematic and time-consuming. These
commenters explained that financial institutions may not currently have
18 months of account transaction history for prepaid accounts and, if
they do, older information is likely archived and not easily
accessible. These commenters also explained that financial institutions
would need to redesign systems to be capable of supporting 18 months of
account transaction history and would need to train staff on the new
systems and capabilities.
Several commenters stated that submitting prepaid account
agreements to the Bureau and posting agreements on the issuer's Web
site pursuant to proposed Sec. 1005.19(b) and (c), respectively, would
require financial institutions to create a process for updating
agreements on a quarterly basis, develop a periodic monitoring process
to ensure accuracy of these agreements, create a location on their Web
sites for the posting of agreements, and develop a process for
maintaining inventory of these agreements.
Regarding the proposed changes to the treatment of overdraft
services and certain other credit plans for prepaid accounts, several
industry commenters explained that, to avoid coverage under the rule as
proposed for inadvertent overdrafts such as those resulting from force
pay transactions, financial institutions would either need to block
authorization requests where the final transaction amount is not known
in advance (such as gasoline purchases at automated fuel dispensers)
and require cardholders to pay in advance for every transaction that
could potentially result in an inadvertent overdraft, or add
transaction audit steps for merchant-initiated transactions to ensure
that merchants have a current, accurate authorization before any
prepaid card transaction is processed. One program manager that
currently offers overdraft services on some of its prepaid accounts
requested a compliance period of at least 24 months to develop and test
new systems for delivering the required disclosures (e.g., periodic
statements for prepaid cards that are also deemed a credit card) and to
perform underwriting for complying with ability-to-pay requirements
under Regulation Z. For existing prepaid accounts that offer overdraft
services, this commenter urged the Bureau to establish at least a 6-
month period during which overdraft services could continue to be
offered without being subject to the final rule, so that consumers
could be given sufficient notice regarding the changes to allow them to
make alternative financial arrangements as necessary. This commenter
explained, however, that if the Bureau established an effective date
for a period longer than nine months (such as 24 months), the 6-month
wind-down period would be less important.
Several commenters suggested modifications to the proposed
effective dates that they believed would reduce the potential
compliance burden on industry. A few industry commenters suggested a
longer compliance period for products sold at retail and for portions
of the rule that require system changes. One payment network and a law
firm writing on behalf of a coalition of prepaid issuers urged the
Bureau to allow consumers to continue using their existing prepaid
cards until the card expires, which the payment network believed would
allow financial institutions to avoid destroying millions of cards
consistent with the spirit of what is commonly referred to as the ``ECO
Card Act.'' \520\ For existing vendor contracts that may be in
violation of the final rule, one state employment department and an
industry commenter urged the Bureau to either grandfather in existing
contracts until they expire, or provide a reasonable timeframe in which
to amend or rebid the contracts. One industry commenter requested that
the final rule clearly state when revisions to Regulation Z will become
effective to avoid confusion for financial institutions that are also
subject to 32 CFR part 232, the regulation implementing the MLA,\521\
which the DOD proposed shortly before the Bureau released its proposed
rulemaking on prepaid accounts.
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\520\ Public Law 111-209 (2010). This act amended the statutory
date by which the Board's regulations implementing of the gift card
provisions of the Credit CARD Act were required to become effective.
The Credit CARD Act had originally called for an effective date of
August 22, 2010 for the Gift Card Rule; the ECO Card Act, which was
enacted on July 27, 2010, extended that effective date.
Specifically, the ECO Card Act extended the effective date to
January 31, 2011 for gift certificates, store gift cards, and
general-use prepaid cards that were produced prior to April 1, 2010,
provided certain conditions (including regarding in-store signage)
were met. See also 75 FR 66644 (Oct. 29, 2010); Press Release,
Network Branded Prepaid Card Ass'n, Senate Passed, By Unanimous
Consent, NBPCA Backed H.R. 5502, the ECO Card Act (July 14, 2010),
available at http://www.nbpca.com/en/News-Room/Press-Releases/ECO-Card-Act.aspx (stating that passage of the ECO Card Act granted
industry ``a meaningful period to transition until January 31, 2011
thereby avoiding the needless destruction of hundreds of millions of
cards and packaging that would have resulted in millions of dollars
in losses . . . .'')
\521\ See 79 FR 58602 (Sept. 29, 2014). The DOD subsequently
finalized this rulemaking, which became effective on October 1, 2015
(compliance required by October 3, 2016). See 80 FR 43560 (July 22,
2015) and part II.C above.
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The Bureau received few comments from consumer groups regarding
this portion of the proposal. One consumer group suggested that the
Bureau could allow financial institutions to implement the access to
account information requirements set forth in Sec. 1005.18(c) on a
rolling basis. This commenter explained that under such scenario, a
financial institution would not be required to provide account
information from prior to the final rule's effective date, but instead
could begin accumulating it on the effective date until the financial
institution has the information needed for the full time periods
required by the rule.
The Final Rule
Upon consideration of the comments received, the Bureau believes it
is appropriate to provide a longer implementation period in light of
some of the logistical issues raised by industry. The Bureau believes
it is important to ensure that industry has sufficient time to
implement the changes required by this final rule, but it is also
important not to delay the important consumer protections the rule sets
forth any longer than necessary. The Bureau has thus extended the
general effective date of this final rule from the proposed nine months
[[Page 84124]]
following the publication of the rule in the Federal Register to
approximately 12 months following issuance of the final rule. The
Bureau has also made a number of modifications and accommodations in
the rule to address particular concerns raised by commenters.
Specifically, the Bureau's final rule on prepaid accounts, as set
forth herein, will generally become effective on October 1, 2017, with
a few exceptions as discussed below. Under this final rule (unlike the
proposal), financial institutions are not required to pull and replace
prepaid account access devices and packaging materials with non-
compliant disclosures that were produced in the normal course of
business prior to October 1, 2017. The final rule also includes
specific provisions addressing how financial institutions should
provide notices of changes and updated initial disclosures in certain
circumstances. Further, this final rule includes an accommodation for
financial institutions that do not have readily available the data
necessary to comply fully with the periodic statement alternative
requirements in final Sec. 1005.18(c)(1)(ii) and (iii) or the summary
totals of fees requirement in final Sec. 1005.18(c)(5) as of October
1, 2017. In addition, the requirement to submit prepaid account
agreements to the Bureau pursuant to final Sec. 1005.19(b) is delayed
until October 1, 2018.
The Bureau has included several provisions in regulatory text and
commentary to make clearer these specific modifications to the rule's
general October 1, 2017 effective date. Specifically, final Sec.
1005.18(h) establishes a general effective date as well as special
transition rules for certain disclosure provisions. The delayed
effective date for submission of prepaid account agreements to the
Bureau is addressed in Sec. 1005.19(f).
The Bureau notes that nothing in this final rule changes the
existing requirements for payroll card accounts or government benefit
accounts prior to October 1, 2017. Financial institutions offering
payroll card accounts or government benefit accounts must comply with
all existing requirements applicable to those accounts under EFTA and
Regulation E until October 1, 2017. Beginning October 1, 2017,
financial institutions must comply with modified requirements in
subpart A of Regulation E for such accounts as set forth in this final
rule.
Final Sec. 1005.18(h)(1) provides that except as provided in Sec.
1005.18(h)(2) and (3), the requirements of the final rule apply to
prepaid accounts beginning October 1, 2017. Final Sec.
1005.18(h)(2)(i) establishes an exception for non-compliant disclosures
on existing prepaid account access devices and packaging materials to
eliminate the proposed pull and replace requirement. In return, final
Sec. 1005.18(h)(2)(ii) requires that financial institutions provide
notices of certain changes and updated initial disclosures to consumers
who acquire prepaid accounts on or after October 1, 2017 via non-
compliant packaging materials printed prior to the effective date.
Final Sec. 1005.18(h)(2)(iii) clarifies the requirements for providing
notice of changes to consumers who acquired prepaid accounts before
October 1, 2017. Final Sec. 1005.18(h)(2)(iv) facilitates the delivery
of the notices of changes and updated initial disclosures for prepaid
accounts governed by Sec. 1005.18(h)(2)(ii) or (iii). Finally, Sec.
1005.18(h)(3) sets forth the accommodation for financial institutions
that do not have readily accessible the data necessary to comply fully
with the periodic statement alternative or summary totals of fees
requirements. These provisions are each discussed in detail below.
18(h)(1). Final Sec. 1005.18(h)(1) explains, that except as
provided in Sec. 1005.18(h)(2) and (3), the requirements of subpart A
of Regulation E, as modified by final Sec. 1005.18, apply to prepaid
accounts as defined in final Sec. 1005.2(b)(3), including government
benefit accounts subject to final Sec. 1005.15, beginning October 1,
2017, which is approximately 12 months following the Bureau's issuance
of this final rule.
The Bureau believes 12 months is an appropriate compliance period
for this final rule in general, particularly given the modifications
and accommodations discussed below, and should provide financial
institutions sufficient time to review the requirements of the final
rule, implement the necessary system and operational changes, and for
coordination and planning among all industry participants. The Bureau
has specified an October 1, 2017 effective date for the final rule in
general, rather than making it contingent on publication of the final
rule in the Federal Register, for several reasons. The Bureau believes
an October 1, 2017 effective date will not interfere with holiday
season system freezes and peak time demands, which commenters stated
generally spans October through April, and setting a date certain in
this context will provide more clarity and comfort to industry in this
regard. (In response to related concerns raised by commenters, the
Bureau believes that, given the modification to eliminate the proposed
pull and replace requirement, and given that the liability shift for
EMV cards took place in late 2015, the impact regarding the roll-out of
EMV-enabled cards will be minimal, if at all.) In addition, the Bureau
has included in regulatory text and commentary several detailed
provisions and examples involving dates that it believes will be easier
for industry to understand if a particular effective date is
specified.\522\ Finally, with respect to the Regulation Z portion of
this final rule, TILA section 105(d) generally provides that a
regulation requiring any disclosure that differs from the disclosures
previously required by parts A, D, or E of TILA ``shall have an
effective date of that October 1 which follows at least six months the
date of promulgation.'' \523\
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\522\ See, e.g., final Sec. Sec. 1005.18(b)(2)(ix) and 1005.19.
See also the specific accommodations surrounding the effective date
in final Sec. 1005.18(h)(2) and (3) discussed herein.
\523\ 15 U.S.C. 1604(d). This section also provides, however,
that the Bureau may at its discretion lengthen the period of time
permitted for creditors or lessors to adjust their forms to
accommodate new requirements or shorten the length of time for
creditors or lessors to make such adjustments when it makes a
specific finding that such action is necessary to comply with the
findings of a court or to prevent unfair or deceptive disclosure
practices. Id.
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The Bureau seeks to ensure that consumers receive the benefit of
the protections in this final rule as soon as possible and therefore
declines to provide financial institutions additional time beyond the
12-month compliance period, except as discussed herein, to comply with
specific portions of the rule, as suggested by commenters. With respect
to an industry commenter's request to continue overdraft services for
six months after the effective date without being subject to the final
rule in order to inform consumers of changes to those services, the
Bureau believes the overall change to a 12-month effective date should
provide sufficient time to provide such notice to consumers. The Bureau
does not believe any further modifications or extensions to the
effective date are necessary or appropriate. Regarding commenters'
concern about the time needed to handle inadvertent overdrafts such as
those resulting from force pay transactions, the Bureau has generally
excluded such transactions from coverage under Regulation Z.\524\
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\524\ See final Regulation Z Sec. 1026.61(a)(4).
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Regarding commenters' request to grandfather in or provide a
timeframe to amend or rebid existing vendor contracts, the Bureau does
not believe this is necessary and thus declines to do so; however, the
Bureau believes the
[[Page 84125]]
modification to eliminate the proposed pull and replace requirement for
preprinted packaging materials will help ameliorate commenters'
concerns until new contracts can be executed.
The Bureau believes a 12-month compliance period is sufficient for
financial institutions to make system and operational changes to comply
with this final rule, especially given the modifications and
accommodations discussed herein. Regarding commenters' concern about
the time needed to design new disclosures, the Bureau is providing
native design files (for print disclosures) and source code (for web-
based disclosures) for all of the model and sample disclosures forms
included in the final rule to aid in their development.\525\ The Bureau
is also committed to working with industry to help address and
alleviate burden through regulatory implementation support and
guidance.\526\ With respect to commenters' concern about the time
needed to change the process for providing disclosures prior to the
acquisition of government benefit accounts, payroll card accounts, and
campus cards, the final rule specifically clarifies the timing of
acquisition requirements in final comment 18(b)(1)(i)-1 for payroll
card accounts and prepaid accounts generally, and in final comments
15(c)-1 and -2 for government benefit accounts. These revisions are
consistent with the current practices of many employers and government
agencies and therefore should not necessitate significant modifications
to current procedures. See the section-by-section analyses of
Sec. Sec. 1005.18(b)(1)(i) and 1005.15(c) for additional information
regarding the timing for delivery of pre-acquisition disclosures.
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\525\ These files are available at www.consumerfinance.gov/prepaid-disclosure-files.
\526\ See, e.g., http://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/prepaid.
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Regarding commenters' concern about the time needed to implement
changes to comply with the periodic statement alternative in Sec.
1005.18(c)(1) and the summary totals of fees requirement in Sec.
1005.18(c)(5), the Bureau believes the modifications made to those
provisions should aid industry in coming into compliance with those
requirements. Specifically, the Bureau has modified Sec.
1005.18(c)(1)(ii) to require at least 12 months of electronic account
transaction history, which commenters stated many financial
institutions already make available, and therefore any changes needed
to comply with that portion of the rule should be minimal. Likewise,
providing at least 24 months of written account transaction history
pursuant to final Sec. 1005.18(c)(1)(iii) should have minimal impact
on existing business processes because many financial institutions
currently archive several years of account information.\527\ Moreover,
the Bureau has modified Sec. 1005.18(c)(4), renumbered as Sec.
1005.18(c)(5), to require financial institutions to provide the summary
totals of fees only and has removed the proposed requirement to provide
summary totals of all deposits to and debits from a consumer's prepaid
account. The Bureau also believes the accommodation set forth in Sec.
1005.18(h)(3) for financial institutions that do not have readily
available the data necessary to comply fully with the periodic
statement alternative or summary totals of fees requirements as of the
effective date should provide financial institutions the time needed to
comply with the final rule. See the section-by-section analysis of
Sec. 1005.18(c) for additional information regarding the periodic
statement alternative and the summary totals of fees requirement.
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\527\ See the section-by-section analyses of Sec.
1005.18(c)(1)(ii) and (iii) above.
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The Bureau has also made several revisions to address commenters'
concerns regarding the time needed to comply with the requirements to
submit prepaid account agreements to the Bureau pursuant to final Sec.
1005.19(b) and to post agreements on the issuer's Web site pursuant to
final Sec. 1005.19(c). With respect to the submission requirement, the
final rule sets forth a delayed effective date in final Sec.
1005.19(f)(2), which will provide issuers the time needed to develop
and implement their own internal processes and procedures for
submitting agreements to the Bureau. Regarding the posting requirement,
the Bureau believes the modification in final Sec. 1005.19(c) to
require issuers to post on their Web sites only agreements that are
offered to the general public will reduce the number of agreements at
least some issuers must post and therefore should decrease the amount
of time needed to comply with this requirement relative to the
proposal. In addition, the Bureau believes many issuers already post
these agreements to their Web sites. See the section-by-section
analysis of Sec. 1005.19 for additional information about the prepaid
account agreement submission and posting requirements and the related
effective dates.
18(h)(2)(i). Final Sec. 1005.18(h)(2)(i) establishes an exception
for non-compliant disclosures on existing prepaid account access
devices and packaging materials. Specifically, it provides that the
disclosure requirements of subpart A of Regulation E, as modified by
final Sec. 1005.18, shall not apply to any disclosures that are
provided, or that would otherwise be required to be provided, on
prepaid account access devices, or on, in, or with prepaid account
packaging materials that were manufactured, printed, or otherwise
produced in the normal course of business prior to October 1, 2017.
The Bureau is not adopting the proposed requirement that financial
institutions and their third-party distribution agents remove from
retail store shelves and other distribution channels any prepaid
accounts with disclosures not fully in compliance with the final rule
as of the effective date. Thus, financial institutions are not required
to pull and replace prepaid account access devices and packaging
materials that do not contain new disclosures required by this final
rule (such as the short form disclosure) or that contain disclosures
that are no longer accurate as a result of this final rule (such as a
disclosure stating that at least 60 days of electronic and written
account transaction history are available under the periodic statement
alternative, rather than 12 and 24 months of history, respectively, as
required by this final rule). Likewise, financial institutions are not
required to retrieve from consumers prepaid account access devices,
such as prepaid cards, that were distributed prior to the effective
date. The Bureau believes this modification will help to reduce the
demand on packaging manufacturers, which commenters stated would have
strained resources and caused delays in the production process, and
will also mitigate the waste that would have been associated with
pulling and replacing packaging with non-compliant disclosures.
Financial institutions are not required to provide the pre-acquisition
disclosures pursuant to final Sec. 1005.18(b) prior to October 1,
2017.
The Bureau is adopting new comment 18(h)-1 to explain that the
October 1, 2017 effective date applies to disclosures made available or
provided to consumers electronically, orally by telephone, or in a form
other than on pre-printed materials, such as disclosures printed on
paper by a financial institution upon a consumer's request. In
addition, the Bureau is adopting new comment 18(h)-2 to provide
examples of disclosures that would fall under the exception set forth
in Sec. 1005.18(h)(2)(i) and to make clear that disclosures and access
devices that
[[Page 84126]]
are manufactured, printed, or otherwise produced on or after October 1,
2017 must comply with all the requirements of subpart A of Regulation
E.
18(h)(2)(ii). Because the final rule does not require financial
institutions to pull and replace packaging materials manufactured,
printed, or otherwise produced before October 1, 2017, the Bureau
believes it is appropriate to require financial institutions to provide
a notice of certain changes and updated initial disclosures to
consumers who acquire prepaid accounts on or after October 1, 2017 via
such non-compliant packaging materials. Specifically, new Sec.
1005.18(h)(2)(ii)(A) requires that, if a financial institution has
changed a prepaid account's terms and conditions as a result of this
final rule taking effect such that a change-in-terms notice would have
been required under Sec. 1005.8(a) or Sec. 1005.18(f)(2) for existing
customers, the financial institution must provide to the consumer a
notice of the change within 30 days of obtaining the consumer's contact
information. Separately, Sec. 1005.18(h)(2)(ii)(B) requires that the
financial institution mail or deliver to the consumer initial
disclosures pursuant to Sec. 1005.7 and Sec. 1005.18(f)(1) that have
been updated as a result of this final rule taking effect, within 30
days of obtaining the consumer's contact information. The Bureau notes
that financial institutions must mail or deliver initial disclosures
pursuant to Sec. 1005.18(h)(2)(ii)(B) even if Sec.
1005.18(h)(2)(ii)(A) does not apply.
Because of changes made in the final rule relative to the proposal,
the Bureau believes that it is even less likely that financial
institutions will make broad changes to their prepaid programs as a
result of the final rule taking effect of the kind that would trigger
requirements to provide a change-in-terms notice to existing customers
under Sec. 1005.8(a) or Sec. 1005.18(f)(2). Those rules require that
existing customers be provided with an advance notice in writing only
for changes that would result for the consumer in increased fees,
increased liability, fewer types of available EFTs, or stricter
limitations on the frequency or dollar amount of transfers. For
instance, because the final rule requires that Regulation E limited
liability and error resolution requirements apply to all accounts, even
if they are not registered or verified, the Bureau no longer
anticipates that financial institutions would be making changes to
their account agreements that would increase liability for consumers.
However, based on comments the Bureau received from industry, the
Bureau is aware that some financial institutions anticipate
discontinuing an available EFT service as it is currently offered as a
result of the final rule taking effect, in that the new requirements
imposed on overdraft credit features offered in conjunction with
prepaid accounts would require certain program restructuring in ways
that may affect availability in certain circumstances or for certain
consumers.
In light of these circumstances, the Bureau believes it is
appropriate to impose a requirement (in Sec. 1005.18(h)(2)(ii)(A)) on
financial institutions that is parallel to the spirit of Regulation E
change-in-terms requirements to notify consumers who acquire a prepaid
account after the effective date of the final rule via non-compliant
packaging if such changes to the prepaid account's terms and conditions
are being made as a result of the rule taking effect. Accordingly,
Sec. 1005.18(h)(2)(ii) requires such notice to be provided, via the
method specified in Sec. 1005.18(h)(2)(iv), within 30 days of
obtaining the consumer's contact information.
While the Bureau believes that changes to existing programs' terms
and conditions as a result of this final rule taking effect that would
trigger change-in-terms requirements under Regulation E for existing
customers will be rare, the Bureau expects that financial institutions
will make other types of changes to their initial disclosures pursuant
to Sec. Sec. 1005.7 and 1005.18(f)(1) in response to this final rule.
Accordingly, in light of the decision not to require that outdated
packaging be pulled and replaced, the Bureau believes it is appropriate
to require (in Sec. 1005.18(h)(2)(ii)(B)) that consumers who acquire a
prepaid account with packaging that was printed prior to the effective
date receive updated initial disclosures that accurately describe the
account's terms, conditions, and related information as required under
the final rule.
The Bureau is adopting Sec. 1005.18(h)(2)(ii) pursuant to its
authority under EFTA sections 904(a) and (c) and 905(a), and section
1032 of the Dodd-Frank Act. The Bureau believes that the notices
required pursuant to new Sec. 1005.18(h)(2)(ii) will, consistent with
section 1032(a) of the Dodd-Frank Act, 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. In addition,
consistent with EFTA sections 904 and 905(a), the Bureau believes the
updated initial disclosures will help consumers understand the new
terms of their prepaid accounts, as authorized under EFTA section
904(a) and (c) to effectuate the purposes of EFTA.\528\
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\528\ The Bureau notes that this approach is similar to EFTA
section 905(c), which provided that for any account of a consumer
made accessible prior to EFTA's effective date, the initial
disclosures required by EFTA section 905(a) were required to have
been disclosed not later than the earlier of (1) the first periodic
statement required by EFTA section 906(c) after EFTA's effective
date or (2) 30 days after EFTA's effective date.
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Because financial institutions generally mail to consumers a
personalized prepaid card embossed with the consumer's name, and other
informational materials, after the account is registered, the Bureau
believes that requiring financial institutions to include a notice of
the applicable changes to the prepaid account's terms and conditions
and the updated initial disclosures in that mailing will impose very
little burden on industry. Further, as discussed under new Sec.
1005.18(h)(2)(iv) below, a financial institution is permitted to
deliver the notice and disclosures electronically, without regard to E-
Sign consent, if it is not otherwise already mailing or delivering to
the consumer written account-related communications within the time
periods specified in new Sec. 1005.18(h)(2)(ii). The Bureau believes
that the combined effect of new Sec. 1005.18(h)(2)(i) and (ii) will
help reduce compliance burden on industry relative to the proposal,
while still providing appropriate transparency to consumers.
18(h)(2)(iii). The Bureau is adopting new Sec. 1005.18(h)(2)(iii)
to specify and balance burden concerns with respect to providing
notices of changes to prepaid accounts' terms and conditions to
consumers who acquired prepaid accounts before October 1, 2017. As with
Sec. 1005.18(h)(2)(ii) discussed above, the Bureau recognizes that
some financial institutions may make changes to prepaid account terms
and conditions as a result of this final rule taking effect that would
otherwise require a change-in-terms notice under Regulation E, in that
the new requirements imposed on overdraft credit features offered in
conjunction with prepaid accounts would require certain program
restructuring in ways that may affect availability in certain
circumstances or to certain consumers. The Bureau believes that
financial institutions that offer such features typically require
consumers to consent to delivery of electronic disclosures pursuant to
the E-Sign Act before any credit is extended, but there may be other
consumers with prepaid accounts in the same prepaid account program who
have never sought
[[Page 84127]]
to activate that feature on their prepaid accounts and who have not
specifically consented to electronic delivery.
In light of these unusual circumstances and other considerations
with regard to general implementation of the final rule, the Bureau
believes that financial institutions may choose to effectuate such
changes in terms as of October 1, 2017, or may want to do so earlier
depending on operational convenience. New Sec. 1005.18(h)(2)(iii),
which applies to prepaid accounts acquired by consumers before October
1, 2017, is designed to address both scenarios. Specifically, it
provides that if a financial institution has changed a prepaid
accounts' terms and conditions as a result of this final rule taking
effect such that a change-in-terms notice would have been required
under Sec. 1005.8(a) or Sec. 1005.18(f)(2) for existing customers,
the financial institution must provide to the consumer a notice of the
change at least 21 days in advance of the change becoming effective,
provided the financial institution has the consumer's contact
information. If the financial institution obtains the consumer's
contact information less than 30 days in advance of the change becoming
effective or after it has become effective, the financial institution
is permitted instead to notify the consumer of the change in accordance
with the timing requirements set forth in Sec. 1005.18(h)(2)(ii)(A).
The financial institution is not required to send a change-in-terms
notice for such change pursuant to Sec. 1005.8(a) or Sec.
1005.18(f)(2). As discussed under new Sec. 1005.18(h)(2)(iv) below, a
financial institution may provide the notice pursuant to Sec.
1005.18(h)(2)(iii) in electronic form without regard to the consumer
notice and consent requirements of section 101(c) of the E-Sign Act in
certain circumstances.
The Bureau believes this special notice requirement provides
appropriate flexibility to financial institutions in informing
consumers with regard to changes to their accounts as a result of the
final rule taking effect. The Bureau emphasizes, however, that all
changes to a prepaid account's terms and conditions as a result of this
final rule taking effect must nevertheless become effective by October
1, 2017. That is, if a financial institution were to provide to a
consumer a notice of a change that is subject to Sec.
1005.18(h)(2)(iii) on September 20, the change must nonetheless become
effective by October 1; a financial institution is not permitted to
delay the effective date of such a change until October 11 (i.e., 21
days after the financial institution notified the consumer).
The Bureau is adopting Sec. 1005.18(h)(2)(iii) pursuant to its
authority under EFTA sections 904(a) and (c), and section 1032 of the
Dodd-Frank Act. EFTA section 905(b) requires financial institutions to
notify consumers in writing at least 21 days prior to the effective
date of any change in any term or condition of the consumer's account
if such change would result in greater cost or liability for such
consumer or decreased access to the consumer's account. Because of the
unique circumstances involved in effectuating the final rule
particularly with regard to consumers who have never sought to activate
a credit or overdraft feature in conjunction with a prepaid account and
consumers who may be acquiring prepaid accounts close to the date that
certain services are discontinued or restricted, the Bureau is
exempting financial institutions in this limited circumstance from
complying with the change-in-terms notice requirements in Sec.
1005.8(a) and Sec. 1005.18(f)(2). Instead, financial institutions must
notify consumers of the change, using the method specified in Sec.
1005.18(h)(2)(iv), 21 days in advance of the change taking effect or,
in some circumstances, within 30 days of obtaining the consumer's
contact information. Pursuant to EFTA section 904(c), the Bureau
believes that exemption from the change-in-terms notice requirement 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 and to facilitate compliance, by assisting
consumers' understanding of the new terms and conditions of their
prepaid accounts that are purchased in outdated packaging. In addition,
the Bureau believes that the notice to consumers regarding changes to
terms and conditions pursuant to Sec. 1005.18(h)(2)(iii) will,
consistent with section 1032(a) of the Dodd-Frank Act, 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.
Although the Bureau did not propose, nor is it finalizing, a
requirement that financial institutions to provide updated initial
disclosures to all consumers who opened prepaid accounts prior to the
effective date of this final rule, the Bureau notes that it believes it
would nonetheless be beneficial for financial institutions to provide
updated initial disclosures to existing customers so that they will
understand their rights under the new regime and to avoid potential
consumer confusion. Accordingly, as discussed in connection with Sec.
1005.18(h)(2)(iv) below, the Bureau has provided a special rule to
facilitate delivery of such communications.
18(h)(2)(iv). The Bureau is adopting new Sec. 1005.18(h)(2)(iv) to
facilitate delivery of notices of certain changes and updated initial
disclosures for prepaid accounts governed by Sec. 1005.18(h)(2)(ii) or
(iii). Specifically, it provides that for these accounts, if a
financial institution has not obtained a consumer's consent to provide
disclosures in electronic form pursuant to the E-Sign Act, or is not
otherwise already mailing or delivering to the consumer written
account-related communications within the respective time periods
specified in Sec. 1005.18(h)(2)(ii) or (iii), the financial
institution may provide to the consumer a notice of a change in terms
and conditions pursuant to Sec. 1005.18(h)(2)(ii) or (iii) or required
or voluntary updated initial disclosures as a result of this final rule
taking effect in electronic form without regard to the consumer notice
and consent requirements of section 101(c) of the E-Sign Act.
As discussed above, the Bureau has decided, in response to
comments, that financial institutions should not be required to pull
and replace prepaid account packaging materials with non-compliant
disclosures that were produced in the normal course of business prior
to October 1, 2017. In addition, the Bureau believes specific
provisions are necessary to address how financial institutions should
provide notices of certain changes to prepaid account terms and
conditions and updated initial disclosures for prepaid accounts that
are acquired via outdated packaging. As discussed above, the Bureau
believes that most financial institutions will be able to send the
notices and disclosures pursuant to Sec. 1005.18(h)(2)(ii) and (iii)
at the same time it sends an embossed card following account
registration, and therefore there should be little additional burden.
For existing customers from whom the financial institution has not
already obtained consent to receive disclosures electronically pursuant
to the E-Sign Act, or for customers to whom the financial institution
is not otherwise mailing or delivering written account-related
communications during the relevant time period, the Bureau believes
that permitting electronic delivery of notices of changes in terms and
conditions pursuant to Sec. 1005.18(h)(2)(ii) or (iii) or required or
[[Page 84128]]
voluntary updated initial disclosures as a result of this final rule
taking effect will minimize compliance burden while still facilitating
consumers' understanding of the new terms and conditions of their
prepaid accounts in a timely way. Accordingly, new Sec.
1005.18(h)(2)(iv) addresses delivery of voluntary disclosures as well
as disclosures that are specifically required under final rule Sec.
1005.18(h)(2)(ii) and (iii) in order to incentivize and facilitate such
communications.
The Bureau is adopting new comments 18(h)-3, -4, and -5 to provide
further guidance regarding the provision of consumers with notices
pursuant to final Sec. 1005.18(h)(2). Specifically, new comment 18(h)-
3 explains that a financial institution that is required to notify
consumers of a change in terms and conditions pursuant to Sec.
1005.18(h)(2)(ii) or (iii), or that otherwise provides updated initial
disclosures as a result of this final rule taking effect, may provide
the notice or disclosures either as a separate document or included in
another notice or mailing that the consumer receives regarding the
prepaid account to the extent permitted by other laws and regulations.
New comment 18(h)-4 explains that a financial institution that has not
obtained the consumer's contact information is not required to comply
with the requirements set forth in Sec. 1005.18(h)(2)(ii) or (iii). A
financial institution is able to contact the consumer when, for
example, it has the consumer's mailing address or email address.
The Bureau is adopting new comment 18(h)-5 to explain the
requirements for closed and inactive accounts. Specifically, new
comment 18(h)-5 explains that the requirements of Sec.
1005.18(h)(2)(iii) do not apply to prepaid accounts that are closed or
inactive, as defined by the financial institution. However, if an
inactive account becomes active, the financial institution must comply
with the applicable portions of those provisions within 30 days of the
account becoming active again in order to avail itself of the timing
requirements and accommodations set forth in Sec. 1005.18(h)(2)(iii)
and (iv).
18(h)(3). As discussed above, the Bureau is adopting new Sec.
1005.18(h)(3) and new comment 18(h)-6 to provide an accommodation for
financial institutions that do not have sufficient data in a readily
accessible form in order to fully comply with the requirements for
providing electronic and written account transaction history pursuant
to final Sec. 1005.18(c)(1)(ii) and (iii) and the summary totals of
fees pursuant to final Sec. 1005.18(c)(5) by October 1, 2017. New
Sec. 1005.18(h)(3)(i) provides that if, on October 1, 2017, a
financial institution does not have readily accessible the data
necessary to make available 12 months of electronic account transaction
history pursuant to final Sec. 1005.18(c)(1)(ii) or to provide 24
months of written account transaction history upon request pursuant to
final Sec. 1005.18(c)(1)(iii), the financial institution may make
available or provide such histories using the data for the time period
it has until the financial institution has accumulated the data
necessary to comply in full with the requirements set forth in Sec.
1005.18(c)(1)(ii) and (iii).
New comment 18(h)-6.i provides the following example to illustrate
the provisions of final Sec. 1005.18(h)(3)(i): a financial institution
that had been retaining only 60 days of account history before October
1, 2017 would provide 60 days of written account transaction history
upon a consumer's request on October 1, 2017. If, on November 1, 2017,
the consumer made another request for written account transaction
history, the financial institution would be required to provide three
months of account history. The financial institution must continue
provide as much account history as it has accumulated at the time of a
consumer's request until it has accumulated 24 months of account
history. Thus, all financial institutions must fully comply with the
electronic account transaction history requirement set forth in Sec.
1005.18(c)(1)(ii) no later October 1, 2018 and must fully comply with
the written account transaction history requirement set forth in Sec.
1005.18(c)(1)(iii) no later October 1, 2019.
Similarly, new Sec. 1005.18(h)(3)(ii) provides that if, on October
1, 2017, the financial institution does not have readily accessible the
data necessary to calculate the summary totals of the amount of all
fees assessed by the financial institution on the consumer's prepaid
account for the prior calendar month and for the calendar year to date
pursuant to Sec. 1005.18(c)(5), the financial institution may display
the summary totals using the data it has until the financial
institution has accumulated the data necessary to display the summary
totals as required by Sec. 1005.18(c)(5). New comment 18(h)-6.ii
explains that if, on October 1, 2017, the financial institution does
not have readily accessible the data necessary to calculate the summary
totals of fees for the prior calendar month or the calendar year to
date, the financial institution may provide the summary totals using
the data it has until the financial institution has accumulated the
data necessary to display the summary totals as required by Sec.
1005.18(c)(5). That is, the financial institution would first display
the monthly fee total beginning on November 1, 2017 for the month of
October, and the year-to-date fee total beginning on October 1, 2017,
provided the financial institution discloses that it is displaying the
year-to-date total beginning on October 1, 2017 rather than for the
entire calendar year 2017. On January 1, 2018, financial institutions
must begin displaying year-to-date fee totals for calendar year 2018.
19(f). The effective dates for the prepaid account agreement
submission and posting requirements in final Sec. 1005.19 are
discussed in more detail in the section-by-section analysis of Sec.
1005.19(f) below. Final Sec. 1005.19(f)(1) provides that the
requirements of final Sec. 1005.19 apply to prepaid accounts beginning
on October 1, 2017, except as provided in final Sec. 1005.19(f)(2),
which sets forth a delayed effective date of October 1, 2018 for the
requirement to submit prepaid account agreements to the Bureau on a
rolling basis pursuant to final Sec. 1005.19(b).
Section 1005.19 Internet Posting of Prepaid Account Agreements
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.\529\ The Board implemented
these provisions in what is now Regulation Z Sec. 1026.58.\530\ The
Bureau's receipt of credit card agreements pursuant to Regulation Z
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.
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\529\ 15 U.S.C. 1632(d).
\530\ In 2015, the Bureau suspended temporarily the requirement
that credit card issuers submit agreements to the Bureau. See
Regulation Z Sec. 1026.58(g); 80 FR 21153 (Apr. 17, 2015). The
temporary suspension expired one year later. See 81 FR 19467 (Apr.
5, 2016).
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The Bureau proposed and is finalizing Sec. 1005.19 for
substantially the same reasons with respect to prepaid accounts.
Specifically, the Bureau proposed Sec. 1005.19 to require prepaid
account issuers to submit agreements for prepaid accounts to the Bureau
for posting on a publicly-available Web site established and maintained
by the
[[Page 84129]]
Bureau. The Bureau also proposed 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. The Bureau expects to use the prepaid account
agreements it receives from issuers pursuant to Sec. 1005.19 to assist
in its market monitoring efforts pursuant to its authority under Dodd-
Frank Act section 1022(c)(1) and (4). In addition, the Bureau believes
that posting prepaid account agreements on the Bureau's Web site in the
future will 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 will 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
mirrored existing provisions in Regulation Z Sec. 1026.58. The final
rule mirrors Regulation Z Sec. 1026.58 in many respects as well,
although the final rule deviates from the proposal and Regulation Z
Sec. 1026.58 in some instances, as discussed below. 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.
However, the requirements of Regulation Z Sec. 1026.58 and those of
Sec. 1005.19 are distinct and independent of one another. In other
words, issuers must comply with both as appropriate. The Bureau notes,
however, that it does not believe it is likely that any agreement will
constitute both a credit card agreement and a prepaid account agreement
and thus be required to be submitted under both Sec. 1005.19 and
Regulation Z Sec. 1026.58. Given the requirement in new Regulation Z
Sec. 1026.61(b) that credit features accessible by hybrid prepaid-
credit cards generally must be structured as separate sub-accounts or
accounts distinct from the prepaid asset account, in conjunction with
the account-opening disclosure requirements in existing Regulation Z
Sec. 1026.6 and the initial disclosure requirements in existing Sec.
1005.7(b) as well as final Sec. 1005.18(f)(1), the Bureau believes it
is unlikely that an issuer would use a single agreement to provide all
such disclosures for both a prepaid account and for a covered separate
credit feature.
The Bureau proposed and is finalizing 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 final 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 will, consistent with section 1032(a) of the Dodd-Frank Act,
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 also proposed and
is finalizing Sec. 1005.19 pursuant to its authority in section
1022(c)(4) of the Dodd-Frank Act. Section 1022(c)(1) of the Dodd-Frank
Act directs the Bureau to 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. In
support of this function, the Bureau has authority under section
1022(c)(4) to gather information from time to time regarding the
organization, business conduct, markets, and activities of covered
persons and service providers. Thus, pursuant to the Bureau's authority
under section 1022(c), the Bureau is finalizing a requirement that
prepaid account issuers submit prepaid account agreements to the Bureau
on a rolling basis, subject to certain exceptions, 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 the future, the Bureau intends to publish on its Web site a
database of the prepaid account agreements collected, similar to the
database currently available for credit card agreements. Under section
1022(c)(3) of the Dodd-Frank Act, the Bureau ``shall publish not fewer
than 1 report of significant findings of its monitoring required by
this subsection in each calendar year,'' and ``may make public such
information obtained by the Bureau under this section as is in the
public interest.'' The Bureau is not finalizing proposed Sec.
1005.19(b)(7) regarding posting of agreements on the Bureau's Web site,
however, given that the requirement speaks to the Bureau's actions and
not to regulated entities, and thus there is no need to finalize the
provision through regulatory text.
For the reasons discussed below, the Bureau is generally finalizing
Sec. 1005.19 as proposed with certain modifications as summarized here
and discussed in detail below. Specifically, the Bureau is finalizing
Sec. 1005.19(a) largely as proposed, but is adopting new Sec.
1005.19(a)(6) to define the term ``offers to the general public'' to
accommodate a revision in final Sec. 1005.19(c) to require only
agreements that are offered to the general public to be posted to the
issuer's publicly available Web site. The Bureau is also finalizing
Sec. 1005.19(b) with several modifications to revise the time period
in which issuers must submit agreements to the Bureau from a quarterly
basis to a rolling basis. Furthermore, the Bureau is adopting new Sec.
1005.19(b)(1)(v) to add to the list of criteria set forth in Sec.
1005.19(b)(1)(i) through (iv) that issuers must also include in their
submission any other identifying information about each agreement, as
required by the Bureau, which may include the effective date, the name
of the program manager, and the name of other relevant parties, if
applicable, such as the employer for a payroll card program. In
addition, as discussed above, the Bureau has removed proposed Sec.
1005.19(b)(7) regarding posting of agreements on the Bureau's Web site,
though the Bureau still intends to publish the agreements it receives
in the future. The Bureau is finalizing the general requirement in
Sec. 1005.19(c) that issuers post and maintain prepaid account
agreements on their publicly available Web sites, except if those
agreements are not available to the general public or if they qualify
for one of the proposed exceptions. The Bureau is also finalizing the
general requirement in Sec. 1005.19(d) to provide consumers with
access to their individual prepaid account agreements. Furthermore, the
Bureau is finalizing Sec. 1005.19(e) as proposed to waive the
requirement that issuers obtain E-Sign consent from consumers in order
to provide prepaid account agreements in electronic form pursuant
[[Page 84130]]
to Sec. 1005.19(c) and (d). Finally, the Bureau is adopting new Sec.
1005.19(f) to state that the requirements of final Sec. 1005.19 apply
to prepaid accounts beginning on October 1, 2017, except for the
requirement to submit prepaid account agreements to the Bureau on a
rolling basis pursuant to final Sec. 1005.19(b), which has a delayed
effective date of October 1, 2018.
19(a) Definitions
The Bureau proposed in Sec. 1005.19(a) certain definitions
specific to proposed Sec. 1005.19. The Bureau is largely finalizing
Sec. 1005.19(a) as proposed, with several modifications as discussed
below.
19(a)(1) Agreement
The Bureau proposed 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 would have also included fee information, as defined
in proposed Sec. 1005.19(a)(3), discussed below. Proposed Sec.
1005.19(a)(1) would have mirrored the definition of ``agreement'' or
``credit card agreement'' in Regulation Z Sec. 1026.58(b)(1).
Proposed comment 19(a)(1)-1 would have explained that an agreement
may consist of several documents that, taken together, define the legal
obligation between the issuer and the consumer. The Bureau did not
include 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 did not believe that prepaid account agreements contain
arbitration clauses or provisions allowing the issuer to unilaterally
alter contract terms in documents that are 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 did not
include 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 did not believe such a comment was relevant to
prepaid accounts.
The Bureau received no comments regarding this portion of the
proposal. Accordingly, the Bureau is finalizing Sec. 1005.19(a)(1) and
comment 19(a)(1)-1 as proposed.
19(a)(2) Amends
The Bureau proposed 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 would have been considered 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) would have been deemed to be substantive. Proposed Sec.
1005.19(a)(2) mirrors the definition of the term amends in Regulation Z
Sec. 1026.58(b)(2).
With respect to Regulation Z Sec. 1026.58, the Board had
determined that requiring resubmission of credit card agreements
following minor, technical changes would impose a significant
administrative burden with no corresponding benefit of increased
transparency.\531\ The Bureau believed the same would be true for
prepaid account issuers and therefore proposed a similar definition
here.
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\531\ 75 FR 7658, 7760 (Feb. 22, 2010).
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Proposed comment 19(a)(2)-1 would have given 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 would have given 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 received comments from two consumer groups regarding
whether certain changes, such as to an issuer's corporate name or to
the name of the prepaid account program to which the agreement applies,
should be considered substantive for the purposes of Sec. 1005.19.
These commenters argued that such changes should be deemed substantive,
explaining that they could impact a consumer's or researcher's ability
to find an agreement if it was searched for using a different name.
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(a)(2) as proposed. The Bureau is also finalizing comment
19(a)(2)-1 with several revisions. The Bureau has modified comment
19(a)(2)-1 to include the following as examples of changes that would
generally be considered substantive: changes to the corporate name of
the issuer or program manager, or to the issuer's address or
identifying number, such as its RSSD ID number or tax identification
number; and changes to the names of other relevant parties, such as the
employer for a payroll card program or the agency for a government
benefit program; and changes to the name of the prepaid account program
to which the agreement applies. In addition, the Bureau is finalizing
comment 19(a)(2)-2 with corresponding revisions to remove changes to
the name of the prepaid account program to which the agreement applies
as an example of a change that generally would not be considered
substantive. The Bureau agrees with commenters that if changes to the
corporate name of the issuer or program manager and changes to the name
of the prepaid account program to which the agreement applies are not
reflected in agreements posted to the issuer's Web site or to the
Bureau's Web site in the future, a consumer might not be able to locate
an agreement for an existing prepaid account or effectively compare
agreements when shopping for a new prepaid account. Other parties, such
as researchers, would likely also find it difficult to locate
particular agreements.
19(a)(3) Fee Information
The Bureau proposed Sec. 1005.19(a)(3) to define ``fee
information'' for purposes
[[Page 84131]]
of proposed Sec. 1005.19 as the information listed in the long form
fee disclosure in proposed Sec. 1005.18(b)(2)(ii).
Proposed Sec. 1005.19(a)(3) was similar to the definition of
pricing information in Regulation Z Sec. 1026.58(b)(7), but omitted
the exclusion for temporary or promotional rates and terms or rates and
terms that apply only to protected balances, as the Bureau did not
believe there is currently an equivalent to such rates and terms for
prepaid accounts.
The Bureau received comments from several consumer groups regarding
whether issuers should be required to include the short form disclosure
(required by proposed Sec. 1005.18(b)(2)(i)) in the definition of fee
information and thus be required to submit it to the Bureau and post it
on the issuer's Web site. Two consumer groups requested that issuers be
required to submit short form disclosures to the Bureau for posting on
the Bureau's Web site. Another consumer group stated that the short
form disclosure should be required to be placed on either the issuer's
homepage or the landing page for the product.
The Bureau is finalizing Sec. 1005.19(a)(3) with several
modifications. The Bureau is retaining the general definition of fee
information from the proposal, but is modifying it to also include the
short form disclosure. The Bureau has also made changes to the internal
paragraph citations to reflect other numbering changes made in this
final rule. Specifically, final Sec. 1005.19(a)(3) provides that the
term fee information means the short form disclosure for the prepaid
account pursuant to Sec. 1005.18(b)(2) and the fee information and
statements required to be disclosed in the pre-acquisition long form
disclosure for the prepaid account pursuant to final Sec.
1005.18(b)(4).
The Bureau continues to believe 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 to the issuer's Web site and on the Bureau's Web site in the
future include fees and other pricing information. The Bureau expects
that most issuers will include the long form disclosure itself as
required by final Sec. 1005.18(b)(4) (or the long form information
pursuant to final Sec. 1005.18(f)(1)) 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.
Upon further consideration, the Bureau believes it is necessary
that issuers also submit the short form disclosure to the Bureau and
post it to their Web sites, as suggested by some commenters. The Bureau
believes submitting the short form disclosure, in addition to the
information on the long form disclosure, will be useful to both the
Bureau in its market monitoring efforts and to consumers and other
parties in the future when prepaid account agreements are posted to the
Bureau's Web site. The Bureau believes the short form disclosure,
particularly the disclosures related to additional fee types pursuant
to final Sec. 1005.18(b)(2)(viii) and (ix), will provide the Bureau
with insight into industry practices in implementing this final rule's
disclosure requirements across a range of prepaid account types. In
addition, the Bureau does not believe the requirement to submit this
one additional document will be particularly burdensome or complicated
for issuers, especially because the Bureau believes that issuers will
generally maintain their short form disclosures in a readily
accessible, electronic format.
19(a)(4) Issuer
The Bureau's Proposal
The Bureau proposed 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) would have mirrored the definition of card
issuer in Regulation Z Sec. 1026.58(b)(4).
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 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 Regulation Z 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.\532\ Similarly, absent clarification from the Bureau, the
Bureau was concerned that 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 in 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 believed it would be beneficial to clarify
which institution would be the prepaid account issuer for purposes of
proposed Sec. 1005.19. The Bureau thus proposed to define the term
issuer in proposed Sec. 1005.19(a)(4) as described above.
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\532\ See 76 FR 22948, 22987 (Apr. 25, 2011).
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Proposed comment 19(a)(4)-1, which mirrors Regulation Z comment
58(b)(4)-1, would have provided an example of how the definition of
issuer would have applied when more than one bank is involved in a
prepaid program.
Proposed comment 19(a)(4)-2, which mirrors Regulation Z comment
58(b)(4)-2, would have explained 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 the 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. Proposed comment
19(a)(4)-2 would have provided an example describing such an
arrangement between a bank and a program manager.
Proposed comment 19(a)(4)-3, which mirrors Regulation Z comment
58(b)(4)-3.i, would have noted 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 would
have been
[[Page 84132]]
deemed to maintain that Web site for purposes of proposed Sec.
1005.19. Such a Web site would have been 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 would have
been considered 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.
Proposed comment 19(a)(4)-3 would have provided an example describing
such an arrangement between a bank and a program manager.
The Bureau did not propose 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 did not believe such a comment
was relevant for prepaid accounts, as discussed below.
Comments Received
In the proposal, the Bureau acknowledged 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 of 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
solicited 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. The Bureau
received comments from one consumer group regarding this issue, stating
that a single agreement could be submitted as long as the agreement is
labeled and searchable in such a way that the names of the multiple
entities are listed on it. This commenter explained that this approach
would enable the public to see that the agreement is the same for
several entities, without having to spend time reviewing each
agreement. The Bureau did not receive any other comments on this
portion of the proposal.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(a)(4) and its related commentary substantially as proposed,
with several revisions for clarity. The Bureau has also changed the
name of final comment 19(a)(4)-3 from Partner Institution Web sites as
proposed to Third-Party Web sites because the content of the comment is
primarily related to third-party Web sites; a partner institution Web
site is merely an example of a third-party Web site that may be deemed
to be maintained by the issuer for purposes of final Sec. 1005.19.
The Bureau continues to believe that the definition of issuer
creates a bright-line rule that will enable institutions involved in
issuing prepaid accounts to determine their obligations under final
Sec. 1005.19. The Bureau also believes that the definition is
consistent with the actual legal relationship into which a consumer
enters under a prepaid account agreement. In addition, the Bureau
believes that the institution to which the consumer is legally
obligated under the agreement may be in the best position to provide
accurate, up-to-date agreements to both the Bureau and consumers.
Regarding situations in which an institution partners with multiple
other entities to issue prepaid accounts, the Bureau is adopting new
comment 19(b)(1)-2, to explain that if a program manager offers prepaid
account agreements in conjunction with multiple issuers, each issuer
must submit its own agreement to the Bureau. This comment also explains
that each issuer may use the program manager to submit the agreement on
its behalf, in accordance with final comment 19(a)(4)-2. Because the
number and the role of the entities involved in a particular prepaid
account agreement may vary, the Bureau believes it is clearer to
require issuers, not program managers (or other parties), to submit
these agreements to the Bureau. In addition, the Bureau believes that
submitting a separate agreement for each issuer, rather than submitting
one agreement with multiple issuers listed, as suggested by one
commenter, will be less confusing to consumers and other parties
reviewing agreements on the Bureau's Web site in the future.
19(a)(5) Offers
The Bureau proposed 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 otherwise makes available prepaid accounts that
would be subject to that agreement.
Proposed comment 19(a)(5)-1 would have explained 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, agreements
for affinity cards marketed to students and alumni of a particular
institution of higher education, or agreements offered only to
residents of a specific geographic location for a particular prepaid
account, would have been considered to be offered to the public.
Similarly, agreements for prepaid accounts issued by a credit union
would have been 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
would have also been considered to be offered to the public.
Proposed Sec. 1005.19(a)(5) was similar to the definition of the
term ``offers'' in Regulation Z Sec. 1026.58(b)(5). Regulation Z Sec.
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 did 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 modified this language
for purposes of proposed Sec. 1005.19(a)(5). Proposed comment
19(a)(5)-1 was similar to Regulation Z comment 58(b)(5)-1 but would
have included several additional examples of prepaid accounts offered
to the public. The Bureau did not propose an equivalent comment to
Regulation Z 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 did not believe that prepaid
account terms are modified in this manner.
The Bureau received no comments regarding this portion of the
proposal. Accordingly, the Bureau is finalizing Sec. 1005.19(a)(5)
with modifications to accommodate the revision in final Sec.
1005.19(c), discussed below, to require only agreements that are
offered to the general public to be posted to the issuer's publicly
available Web site. Specifically, the Bureau has removed the phrase
``offers to the public'' from Sec. 1005.19(a)(5) and, as discussed
below, is adopting new Sec. 1005.19(a)(6) to define
[[Page 84133]]
the term ``offers to the general public.'' Final Sec. 1005.19(a)(5)
provides that an agreement is ``offered'' if the issuer markets,
solicits applications for, or otherwise makes available a prepaid
account that would be subject to that agreement, regardless of whether
the issuer offers the prepaid account to the general public.
Furthermore, because proposed comment 19(a)(5)-1 described agreements
that are offered to the public, which is now discussed in new Sec.
1005.19(a)(6), the Bureau has renumbered this comment as comment
19(a)(6)-1 and has made revisions for consistency with new Sec.
1005.19(a)(6) discussed below.
19(a)(6) Offers to the General Public
As noted above, the Bureau is adopting new Sec. 1005.19(a)(6) to
define the term ``offers to the general public.'' Specifically, new
Sec. 1005.19(a)(6) provides that for purposes of final Sec. 1005.19,
an issuer ``offers to the general public'' a prepaid account agreement
if the issuer markets, solicits applications for, or otherwise makes
available to the general public a prepaid account that would be subject
to that agreement.
The Bureau is finalizing proposed comment 19(a)(5)-1, renumbered as
comment 19(a)(6)-1, with modifications for consistency with new Sec.
1005.19(a)(6). Specifically, final comment 19(a)(6)-1 explains that an
issuer is deemed to offer a prepaid account agreement to the general
public even if the issuer markets, solicits applications for, or
otherwise makes available prepaid accounts only to a limited group of
persons. This comment explains that if, for example, an issuer solicits
only residents of a specific geographic location for a particular
prepaid account, the agreement would be considered to be offered to the
general public. In addition, this comment explains that agreements for
prepaid accounts issued by a credit union are considered to be offered
to the general public even though such prepaid accounts are available
only to credit union members.
The Bureau is also adopting new comment 19(a)(6)-2 to explain
prepaid account agreements not offered to the general public.
Specifically, this comment explains that a prepaid account agreement is
not offered to the general public when a consumer is offered the
agreement only by virtue of the consumer's relationship with a third
party. This comment provides that 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 examples of agreements that are
not offered to the general public.
19(a)(7) Open Account
The Bureau proposed 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) would have been considered an
open account or open prepaid account.
Proposed comment 19(a)(6)-1 would have explained that a prepaid
account that meets any of the criteria set forth in proposed Sec.
1005.19(a)(6) is considered open even if the issuer considers the
account inactive. The term open account was 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) was similar to the definition of open
account or open credit card account in Regulation Z Sec.
1026.58(b)(6). While Regulation Z 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 modified the
definition to better reflect what it believed constitutes an open
account in the prepaid context. Proposed Sec. 1005.19(a)(6) would have
included the explanation used in Regulation Z 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 was similar to Regulation Z comment 58(b)(6)-1, with
modifications to reflect the terms of proposed Sec. 1005.19(a)(6).
The Bureau received no comments regarding this portion of the
proposal. Accordingly, the Bureau is finalizing Sec. 1005.19(a)(6),
renumbered as Sec. 1005.19(a)(7), largely as proposed, with revisions
to reflect the changes in final Regulation Z Sec. 1026.61 regarding
hybrid prepaid-credit cards. Specifically, final Sec. 1005.19(a)(6)
provides, in part, that for the purposes of Sec. 1005.19, a prepaid
account is an ``open account'' or ``open prepaid account'' if the
consumer can access credit from a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Regulation Z
Sec. 1026.61, in connection with the account. The Bureau is also
finalizing comment 19(a)(6)-1, renumbered as comment 19(a)(7)-1, as
proposed, with minor revisions for clarity.
19(a)(8) Prepaid Account
The Bureau proposed 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 have explained 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 received comments from several industry commenters,
including issuing banks, industry trade associations, program managers,
a think tank, and a law firm writing on behalf of a coalition of
prepaid issuers, in response to the Bureau's request for comment
regarding whether there were 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 Sec. 1005.19, or that
should be excluded from certain requirements in Sec. 1005.19. These
commenters urged the Bureau to exclude prepaid account agreements that
are not offered to the public (such as for payroll card, government
benefit, and campus card accounts) from the requirement in proposed
Sec. 1005.19(b) to submit agreements to the Bureau for posting on the
Bureau's publicly available Web site and the requirement in proposed
Sec. 1005.19(c) to post agreements on the issuer's publicly available
Web site. These commenters explained that for these types of accounts,
an issuer could have thousands of agreements that have been negotiated
between the issuer and a third party (such as an employer, a government
agency, or a university) and that are often tailored to fit the needs
of individual programs. These commenters stated that such volume and
variety would clutter the Bureau's and issuer's Web sites, overwhelm
consumers, and cause confusion because consumers might not understand
which agreement
[[Page 84134]]
applies to their account or why the terms differ. These commenters
stated that even if consumers could navigate the volume of agreements,
the third party--not the consumers--chooses these agreements, so
comparison shopping would not be an option. In addition, these
commenters stated that the public posting of these agreements raises
confidentiality concerns regarding the disclosure of proprietary
account features, which would compromise the issuer's ability to
negotiate customized account agreements. The commenters also argued
that a public posting requirement would undermine competition because
it would inhibit the incentive for companies to develop novel products.
Several consumer groups and the office of a State Attorney General
urged the Bureau not to exclude any prepaid account agreements from the
requirement to submit agreements to the Bureau for posting on the
Bureau's publicly available Web site and the requirement to post
agreements on the issuer's publicly available Web site. These
commenters argued that publicly posting these agreements would
encourage competition and transparency, which they stated would help
lower fees, and facilitate comparison shopping, which they stated would
result in more informed consumer decisions. One consumer group argued
that the public posting of agreements would assist the Bureau,
researchers, and consumer advocates in compiling information to issue
reports and shed light on inappropriate practices by market
participants. This commenter explained that the payroll card market, in
particular, is secretive and issuers and employers in this market do
not generally provide fee schedules when asked. This commenter added
that when it began issuing reports on unemployment compensation cards,
fees started to come down. This commenter also argued that employers,
government agencies, nonprofit organizations, and other entities
considering a prepaid card program would be able to see and compare the
various terms offered in the market. This commenter further argued
that, while payroll card issuers may have confidentiality clauses in
their contracts with employers, those clauses do not bind employees
because once a card is issued to an employee, the agreement is no
longer confidential. Finally, the office of a State Attorney General
argued that even though consumers who enroll in payroll card programs
are not typically able to comparison shop because the employer selects
their program, they would still be able to compare their plan with
other wage payment options, such as a checking account, direct deposit,
and other prepaid accounts.
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(a)(7), renumbered as Sec. 1005.19(a)(8), as proposed. The
Bureau is also finalizing comment 19(a)(7)-1, renumbered as comment
19(a)(8)-1, with minor revisions for clarity and an updated internal
paragraph citation to reflect numbering changes made in this final
rule.
The Bureau believes that the submission of all prepaid account
agreements, including payroll card, government benefit, campus card,
and other account agreements that are not available to the general
public, is essential for the Bureau's market monitoring efforts.
Furthermore, the Bureau's posting of these agreements to its Web site
in the future will increase transparency in the terms of these
agreements and the types and amounts of the fees imposed in these
programs. The increased transparency will allow the public, including
consumers, to become better informed about these accounts, which will
likely encourage competition and improve fees in the various markets.
In addition, the public posting to the Bureau's Web site in the future
will allow entities such as employers, government agencies, and
universities considering making prepaid account programs available to
their constituencies to review similar agreements with other
institutions and compare the various terms before entering into their
own agreements. The Bureau also agrees that consumers of accounts with
agreements that are not available to the general public, such as
payroll card accounts, will be able to make meaningful comparisons with
other wage payment options, such as a checking account, direct deposit,
and other prepaid accounts. For these reasons, the Bureau declines to
exclude payroll card, government benefit, campus card, and other
account agreements that are not available to the general public from
the final rule's submission requirement, as requested by some
commenters.
The Bureau is persuaded, however, that posting agreements that are
not offered to the general public to the issuer's publicly available
Web site may impose unnecessary administrative burden and have little
consumer benefit. The Bureau has thus modified Sec. 1005.19(c),
discussed below, to exempt agreements that are not offered to the
general public from the posting requirement. The final rule does not
require issuers to post on the issuer's publicly available Web site
agreements that are not offered to the general public, such as payroll
card, government benefit, and campus card agreements. However, issuers
of these agreements are still required to provide consumers with access
to their specific agreements, as required by final Sec. 1005.19(d).
See the section-by-section analysis of Sec. 1005.19(c) below for
additional information regarding the posting requirement.
Private Label Credit Cards
The Board defined the term ``private label credit card account'' in
what is now Regulation Z 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 Regulation Z 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.\533\
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\533\ See, e.g., Regulation Z 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.
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The Bureau did not believe that equivalent provisions were
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 were outside the scope of the
term prepaid account, as defined in proposed Sec. Sec. 1005.2(b)(3)
and 1005.19(a)(7). The Bureau did not receive any comments on this
issue.
19(b) Submission of Agreements to the Bureau
Proposed Sec. 1005.19(b) would have required each issuer to
electronically submit to the Bureau prepaid account agreements offered
by the issuer on a quarterly basis for the Bureau to post on its Web
site pursuant to proposed Sec. 1005.19(b)(7).
The Bureau received many comments from consumer groups and industry
on this portion of the proposal. Consumer groups generally supported
the proposal, arguing that it would provide important consumer benefits
and impose little burden on industry. On the other hand, industry
commenters, including trade associations, issuing banks, credit unions,
a payment
[[Page 84135]]
network, and a law firm writing on behalf of a coalition of prepaid
issuers, cited reasons for why they believed the proposal would be
burdensome and unnecessary. Several of these commenters also argued
that the submission requirement in proposed Sec. 1005.19(b) should be
suspended until the Bureau develops an automated, streamlined
submission process and system. A few of these commenters stated that
submitting agreements to the Bureau should be manageable, assuming the
process is similar to the process for submitting credit card agreements
to the Bureau pursuant to Regulation Z Sec. 1026.58. Other commenters
argued, however, that the submission process should not be compared to
the submission process for credit card agreements because there are
many more prepaid account agreements than credit card agreements.
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(b) with several modifications. The final rule also establishes
a delayed effective date of October 1, 2018 for final Sec. 1005.19(b),
as discussed in the section-by-section analysis of Sec. 1005.19(f)(2)
below. The Bureau is finalizing Sec. 1005.19(b)(1) with revisions to
change the time period in which issuers must submit prepaid account
agreements to the Bureau from a quarterly basis to a rolling basis and
to clarify the information that each submission must contain. The
Bureau is finalizing Sec. 1005.19(b)(2) and (3), regarding the
submission requirements for amended and withdrawn agreements,
substantially as proposed. The Bureau is also finalizing Sec.
1005.19(b)(4) and (5), regarding the de minimis and product testing
exceptions, with modifications to clarify that whether an issuer or
agreement qualifies for either exception is determined as of the last
day of the calendar quarter. Moreover, the Bureau is finalizing Sec.
1005.19(b)(6), regarding the form and content requirements for
submissions to the Bureau, generally as proposed. Finally, the Bureau
is not adopting Sec. 1005.19(b)(7) at this time, as discussed below.
The Bureau notes that due to the change requiring submissions to be
made on a rolling, rather than quarterly, basis, as well as other
modifications the Bureau has made for this final rule, the Bureau
believes that the Regulation Z Sec. 1026.58 guidance referenced in a
number of the proposed comments would no longer be particularly useful
to prepaid account issuers and thus the Bureau has modified the
comments accordingly to include examples specific to prepaid directly
in the commentary text.
19(b)(1) Submissions on a Rolling Basis
The Bureau's Proposal
The Bureau proposed 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, unless certain exceptions
applied. Such quarterly submissions would have been 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 have referred to Regulation Z comment 58(c)(1)-1 for
additional guidance as to the quarterly submission timing requirement.
Regulation Z 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). Because that definition applies
generally in subpart A and the Bureau believed it was appropriate for
use in proposed Sec. 1005.19, the Bureau believed it was unnecessary
to define the term again within proposed Sec. 1005.19.
Proposed Sec. 1005.19(b)(1) would have required that each
quarterly submission contain the following four items. First, a
quarterly submission would have been required to 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 would have been required to
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 had not previously submitted to the Bureau.
Third, the quarterly submission would have been required to 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).
Finally, the quarterly submission would have been required to
contain notification regarding any prepaid account agreement previously
submitted to the Bureau that the issuer was withdrawing, as described
in proposed Sec. 1005.19(b)(3), (4)(iii), and (5)(iii).
Proposed comment 19(b)(1)-2.i would have explained that an issuer
would not be 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; or (C) ceasing to offer an agreement previously
submitted to the Bureau. Proposed comment 19(b)(1)-2.ii would have
referred 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 have explained 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 have also referred 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 mirrored Regulation Z 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 were similar to Regulation Z comments 58(c)(1)-1, -2, and -3
except that proposed comments 19(b)(1)-1, -2.ii and -3 were shortened
to cross-reference the parallel comments in Regulation Z for specific
examples regarding quarterly submission of agreements as the Bureau
intended that these provisions would function the same for prepaid
accounts as they do for credit card accounts.
Comments Received
The Bureau received comments from both consumer groups and industry
regarding whether the submission of agreements on a quarterly basis
would be appropriate. The consumer groups and most of the industry
commenters urged the Bureau to require issuers to submit agreements
whenever changes are made. A few other industry commenters requested an
annual submission. The industry commenters stated that because prepaid
account agreements do not change often, imposing a quarterly submission
requirement would result in burden associated with constantly
monitoring
[[Page 84136]]
agreements for updates and ensuring that updated agreements are
submitted to the Bureau. The consumer groups argued that a quarterly
submission would not ensure that the Bureau has the most recent
agreements, which they believed could erode consumer confidence and the
value posting the agreements to the Bureau's Web site.
Several consumer groups and a labor organization requested that
submissions to the Bureau include the names of the issuing bank,
program manager, and branding entity (such as an employer, government
agency, or institute of higher education), and other names that might
be associated with a prepaid account (such as the entity that provides
customer support). One of these commenters explained that many issuers
use marketing or other affinity-related names that make it difficult
for a consumer to know which entity issued the prepaid account. Another
commenter suggested that submissions also include employer information
and the effective date of the agreement. Conversely, one credit union
trade association objected to providing to the Bureau the issuer's
identifying information, arguing that such information is provided on
the agreement as well as the disclosures, and the tax identification
number and program manager are irrelevant.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(b)(1) with modifications to revise the time period in which
issuers must make prepaid account agreement submissions to the Bureau
from a quarterly basis to a rolling basis. Specifically, final Sec.
1005.19(b)(1)(i) provides that an issuer must make submissions of
prepaid account agreements to the Bureau on a rolling basis, in the
form and manner specified by the Bureau. Final Sec. 1005.19(b)(1)(i)
also provides that submissions must be made to the Bureau no later than
30 days after an issuer offers, amends, or ceases to offer a prepaid
account agreement, as described in final Sec. 1005.19(b)(1)(ii)
through (iv).
The Bureau believes that requiring submission of a prepaid account
agreement on a rolling basis will help alleviate potential compliance
burden related to the submission requirement. Specifically, the Bureau
believes it will be less burdensome for issuers to submit agreements as
they are offered or amended (or notification when an agreement is being
withdrawn) than it would be for issuers to wait to submit agreements on
a fixed schedule, especially since prepaid account agreements do not
change often. Furthermore, the Bureau expects that issuers will
incorporate the agreement submission process into their own internal
business processes and believes the revision to require submission on a
rolling basis (rather than quarterly) will help align those processes.
In addition, the Bureau believes that requiring submission no later
than 30 days after an issuer offers, amends, or ceases to offer an
agreement will help ensure that the most up-to-date agreements are
available to the Bureau for its market monitoring purposes, as well as
on the Bureau's Web site in the future.
As noted above, Sec. 1005.19(b)(1)(i) through (iv) lists the items
that each submission to the Bureau must contain. Based on the comments
it received, the Bureau has revised Sec. 1005.19(b)(1)(i) to require
that each submission also contain the effective date of the prepaid
agreement, the name of the program manager, and the names of other
relevant parties, if applicable, such as the employer for a payroll
card program or the agency for a government benefit program. The Bureau
believes that providing this identifying information about each
agreement will help the Bureau, consumers, and other parties locate
agreements quickly and more effectively. For example, submitting the
name of each employer that offers a payroll card account under a
specific agreement will assist consumers in identifying the agreement
to which their payroll card account is subject. The Bureau notes,
however, that submissions should not contain personally identifiable
information relating to any consumer, such as the consumer's name,
address, telephone number, or account number.
The Bureau is finalizing comment 19(b)(1)-1, with modifications for
clarity and consistency with the revisions to Sec. 1005.19(b)(1). This
comment does not refer to Regulation Z comment 58(c)(1)-1 for
additional guidance because, given that final Sec. 1005.19(b)(1)
requires submission of prepaid account agreements on a rolling rather
than quarterly basis, the Bureau does not believe that comment would
provide useful guidance. The Bureau is therefore adopting new comment
19(b)(1)-1 to provide examples illustrating the 30-day time period in
which issuers must submit agreements.
The Bureau is not finalizing proposed comments 19(b)(1)-2 and -3,
which would have provided clarification for the quarterly submission
requirement, because the Bureau has revised Sec. 1005.19(b)(1) to
require issuers to make submissions of prepaid account agreements to
the Bureau on a rolling basis.
As noted in the section-by-section analysis of Sec. 1005.19(a)(4)
above, the Bureau is adopting new comment 19(b)(1)-2 to explain the
submission requirement for an institution that partners with multiple
other entities to issue prepaid accounts. This comment explains that if
a program manager offers prepaid account agreements in conjunction with
multiple issuers, each issuer must submit its own agreement to the
Bureau. This comment further explains that each issuer may use the
program manager to submit the agreement on its behalf, in accordance
with comment 19(a)(4)-2. Because the number and role of the parties
involved in a particular prepaid account agreement may vary, the Bureau
believes it is clearer to require issuers, not program managers (or
other parties), to submit these agreements to the Bureau. In addition,
the Bureau believes that submitting separate agreements for each
issuer, rather than submitting one agreement with multiple issuers as
suggested by one commenter, will be less confusing to consumers and
other parties reviewing agreements on the Bureau's Web site in the
future.
19(b)(2) Amended Agreements
The Bureau's Proposal
The Bureau proposed 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 have referred
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 have also required 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 have further explained 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
[[Page 84137]]
the calendar quarter in which the change became effective and would
have referred to Regulation Z comment 58(c)(3)-2 for additional
guidance regarding the submission of amended agreements. Proposed
comment 19(b)(2)-3 would have reiterated 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 have referred 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 have explained 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 would have been required to 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 have also referred to
Regulation Z comment 58(c)(3)-4 for additional guidance as to the
submission of revised agreements.
Proposed Sec. 1005.19(b)(2) mirrored the Regulation Z provisions
regarding submission of amended agreements in Regulation Z Sec.
1026.58(c)(3). Proposed comments 19(b)(2)-1 through -4 mirrored
Regulation Z comments 58(c)(3)-1 through -4, although the proposed
19(b)(2) comments were shortened to cross-reference the parallel
comments in Regulation Z for specific examples of submission of amended
agreements as the Bureau intended that these provisions would function
the same for prepaid accounts as they do for credit card accounts.
The Final Rule
The Bureau received no comments on this portion of the proposal.
Accordingly, the Bureau is finalizing Sec. 1005.19(b)(2) as proposed,
with several modifications for clarity and consistency with the
revisions to Sec. 1005.19(b)(1) to change the time period in which
issuers must submit agreements to the Bureau from quarterly to rolling.
Specifically, final Sec. 1005.19(b)(2) provides that if a prepaid
account agreement previously submitted to the Bureau is amended, the
issuer must submit the entire amended agreement to the Bureau, in the
form and manner specified by the Bureau, no later than 30 days after
the change comes effective. Given the revisions to Sec. 1005.19(b)(1),
the Bureau has removed proposed comments 19(b)(2)-1 and -2, which would
have explained the requirement to submit amended agreements on a
quarterly basis.
The Bureau is not finalizing proposed comment 19(b)(2)-3, which
would have provided guidance for issuers submitting amended agreements
that are no longer offered, because under the revised rolling
submission requirement, an issuer would not likely amend an agreement
and less than 30 days later decide to stop offering that agreement. If
the issuer stopped offering the agreement, the issuer would be required
to notify the Bureau that it is withdrawing the agreement, as required
by final Sec. 1005.19(b)(3) and as explained in final comment
19(b)(3)-1.
The Bureau is finalizing comment 19(b)(2)-4, renumbered as comment
19(b)(2)-1, largely as proposed, with several minor revisions for
clarity and conformity with the revisions to Sec. 1005.19(b)(1). Final
comment 19(b)(2)-1 explains that if an agreement previously submitted
to the Bureau is amended, final Sec. 1005.19(b)(2) requires the issuer
to submit the entire revised agreement to the Bureau. This comment
further explains that an issuer may not fulfill this requirement by
submitting a change-in-terms or similar notice covering only the terms
that have changed. Amendments must be integrated into the text of the
agreement (or the optional addendum described in Sec. 1005.19(b)(6)),
not provided as separate riders. This comment does not refer to
Regulation Z comment 58(c)(3)-4 for additional guidance because the
Bureau does not believe the example illustrated in comment 58(c)(4)-4
regarding APRs would be useful for prepaid account issuers. The Bureau
continues to believe 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 customarily incorporate
revised terms into their prepaid account agreements on a regular basis
rather than only issue separate riders or notices.
19(b)(3) Withdrawal of Agreements No Longer Offered
The Bureau proposed 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) mirrored the Regulation Z provisions regarding
withdrawal of agreements previously submitted to the Bureau in
Regulation Z Sec. 1026.58(c)(4). Proposed comment 19(b)(3)-1 would
have referenced Regulation Z comment 58(c)(4)-1 for a specific example
regarding withdrawal of submitted agreements as the Bureau intended
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 issuers 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.\534\ The
Bureau did 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 believed 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.
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\534\ 74 FR 54124, 54189 (Oct. 21, 2009).
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The Bureau received one comment from a consumer group on this
aspect of the proposal. The consumer group argued that issuers with
programs that have a significant number of open accounts whose
agreements are no longer offered to the public should be required to
submit such agreements to the Bureau, with a notation that the
agreement is no longer offered. This commenter explained that doing so
would avoid confusion about active programs that would otherwise be
absent from the Bureau's Web site and would allow users to compare
those programs to newer programs. The Bureau does not believe such a
requirement is necessary at this time in light of the limited benefits
to consumers, and thus declines to require
[[Page 84138]]
the submission of agreements of open accounts that are no longer
offered to the public.
The Bureau is therefore finalizing Sec. 1005.19(b)(3) and its
related commentary substantially as proposed, with several
modifications for clarity and consistency with the revisions to Sec.
1005.19(b)(1) to change the time period in which issuers must submit
agreements to the Bureau from a quarterly basis to a rolling basis. The
Bureau has also made several revisions to conform with the changes made
to the proposed definition of ``offers,'' reflected in final Sec.
1005.19(a)(5) and (6), discussed above. Specifically, final Sec.
1005.19(b)(3) provides that if an issuer no longer offers a prepaid
account agreement that was previously submitted to the Bureau, the
issuer must notify the Bureau, in the form and manner specified by the
Bureau, no later than 30 days after the issuer ceases to offer the
agreement that it is withdrawing the agreement. Upon further
consideration, the Bureau believes that it is necessary to provide
clarification on what it means for a prepaid account to no longer be
offered. Therefore, the Bureau has revised comment 19(b)(3)-1 to
clarify that an issuer no longer offers an agreement when it no longer
allows a consumer to activate or register a new account in connection
with that agreement. In addition, final comment 19(b)(3)-1 does not
refer to Regulation Z comment 58(c)(4)-1 for additional guidance
because comment 58(c)(4)-1 describes a scenario in which an issuer must
notify the Bureau that it is withdrawing an agreement by a quarterly
submission deadline, which is not relevant to final Sec.
1005.19(b)(3).
19(b)(4) De Minimis Exception
The Bureau's Proposal
The Bureau proposed 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 have stated 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 have applied 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.\535\ The Board therefore
established a de minimis exception based on an issuer's total number of
open accounts in what is now Regulation Z Sec. 1026.58(c)(5). The
Bureau believed that the same issues apply in attempting to define a
``prepaid account program'' for purposes of a de minimis threshold, and
therefore similarly proposed to adopt a de minimis threshold that
applies to all of an issuer's prepaid programs, rather than on a
program-by-program basis.
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\535\ 74 FR 54124, 54191 (Oct. 21, 2009).
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The Bureau proposed 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 sought 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, at the time of the proposal, the Bureau did not have specific
data that would permit it to accurately determine a comparable
threshold for prepaid accounts.
As the Bureau explained in the proposal, recent public data
indicated 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) came 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.\536\ 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).
---------------------------------------------------------------------------
\536\ HSN Consultants, Inc., The Nilson Report, Issue 1035, at
8, 10-11 (Feb. 2014), and HSN Consultants, Inc., 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
HSN Consultants, Inc., 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 indicated 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.\537\ Furthermore, the data in this report included a number
of other types of prepaid products beyond commercial cards that were
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.\538\ 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.\539\
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\537\ 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.
\538\ One issuer was reported to have 14,000 cards in
circulation, another had 16,000, and a third had 18,000.
\539\ Nilson reports that the top-50 prepaid issuers accounted
for some $118 billion in purchase volume in 2013. HSN Consultants,
Inc., The Nilson Report, Issue 1043, at 1 (June 2014). One leading
consultancy estimated load on open-loop prepaid products for that
year at over $242 billion. Mercator Advisory Group, Eleventh Annual
U.S. Prepaid Cards Market Forecasts, 2014-2017 (Nov. 2014).
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Proposed comment 19(b)(4)-1 would have explained 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 have stated that if an
issuer that previously qualified for the de minimis
[[Page 84139]]
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 have referred 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 have also referred 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 have stated 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 have also
referred 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) mirrored the provisions regarding the
de minimis exception in Regulation Z Sec. 1026.58(c)(5), except for
the lower proposed de minimis threshold figure. Proposed comments
19(b)(4)-1 to -5 mirrored Regulation Z comments 58(c)(5)-1 to -5,
although proposed comments 19(b)(1)-2 to -5 were shortened to cross-
reference the parallel comments in Regulation Z for specific examples
regarding the de minimis exception as the Bureau intended 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 were removed
as the Bureau did not believe that exception was relevant in the
prepaid card context, as discussed above.
Comments Received
The Bureau received comments from several credit unions, a credit
union trade association, and consumer groups regarding this portion of
the proposal. The credit unions and the trade association indicated
that they appreciated the Bureau's proposal to include a de minimis
threshold but argued that the proposed de minimis threshold was too low
and that overregulating prepaid accounts will negatively impact the
dynamic and growing market. These commenters urged the Bureau to raise
the threshold to 10,000 open accounts, which they believed would help
alleviate burden, especially for small credit unions.
The consumer groups requested that the Bureau either lower the
threshold or eliminate the proposed de minimis exception altogether.
Responding to the argument about the impact to small issuers, one
consumer group stated that small issuers can have some of the highest
fees and need public scrutiny. This commenter also stated that
submitting agreements to the Bureau is not time-consuming and should
not overburden small issuers. Another consumer group argued that the
threshold should be lowered to 500 ``active'' accounts, which the
commenter defined as any account with a transaction in the prior
quarter. This commenter also stated that large banks with ample
resources should not be permitted to qualify for a de minimis
exception, regardless of the number of accounts they have.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(b)(4) with several revisions explained below. The Bureau has
modified Sec. 1005.19(b)(4)(i) to make clear that whether an issuer
qualifies for the de minimis exception is determined by the number of
open prepaid accounts it has as of the last day of the calendar
quarter. Despite changing the submission requirement from quarterly to
rolling, the Bureau believes it is appropriate to keep the de minimis
exception on a quarterly schedule so that issuers have a measurable
time frame to determine whether they qualify for the exception. Final
Sec. 1005.19(b)(4)(i) provides that an issuer is not required to
submit any prepaid account agreements to the Bureau if the issuer has
fewer than 3,000 open prepaid accounts. Final Sec. 1005.19(b)(4)(i)
makes clear that if the issuer has 3,000 or more open prepaid accounts
as of the last day of the calendar quarter, the issuer must submit to
the Bureau its prepaid account agreements no later than 30 days after
the last day of that calendar quarter. The Bureau has eliminated
proposed Sec. 1005.19(b)(4)(ii), which would have explained an
issuer's obligation to make quarterly submissions to the Bureau if it
ceased to qualify for the de minimis exception, because this concept is
now addressed in final Sec. 1005.19(b)(4)(i). The Bureau is finalizing
Sec. 1005.19(b)(4)(iii), renumbered as Sec. 1005.19(b)(4)(ii), which
provides 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 submissions to the Bureau on a rolling
basis until the issuer notifies the Bureau that the issuer is
withdrawing all agreements it previously submitted to the Bureau. In
addition, the Bureau has removed the term ``business'' from the phrase
``last business day'' from the regulatory text of final Sec.
1005.19(b)(4) and its related commentary to simplify the de minimis
exception. The Bureau has also made several modifications for clarity
and consistency with the revisions to Sec. 1005.19(b)(1) requiring
submission to the Bureau on a rolling basis.
The Bureau declines to modify the proposed threshold of 3,000 open
prepaid accounts, as requested by some commenters. A more recent
version of the public data described above continues to 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. Those issuers (when combined with
Discover and American Express, which are the two largest U.S. issuers
that are not MasterCard or Visa issuers) now amount to more than 93
percent of total general purpose credit card loans outstanding.\540\
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 three (for
total accounts).
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\540\ HSN Consultants, Inc., The Nilson Report, Issue 1081, at
1, 8, 10-11 (Feb. 2016), and HSN Consultants, Inc., The Nilson
Report, Issue 1083, at 10-11 (Mar. 2016). Public data for the next
tranche of credit card issuers, i.e., issuers 101-150, does not
include account volume, but it does include outstandings volume. The
lowest outstandings for an issuer in this third 50 cohort are more
than 60 percent of the outstandings for the smallest issuer by total
account volume in the top-100. See HSN Consultants, Inc., The Nilson
Report, Issue 1090, at 9 (July 2016). 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 now indicates that three of
the top 50 Visa and MasterCard prepaid account issuers would fall below
a 10,000 threshold, and two of these fall below the 3,000
threshold.\541\ Furthermore, as noted above, the data in this report
includes a number of other types of prepaid products beyond commercial
cards that are outside this
[[Page 84140]]
final rule's definition of prepaid account, such as healthcare and
rebates/rewards, creating the likelihood that additional top-50 prepaid
issuers would fall below a de minimis threshold of 10,000 open prepaid
accounts.\542\ Although it remains 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 93 percent
accounted for by the top-100 credit card issuers.\543\ As noted in the
proposal, the de minimis threshold is meant to exempt issuers based on
the number of open accounts they have, not on their asset size.
Therefore, larger entities (based on asset size) with fewer than 3,000
open accounts as of the last day of the calendar quarter would qualify
for the de minimis exception, whereas smaller entities (based on asset
size) with 3,000 or more open accounts as of the last day of the
calendar quarter would not qualify.
---------------------------------------------------------------------------
\541\ HSN Consultants, Inc., The Nilson Report, Issue 1091, at
8-9 (July 2016). One issuer had 3,000 cards in circulation, another
had 2,000, and a third had only 1,000.
\542\ Id. at 8. One issuer was reported to have 13,000 cards in
circulation and another had 14,000.
\543\ Nilson reports that the top-50 prepaid issuers accounted
for some $145 billion in purchase volume in 2015. HSN Consultants,
Inc., The Nilson Report, Issue 1091, at 1, 8-9 (July 2016). One
leading consultancy has projected load on open-loop prepaid products
for that year at over $280 billion. See Mercator 12th Annual Market
Forecasts at 8.
---------------------------------------------------------------------------
The Bureau has made several changes to the commentary explaining
the de minimis exception. Specifically, the Bureau is finalizing
comment 19(b)(4)-1, which explains that the de minimis exception in
final Sec. 1005.19(b)(4) is distinct from the product testing
exception in final Sec. 1005.19(b)(5), as proposed. 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 a product test for a prepaid account program
with fewer than 3,000 open accounts, regardless of the issuer's total
number of open accounts.
The Bureau is also finalizing comment 19(b)(4)-2, with several
modifications for consistency with the revisions to Sec.
1005.19(b)(4). This comment also provides an example of an issuer that
qualifies for the de minimis exception. This comment does not refer to
Regulation Z comment 58(c)(5)-2 for additional guidance because the
Bureau believes it is clearer to include an example that specifically
addresses the de minimis exception for prepaid accounts.
Furthermore, the Bureau is finalizing comment 19(b)(4)-3, with
modifications for consistency with the revisions to Sec.
1005.19(b)(4). This comment also provides an example illustrating how
an issuer determines whether it qualifies for the de minimis exception.
This comment does not refer to Regulation Z comment 58(c)(5)-3 for
additional guidance because the Bureau believes it is clearer to
include an example that explains how an issuer determines whether it
qualifies for the de minimis exception for prepaid accounts. The Bureau
has also removed from final comment 19(b)(4)-3 the word ``business''
from the phrase ``last business day,'' as explained above.
In addition, the Bureau is finalizing comment 19(b)(4)-4 with
modifications for consistency with the revisions to Sec.
1005.19(b)(4). This comment also provides an example illustrating how
an issuer determines whether it ceases to qualify for the de minimis
exception. This comment does not refer to Regulation Z comment
58(c)(5)-4 for additional guidance because the Bureau believes it is
clearer to include an example that explains how an issuer determines
whether it ceases to qualify for the de minimis exception for prepaid
accounts. The Bureau has also removed from final comment 19(b)(4)-4 the
word ``business'' from the phrase ``last business day,'' as explained
above.
Finally, the Bureau is finalizing comment 19(b)(4)-5 with
modifications for clarity and consistency with the revisions to Sec.
1005.19(b)(1) and (4). This comment does not refer to Regulation Z
comment 58(c)(5)-5 for additional guidance because the Bureau believes
it is clearer to include an example regarding the issuer's option to
withdraw agreements when it qualifies for the de minimis exception for
prepaid accounts. Thus, final comment 19(b)(4)-5 explains that if an
issuer qualifies for the de minimis exception, the issuer has two
options. The issuer may either notify the Bureau that it is withdrawing
the agreements and cease making rolling submissions to the Bureau or
not notify the Bureau and continue making rolling submissions to the
Bureau as required by final Sec. 1005.19(b).
19(b)(5) Product Testing Exception
The Bureau's Proposal
The Bureau proposed 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) mirrored the
provisions regarding the product testing exception in Regulation Z
Sec. 1026.58(c)(7).
Proposed Sec. 1005.19(b)(5)(i) would have provided 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 have provided 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 have provided 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.
Comments Received
Two consumer groups commented on the Bureau's proposed product
testing exception. One of the consumer groups requested that the
product testing exception be limited to three months and not be
available to a payroll card account program if substantially all of a
company's employees are enrolled in that program. The other consumer
group stated that the exception should only be granted in response to
the Bureau's review.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(b)(5) with several revisions discussed below. The Bureau has
modified Sec. 1005.19(b)(5)(i) to make clear that whether an agreement
qualifies for the product testing exception is determined based on
whether it meets certain criteria as of the last day of the calendar
quarter. Despite changing the submission requirement from quarterly to
rolling, the Bureau believes it is appropriate to keep the product
testing exception on a quarterly schedule so that issuers have a
measurable time frame to determine whether they qualify for the
exception. Final Sec. 1005.19(b)(5)(i) provides that an issuer is not
required to submit a prepaid account agreement to the Bureau if as of
the last day of the calendar quarter the agreement is
[[Page 84141]]
offered as part of a product test offered to only a limited group of
consumers for a limited period of time; is used for fewer than 3,000
open prepaid accounts; and is not offered other than in connection with
such a product test. Final Sec. 1005.19(b)(5)(i) makes clear that if
an agreement fails to meet the product testing criteria set forth in
final Sec. 1005.19(b)(5)(i)(A) through (C) as of the last day of the
calendar quarter, the issuer must submit to the Bureau that agreement
no later than 30 days after the last day of that calendar quarter. The
Bureau has eliminated proposed Sec. 1005.19(b)(5)(ii), which would
have explained an issuer's obligation to make quarterly submissions to
the Bureau if an agreement ceased to qualify for the product testing
exception, because this concept is now addressed in final Sec.
1005.19(b)(5)(i). Furthermore, the Bureau is finalizing Sec.
1005.19(b)(5)(iii), renumbered as final Sec. 1005.19(b)(5)(ii), which
provides 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 submissions to the Bureau on a rolling basis with
respect to that agreement until the issuer notifies the Bureau that the
issuer is withdrawing the agreement. In addition, the Bureau has
removed the term ``business'' from the phrase ``last business day''
from final Sec. 1005.19(b)(5)(i) to simplify the product testing
exception. The Bureau has also made several modifications for clarity
and consistency with the revisions to Sec. 1005.19(b)(1) requiring
submission to the Bureau on a rolling basis.
The Bureau believes that requiring issuers to submit agreements
that would qualify for the product testing exception would provide
little benefit at this time. Specifically, consumers would not benefit
from comparison shopping as the agreements would only be offered to
discrete, targeted groups for a limited period of time. For similar
reasons, the submission of these agreements would only minimally assist
the Bureau's market monitoring efforts. In addition, the Bureau
understands that preparing and submitting agreements used for a small
number of prepaid accounts in connection with a product test could
result in administrative burden to issuers that would likely not be
justified by the consumer benefit at this time.
The Bureau declines to add to additional requirements or
modifications to this portion of the final rule, as requested by some
commenters. The Bureau does not believe it is necessary at this time to
disallow a payroll card account program from qualifying for the product
testing exception if most of a company's employees are enrolled in that
program, as suggested by one commenter. The Bureau also declines to
limit the product testing exception to three months, as requested by
another commenter, because efforts to test new prepaid account
strategies and products can vary significantly, and the Bureau does not
have the necessary data at this time to determine what an appropriate
time frame would be. The Bureau notes, however, that this exception is
intended for the testing of new products and strategies that spans a
limited period of time, and the Bureau expects issuers will avail
themselves of the exception only when their agreements meet the
specific criteria set forth in final Sec. 1005.19(b)(5). Finally, the
Bureau also declines to grant the product testing exception only in
response to the Bureau's review, as recommended by a commenter, because
it does not believe it is necessary to do so at this time. However, the
Bureau intends to monitor industry practices in this area and will
consider modifications in future rulemakings, if warranted.
19(b)(6) Form and Content of Agreements Submitted to the Bureau
Section 1005.19(b)(6) sets forth the form and content requirements
for prepaid account agreements submitted to the Bureau. The Bureau is
finalizing Sec. 1005.19(b)(6) largely as proposed, with several
modifications as discussed below.
19(b)(6)(i) Form and Content Generally
The Bureau proposed 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 have
provided 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 was similar to Regulation Z comment 58(c)(8)-1.
Proposed Sec. 1005.19(b)(6)(i) would have also stated that
agreements must not include any personally identifiable information
relating to any consumer, such as name, address, telephone number, or
account number. Proposed Sec. 1005.19(b)(6)(i) would have also stated
that 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 have required that agreements must be presented
in a clear and legible font.
Proposed Sec. 1005.19(b)(6)(i) generally mirrored the provisions
in Regulation Z Sec. 1026.58(c)(8)(i) regarding the form and content
of agreements that would be submitted to the Bureau. This provision
would have excluded, however, two additional items listed in Regulation
Z 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 advertisements--because the Bureau did not believe
these items were relevant in the prepaid account context.
The Bureau received no comments specifically addressing Sec.
1005.19(b)(6)(i) and is therefore finalizing it as proposed, with
modifications for consistency with the revisions to proposed Sec.
1005.19(b)(1) to change the time period in which issuers must submit
agreements to the Bureau from a quarterly basis to a rolling basis. The
Bureau notes that final 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 final
Sec. 1005.19. As indicated by the use of the term ``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
[[Page 84142]]
issuer would not be prohibited by this or any other provision of Sec.
1005.19 from choosing to include these items in submitted agreements.
The Bureau received comments from several consumer groups and one
credit union trade association regarding the Bureau's request for
comment about whether issuers should be required to post agreements on
their Web sites in an electronic format that is readily usable by the
general public, or whether issuers should be required to provide
agreements using, for example, a machine-readable text format, such as
JSON or XML, that could be used by the Bureau or third parties to more
easily create comparison shopping tools.\544\ The consumer groups
argued that agreements should be submitted in a machine-readable text
format because this format would allow researchers and other third
parties to analyze information more easily and create comparison
shopping tools. The credit union trade association disagreed, however,
arguing that requiring agreements to be submitted in a format other
than PDF would impose substantial software engineering fees on issuers.
The Bureau appreciates the comments it received and continues to
believe that it is important for issuers to submit agreements in a
machine-readable format for these agreements to be useful to both the
Bureau in its market monitoring efforts and to the consumers and other
parties reviewing agreements on the Bureau's Web site in the future.
The Bureau will provide technical specifications that will include
details regarding appropriate file formats that the Bureau expects
issuers will use when submitting new agreements and amended agreements
following a substantive change.
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\544\ The Bureau solicited comment on this issue in the section-
by-section analysis of proposed Sec. 1005.19(b)(2); however, the
Bureau believes it is more appropriate to discuss this issue here in
the section-by-section analysis Sec. 1005.19(b)(6)(i), regarding
the requirements for the form and content of the agreements
submitted to the Bureau.
---------------------------------------------------------------------------
The Bureau also received comments from several consumer groups and
a labor organization requesting that in addition to including with each
submission the names of the bank issuer, program manager, and branding
entity (such as an employer, organization, institution of higher
education), and other names that might be associated with a prepaid
account (such as the entity that provides customer support), agreements
should be searchable by such information. One of these commenters
explained that many issuers use marketing or other affinity related
names that make it difficult for a consumer to know which entity issued
the prepaid account. The Bureau has considered these comments will
consider incorporating such search functionality into its Web site.
The Bureau is finalizing comment 19(b)(6)-1 substantially as
proposed, with several modifications for clarity and consistency with
the revisions to Sec. 1005.19(b)(1). In addition, the Bureau has
removed from final comment 19(b)(6)-1 the reference to ``offers to the
public'' and leaving only the term ``offers'' to reflect the changes to
Sec. 1005.19(a)(5) as discussed. Specifically, final comment 19(b)(6)-
1 explains that agreements submitted to the Bureau must contain the
provisions of the agreement and fee information currently in effect.
For example, on June 1, an issuer decides to decrease the out-of-
network ATM withdrawal fee associated with one of the agreements it
offers. The change in that fee will become effective on August 1. The
issuer must submit and post the amended agreement with the decreased
out-of-network ATM withdrawal fee to the Bureau by August 31 as
required by final Sec. 1005.19(b)(2) and (c).
19(b)(6)(ii) Fee Information
The Bureau proposed 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 would have been required to contain all of the fee information,
which was 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).
Proposed Sec. 1005.19(b)(6)(ii) deviated from the provisions
governing pricing information in Regulation Z Sec. 1026.58(c)(8)(ii)
in that the proposed language would have permitted, but did not
require, prepaid account fee information to be provided in an addendum
to the prepaid account agreement. Proposed Sec. 1005.19(b)(6)(ii) also
omitted the provisions contained in Regulation Z 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 APRs)
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 did not believe these
provisions were either applicable or necessary with respect to prepaid
account agreements. The Bureau likewise did not propose an equivalent
to Regulation Z 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 likewise did not propose a
comment equivalent to that of Regulation Z comment 58(c)(8)-2 regarding
pricing information, nor that of Regulation Z comment 58(c)(8)-4
regarding the optional variable terms addendum.
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.\545\ The
Bureau did not believe that prepaid account agreements vary in the same
manner.
---------------------------------------------------------------------------
\545\ 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 have explained 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 would have been required to 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 have constituted 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. Under
[[Page 84143]]
the proposal, 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.
The Bureau received comments from several consumer groups
requesting that fee information be searchable separately from the terms
and conditions. These commenters argued that consumers and other
parties reviewing agreements on the Bureau's Web site will only want to
compare fee schedules and that many will only be interested in the
short form disclosures, which should include most of the relevant fees.
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(b)(6)(ii) as proposed, with modifications for consistency with
the revisions to Sec. 1005.19(b)(1) to change the time period in which
issuers must submit agreements to the Bureau from quarterly to rolling.
The Bureau continues to believe that permitting issuers to submit fee
information either in a prepaid account agreement or in a single
addendum to that agreement provides issuers flexibility in submitting
the fee information, while ensuring that consumers and other users of
the database have access to such information. For example, for some
issuers, requiring fee information to be provided in a separate
addendum to the agreement might increase the administrative burden
related to submitting a separate document to the Bureau.
In addition, the Bureau continues to believe that, unlike credit
card issuers, prepaid account issuers do not typically offer a range of
terms and conditions or make those terms and conditions available in a
variety of different combinations, particularly with respect to items
included in the pricing information. Therefore, the Bureau does not
believe it would be difficult for consumers to find fee information if
it is integrated into the text of the agreement.
The Bureau is finalizing comment 19(b)(6)-2 with several
modifications to explain that issuers are not permitted to disclose fee
information that varies from one consumer to another by providing a
range of the possible fee variations; rather, issuers must disclose
such fee information by setting forth all the possible variations. Upon
further consideration, the Bureau believes that providing a range of
possible fee variations would not present a clear picture of what the
actual fees are and therefore would not be as helpful to the Bureau in
its market monitoring, or to consumers or third parties in the future
when prepaid account agreements are posted to the Bureau's Web site.
Therefore, final comment 19(b)(6)-2 explains that 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. The Bureau has removed from final comment
19(b)(6)-2 the explanation that two agreements that differ only with
respect to variations in the fee information do not constitute separate
agreements, as the Bureau does think the comment is necessary. The
Bureau has also revised the example in final comment 19(b)(6)-2 to
explain that if an issuer offers a prepaid account with a monthly fee
of $4.95 or $0 if the consumer regularly receives direct deposit to the
prepaid account, the issuer must submit to the Bureau one agreement
with fee information listing the possible monthly fees of $4.95 or $0
and including an explanation that the latter fee is dependent upon the
consumer regularly receiving direct deposit.
19(b)(6)(iii) Integrated Agreement
The Bureau proposed 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 would have been required to be integrated into the text of
the agreement, or the optional fee information addendum, as
appropriate. Proposed comment 19(b)(6)-3 would have provided 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) was similar to Regulation Z 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 Bureau modified the proposed language
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 was similar to Regulation Z comment 58(b)-
5.
The Bureau received no comments on this aspect of the proposal and
is therefore finalizing Sec. 1005.19(b)(6)(iii) as proposed with minor
revisions for clarity. The Bureau continues to believe 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.
In addition, the Bureau believes that, unlike credit card
agreements, a single prepaid account agreement does not typically
contain a variety of variable terms predicated on the consumer's credit
worthiness or other factors. With respect to Regulation Z Sec.
1026.58(c)(8)(iv), 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.\546\ 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.
Furthermore, the Bureau does not believe that prepaid account issuers
modify the terms of prepaid account agreements as frequently as credit
card issuers do. Therefore, the Bureau does not believe this
requirement would significantly burden issuers.
---------------------------------------------------------------------------
\546\ See 75 FR 7658, 7770 (Feb. 22, 2010).
---------------------------------------------------------------------------
The Bureau is finalizing comment 19(b)(6)-3 substantially as
proposed, with revisions to simplify the example that explains that an
issuer would not be permitted to submit to the Bureau an agreement in
the form of a terms and conditions document and subsequently submit a
change-in-terms notice or an addendum to indicate amendments to the
previously submitted agreement.
[[Page 84144]]
Bureau Posting of Prepaid Account Agreements
The Bureau's Proposal
The Bureau proposed 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 Regulation Z Sec. 1026.58 as the Bureau's posting of credit card
agreements it receives is directed by TILA section 122(d).\547\
---------------------------------------------------------------------------
\547\ 15 U.S.C. 1632(d).
---------------------------------------------------------------------------
Comments Received
The Bureau received several comments from consumer groups, State
government agencies, and industry, including industry and credit union
trade associations and credit unions, regarding the proposal to post
prepaid account agreements to the Bureau's publicly available Web
site.\548\ The industry commenters opposed this portion of the
proposal, arguing that it is unnecessary and would provide little to no
consumer benefit. These commenters argued that consumers would not
likely visit the Bureau's Web site to compare prepaid account
agreements, especially when consumers can obtain agreements from other
sources, such as the issuer's Web site or otherwise prior to
acquisition. These commenters also expressed concern that the version
of an agreement on the Bureau's Web site might differ from the version
on the issuer's Web site, causing consumer confusion.
---------------------------------------------------------------------------
\548\ Commenters generally addressed the public posting
requirements in proposed Sec. 1005.19(b) and (c) together. There
are thus some overlaps between the comments summarized here and
those in the section-by-section analysis of Sec. 1005.19(c) below.
---------------------------------------------------------------------------
Furthermore, as discussed in the section-by-section analysis of
Sec. 1005.19(a)(8) above, several industry commenters, including
issuing banks, industry trade associations, program managers, a think
tank, and a law firm writing on behalf of a coalition of prepaid
issuers, urged the Bureau to exclude agreements that are not offered to
the public (such as payroll card, government benefit, and campus card
accounts) from being posted to the Bureau's publicly available Web
site. These commenters explained that for these types of accounts, an
issuer could have thousands of agreements that have been negotiated
between the issuer and a third party (such as an employer, a government
agency, or a university) and that are often tailored to fit the needs
of individual programs. These commenters stated that such volume and
variety would clutter the Bureau's Web site, overwhelm consumers, and
cause confusion because consumers might not understand which agreement
applies to their account or why the terms differ. These commenters
stated that even if consumers could navigate the volume of agreements,
the third party--not the consumers--chooses these agreements, so
comparison shopping would not be an option. In addition, these
commenters stated that the public posting of these agreements raises
confidentiality concerns regarding the disclosure of proprietary
account features, which would compromise the issuer's ability to
negotiate customized account agreements. These commenters also argued
that a public posting requirement would undermine competition because
it would inhibit the incentive for companies to develop novel products.
Several consumer groups and the office of a State Attorney General
supported a requirement to post all agreements, including agreements
that are not offered to the public, on the Bureau's publicly available
Web site because they believed it would encourage competition and
transparency, which they stated would help lower fees, and facilitate
comparison shopping, which they said would result in more informed
consumer decisions. One consumer group argued that the public posting
of agreements would assist the Bureau, researchers, and consumer
advocates in compiling information to issue reports and shed light on
inappropriate practices by market participants.
With respect to publicly posting agreements that are not offered to
the public, one consumer group asserted that the payroll card market,
in particular, is secretive and issuers and employers in this market do
not generally provide fee schedules when asked. This commenter added
that when it began issuing reports on unemployment compensation cards,
fees started to come down. This commenter also argued that employers,
government agencies, nonprofit organizations, and other entities
considering a prepaid card program would be able to see and compare the
various terms offered in the market. This commenter further argued
that, while payroll card issuers may have confidentiality clauses in
their contracts with employers, those clauses do not bind employees
because once a card is issued to an employee, the agreement is no
longer confidential. Finally, the office of a State Attorney General
argued that even though consumers who enroll in payroll card programs
are not typically able to comparison shop because the employer selects
their program, they would still be able to compare their plan with
other wage payment options, such as a checking account, direct deposit,
and other prepaid accounts.
One trade association argued that the Bureau lacks authority to
post prepaid account agreements to its Web site. This commenter argued
that EFTA is concerned specifically with EFTs, not bank accounts
generally or non-electronic transactions, such as cash and check
deposits, which are features of prepaid accounts. This commenter also
argued that EFTA focuses on the rights, liabilities, and
responsibilities of participants with regard to EFTs, not the
consumer's ability to shop for bank accounts or understand the cost of
the accounts. This commenter further stated that if EFTA was intended
to ensure that consumers could understand the costs of their prepaid
accounts and to be able to shop, EFTA would require the disclosure of
all fees, not just charges associated with EFTs and certain ATM fees.
Furthermore, this commenter argued that the Bureau's authority under
section 1022 of the Dodd-Frank Act to monitor risk for consumers in
financial products and to gather information regarding financial
service markets does not allow the Bureau to post agreements on its Web
site. Regarding the Bureau's authority under section 1032(a) of the
Dodd-Frank Act, this commenter stated that consumers will already have
the ability to understand the costs, benefits, and risks associated
with prepaid accounts by obtaining the information from the issuer's
Web site or otherwise prior to acquisition, and therefore, posting the
agreements on the Bureau's Web site is unnecessary. This commenter
further stated that, if Congress had intended for issuers to submit
agreements to the Bureau (as it did for credit card agreements under
TILA), it would have specifically required it in the Dodd-Frank Act.
The Final Rule
Upon further consideration, the Bureau believes it is unnecessary
to finalize Sec. 1005.19(b)(7). Consistent with its request for
comment, the Bureau intends to publish on its Web site in the future
the agreements that issuers have submitted pursuant to final Sec.
1005.19(b). Given that the requirement speaks to the Bureau's actions
and not to regulated entities, however, there is no need to finalize
the provision through regulatory text.
The Bureau continues to believe that posting prepaid accounts
agreements
[[Page 84145]]
that are offered will benefit consumers, as it will 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. The Bureau
believes it is important to publicly post the agreements of all prepaid
accounts, including accounts whose agreements are not offered to the
general public, such as payroll cards, government benefit, and campus
card accounts, because publicly posting these agreements will encourage
competition and increase transparency. Regarding agreements that are
not offered to the public, the Bureau agrees with one of the commenters
that consumers can still compare these agreements with other wage
payment options, despite not being able to choose their program. The
Bureau also agrees with another commenter that publicly posting these
agreements will allow employers, government agencies, and nonprofit
organizations, and other entities considering a prepaid account program
to see and compare the various terms offered in the market.
As discussed above, the Bureau proposed and is finalizing Sec.
1005.19 pursuant to its authority in section 1022(c)(4) of the Dodd-
Frank Act. Under section 1022(c)(3) of the Dodd-Frank Act, the Bureau
``shall publish not fewer than 1 report of significant findings of its
monitoring required by this subsection in each calendar year,'' and
``may make public such information obtained by the Bureau under this
section as is in the public interest.'' As discussed above, the Bureau
is requiring submission of this information to the Bureau under section
1022(c)(1) of the Dodd-Frank Act, which directs the Bureau to 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, and section 1022(c)(4), which provides the
Bureau with authority to gather information from time to time regarding
the organization, business conduct, markets, and activities of covered
persons and service providers.
19(c) Posting of Agreements Offered to the General Public
The Bureau's Proposal
The Bureau proposed 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) would have been required to 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 would have been
permitted to be posted in any electronic format that is readily usable
by the general public. Agreements posted pursuant to proposed Sec.
1005.19(c) would have been required to be accurate and updated whenever
changes are made. Agreements would have been required to be placed in a
location that is prominent and readily accessible by the public and
without submission of personally identifiable information.
Regulation Z Sec. 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.\549\ The
Bureau believed that prepaid account issuers generally update their
agreements posted online as changes are made. The Bureau did not
believe that prepaid account issuers would 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 proposed in Sec.
1005.19(c)(3) that prepaid account agreements posted only be accurate
and that issuers update their agreements whenever changes are made.
---------------------------------------------------------------------------
\549\ 75 FR 7658, 7772 (Feb. 22, 2010).
---------------------------------------------------------------------------
Proposed comment 19(c)-1 would have explained 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 EFT service or before the first
EFT is made involving the consumer's account, as well as the change-in-
terms notice required under Sec. 1005.8(a). This requirement would
have also been distinct from that of proposed Sec. 1005.18(b)(2)(ii),
which would have required 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, would have required 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
would not have been required to post and maintain any agreements on its
Web site under proposed Sec. 1005.19(c). The issuer would have still
been 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 have also been 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 have explained 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 would have been
considered to maintain that Web site for purposes of proposed Sec.
1005.19. Such a third-party Web site would have been 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 would have been able to 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).
[[Page 84146]]
Proposed Sec. 1005.19(c) was similar to Regulation Z Sec.
1026.58(d), but did not include provisions regarding private label
credit cards, as discussed above. Specifically, the Bureau did not
propose an equivalent to the provision addressing the Web site to be
used for posting private label credit card agreements in Regulation Z
Sec. 1026.58(d)(1) as well as Regulation Z 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 was
similar to Regulation Z comment 58(d)-1, although the Bureau had
modified it to distinguish the requirement in proposed Sec. 1005.19(c)
from other disclosure-related obligations in Regulation E. Proposed
comment 19(c)-2 would have mirrored Regulation Z comment 58(d)-2,
although the Bureau had modified both it and proposed comment 19(c)-1
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, was likewise omitted.
Comments Received
The Bureau received comments from consumer groups, State government
agencies, and industry commenters (including trade associations, credit
unions, a program manager, and a payment network) regarding the
proposed posting requirement in Sec. 1005.19(c).\550\ The industry
commenters argued that the proposed posting requirement would burden
industry and provide little to no consumer benefit. These commenters
explained that the proposed requirement would be problematic for
issuers as they would have to constantly update their Web site with new
and revised agreements. One of the credit unions argued that the
requirement would be an intrusion into its business practices, but also
stated that issuers already post agreements online without direction
from the Bureau. Several commenters expressed concern that the version
of an agreement on the Bureau's Web site might differ from the version
on the issuer's Web site, causing consumer confusion.
---------------------------------------------------------------------------
\550\ These commenters generally addressed the public posting
requirements in proposed Sec. 1005.19(b) and (c) together. There
are thus some overlaps between the comments summarized here and
those in the section-by-section analysis of Sec. 1005.19(b) under
Bureau Posting of Prepaid Account Agreements above.
---------------------------------------------------------------------------
Furthermore, as discussed in the section-by-section analysis of
Sec. 1005.19(a)(8) above, several industry commenters, including
issuing banks, industry trade associations, program managers, a think
tank, and a law firm writing on behalf of a coalition of prepaid
issuers, urged the Bureau to exclude agreements that are not offered to
the public (such as payroll card, government benefit, and campus card
accounts) from the requirement in proposed Sec. 1005.19(c) to post
agreements to the issuer's publicly available Web site. These
commenters explained that for these types of accounts, an issuer could
have thousands of agreements that have been negotiated between the
issuer and a third party (such as an employer, a government agency, or
a university) and that are often tailored to fit the needs of
individual programs. These commenters stated that such volume and
variety would clutter the issuer's Web site, overwhelm consumers, and
cause confusion because consumers might not understand which agreement
applies to their account or why the terms differ. These commenters
stated that even if consumers could navigate the volume of agreements,
the third party--not the consumers--chooses these agreements, so
comparison shopping would not be an option. In addition, these
commenters stated that the public posting of these agreements raises
confidentiality concerns regarding the disclosure of proprietary
account features, which would compromise the issuer's ability to
negotiate customized account agreements. These commenters also argued
that a public posting requirement would undermine competition because
it would inhibit the incentive for companies to develop novel products.
Several consumer groups and the office of a State Attorney General
supported a requirement to post all agreements, including agreements
that are not offered to the public, on the issuer's public Web site
because they believed it would encourage competition and transparency,
which they stated would help lower fees, and facilitate comparison
shopping, which they stated would result in better informed consumer
decisions. One consumer group argued that the public posting of
agreements would assist the Bureau, researchers, and consumer advocates
in compiling information to issue reports and shed light on
inappropriate practices by some market participants.
With respect to publicly posting agreements that are not offered to
the public, one consumer group explained that the payroll card market,
in particular, is secretive and issuers and employers in this market do
not generally provide fee schedules when asked. This commenter added
that when it began issuing reports on unemployment compensation cards,
fees started to come down. This commenter also argued that employers,
government agencies, nonprofit organizations, and other entities
considering a prepaid card program would be able to see and compare the
various terms offered in the market. This commenter further argued
that, while payroll card issuers may have confidentiality clauses in
their contracts with employers, those clauses do not bind employees
because once the card is issued to an employee, the agreement is no
longer confidential. Finally, the office of a State Attorney General
argued that even though consumers who enroll in payroll card programs
are not typically able to comparison shop because the employer selects
their program, they would still be able to compare their plan with wage
other payment options, such as a checking account, direct deposit, and
other prepaid accounts.
Regarding whether the Bureau should specify a timeframe for
updating agreements posted on the issuer's Web site, one credit union
requested that the Bureau not designate a timeframe, and one consumer
group requested that the Bureau require issuers to post agreements
within seven business days of issuing the agreement.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(c) generally as proposed, with several modifications. The
Bureau has revised Sec. 1005.19(c)(1) to exclude prepaid account
agreements that are not offered to the general public from the
requirement that issuers post agreements to their publicly available
Web sites. In addition, the Bureau has revised Sec. 1005.19(c)(3) to
clarify that an issuer must post on its publicly available Web site and
update the posted agreements as frequently as the issuer is required to
submit new and amended agreements to the Bureau pursuant to Sec.
1005.19(b). The Bureau has also made several minor revisions for
clarity and consistency.
The Bureau continues to believe that the general requirement to
post prepaid account agreements on the issuer's publicly available Web
site will increase transparency in the terms of these agreements and
the amounts of the fees assessed against the prepaid accounts. The
increased transparency will allow the public and consumers to become
better informed about these accounts, which will likely encourage
competition and improve fees in the various markets.
[[Page 84147]]
Furthermore, the public posting of agreements will allow consumers to
compare the terms and fees among various agreements. In addition, the
Bureau does not believe this general requirement will be problematic
for issuers, as posting agreements on the issuer's Web site is
consistent with industry practice today.
The Bureau is persuaded, however, that posting to the issuer's
publicly available Web site agreements that are not offered to the
general public may impose unnecessary administrative burden and have
little consumer benefit. The Bureau understands that issuers of payroll
card, government benefit, campus card, and other types of accounts
whose agreements are not offered to the general public could
potentially have thousands of agreements to post and maintain on their
publicly available Web sites, which could take a considerable amount of
time and resources to set up and maintain without necessarily being
easy for consumers to navigate. In addition, the Bureau believes that
consumers who use these types of accounts would not likely visit the
issuer's general Web site to access their individual agreements. The
Bureau notes that issuers of these accounts are still required to
provide each individual consumer with access to his or her specific
prepaid account agreement under Sec. 1005.19(d), discussed below, and
to submit the agreements to the Bureau under Sec. 1005.19(b) (unless
the de minimis exception under final Sec. 1005.19(b)(4) or the product
testing exception under final Sec. 1005.19(b)(5) applies). In
contrast, the Bureau believes that there are benefits to consumers and
third parties in having agreements not available to the general public
posted all in one place on the Bureau's Web site. See the section-by-
section analysis of Sec. 1005.19(a)(8) above.
The Bureau is finalizing comments 19(c)-1 and -2 generally as
proposed, with several modifications for clarity and consistency with
the revisions to Sec. 1005.19(c) discussed above.
Final comment 19(c)-1 explains the differences between final Sec.
1005.19(c) and other provisions in Sec. 1005.19, as well as other
requirements elsewhere in of Regulation E, and clarifies that, for
agreements that are not offered to the general public, the issuer is
not required to post and maintain the agreements on its publicly
available Web site, but is still required to provide each individual
consumer with access to his or her specific prepaid account agreement
under Sec. 1005.19(d). This comment also clarifies the requirements
for issuers that are not required to submit agreements to the Bureau
because they qualify for the de minimis exception under Sec.
1005.19(b)(4) or the agreements qualify for the product testing
exception under Sec. 1005.19(b)(5). In addition, this final comment
does not contain the proposed explanation that an issuer that is not
required to submit agreements to the Bureau may be required to post the
long form disclosure required by proposed Sec. 1005.18(b)(2)(ii)
online, depending on the methods by which the issuer offers prepaid
accounts to consumers, as the Bureau does not believe it is necessary
to include this clarification in commentary.
Final comment 19(c)-2 explains that, if an issuer offers an
agreement to the general public as defined by Sec. 1005.19(a)(6), that
issuer must post that agreement on a publicly available Web site it
maintains. 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
Sec. 1005.19. Such a third-party Web site is deemed to be maintained
by the issuer for purposes of 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 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 Sec. 1005.19(c).
19(d) Agreements for All Open Accounts
19(d)(1) Availability of an Individual Consumer's Prepaid Account
Agreement
The Bureau's Proposal
The Bureau proposed Sec. 1005.19(d)(1) to provide 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. Agreements posted pursuant to proposed Sec. 1005.19(d) would
have been permitted to 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 would have been required to provide the consumer with the
ability to request a copy of the agreement by telephone. The issuer
would have been required to send to the consumer 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 was similar to Regulation Z comment
58(e)-1, would have provided 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 have been
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 have been required to be
submitted to the Bureau under proposed Sec. 1005.19(b), but would
still have been required to be provided to the consumer to whom it
applies under proposed Sec. 1005.19(d).
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.\551\
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\551\ See 74 FR 54124, 54192 (Oct. 21, 2009).
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The Bureau did 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 thus
proposed 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.
Regulation Z Sec. 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
[[Page 84148]]
well as by telephone. The Bureau believed that prepaid account issuers
would 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
expected 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 did not believe it was
necessary to require issuers to receive requests via their Web sites,
although issuers could certainly allow consumers to make requests in
that manner if they so choose.
Regulation Z Sec. 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 proposed to require prepaid account
issuers to provide telephone numbers for a variety of other
purposes,\552\ the Bureau did not believe it was 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.
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\552\ See, e.g., proposed Sec. 1005.18(b)(7), which would have
required disclosure of a telephone number on the prepaid account
access device, to be used to contact the financial institution about
the prepaid account.
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Regulation Z Sec. 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 expected that few, if any, issuers would be required to provide
agreements upon request pursuant to proposed Sec. 1005.19(d)(1)(ii),
it did 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 thus did not propose 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 Regulation Z Sec. 1026.58(e)(2), containing a special
provision for issuers without interactive Web sites, was not included
in proposed Sec. 1005.19, as the Bureau was 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 did not propose an equivalent to Regulation Z
comment 58(e)-3, which provides examples regarding the deadline for
providing copies of requested agreements, as the Bureau did not believe
such examples were necessary given the more limited ways that issuers
are permitted to respond to requests under proposed Sec.
1005.19(d)(1)(ii).
Regulation Z Sec. 1026.58(e)(2) 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.\553\
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\553\ 75 FR 7658, 7773 (Feb. 22, 2010).
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The Bureau did 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 believed that requiring issuers to provide prepaid account
agreements within five business days would give issuers adequate time
to respond to requests while providing consumers with prompt access to
their prepaid account agreements.
Comments Received
The Bureau received comments from several industry and consumer
group commenters on this aspect of the proposal. The commenters
generally supported a requirement to provide consumers with access to
their individual prepaid account agreements. One industry trade
association and one issuing bank argued that an issuer should be
required to post and maintain the consumer's payroll card agreement on
a portion of the issuer's Web site that is available to the consumer
once he or she has logged into his or her account. These commenters
suggested that the Bureau provide a statement on its dedicated prepaid
account Web site directing consumers of payroll cards to visit their
issuer's Web site for a copy of their agreement and to submit a
complaint to the Bureau if the consumer has trouble obtaining it
(similar to what is included on the Bureau's Web site for credit card
agreements).
One consumer group urged the Bureau to require issuers to both post
prepaid account agreements on the issuer's Web site and make agreements
available in paper form upon the consumer's request, not one or the
other. This commenter also requested that the Bureau require issuers to
post a consumer's agreement on a password protected section of their
Web site, even if the agreement is identical to the one currently
offered to the public. This commenter explained that consumers who
obtained their accounts in the past will not know that their agreements
are the same as those currently offered. This commenter also stated
that the ``my account'' area of the Web site is also where consumers
will logically search for their agreements. In addition, this commenter
urged the Bureau to make clear that issuers may not charge consumers a
fee for requesting a copy of their agreement.
One program manager requested that the Bureau strike proposed Sec.
1005.19(d) in its entirety from this final rule. This commenter argued
that consumers would need to sort through thousands of agreements--each
containing multiple pages--without knowing which account is applicable
to their programs. This commenter stated that consumers will not likely
seek out a multi-page agreement in order to compare the features of the
program most important to that consumer. This commenter also stated
that it does not feel comfortable making agreements, which they
explained contain proprietary and confidential information, available
to the public and subject to the scrutiny of competitors in the
marketplace. This commenter stated that employers and other clients
with whom the commenter has negotiated certain terms would not be
comfortable with their competitors' ability to see the terms that
resulted
[[Page 84149]]
from private, business-to-business negotiations. This commenter argued
that the risks of exposing sensitive proprietary and confidential
information outweighs any potential benefit to consumers. This
commenter requested that the Bureau instead require issuers to provide
consumers with access to their individual, tailored account agreement
via the issuer's Web site, after the consumer's identity has been
verified through their login credentials. This commenter stated that
this approach would offer a more meaningful outcome and process for
consumers since consumers would gain easy access to the exact agreement
applicable to their programs.\554\
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\554\ The Bureau notes that this commenter's concerns were
likely in reference to the Bureau's proposed posting requirements in
Sec. 1005.19(b)(1) and (c), as proposed Sec. 1005.19(d) would have
permitted issuers to provide consumers access to their individual
agreements after logging in to their online accounts. However, the
Bureau included this comment here because the issuer specifically
requested that the Bureau to strike proposed Sec. 1005.19(d) from
this final rule.
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The Final Rule
For the reasons set forth herein, the Bureau is finalizing Sec.
1005.19(d) substantially as proposed, with one revision for clarity.
Specifically, final Sec. 1005.19(d) provides that with respect to any
open prepaid account, 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 request.
The Bureau continues to believe that it would not be appropriate to
apply the de minimis exception, the product testing exception, or the
exception for accounts not currently offered to the general public to
the requirement that issuers provide consumers with access to their
specific prepaid account agreement through the issuer's Web site. The
Bureau believes that the benefit of increased transparency of providing
individual consumers with access to their specific prepaid account
agreements is substantial regardless of the number of open accounts an
issuer has and regardless of whether an agreement continues to be
offered by the issuer or is offered as part of a product test. In
addition, 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 is adopting new
comment 19(d)-2, discussed below, to explain the requirements for
sending an agreement.
The Bureau declines to modify the provision to require issuers to
post an individual consumer's prepaid account agreement on the issuer's
Web site and make the agreement available in paper form upon the
consumer's request, as suggested by a consumer group commenter. The
Bureau believes that the administrative burden associated with posting
each consumer's agreement on the issuer's Web site might be substantial
for some issuers, particularly smaller institutions with limited
information technology resources. Therefore, the final rule allows
issuers to provide written copies of agreements in response to
consumers' requests. The ability to provide agreements in response to a
request made via telephone ensures that consumers are still able to
obtain copies of their agreements promptly. For similar reasons, the
Bureau declines to require issuers to post a consumer's agreement on a
password protected section of their Web site, as suggested by a
commenter, although issuers may certainly choose to do so for the
convenience of their customers. Related, the Bureau reminds issuers
that neither they nor their service providers are permitted to charge
consumers a fee for requesting a copy of their prepaid account
agreement pursuant to Sec. 1005.19(d).
The Bureau is finalizing comment 19(d)-1 largely as proposed, with
several modifications for consistency with the revisions to Sec.
1005.19(d)(1) discussed above and to clarify that an issuer that is not
required to post on its Web site agreements not offered to the general
public must still provide consumers with access to their specific
agreements under final Sec. 1005.19(d).
The Bureau is adopting new comment 19(d)-2 to clarify the
requirement for providing a consumer a copy of the consumer's agreement
no later than five business days after the issuer receives the
consumer's request. Specifically, this comment explains that, if the
issuer mails the agreement, the agreement must be posted in the mail
five business days after the issuer receives the consumer's request. If
the issuer hand delivers or provides the agreement electronically, the
agreement must be hand delivered or provided electronically five
business days after the issuer receives the consumer's request. For
example, if the issuer emails the agreement, the email with the
attached agreement must be sent no later than five business days after
the issuer receives the consumer's request.
19(d)(2) Form and Content of Agreements
The Bureau proposed 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
have stated 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) would have provided 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 have stated 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 have stated 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 have
provided 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) would have been required to be accurate as of
the date the agreement is mailed or electronically delivered to the
consumer. Proposed Sec. 1005.19(d)(2)(vi) would have stated that
agreements provided upon the consumer's 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) was generally similar to Regulation Z
Sec. 1026.58(e)(3), except that it contained modifications to reflect
the changes in proposed Sec. 1005.19(d)(1) regarding the methods in
which prepaid account agreements may be provided to
[[Page 84150]]
consumers pursuant to proposed Sec. 1005.19(d). Proposed Sec.
1005.19(d)(2) did not, however, include the provision contained in
Regulation Z Sec. 1026.58(e)(3)(iv) that requires agreements for all
open 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 Regulation Z Sec. 1026.58(e)(1)(i) or the date the cardholder's
request is received under Regulation Z Sec. 1026.58(e)(1)(ii) or
(e)(2). As described above, the Bureau did 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 did 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 proposed to require that
agreements posted online be accurate and updated when changes are made,
and that agreements provided upon the consumer's request be accurate as
of the date the agreement is mailed or electronically delivered to the
consumer.
The Bureau received no comments on this aspect of the proposal.
Accordingly, the Bureau is finalizing Sec. 1005.19(d)(2) substantially
as proposed, with modifications for consistency with the revisions to
Sec. 1005.19(c)(3). The Bureau has also made a revision to proposed
Sec. 1005.19(d)(2)(v) to make clear that agreements provided upon a
consumer's request must be accurate as of the date the agreement is
sent to the consumer, rather than the date the agreement is mailed or
electronically delivered to the consumer. The Bureau believes it is
clearer to use the term ``sent'' in final Sec. 1005.19(d)(2) and to
explain in final comment 19(d)-2, discussed above, the methods in which
a consumer may send an agreement to the consumer. Therefore, in
addition to requiring that agreements posted pursuant to Sec.
1005.19(d)(1)(i) must be updated as frequently as the issuer is
required to submit amended agreements to the Bureau pursuant to Sec.
1005.19(b)(2), final Sec. 1005.19(d)(2)(v) states that agreements
provided upon consumer request pursuant to Sec. 1005.19(d)(1)(ii) must
be accurate as of the date the agreement is sent to the consumer.
With respect to the statement in final Sec. 1005.19(d)(2)(iii)
regarding agreements containing personally identifiable information
relating to the consumer, the Bureau cautions that this is permissible
only if the issuer takes appropriate measures to make the agreement
accessible only to the consumer or other authorized parties. The Bureau
understands that issuers will include a consumer's name and address
when mailing agreements. However, the Bureau expects issuers to protect
personally identifiable information relating to the consumer as
appropriate, or not to include such information in the agreements if it
is not necessary to do so.
19(e) E-Sign Act Requirements
The Bureau proposed 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 the E-Sign Act. 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
Regulation Z Sec. 1026.58.\555\ The Bureau proposed Sec. 1005.19(e)
for ease of administration of these requirements and for consistency
with Regulation Z Sec. 1026.58(f).
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\555\ See 74 FR 54124, 54193 (Oct. 21, 2009).
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The Bureau received several comments from industry supporting the
proposal to provide agreements in electronic form without complying
with the E-Sign consent requirements. One consumer group recommended
the Bureau require compliance with the E-Sign Act for prepaid account
information. This commenter explained that a consumer giving E-Sign
consent and providing an email address does not necessarily mean the
consumer has regular access to the Internet or a computer.
The Bureau continues to believe that it is appropriate to waive the
requirement that issuers obtain E-Sign consent from consumers in order
to provide prepaid account agreements in electronic form pursuant to
Sec. 1005.19(c) and (d), and thus the Bureau is finalizing Sec.
1005.19(e) as proposed.
19(f) Effective Date
The Bureau proposed, in general, a nine month effective date for
its rulemaking on prepaid accounts, with an additional three months for
certain disclosure-related obligations. Comments regarding the proposed
effective date generally are discussed in the detail in the section-by-
section analysis of Sec. 1005.18(h) above and in part VI below.
With regard to application of the proposed effective date to the
requirements of Sec. 1005.19 in particular, the Bureau received
comments from several industry and trade association commenters,
arguing that nine months would be insufficient to make the proposed
changes. Several commenters expressed concern that issuers would need
additional time to comply with the proposed submission and posting
requirements pursuant to proposed Sec. 1005.19(b) and (c),
respectively, to implement the necessary system and operational
changes. These commenters explained that submitting and posting prepaid
account agreements would require issuers to develop a process of
maintaining inventory for the agreements, create a process to update
them on a quarterly basis, and develop a periodic monitoring process to
ensure accuracy of these agreements. In addition, these commenters
explained that the posting requirement would also require issuers to
create a location on their Web sites for the posting of agreements.
The Bureau is adopting an effective date of October 1, 2017 for
this final rule generally, which is reflected in new Sec.
1005.19(f)(1), which states that except as provided in new Sec.
1005.19(f)(2), the requirements of final Sec. 1005.19 apply to prepaid
accounts beginning on October 1, 2017.
The Bureau is adopting new Sec. 1005.19(f)(2) to establish a
delayed effective date of October 1, 2018 for the requirement to submit
prepaid account agreements to the Bureau on a rolling basis pursuant to
final Sec. 1005.19(b). An issuer must submit to the Bureau no later
than October 31, 2018 all prepaid account agreements it offers as of
October 1, 2018. The Bureau continues to work to develop a streamlined
electronic submission process, which it expects will be fully
operational before final Sec. 1005.19(b) becomes effective on October
1, 2018. The Bureau expects to provide technical specifications
regarding the electronic submission process in advance of that date.
Issuers will have no submission obligations under this provision until
the Bureau has issued technical specifications addressing the form and
manner for submission of agreements.
In addition, new Sec. 1005.19(f)(3) provides that nothing in new
Sec. 1005.19(f)(2) shall affect the requirements to post prepaid
account agreements on an issuer's Web site pursuant to final Sec.
1005.19(c) and (d) or the requirement to provide a copy of the
[[Page 84151]]
consumer's agreement to the consumer upon request pursuant to final
Sec. 1005.19(d).
The Bureau is adopting new comment 19(f)-1 to further explain that,
if an issuer offers a prepaid account agreement on October 1, 2018, the
issuer must submit the agreement to the Bureau, as required by Sec.
1005.19(b), no later than October 31, 2018, which is 30 days after
October 1, 2018. After October 1, 2018, issuers must submit on prepaid
account agreements or notifications of withdrawn agreements to the
Bureau within 30 days after offering, amending, or ceasing to offer the
agreements.
The Bureau is also adopting new comment 19(f)-2 to explain that,
during the delayed agreement submission period set forth in new Sec.
1005.19(f)(2), an issuer must post agreements on its Web site as
required by final Sec. 1005.19(c) and (d)(1)(i) using the agreements
it would have otherwise submitted to the Bureau under final Sec.
1005.19(b) and must provide a copy of the consumer's agreement to the
consumer upon request pursuant to final Sec. 1005.19(d)(1)(ii). For
purposes of Sec. 1005.19(c)(2) and (d)(2), agreements posted by an
issuer on its Web site must conform to the form and content
requirements set forth in final Sec. 1005.19(b)(6). For purposes of
final Sec. 1005.19(c)(3) and (d)(2)(v), amended agreements must be
posted to the issuer's Web site no later than 30 days after the change
becomes effective as required by final Sec. 1005.19(b)(2).
Prior to the October 1, 2018 effective date for the submission
requirement in final Sec. 1005.19(b), the Bureau will issue technical
specifications addressing the form and manner for submission of
agreements. The Bureau intends to publish a notice in the Federal
Register to inform issuers when its streamlined electronic submission
process is operational in order to on-board all issuers in advance of
the October 1, 2018 effective date.
The Bureau reminds credit card issuers that while final Sec.
1005.19(h) provides a delayed effective date of October 1, 2018 to
submit prepaid account agreements to the Bureau, the requirement to
submit credit card agreements under Regulation Z Sec. 1026.58 for
covered separate credit features accessible by hybrid prepaid-credit
cards that are credit card accounts under an open-end (not home-
secured) consumer credit plan becomes effective with the rest of this
final rule on October 1, 2017.
Appendix A-5 Model Clauses for Government Agencies (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 proposed 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 also
proposed 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, was available online. The Bureau also proposed 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 had 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 would have also
stated that the consumer would not be charged a fee for such
information unless the consumer requested it more than once per month.
The paragraph would have retained the existing optional bracketed
language stating that the consumer could also request such a history by
contacting his or her caseworker.
The Bureau similarly proposed 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 proposed 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 proposed 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 accessed 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 have also stated that the consumer could
request a written transaction history at any time by calling or
writing, or optionally by contacting the consumer's caseworker.
The Bureau did not receive any comments specifically regarding the
proposed changes to appendix A-5. As discussed in the section-by-
section analyses of Sec. Sec. 1005.15(d) and 1005.18(c) below,
however, the Bureau is revising the proposed time periods that apply to
a consumer's right to obtain account information. Under the final rule,
consumers will have the right to access up to 12 months of account
history online, instead of the 18 months of account history in the
proposed rule. In addition, consumers will have the right to request at
least 24 months of written transaction history, instead of the 18
months set forth in the proposed rule. The Bureau is revising appendix
A-5 to reflect these changed time periods and to make certain other
conforming changes, but is otherwise finalizing appendix A-5 as
proposed.
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 proposed to
revise the heading for existing appendix A-7 as well as the heading for
paragraph (a) of appendix A-7. The Bureau also proposed to revise
paragraph (a) of appendix A-7, which currently explains to consumers
how to obtain account information for payroll card accounts, to change
the term payroll card account to prepaid account, and to state 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 proposed to add a sentence
at the end of paragraph (a) of appendix A-7 to inform consumers that
they could not be charged for requesting such written account
transaction history, unless requests were made more than once per
month. As discussed above, the Bureau proposed 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 similarly proposed to revise the heading of paragraph
(b), and
[[Page 84152]]
to revise the text of paragraph (b) of appendix A-7, which currently
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 also proposed 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 with respect to which it had not completed
its collection of consumer identifying information and identity
verification.
This model language would have stated that it was important for
consumers to register their prepaid accounts as soon as possible and
that until a consumer registered the prepaid account, the financial
institution was not required to research or resolve errors regarding
the consumer's account. To register an account, the consumer was
directed to a Web site and telephone number. The model language would
have explained that the financial institution would 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 could verify the consumer's identity. Once the
financial institution had done so, it would address the consumer's
complaint or question as described earlier in appendix A-7.\556\
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\556\ The Bureau tested a version of this proposed model
language with consumers. See ICF Report I at 23.
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The Bureau did not receive any comments specifically regarding the
proposed revisions to appendix A-7. The Bureau is, however, making
several revisions to the substantive provisions in Sec. 1005.18(c) and
(e) that correspond to the disclosures set forth in appendix A-7, and
is revising appendix A-7 to reflect those changes. First, as discussed
in the section-by-section analysis of Sec. 1005.18(c) above, the
Bureau is revising the proposed time periods that apply to a consumer's
right to obtain account information. Under the final rule, consumers
will have the right to access up to 12 months of account history
online, instead of the 18 months of account history in the proposed
rule. In addition, consumers will have the right to request at least 24
months of written transaction history, instead of the 18 months set
forth in the proposed rule. The Bureau is revising paragraph (a) of
appendix A-7 to reflect these changed time periods.
Second, under the final rule, the Bureau is no longer requiring a
financial institution to provide 24 months of written account
transaction history upon request, as required under Sec.
1005.18(c)(1)(iii), for prepaid accounts (other than payroll card
accounts or government benefit accounts) with respect to which the
financial institution has not completed its consumer identification and
verification process. To reflect this exception, the Bureau is adding
bracketed language clarifying that the language in appendix A-7
informing consumers of their right to request 24 months of written
account transaction history only applies to accounts that have been or
can be registered with the financial institution.
Third, the Bureau is making several revisions to Sec.
1005.18(e)(3), which, as proposed, would have limited a financial
institution's obligation to provide limited liability and error
resolution for accounts with respect to which the financial institution
had not completed its collection of consumer identifying information
and identity verification. Under the final rule, financial institutions
must provide limited liability and error resolution protections for all
prepaid accounts, regardless of whether the financial institution has
completed its consumer identification and verification process with
respect to the account. However, for accounts with respect to which the
financial institution has not completed its identification and
verification process (or for which the financial institution has no
such process), the financial institution is not required to
provisionally credit the consumer's account in the event the financial
institution takes longer than 10 or 20 business days, as applicable, to
investigate and determine whether an error occurred.
To reflect these changes, the Bureau is revising paragraphs (b) and
(c) of appendix A-7 as follows. The Bureau is revising the language in
paragraph (b) describing a consumer's right to receive provisional
credit in certain circumstances to reflect that, under the final rule,
an account must be registered with the financial institution in order
to be eligible for provisional credit. The Bureau is also revising
paragraph (c), which under the final rule is only applicable to prepaid
accounts that have a customer identification and verification process
but for which the process is not completed before the account is opened
(i.e., when the consumer must take an affirmative step to register the
account after acquisition). Specifically, paragraph (c) is revised to
reflect that, under the final rule, failure to register an account with
the financial institution will not jeopardize a consumer's right to
have an error investigated and resolved. Rather, as revised, final
paragraph (c) explains that a consumer may not receive provisional
credit while an error claim is pending on a prepaid account that has
not been registered.
The Bureau is otherwise adopting appendix A-7 as proposed.
Appendix A-10 Model Forms and Sample Forms for Financial Institutions
Offering Prepaid Accounts (Sec. Sec. 1005.15(c)) and 1005.18(b))
The Bureau proposed 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 have 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 have 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 have set forth the short 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 have 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 have 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 have 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 have 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).
The Bureau did not receive any comments regarding the proposed
model and sample forms with respect to appendix A-10 specifically. The
Bureau received many comments regarding its proposed pre-acquisition
disclosure regime in general as well as regarding its
[[Page 84153]]
specific proposed requirements for the short form and long form
disclosures. For a general discussion of the pre-acquisition disclosure
regime and the content and format of the short form and long form
disclosures the Bureau is adopting in this final rule, see the section-
by-section analysis of Sec. 1005.18(b) above. For discussion of the
specific requirements in the final rule for the short form and long
form disclosures, see the section-by-section analyses above under Sec.
1005.18(b) for each of the specific elements of the disclosures.
The Bureau is finalizing appendix A-10 generally as proposed, with
revisions to reflect changes made to the regulatory text of the short
form and long form disclosure requirements in final Sec. 1005.(c) and
Sec. 1005.18(b). In addition, the Bureau has revised the order of the
model and sample forms in the final rule to include all short form
disclosures together as Model Forms A-10(a) through (e) and the long
form disclosure as Sample Form A-10(f). The Bureau has also removed the
proposed sample long form disclosure for prepaid accounts that offer
multiple service plans to provide greater flexibility to industry to
develop its own designs. Moreover, the Bureau believes that Sample Form
A-10(f) provides a sufficient template from which to design a long form
for multiple service plans.
Thus, the Bureau is finalizing Model Forms A-10(a) through (e) and
Sample Forms A-10(f) in appendix A in relation to the disclosure
requirements set forth in the final rule in final Sec. 1005.15(c) and
Sec. 1005.18(b). Model Form A-10(a) sets forth the short form
disclosure for government benefit account programs as described in
final Sec. 1005.15(c). Model Form A-10(b) sets forth the short form
disclosure for payroll card account programs as described in final
Sec. 1005.18(b), including the additional content specific to payroll
card accounts set forth in final Sec. 1005.18(b)(2)(xiv). Model Form
A-10(c) sets forth a general short form disclosure for prepaid account
programs for which overdraft/credit features may be offered as
described in final Sec. 1005.18(b)(2)(x) and that are eligible for
FDIC deposit insurance as described in final Sec. 1005.18(b)(2)(xi).
Model Form A-10(d) sets forth an alternate version of a general short
form disclosure for prepaid account programs that do not offer an
overdraft/credit feature as described in final Sec. 1005.18(b)(2)(x)
and that are not eligible for FDIC deposit insurance as described in
final Sec. 1005.18(b)(2)(xi). Model Form A-10(e) sets forth the short
form disclosure for prepaid account programs that offer multiple
service plans and choose to disclose those multiple service plans on
one short form disclosure pursuant to final Sec.
1005.18(b)(6)(iii)(B)(2). Sample Form A-10(f) sets forth the long form
disclosure for prepaid account programs as described in final Sec.
1005.18(b)(4).
Appendix A--Model Disclosure Clauses and Forms
The Bureau is updating comment -2 in the commentary to appendix A
(Appendix A--Model Disclosure Clauses and Forms). Pursuant to existing
comment -2, financial institutions and remittance transfer providers
have the option of using the model disclosure clauses provided in
appendix A to facilitate compliance with the disclosure requirements
enumerated in the comment. The comment also explains how the use of the
appropriate clauses provided in appendix A will protect a financial
institution and a remittance transfer provider from liability under
sections 916 and 917 of EFTA, provided the clauses accurately reflect
the institution's EFT services and the provider's remittance transfer
services, respectively. In this final rule, the Bureau is updating the
enumerated disclosure requirements in comment -2 to reflect changes to
the numbering of Sec. 1005.15 and Sec. 1005.18 in the final rule and
to add the provisions for new disclosure requirements included in the
final rule.
The Bureau also is updating existing comment -3 in the commentary
to appendix A (Appendix A--Model Disclosure Clauses and Forms).
Pursuant to comment -3, financial institutions may use clauses of their
own design in conjunction with the Bureau's model clauses in appendix
A. The Bureau is adding a sentence to comment -3 to clarify that the
alterations set forth in the comment apply, unless otherwise expressly
addressed in the rule. The Bureau is adding this sentence to clarify
the alterations permitted under existing comment -3 may not apply to
certain disclosures pursuant to this final rule. For example,
alternations permitting deletion of inapplicable services does not
apply to the short form disclosures required by Sec. 1005.18(b)(2).
See comment 18(b)(2)-1.
Subpart B--Requirements for Remittance Transfers
On February 7, 2012, the Bureau published a final rule implementing
section 1073 of the Dodd-Frank Act, which 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.\557\ 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. The final rule implemented these provisions
in new subpart B of Regulation E.
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\557\ 77 FR 6194 (Feb. 7, 2012). This 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).
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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, regardless of whether the sender holds an account
with the provider, and regardless of whether the transaction is also an
EFT, as defined in Sec. 1005.3(b).\558\ A designated recipient is any
person specified by the sender as the authorized recipient of a
remittance transfer to be received at a location in a foreign
country.\559\ A sender is a consumer in a State who primarily for
personal, family, or household purposes requests a remittance transfer
provider to send a remittance transfer to a designated recipient.\560\
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\558\ Sec. 1005.30(e).
\559\ Sec. 1005.30(c).
\560\ Sec. 1005.30(g).
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In order to assess whether a consumer is a sender or whether an
authorized recipient is a designated recipient, the location of where
the funds are sent from and the location of where the funds are sent to
are determinative. If the transfer is sent from an account (e.g., a
consumer transfers $100 out of the consumer's checking account) or to
an account (e.g., a consumer sends $100 in cash to a family's member's
bank account in a foreign country), the location of the account
determines where the funds are being, as applicable, sent from or sent
to. To illustrate, existing comment 30(c)-2.ii explains that if a
recipient's account is located in a State, the funds will not be
received at a location in a foreign country.\561\
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\561\ An account located on a U.S. military installation that is
physically located in a foreign country is located in a State. See
comments 30(c)-2.ii and 30(g)-1.
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With respect to products such as prepaid cards (other than prepaid
cards that were already accounts under Regulation E) and digital
wallets;
[[Page 84154]]
however, the Remittance Rule does not treat those products as
accounts.\562\ Because these products were not previously considered to
be accounts as defined in Sec. 1005.2(b) of current Regulation E, the
Remittance Rule directs that one must look at where the funds are being
sent from to determine if a consumer is a sender and where the funds
are being sent to in order to determine if the person receiving the
funds is a designated recipient. In other words, the location of the
consumer sending the funds determines where the funds are being sent
from, and the location of the person receiving the funds determines
where the funds are received. To illustrate, existing comment 30(c)-
2.iii explains that if a consumer in a State purchases a prepaid card,
the remittance transfer provider has sufficient information to conclude
that funds are to be received in a foreign country if the provider
sends the prepaid card to a specified recipient in a foreign country.
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\562\ 77 FR 6194, 6207 (explaining that where the funds that can
be accessed by a prepaid card are held does not determine whether
funds are being sent to a designated recipient because a prepaid
card is generally not considered to be an account as defined in
Sec. 1005.2(b)).
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As the Bureau noted in the proposal, the definition of prepaid
account would mean that certain prepaid products such as GPR cards and
certain digital wallets would be considered accounts under Regulation
E. Yet, the Bureau also noted that it did not intend to change how the
Remittance Rule applied to prepaid products. Accordingly, the Bureau
sought comments on whether additional clarification or guidance is
necessary with respect to the Remittance Rule. Although the Bureau did
not receive comments on this aspect of the proposal, the Bureau
believes that to facilitate compliance, it is necessary to clarify that
for prepaid accounts other than payroll card accounts and government
benefit accounts, the location of these accounts does not determine
where funds are being sent to or from. Accordingly, this final rule
contains clarifying and conforming revisions to comments 30(c)-2.ii and
30(g)-1 to clarify that transfers involving a prepaid account (other
than a prepaid account that is a payroll card account or a government
benefit account) are not transfers from an account or to an account.
For the same reason, this final rule also amends Sec. 1005.32(a), as
discussed in greater detail below.
Section 1005.30 Remittance Transfer Definitions
As amended, comment 30(c)-2.ii explains that for transfers to a
prepaid account (other than a prepaid account that is a payroll card
account or a government benefit account), where the funds are to be
received in a location physically outside of any State depends on
whether the provider at the time the transfer is requested has
information indicating that funds are to be received in a foreign
country. In addition, for transfers to all other accounts, whether
funds are to be received at a location physically outside of any State
depends on where the account is located. If the account is located in a
State, the funds will not be received at a location in a foreign
country. Further, for these accounts, if they are located on a U.S.
military installation that is physically located in a foreign country,
then they are located in a State.
Further, comment 30(g)-1, as amended, explains that for transfers
sent from a prepaid account (other than a prepaid account that is a
payroll card account or a government benefit account), whether the
consumer is located in a State depends on the location of the consumer.
If the provider does not know where the consumer is at the time the
consumer requests the transfer from the consumer's prepaid account
(other than a prepaid account that is a payroll card account or a
government benefit account), the provider may make the determination of
whether a consumer is located in a State based on information that is
provided by the consumer and on any records associated with the
consumer that the provider may have, such as an address provided by the
consumer. For transfers from all other accounts belonging to a
consumer, whether a consumer is located in a State depends on where the
consumer's account is located. Additionally, for these accounts, if
they are located on a U.S. military installation that is physically
located in a foreign country, then they are located in a State.
The Bureau additionally proposed making conforming changes to
existing comment 30(g)-3. Comment 30(g)-3 references the regulatory
citation for bona fide trust account in Sec. 1005.2(b)(3). The Bureau
proposed renumbering the regulatory citation for bona fide trust
account, changing it from Sec. 1005.2(b)(3) to Sec. 1005.2(b)(2),
because the Bureau proposed to set forth the definition of prepaid
account in new Sec. 1005.2(b)(3). The Bureau also proposed minor
changes to comment 30(g)-3 to streamline the text of the comment
without altering its meaning. The Bureau did not receive any comments
on these proposed changes, and the Bureau is adopting comment 30(g)-3
as proposed.
Section 1005.32 Estimates
32(a) Temporary Exception for Insured Institutions
The Remittance Rule generally requires that a remittance transfer
provider must disclose to a sender the actual exchange rate, fees, and
taxes that will apply to a remittance transfer, and the actual amount
that the designated recipient of the remittance transfer will receive.
However, subpart B sets forth four exceptions to this general rule.
These exceptions permit providers to disclose estimates instead of
actual amounts. EFTA section 919 provides two such exceptions. The
exception at issue in Sec. 1005.32(a) is a temporary exception for
insured institutions with respect to remittance transfers a sender
sends from the sender's account with the institution, as long as the
provider cannot determined the exact amounts for reasons beyond its
control. When the Bureau made the determination to extend the temporary
exception to July 20, 2020, the Bureau's determination was limited to
accounts under existing Regulation E. In other words, GPR cards and
digital wallets that will become accounts under this final rule were
not included in the scope of the temporary exemption. Accordingly, the
Bureau is amending Sec. 1005.32(a) to set forth that for purposes of
Sec. 1005.32(a), a sender's account does not include a prepaid
account, unless the prepaid account is a payroll card account or a
government benefit account. This amendment is intended to continue the
current application of the Remittance Rule to prepaid products.
The Bureau adopts these clarifying and conforming amendments in
subpart B pursuant to its authority under EFTA sections 904(a). EFTA
section 904(a) authorizes the Bureau to prescribe regulations necessary
to carry out the purposes of the title. The express purposes of the
EFTA, as amended by the Dodd-Frank Act, are to establish the rights,
liabilities, and responsibilities of participants in electronic fund
and remittance transfer systems and to provide individual consumer
rights.\563\
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\563\ EFTA section 902(b).
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Regulation Z
Overview of the Bureau's Proposed Approach to Regulation Z
In developing the proposal, the Bureau considered whether and how
to
[[Page 84155]]
regulate credit features offered in connection with prepaid accounts.
Specifically, the Bureau considered potential transactions where
consumers are allowed to overdraw their prepaid accounts through a fee-
based overdraft service, to draw credit from a separate overdraft line
of credit using a prepaid card,\564\ or to push credit funds into a
specified prepaid account to cover transactions for which there are
insufficient or unavailable funds. As explained in more detail below,
the Bureau proposed generally to treat all three product structures as
``credit cards'' that access ``open-end (not home-secured) credit
plans'' under Regulation Z, and thus to subject them to the credit card
protections set forth in Regulation Z. In addition and as explained
above, the Bureau also proposed to revise existing 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.
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\564\ This final rule's Regulation Z provisions reference credit
features accessed through a prepaid card. The final rule's
Regulation E provisions, by contrast, largely refer to prepaid
accounts, and, separately, to access devices for prepaid accounts.
---------------------------------------------------------------------------
The proposal would have provided guidance on when the following
devices related to prepaid accounts would be ``credit cards'': (1)
Prepaid cards; and (2) account numbers that are not prepaid cards 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. With respect to credit features accessed by prepaid
cards, the proposal would have covered a broad range of credit plans as
credit card accounts under Regulation Z when they were accessed by
prepaid cards. Under the proposal, this would have applied 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. In the proposal, the Bureau intended broadly to capture a
prepaid card as a credit card when it directly accessed a credit plan,
regardless of whether that credit plan was structured as a separate
credit plan or as a negative balance to the prepaid account.
In addition, the proposal also would have included certain account
numbers that are not prepaid cards as ``credit cards'' under Regulation
Z when the account number could access a credit plan that only allows
deposits directly into particular prepaid accounts specified by the
creditor. This proposal language would have covered credit plans that
are not accessed directly by prepaid cards but are structured as
``push'' accounts. The Bureau proposed to cover these account numbers
for push accounts as credit cards because of concerns that these types
of credit plans could act as substitutes for credit plans directly
accessed by prepaid cards. In this case, a third-party creditor could
have an arrangement with the prepaid account issuer such that credit
from the credit account is pushed from the credit account to the
prepaid account during the course of a particular prepaid account
transaction to prevent the transaction from taking the prepaid account
balance negative. These provisions related to account numbers for the
credit account were designed to prevent this type of evasion of the
rules applicable to prepaid cards that are credit cards.
In proposing to subject all three product structures to the rules
for credit cards, the Bureau recognized that it would be consciously
departing from existing regulatory structures that apply in the
checking account context, where overdraft services structured as a
negative balance on a checking account generally are governed by a
limited opt-in regime under Regulation E and other forms of credit are
subject to more holistic regulation under Regulation Z. As discussed
further below, the final rule maintains the major thrust of the
proposal by generally treating prepaid cards that access overdraft
credit features as credit cards subject to Regulation Z. The final rule
thus extends the credit card rules to credit features that can be
accessed in the course of a transaction conducted with a prepaid card
to obtain goods or services, obtain cash, or conduct P2P transfers
regardless of whether access is structured through a ``pull'' or
``push'' arrangement. However, the final rule excludes situations in
which prepaid account issuers are only providing certain incidental
forms of credit without charging credit-related fees (such as in so-
called ``force pay'' transactions) as well as situations in which a
consumer chooses to link a prepaid card to a credit feature offered by
a third party that has no business relationship with the prepaid
account issuer. The final rule also excludes situations where the
prepaid card only can access a credit feature outside the course of a
transaction conducted with a prepaid card to obtain goods or services,
obtain cash, or conduct P2P transfers. The Bureau has also revised
various elements of the proposed rule and provided additional clarity
regarding operational practices to promote transparency and facilitate
compliance for credit features offered in connection with prepaid
accounts that are subject to the credit card rules under Regulation Z.
Comments Received
The majority of the comments received by the Bureau in response to
this rulemaking concerned the Bureau's proposed approach to regulating
credit features offered in connection with prepaid accounts. In
general, most consumer groups urged the Bureau to ban overdraft
services in connection with prepaid products, arguing that the
overdraft fees and accumulating debt can be harmful (many individual
consumers also commented in support of additional protections for
overdraft services on prepaid cards, as discussed below). They argued
that prepaid consumers are often more vulnerable than users of
traditional deposit accounts or do not anticipate having to deal with
credit on their prepaid accounts. They argued further that prepaid
accounts should remain true to their name--prepaid--and similarly that
prepaid consumers who wish to use credit should do so deliberately, and
not inadvertently through overdraft transactions. In addition, consumer
groups advocating a ban also argued that the financial incentives of an
overdraft business model would become increasingly hard to resist for
the issuers of prepaid accounts, most of whom do not currently offer
overdraft services, and that the Bureau should remove these incentives
through a regulatory prohibition on prepaid overdrafts.
For similar reasons, several consumer groups also advocated for a
specific ban on overdraft features in connection with government
benefit accounts and payroll card accounts, and one consumer group
further advocated for a ban on overdraft features offered in connection
with student cards. Several consumer groups argued that, if the Bureau
did not adopt a ban on prepaid overdraft, any credit offered in
connection with a prepaid account should be regulated as a credit card
under Regulation Z and should be required to be offered separately from
the prepaid account.
In contrast, most industry commenters (as well as some individual
consumer commenters, as discussed below) generally objected to the
Bureau adopting regulations that would limit
[[Page 84156]]
credit features on prepaid accounts.\565\ In particular, these
commenters stated that overdraft for prepaid accounts should function
as it does for other types of deposit accounts with linked debit
cards--i.e., subject to the current Regulation E opt-in framework for
overdraft. Several members of Congress likewise argued that prepaid
overdraft should be regulated under the Regulation E opt-in approach.
These industry and government commenters argued that to the extent the
Bureau seeks to treat prepaid accounts as transaction account
substitutes, such products should be subject to the same regulatory
requirements (and exceptions) as those accounts, including opt-in
requirements for overdraft services.
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\565\ One industry commenter, an issuing bank, urged the Bureau
to ban overdraft features on prepaid accounts, though unlike the
consumer group commenters who took the same position, this commenter
argued that, absent a ban, the Bureau should regulate prepaid
overdraft under Regulation E.
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Some industry commenters that objected to the Bureau's Regulation Z
approach, including trade associations, a credit union, and a program
manager that offers overdraft on certain of its prepaid accounts,
disputed the Bureau's proposed interpretation of the relevant
Regulation Z provisions and expressed concern that the Bureau's
proposed interpretation of certain credit-related definitions in
Regulation Z would have broader implications for traditional overdraft
services on checking accounts.
Several industry commenters argued that, if the Bureau finds that
the current Regulation E opt-in approach is insufficient to regulate
prepaid overdraft, the Bureau should consider other alternatives that
would be preferable--and simpler--than a regime that subjects prepaid
overdraft to credit card rules under Regulation Z. For example, several
commenters, including a trade association and a credit union issuer,
suggested that the Bureau consider a cap on overdraft fees, while
others suggested that the Bureau impose a cap on the amount that any
account may be overdrawn. Other commenters, including several members
of Congress, urged the Bureau to put in place a set of requirements to
limit overdraft credit features offered in connection with prepaid
accounts, which would essentially mirror the structure of a program
offered today by one industry participant. That program includes a
maximum overdraft amount, limitations on the number of monthly
overdrafts per account, and a cooling-off period for frequent
overdrafters. A law firm writing on behalf of a coalition of prepaid
issuers advocated for a similar structure, including a limit on the
amount of an overdraft fee so it cannot exceed the dollar amount of the
overdraft or prohibiting overdraft fees on transactions below a certain
dollar threshold, together with an overdraft fee cap. An industry trade
association likewise suggested that the Bureau adopt caps on overdraft
amounts and fees, and also suggested that these be augmented by a limit
on the number of times an overdraft fee could be charged in a given
period, as well as requirements to provide detailed disclosures
informing the consumer how the overdraft features work. Several
industry commenters, including one credit union service organization,
suggested that the Bureau adopt a dollar limit below which overdrafts
occurring in connection with a prepaid account would be excluded from
the definition of credit under Regulation Z and instead covered by the
Regulation E opt-in regime.
Some industry commenters argued that their customers want--or even
need--access to short-term credit in connection with their GPR cards.
Several trade association commenters similarly stated that consumers
want access to credit features on prepaid cards. These commenters
expressed concern that subjecting overdraft credit on prepaid accounts
to Regulation Z credit card rules would cut off consumers' access to
short-term credit. The Bureau also received comments from several
members of Congress stating that their constituents use and depend upon
credit features attached to prepaid cards.
As noted above, the Bureau received around 6,000 comments from
consumers who use prepaid products currently offering overdraft
services. The Bureau understands that these letters were coordinated as
part of a letter-writing campaign organized by a program manager that
offers overdraft on certain of its prepaid accounts. These consumers
voiced support for their overdraft services. Some noted, for example,
that the overdraft fees charged on their prepaid accounts were less
than the overdraft fees charged by banks, and that their overdraft
services allowed them to bridge cash shortfalls between paychecks and
fulfill other short-term credit needs. By contrast, the Bureau also
received comments from consumers opposed to prepaid overdraft features.
As part of a letter-writing campaign organized by a consumer group, the
Bureau received largely identical comments from approximately 56,000
consumers generally in support of the proposal--particularly related to
the requirement under Regulation Z credit card rules to assess
consumers' ability to pay before offering credit attached to prepaid
cards--and urging the Bureau to finalize strong credit provisions in
the final rule so that consumers can avoid hidden fees and unexpected
debt.
In addition to these comments about the Bureau's general approach
to regulating credit offered in connection with prepaid accounts, the
Bureau also received numerous comment letters from industry and
consumer groups on the specifics of this part of the proposal. Most
industry commenters were concerned that the proposed regime would sweep
in far more products than the Bureau intended by covering situations
where credit is extended to cover so-called ``force pay'' transactions.
Force pay transactions occur where the prepaid account issuer is
required by card network rules to pay a transaction even though there
are insufficient or unavailable funds in the prepaid account to cover
the transaction at settlement. Industry commenters were nearly
universally concerned that force pay transactions would trigger
coverage under the proposal even when the only fee charged in
connection with the overdrawn transaction is a fee, such as a per
transaction fee, that would be charged regardless of whether the
transaction is paid from a positive balance on the prepaid account or
overdraws the account. Industry commenters said requiring prepaid
account issuers to waive neutral per transaction fees in order to avoid
triggering the credit card rules on force pay transactions would be
more complicated than the Bureau anticipated in the proposal and would
impose substantial compliance costs. These commenters indicated that
similar issues may also arise with other transaction-specific fees,
such as currency conversion fees assessed on force pay transactions.
The Bureau also received industry comments that a prepaid card
should not be a credit card with respect to a separate credit feature
when the credit feature is being offered by an unrelated third party.
These commenters were concerned that unrelated third-party creditors
may not be aware that their credit features are being used as overdraft
credit features with respect to prepaid accounts. If unrelated third-
party creditors were subject to the proposal, commenters said these
creditors would face additional compliance risk in connection with the
prepaid card becoming a new access device for the credit account. This
would have been true even if the creditors were already subject to the
[[Page 84157]]
credit card rules in their own right because the proposal contained a
number of provisions that would have applied only to prepaid cards that
are credit cards and would not have applied to credit card accounts
generally. On the other hand, several consumer groups supported the
proposal to consider a third party that offers an open-end credit
feature accessed by a prepaid card to be an agent of the prepaid
account issuer and thus a credit card issuer with responsibilities
under Regulation Z.
One industry commenter expressed concern that the proposal would
trigger the credit card rules in situations in which a prepaid card
could be used only to complete standalone loads or transfers of credit
from a separate credit feature to the prepaid account, but not to
access credit in the course of a transaction conducted with the prepaid
card. This commenter noted that there are several circumstances in
which consumers can consciously load value to their prepaid accounts
using a debit card or credit card, where this load is not occurring as
part of an overdraft feature in connection with the prepaid account.
Specifically, in this scenario, the consumer does not access credit
automatically in the course of a transaction conducted with the prepaid
card, but rather uses the credit or debit card to make a one-time load
outside the course of any particular transaction. This commenter urged
the Bureau to clarify that such loads do not make the prepaid card into
a credit card under Regulation Z.
On the other hand, several consumer group commenters suggested that
the Bureau should apply the credit card rules to any credit plan from
which credit is transferred to prepaid cards, rather than limiting
application only to certain ``push'' arrangements as proposed (where a
prepaid account is the only account designated by the creditor as a
destination for the credit provided). Similarly, another consumer group
commenter indicated that the Bureau should apply the credit card rules
to all open-end lines of credit where credit may be deposited or
transferred to prepaid card accounts if either (1) the creditor is the
same institution as or has a business relationship with the prepaid
issuer; or (2) the creditor reasonably anticipates that a prepaid card
will be used as an access device for the line of credit. Nonetheless,
this commenter said the final rule should not impact a completely
unrelated credit account that has no connection to prepaid issuers or
consumers identified as prepaid card users, even though the creditor
allows credit to be transferred from the credit account through the ACH
system.
Overview of the Final Rule's Amendments to Regulation Z
In the final rule, the Bureau generally intends to cover under
Regulation Z overdraft credit features in connection with prepaid
accounts where the credit feature is offered by the prepaid account
issuer, its affiliate, or its business partner and credit can be
accessed in the course of a transaction conducted with the prepaid card
(except for very limited incidental credit, as described below). The
reasons for this are explained further below, but to facilitate
understanding, this subsection first gives an overview of the coverage
decisions and structure of the final rule. As the Bureau noted in the
proposal and as discussed below, the provisions addressing credit
features in connection with a prepaid account in the final rule are not
intended to alter treatment of overdraft services or products on
checking accounts under Regulation Z.
The final rule sets forth the rules for when a prepaid card is a
credit card under Regulation Z in new Sec. 1026.61. The Bureau
generally intends to cover under Regulation Z overdraft credit features
in connection with prepaid accounts where the credit features are
offered by the prepaid account issuer, its affiliates, or its business
partners. While Regulation E provides protections for the asset account
of a prepaid account, the Bureau believes separate protections are
necessary under Regulation Z for certain overdraft credit features in
connection with prepaid accounts.
New Sec. 1026.61(b) generally requires that such credit features
be structured as separate sub-accounts or accounts, distinct from the
prepaid asset account, to facilitate transparency and compliance with
various Regulation Z requirements. New Sec. 1026.61(a)(2)(i) provides
that a prepaid card is a ``hybrid prepaid-credit card'' with respect to
such separate credit features if the card meets the following two
conditions: (1) the card can be used from time to time to access credit
from the separate credit feature in the course of authorizing,
settling, or otherwise completing transactions conducted with the card
to obtain goods or services, obtain cash, or conduct P2P transfers; and
(2) the separate credit feature is offered by the prepaid account
issuer, its affiliates, or its business partners. New Sec.
1026.61(a)(2)(i) defines such a separate credit feature accessible by a
hybrid prepaid-credit card as a ``covered separate credit feature.''
Thus, the hybrid prepaid-credit card can access both the covered
separate credit feature and the asset feature of the prepaid account,
and the hybrid prepaid-credit card is a credit card under Regulation Z
with respect to the covered separate credit feature.
To effectuate these provisions and provide compliance guidance to
industry, the Bureau is also revising certain other credit card
provisions as a result of new Sec. 1026.61. For example, the final
rule provides guidance in new Sec. 1026.4(b)(11) and related
commentary on how the definition of finance charge applies to covered
separate credit features accessible by hybrid prepaid-credit cards. In
addition, the Bureau notes that, pursuant to the final rule, accounts
that are ``hybrid prepaid-credit cards'' will be subject to the credit
card protections in Regulation Z, as well as all other applicable
provisions of Regulation Z. This includes, for example, Regulation Z's
requirement that creditors retain evidence of compliance with
Regulation Z.\566\
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\566\ See Sec. 1026.25.
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As discussed in the section-by-section analysis of Sec. 1026.61
below, the final rule provides certain exclusions from coverage for
prepaid cards that access credit in certain situations. Specifically,
new Sec. 1026.61(a)(2)(ii) provides that a prepaid card is not a
credit card with respect to a credit feature that does not meet both
conditions stated above, namely that the credit feature either (1)
cannot be accessed in the course of a prepaid card transaction to
obtain goods or services, obtain cash, or conduct P2P transfers; or (2)
is offered by an unrelated third party (i.e., that is not the prepaid
account issuer, its affiliate, or its business partner). Such credit
features are defined as ``non-covered separate credit features.'' Under
the final rule, a non-covered separate credit feature is not subject to
the rules applicable to hybrid prepaid-credit cards; however, it
typically will be subject to Regulation Z in its own right, depending
on the terms and conditions of the product.
In addition, under new Sec. 1026.61(a)(4) a prepaid card also is
not a credit card when the prepaid card only accesses credit that is
incidental to certain transactions in the form of a negative balance on
the asset account where the prepaid account issuer does not charge
credit-related fees for the credit. This exception is intended to
exempt three types of credit so long as the prepaid account issuer
generally does not charge credit-related fees for the credit: (1)
Credit related to ``force pay'' transactions; (2) a de minimis $10
payment cushion; and (3) a delayed load
[[Page 84158]]
cushion where credit is extended while a load of funds from an asset
account is pending. Under the final rule, this type of credit generally
is subject to Regulation E, instead of Regulation Z.\567\ For example,
as discussed in more detail in the section-by-section analysis of
Regulation E Sec. 1005.12(a) above, Regulation E's provisions in final
Sec. Sec. 1005.11 and 1005.18(e) regarding error resolution would
apply to extensions of this credit. Also, as discussed in more detail
in the section-by-section analysis of Regulation E Sec. 1005.17 above,
although this incidental credit generally is governed by Regulation E,
the Bureau is exempting this incidental credit from the opt-in rule in
final Sec. 1005.17. For the reasons discussed in more detail in the
section-by-section analysis of Regulation E Sec. 1005.17 above, the
Bureau is adding new Sec. 1005.17(a)(4) to provide that credit
accessed from an overdraft credit feature that is exempt from
Regulation Z under Sec. 1026.61(a)(4) is not an overdraft service
under final Sec. 1005.17(a) and thus would not be subject to the opt-
in requirements in final Sec. 1005.17.
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\567\ With respect to such credit, the final rule provides that
a prepaid account issuer is not a card issuer under final Sec.
1026.2(a)(7) with respect to the prepaid card. The prepaid account
issuer also is not a creditor under final Sec. 1026.17(a)(iii) or
(iv) because it is not a card issuer under final Sec. 1026.2(a)(7)
with respect to the prepaid card. The prepaid account issuer also is
not a creditor under final Sec. 1026.2(a)(17)(i) as a result of
imposing fees on the prepaid account because those fees are not
finance charges as described in new comment 4(b)(11)-1.iii.
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The Bureau notes that the final rule does not adopt proposed
provisions that would have made certain credit account numbers that
were used to push credit onto a prepaid card into credit cards as
described above. Instead, the Bureau in the final rule addresses the
evasion concerns discussed in the proposal and raised by consumer group
commenters through the definition of ``hybrid prepaid-credit card'' as
discussed below. The Bureau will continue to monitor the market for
potential evasion of the provisions addressing hybrid prepaid-credit
cards, and will consider further modifications in future rulemakings if
necessary.
Consideration of extension of existing exemptions for prepaid
overdraft services. The Bureau has carefully considered the comments
submitted by all interested stakeholders addressing the regulatory
framework and implementation of the rule under a Regulation Z approach,
and has decided to finalize its proposal to depart from the regulatory
framework that applies to overdraft services on checking accounts,
which was created by the Board through previous rulemakings. As
discussed further separately below, the Bureau believes that the credit
card rules under Regulation Z provide a more appropriate and protective
regulatory framework for overdraft features on prepaid accounts.
The Board, acting in the late 1960s, decided to subject overdraft
lines of credit in connection with traditional deposit accounts to
Regulation Z requirements for open-end credit, while carving ad hoc
``courtesy'' 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.\568\ 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.'' \569\ 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.\570\ Rather, overdraft services are not
subject to Regulation Z credit protections. While the Board later
issued rules under Regulation E to specify disclosure requirements and
to require an opt-in process for certain types of overdraft
transactions, these rules generally provide fewer protections for
consumers on an ongoing basis than does Regulation Z.
---------------------------------------------------------------------------
\568\ See Sec. 1026.2(a)(17)(i). 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)(A),
1026.7(b)(11), 1026.12 and 1026.51 through 1026.60.
\569\ See Sec. 1026.4(c)(3).
\570\ In addition, the commentary to the definition of ``credit
card'' explains that a debit card is not a credit card where there
is no credit feature or agreement to extend credit, even if the
creditor occasionally honors an inadvertent overdraft. See comment
2(a)(15)-2.ii.A. The Board adopted this commentary to exclude
overdraft services 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. See 75 FR 7657, 7664 (Feb. 22, 2010).
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The Bureau believes that this existing patchwork approach should
not be extended to prepaid accounts, both because the historical
justification for the regulatory treatment of checking account
overdraft services under Regulation Z does not apply to prepaid
accounts and because there are notable differences between how prepaid
accounts and checking accounts function. 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 which could trigger an NSF fee, additional fees
imposed by merchants, and even potential criminal liability for passing
bad checks.\571\ With relatively low fees and low incidence, the
programs were therefore considered a minor ``courtesy'' service that
enabled consumers to avoid both the embarrassment of bouncing checks
and the attendant costs.
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\571\ 77 FR 59033, 59033 (Nov. 17, 2009); see also generally
Fed. Deposit Ins. Corp., FIL-81-2010, Overdraft Payment Programs and
Consumer Protection Final Overdraft Payment Supervisory Guidance
(Fin. Inst. Letter, Nov. 24, 2010), available at https://www.fdic.gov/news/news/financial/2010/fil10081.html.
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[[Page 84159]]
However, the account structure and logistics for prepaid accounts
have never matched those for checking accounts that existed in 1969.
Checking accounts generally 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 for two reasons. First, the exact timing of the check
clearance and incoming ACH process can be difficult for the consumer to
predict. For instance, it may sometimes 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 may lead to inadvertent
overdrafts. Second, where this occurs, there is a benefit to the
consumer in paying the transaction rather than declining the
transaction and exposing the consumer not only to NSF fees but to
bounced check fees and late payment fees charged by the payee.
By contrast, the vast majority of prepaid account transactions are
preauthorized, which means that the merchant seeks authorization from
the financial institution before providing goods or services to the
consumer.\572\ 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.\573\
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-authorized 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.
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\572\ An exception is third-party ACH debits, which could be
submitted without prior authorization from the financial
institution. 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.
\573\ 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).
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There are several additional reasons why the Bureau believes the
existing treatment of checking account overdraft would be inappropriate
as applied to prepaid accounts. As stated in the proposal, a
substantial portion of consumers holding prepaid accounts have had
difficult experiences with overdraft services on traditional checking
accounts.\574\ In general, prepaid consumers are disproportionately
unbanked or underbanked.\575\ Some studies have also shown they are
more likely to have limited education, and are often unemployed or
recipients of public benefits.\576\ 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.
---------------------------------------------------------------------------
\574\ 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
major issuer estimated 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),
available at 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.'').
Similarly, others have informed Bureau staff that the average credit
score of prepaid account users is far below average.
\575\ 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 2012 FRB Kansas City Study at 11-12
(although the report also notes no correlation due to income or
education; possibly due to the different types of use by prepaid
consumers).
\576\ 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/_on_prepaid_cards_(3).pdf.
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Moreover, as noted in the proposal, 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.\577\ Relatedly, the Bureau also believes that
many of these consumers, and even many consumers who continue to
maintain separate checking accounts, choose to purchase prepaid
products because of their promise to allow consumers to control their
spending. Indeed, many participants in the Bureau's pre-proposal
consumer testing emphasized control as a primary reason they used
prepaid cards.\578\ 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.\579\
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\577\ See, e.g., Network Branded Prepaid Card Ass'n, Prepaid
Card Benefits, http://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx (last visited Oct. 1, 2016) (``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, C.E.O., NetSpend Holdings, Inc.) (``Our
customers are typically working Americans who want control . . .
'').
\578\ See ICF Report I at 5.
\579\ See Bretton Woods, Inc., A Comparative Cost Analysis of
Prepaid Cards, Basic Checking Accounts and Check Cashing, at 4 (Feb.
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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The Bureau believes the final rule's approach with respect to
overdraft credit features on prepaid accounts will help preserve the
unique character of prepaid accounts as a safe alternative to products
that offer credit features, in conformance with the expectations of
most prepaid consumers. This treatment is in contrast to the historical
evolution of checking accounts, where overdraft services have been
common across almost all such accounts and consumers often expect such
services to be offered in connection with checking accounts.
Further, unlike with respect to checking accounts where overdraft
services have been structured to fit a unique and separate regulatory
regime
[[Page 84160]]
for several decades, the Bureau is regulating prepaid overdraft
services on a largely blank slate. Checking accounts and their pricing
structures have evolved over the last several decades under compliance
frameworks that were developed in accordance with existing regulations,
exceptions to those regulations, and other agencies' guidance. In
contrast, very few prepaid products currently offer overdraft services
or other associated credit features. Most prepaid account programs do
not have such a feature and, as a result, prepaid issuers would have to
implement a new compliance regime in any event were they to decide to
add such features.
Similarly, the Bureau is concerned that if it were to extend the
exception for overdraft services in connection with checking accounts
to prepaid accounts, financial institutions offering overdraft on
prepaid accounts would come to rely heavily on back-end pricing like
overdraft fees, while eliminating or reducing front-end pricing, as has
occurred with overdraft services on checking accounts. Indeed, although
there are few prepaid providers currently offering overdraft services,
one commenter provided data that suggests that the fee revenue
attributable to overdraft fees for those prepaid providers who do offer
overdraft have come to make up a significant portion of their
revenue.\580\
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\580\ According to the office of a State Attorney General,
overdraft fees and declined balance fees may comprise a substantial
portion of the fee-based revenue for financial institutions offering
payroll card programs, stating that, in its survey of 38 employers'
payroll card programs, overdraft fees comprised over 40 percent of
the fees assessed by those vendors that charge them.
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The Bureau believes such pricing structures can result in less
transparent pricing for consumers. By labeling overdraft credit
features 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 some prepaid accountholders decide they want to
access such credit.
Because it has elected to treat overdraft credit features offered
on prepaid accounts as credit cards under Regulation Z, the Bureau
declines to adopt additional restrictions or requirements in Regulation
E for prepaid accounts offering overdraft credit, as some industry
commenters suggested. As summarized above, some industry commenters
suggested that, to the extent the Bureau was concerned that Regulation
E's opt-in regime was not sufficiently robust to address the perceived
consumer harms associated with prepaid overdraft, the Bureau could
impose additional, prepaid-specific restrictions within Regulation E
to, for example, limit the amount of prepaid overdraft fees, limit the
amount by which a prepaid account could be overdrawn, or limit the
number of times a prepaid account could be overdrawn during a given
period. The Bureau declines to adopt this approach. For the reasons
discussed below, the Bureau believes that the credit card rules provide
a comprehensive existing framework that provides substantial benefits
to consumers, and that it is more appropriate under these circumstances
to adopt that framework than to create additional novel requirements in
Regulation E.
With respect to the comment that the Bureau should adopt a dollar
limit below which overdrafts occurring in connection with a prepaid
account would be excluded from the definition of credit under
Regulation Z and instead be covered by the Regulation E opt-in regime,
the Bureau is concerned that allowing consumers to incur substantial
debt in connection with an account that most do not intend to use as a
credit account may pose a risk to those consumers by compromising their
ability to manage and control their finances.\581\ Thus, while the
final rule would permit a financial institution to offer an incidental
``payment cushion'' of $10 without triggering the rules governing
credit cards under Regulation Z so long as the issuer does not impose
credit-related fees, the Bureau believes that the provision of a higher
dollar amount of credit in connection with a prepaid account should be
subject to full credit card protections unless otherwise excluded under
the final rule.
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\581\ See also the section-by-section analyses of Sec. Sec.
1026.2(a)(14) and 1026.61(a)(4) below.
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Treatment of prepaid overdraft services under the credit card rules
in Regulation Z. The Bureau has concluded that the open-end credit
regime established under Regulation Z is an appropriate and fitting
regime for the treatment of overdraft credit features offered in
connection with prepaid accounts. The term ``open-end credit'' is
defined 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. As explained in the
proposal, the Bureau has analyzed whether it is reasonable to interpret
``credit'' to include when overdrafts are paid in relation to prepaid
accounts. The Bureau continues to believe it is. The Bureau also
believes that overdraft services, overdraft lines of credit, and
similar products that could be offered in connection with prepaid
accounts can be regulated by Regulation Z as a ``plan'' where the
consumer is contractually obligated to repay the debt, even if the
creditor retains, by contract, the discretion not to extend credit.
The Bureau has further evaluated whether such a plan satisfies the
three prongs necessary to establish the plan as an open-end (not home-
secured) credit plan under Regulation Z. 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. Every prepaid overdraft service that charges a
fee of which the Bureau is aware contemplates and approves repeated
transactions. The second prong of the definition asks whether the
creditor may impose a finance charge from time to time on an
outstanding unpaid balance.\582\ The Bureau believes that overdraft
fees and other charges on credit features offered in conjunction with
prepaid accounts easily meet the general definition of finance charge.
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 constitute finance
charges, because they are directly payable by the consumer and imposed
directly by the creditor as a condition of the extension of credit.
Lastly, the Bureau believes 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. 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.
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\582\ See Sec. 1026.2(a)(20)(ii).
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The Bureau also believes that covering overdraft services offered
in connection with prepaid accounts under
[[Page 84161]]
Regulation Z aligns with TILA's purpose 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.\583\
The Bureau believes that regulation of prepaid account overdraft
services as open-end (not home-secured) credit will 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.
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\583\ TILA section 102(a), 15 U.S.C. 1601(a).
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Finally, the Bureau believes that Regulation Z's credit card
provisions, particularly as augmented by some tailored provisions that
the Bureau is adopting specifically for the prepaid context, provide
substantially more consumer protections than other existing regulatory
regimes. These include greater protections around pricing, protections
around creditors taking payments from consumers' accounts, and
regulations to govern the process by which consumers make an initial
decision to select a credit feature. For example, regulations
implementing the Credit CARD Act impose a number of restrictions
concerning credit pricing. These include restrictions on the fees that
an issuer can charge during the first year after an account is opened,
and limits on the instances in which and the amount of such fees that
issuers can charge as penalty fees when a consumer makes a late payment
or exceeds his or her credit limit. The Credit CARD Act also restricts
the circumstances under which issuers can increase interest rates on
credit cards and establishes procedures for doing so. The Bureau
believes that applying the Credit CARD Act provisions to overdraft
features in connection with prepaid accounts would promote transparent
pricing for prepaid accountholders.
In addition, application of the Fair Credit Billing Act and Credit
CARD Act requirements, including the FCBA's no-offset provision,\584\
along with application of the compulsory use provision in Regulation E
Sec. 1005.10(e)(1) to overdraft credit features offered in connection
with prepaid accounts, will 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.\585\ The application of these provisions
would mean that with respect to overdraft credit features subject to
this final rule, card issuers (1) would be required to adopt reasonable
procedures designed to ensure that periodic statements for the credit
feature 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; (2) could
move funds automatically from the asset account held by the card issuer
to the covered separate credit feature 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); and (3) would be
required to offer consumers a means to repay their outstanding credit
balances on the covered separate credit feature other than 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 following a cash reload to
the asset account). Card issuers also would be prohibited from
extending credit without assessing the consumer's ability to pay, and
must comply with special rules regarding the extension of credit to
persons under the age of 21.
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\584\ TILA section 169; 15 U.S.C. 1666h(a).
\585\ See Sec. 1026.12(d). 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.
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Furthermore, by not permitting financial institutions to accept
applications for an overdraft credit feature until 30 days after
registration of the prepaid account,\586\ the Bureau believes the final
rule will prevent consumers from being pressured to make a decision on
overdraft credit when acquiring the prepaid account, such as when they
purchase a GPR card at a retail location with an incentive to encourage
consumers to sign up for overdraft, and protect them from incurring
credit-related fees in the period during which they are getting
accustomed to the features and uses of their account. It will also
allow consumers time to decide whether the basic prepaid account is a
good fit for them before deciding whether to layer on a separate credit
feature that may be more difficult to walk away from.
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\586\ See Sec. 1026.61(c).
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The Bureau takes seriously concerns that the proposed approach
could have had unintended consequences for all prepaid issuers in
circumstances where they do not intend to extend credit as well as for
credit that prepaid consumers receive through other channels.
Specifically, to address commenters' concerns about coverage as a
result of a prepaid issuer paying force pay transactions, the final
rule clarifies that a prepaid card is not a credit card when the
prepaid card accesses credit that is incidental to certain transactions
in the form of a negative balance on the asset account where the
prepaid account issuer generally is not charging credit-related fees
for the credit. In addition, the Bureau is sensitive to concerns that,
by subjecting credit offered in connection with prepaid cards to
Regulation Z's credit card regime, this rulemaking may reduce access to
some forms of credit. For that reason, under the final rule, a separate
credit feature will not be covered if it is offered by an unrelated
third party that is not the prepaid account issuer, its affiliates, or
its business partners. This is true even if the separate credit feature
is providing funds to the prepaid account to cover transactions for
which there would not otherwise be sufficient funds. In addition, a
separate credit feature is not covered under the final rule if it
cannot access the separate credit feature during the course of
authorizing, settling, or otherwise completing transactions even if the
credit feature is offered by the prepaid account issuer, its
affiliates, or its business partners. As noted above, the Bureau
anticipates that credit plans in both of these latter scenarios will be
subject to Regulation Z in their own right, but has concluded that they
should not be subject to heightened regulation as a result of this
final rule.
The Bureau also declines to issue a ban on overdraft. Very few
existing products offer credit features in connection with prepaid
accounts. As such, the Bureau does not believe such a blanket
prohibition is necessary or appropriate to address the potential
consumer harm in this market at this time and in light of the other
consumer protections that the final rule provides. Indeed, the Bureau
believes that the final rule, unlike an outright ban on prepaid
overdraft, which several consumer groups and one issuing bank
suggested, appropriately balances the need to address consumers' need
and
[[Page 84162]]
demand for credit with the need to protect against consumer harm.
Finally, and as noted above, the Bureau received several comments
from industry expressing concern that the Bureau's proposed
interpretation of certain credit-related definitions in Regulation Z
could impact the status of overdraft features accessed in connection
with deposit accounts. As the Bureau noted in the proposal, the
provisions addressing prepaid overdraft in the final rule are not
intended 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. The Bureau continues to
study deposit account overdraft services on checking accounts and will
propose any further regulatory consumer protections in that rulemaking
initiative.\587\ In addition to that initiative, the Bureau notes that
it recently issued a Notice of Proposed Rulemaking on Payday, Vehicle
Title, and Certain High-Cost Installment Loans (Payday NPRM).\588\ The
Bureau proposed excluding credit card accounts under an open-end (not
home-secured) consumer credit plan from coverage under the Payday NPRM
pursuant to proposed Sec. 1041.3(e)(3).\589\ The Bureau notes that
under this final rule, a covered separate credit feature is a credit
card account under an open-end (not home-secured) consumer plan under
Regulation Z and accordingly, would be exempt from coverage for
purposes of the Payday NPRM.
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\587\ See CFPB's Unified Agenda for Spring 2016, available at
http://www.consumerfinance.gov/about-us/blog/spring-2016-rulemaking-agenda/.
\588\ See 81 FR 47864 (July 22, 2016).
\589\ See id. at 48168.
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The implications of the Bureau's approach to credit products
offered in conjunction with prepaid accounts for Military Lending Act
compliance. As discussed above, the DOD recently issued a final rule
expanding 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.\590\ Under the
MLA and the implementing regulation, a creditor generally may not apply
a 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.\591\ In
addition, the rule includes a limited exemption for credit card
accounts--until October 3, 2017, consumer credit covered by the MLA and
the implementing regulation will not include credit extended in a
credit card account under an open-end (not home-secured) consumer
credit plan.
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\590\ 80 FR 43560 (July 22, 2015).
\591\ 32 CFR 232.4(b).
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Thus, starting October 3, 2017, fees levied for credit features
(including overdraft services) on a hybrid prepaid-credit card held by
military service members or their dependents would, as a result of the
MLA and the Bureau's final rule on prepaid accounts in combination,
generally be included in calculating the MAPR for a billing cycle
unless excluded under the reasonable bona fide fee exception.
The Bureau sought comment on the consequences, if any, from the
combined effect of the two rules with respect to overdraft services and
credit features on prepaid accounts held by military service members.
With the exception of generalized comments acknowledging the potential
overlap outlined above, commenters did not provide any specific
feedback in response to this request.
Other implications of the Bureau's approach to credit products
offered in conjunction with prepaid accounts: 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 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 final rule includes a number of provisions 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 amending the provision in Regulation Z 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 EFT when a transaction accesses both
funds in the prepaid account and credit from the overdraft credit
feature.\592\
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\592\ See the section-by-section analysis of Sec. 1026.13(i)
below.
---------------------------------------------------------------------------
The Bureau sought comment on these specific amendments and whether
further amendments or guidance would be appropriate. The Bureau also
sought comment on consumer and industry experiences with similar
multipurpose products historically, and whether they yield useful
lessons for further refining the Bureau's proposal with regard to
prepaid cards. The Bureau did not receive any specific comments in
response to these requests.
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. In the proposal, the Bureau noted that its 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 requested 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. The Bureau did not receive any specific comments in
response to this request.
Subpart A--General
Section 1026.2 Definitions and Rules of Construction
2(a) Definitions
Overview of Final Changes to Definitions
As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section above and in the section-by-section analysis of
Sec. 1026.61 below, the Bureau is adopting a new definition of
``hybrid prepaid-credit card'' in new Sec. 1026.61 \593\ to describe
the circumstances in which the Bureau has decided to regulate prepaid
cards \594\ as credit cards under Regulation Z when they can access
credit offered in connection with a prepaid account. The Bureau also
has decided to exclude prepaid cards from being covered as credit cards
under Regulation Z when they access certain specified types of
[[Page 84163]]
credit. A number of supporting definitions that help to distinguish
hybrid prepaid-credit cards from prepaid cards that are not credit
cards under Regulation Z are provided in new Sec. 1026.61 as described
further below.
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\593\ Throughout the section-by-section analyses of Regulations
E and Z, the term ``hybrid prepaid-credit card'' refers to a hybrid
prepaid-credit card as defined in new Sec. 1026.61.
\594\ New Sec. 1026.61(a)(5)(vii) defines ``prepaid card'' to
mean ``any card, code, or other device that can be used to access a
prepaid account.'' The term ``prepaid card'' includes a prepaid
account number. See new comment 61(a)(5)(vii)-1. Consistent with
final Regulation E, new Sec. 1026.61(a)(5)(v) defines ``prepaid
account'' to mean ``a prepaid account as defined in Regulation E, 12
CFR 1005.2(b)(3).''
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The Bureau is making conforming changes to general Regulation Z
definitions in both existing Sec. Sec. 1026.2 and 1026.4 to effectuate
and reflect these distinctions. For example, the Bureau is making
amendments to the definition of ``credit card'' in existing Sec.
1026.2(a)(15)(i) and related commentary to make clear that the term
``credit card'' includes a hybrid prepaid-credit card. The Bureau also
is making several amendments to the commentary relating to several
other terms that are defined in existing Sec. 1026.2 that pertain to
the general regulation of credit and credit cards under Regulation Z.
Specifically, the Bureau is amending the commentary regarding such
terms as ``card issuer'' in existing Sec. 1026.2(a)(7), ``open-end
credit'' in existing Sec. 1026.2(a)(20), and ``credit card account
under an open-end (not home-secured) consumer credit plan'' in existing
Sec. 1026.2(a)(15)(ii). Finally, the Bureau also is amending the
definition of ``finance charge'' in existing Sec. 1026.4 and related
commentary with respect to credit features accessible by hybrid
prepaid-credit cards and with respect to other credit features that are
accessible by prepaid cards that are not credit cards under Regulation
Z. These changes are briefly summarized below before the more detailed
discussion of specific amendments to specific subparagraphs of existing
Sec. Sec. 1026.2 and 1026.4, and their related commentary.
Definition of ``credit card.'' Regulation Z defines the term
``credit card'' in current 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.'' As discussed below, the Bureau is adopting a new
definition of ``hybrid prepaid-credit card'' in new Sec. 1026.61 which
sets forth the circumstances in which a prepaid card is a credit card
under Regulation Z. Accordingly, the Bureau is amending the general
definition of ``credit card'' in existing Sec. 1026.2(a)(15)(i) to
state expressly that a prepaid card that is a hybrid prepaid-credit
card as defined in new Sec. 1026.61 is a credit card under Regulation
Z. See also new Sec. 1026.61(a)(1) and new comment 2(a)(15)-2.i.F. As
described in new Sec. 1026.61(a)(1), a prepaid card that is not a
``hybrid prepaid-credit card'' is not a credit card for purposes of
Regulation Z. See also new comment 2(a)(15)-2.ii.D.
More specifically, as discussed in the Overview of the Final Rule's
Amendments to Regulation Z section above and in more detail in the
section-by-section analysis of Sec. 1026.61 below, the Bureau
generally intends to cover under Regulation Z overdraft credit features
in connection with prepaid accounts where the credit features are
offered by the prepaid account issuer, its affiliates, or its business
partners. New Sec. 1026.61(b) generally requires that such credit
features be structured as separate subaccounts or accounts, distinct
from the prepaid asset account, to facilitate transparency and
compliance with various Regulation Z requirements. New Sec.
1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature if the card
meets the following two conditions: (1) The card can be used from time
to time to access credit from the separate credit feature in the course
of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
New Sec. 1026.61(a)(2)(i) defines such a separate credit feature
accessible by a hybrid prepaid-credit card as a ``covered separate
credit feature.'' Thus, the hybrid prepaid-credit card can access both
the covered separate credit feature and the asset feature of the
prepaid account, and the hybrid prepaid-credit card is a credit card
under Regulation Z with respect to the covered separate credit feature.
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau also has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. First, new Sec. 1026.61(a)(2)(ii) provides
that a prepaid card is not a hybrid prepaid-credit card with respect to
a separate credit feature that does not meet both of the conditions
above, for example, where the credit feature is offered by an unrelated
third party that is not the prepaid account issuer, its affiliate or
its business partner. Such credit features are defined as ``non-covered
separate credit features,'' as discussed in the section-by-section
analysis of Sec. 1026.61(a)(2). Second, under new Sec. 1026.61(a)(4),
a prepaid card also is not a hybrid prepaid-credit card when the
prepaid card accesses incidental credit in the form of a negative
balance on the asset account where the prepaid account issuer generally
does not charge credit-related fees for the credit.\595\ A prepaid card
is not a hybrid prepaid-credit card under new Sec. 1026.61 or a credit
card under final Sec. 1026.2(a)(15)(i) when it accesses credit from
these types of credit features. For more detailed explanations of when
prepaid cards are not credit cards under Regulation Z, see the section-
by-section analyses of Sec. 1026.61(a)(2) and (4).
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\595\ Throughout the section-by-section analyses of Regulations
E and Z, the term ``incidental credit'' is used to refer to credit
that meets the conditions of new Sec. 1026.61(a)(4).
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Definition of ``card issuer.'' The term ``card issuer'' is
generally defined in existing Sec. 1026.2(a)(7) to mean ``a person
that issues a credit card or that person's agent with respect to the
card.'' Under the general rules applicable to credit cards, card
issuers are subject to certain direct regulation in their own right,
and a card issuer that extends credit is a creditor under Regulation Z
even if it does not meet the general definition of ``creditor'' under
existing Sec. 1026.2(a)(17)(i). Because under the final rule a hybrid
prepaid-credit card is a credit card under Regulation Z, a prepaid
account issuer is a ``card issuer'' under existing Sec. 1026.2(a)(7)
when it issues a hybrid prepaid-credit card. In addition, to further
apply these concepts in the prepaid context, the Bureau is amending the
commentary to existing Sec. 1026.2(a)(7) to reflect that with respect
to a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in new Sec. 1026.61, an affiliate or business
partner offering the credit feature (if applicable) also is a ``card
issuer'' under Regulation Z. Accordingly, under existing Sec.
1026.2(a)(17)(iii) and (iv), the person offering the covered separate
credit feature accessible by a hybrid prepaid-credit card (whether that
person is a prepaid account issuer, its affiliate, or its business
partner) also is a creditor under Regulation Z.
Definition of ``open-end credit'' and ``credit card account under
an open-end (not home-secured) consumer credit plan.'' As discussed
further below, certain credit card rules only apply to credit card
accounts under an open-end (not home-secured) consumer credit plan as
defined in existing Sec. 1026.2(a)(15)(ii). This definition in turn
hinges largely on whether a credit card can access ``open-end credit''
as defined in existing Sec. 1026.2(a)(20). The term ``open-end
credit'' is defined 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
[[Page 84164]]
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 Bureau believes that a covered separate credit feature
accessible by a hybrid prepaid-credit card generally will meet the
definition of ``open-end credit,'' and is amending the regulation text
and commentary to facilitate the classification of a covered separate
credit feature accessible by a hybrid prepaid-credit card as ``open-end
credit'' and a ``credit card account under an open-end (not home-
secured) consumer credit plan.'' A person that is offering a covered
separate credit feature involving open-end (not home-secured) credit
that is accessible by a hybrid prepaid-credit card will be subject to
Regulation Z's open-end (not home-secured) rules and credit card rules
in subparts B and G.
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.
Definition of finance charge. As discussed above, whether a
creditor may impose a finance charge from time to time on an
outstanding balance is one of the elements that helps determine
coverage as open-end credit. As discussed above, certain credit card
rules apply only to open-end credit that is accessible by a credit
card. The term ``finance charge'' generally is defined in existing
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 as 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'' as part of the exclusion for
overdraft services on checking accounts as discussed in the Overview of
the Final Rule's Amendments to Regulation Z section above. For example,
existing Sec. 1026.4(c)(3) excludes 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. In addition, existing Sec. 1026.4(c)(4)
excludes fees charged for participation in a credit plan, whether
assessed on an annual or other periodic basis.
The Bureau is amending existing Sec. 1026.4 and its commentary to
provide that the exclusion in existing Sec. 1026.4(c)(3) does not
apply to credit offered in connection with a prepaid account as defined
in new Sec. 1026.61 and that the exclusion in existing Sec.
1026.4(c)(4) does not apply to a fee to participate in a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in new Sec. 1026.61, regardless of whether this fee is imposed
on the credit feature or on the asset feature of the prepaid account.
As discussed further below, these amendments help to effectuate
application of certain credit card rules to covered separate credit
features accessible by hybrid prepaid-credit cards and to better
reflect the full cost of credit. In addition, the Bureau is adding new
provisions to final 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 offered in
connection with a prepaid account. All of these changes are discussed
in more detail below in the section-by-section analysis of Sec.
1026.4.
2(a)(7) Card Issuer
As discussed above, the final rule contains additional guidance on
the definition of ``card issuer'' with respect to credit offered in
connection with prepaid accounts. TILA section 103(o) defines the term
``card issuer'' as any person who issues a credit card, or the agent of
such person with respect to such a card.\596\ Consistent with the TILA
definition, Regulation Z defines the term ``card issuer'' in existing
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 existing 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 existing
Sec. Sec. 1026.12 and 1026.60; for card issuers offering a ``credit
card account under an open-end (not home-secured) consumer credit
plan,'' see, e.g., existing Sec. Sec. 1026.5(b)(2)(ii)(A),
1026.7(b)(11), and 1026.51 through 1026.59. In addition, under existing
Sec. 1026.2(a)(17)(iii) and (iv), card issuers that extend credit are
considered creditors for purposes of Regulation Z.
---------------------------------------------------------------------------
\596\ 15 U.S.C. 1602(o).
---------------------------------------------------------------------------
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, current 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, current 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, current comment 2(a)(7)-1 also 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 Bureau's Proposal
Proposed comment 2(a)(15)-2.i.F would have provided that the term
``credit card'' generally includes a prepaid card that is a single
device that may be used from time to time to access a credit plan.\597\
Under the proposal, a person that issues a prepaid card that is a
credit card would have been a ``card issuer'' under existing Sec.
1026.2(a)(7).
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\597\ The term ``prepaid card'' would have been 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
would have been defined in proposed Sec. 1026.2(a)(15)(vi).
Proposed Sec. 1026.2(a)(15)(vi) would have defined the term
``prepaid account'' to mean a prepaid account as defined in
Regulation E proposed Sec. 1005.2(b)(3).
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The proposal also would have amended existing comment 2(a)(7)-1 to
provide specific guidance on the term ``agent'' for purposes of
existing 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. Under the
proposal, the language of existing comment 2(a)(7)-1 would have
[[Page 84165]]
been moved to proposed comment 2(a)(7)-1.i. In addition, the Bureau
proposed to add comment 2(a)(7)-1.ii that would have built on the last
sentence of current comment 2(a)(7)-1 and provided that 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 party offering the credit plan
that is accessed by the card would have been an agent of the person
issuing the prepaid card and thus, would have been a card issuer with
respect to the prepaid card that is a credit card.
Under proposed comment 2(a)(15)-2.i.F, the Bureau would have
excluded from the regulation as a credit card situations in which a
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. Consistent with this approach, proposed comment 2(a)(7)-2
would have explained that a person is not a card issuer where a prepaid
card only accesses credit meeting this description.
Comments Received
Two industry trade associations indicated that the Bureau should
limit the expansion of the term ``agent'' to creditors that have a
direct agreement with the prepaid account issuer so that the third-
party creditor is in a position to know that it has obligations under
Regulation Z with respect to the prepaid card that is a credit card.
Several consumer groups supported the proposed rule to consider a third
party that offers an open-end credit plan accessed by a prepaid card to
be an agent of the prepaid account issuer and thus a credit card issuer
with responsibilities under Regulation Z. They believed that this
provision would help avoid evasion by third-party credit plans linked
to prepaid cards. One consumer group commenter indicated that if the
prepaid account issuer contracts with a third party to market credit to
account holders, the Bureau should provide that both companies are
classified as card issuers that must comply with the rules. This
commenter indicated that without this safeguard, an affiliated third
party could offer credit accessed by the prepaid card that would not be
subject to the proposed rules.
The Final Rule
Consistent with the general approach in Sec. 1026.61, the Bureau
is limiting the circumstances in which an unaffiliated third party that
can extend credit through a separate credit feature is considered an
``agent'' of a prepaid account issuer relative to the proposal. As
discussed in more detail below, the Bureau is moving the existing
language of current comment 2(a)(7)-1 to new comment 2(a)(7)-1.i. In
addition, the Bureau is adding new comment 2(a)(7)-1.ii to provide that
with respect to a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in new Sec. 1026.61 where that
credit feature is offered by an affiliate or business partner of the
prepaid account issuer, as those terms are defined in new Sec.
1026.61, the affiliate or business partner offering the credit feature
is an agent of the prepaid account issuer and thus, is itself a card
issuer with respect to the hybrid prepaid-credit card.
In contrast, if a person offers a credit feature accessible by a
prepaid card that does not meet the definition of a hybrid prepaid-
credit card under new Sec. 1026.61, such a person is not a ``card
issuer'' under final Sec. 1026.2(a)(7) with respect to the prepaid
card. Accordingly, the Bureau is not finalizing language that it had
proposed in comment 2(a)(7)-2 to effectuate the narrower exclusion
contemplated under the proposal. Instead, the Bureau is adopting new
language in final comment 2(a)(7)-2 consistent with new Sec. 1026.61
with regard to treatment of prepaid cards that are not hybrid prepaid-
credit cards as discussed in that section. Each scenario is discussed
further below.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit
Cards
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, new Sec. 1026.61(a)(2)(i) defines a
separate credit feature accessible by a hybrid prepaid-credit card` as
a ``covered separate credit feature.'' Specifically, new Sec.
1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature if the card
meets the following two conditions: (1) The card can be used from time
to time to access credit from the separate credit feature in the course
of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
If both conditions are met, the hybrid prepaid-credit card is a credit
card under Regulation Z with respect to the covered separate credit
feature.
New Sec. 1026.61(a)(5)(i) and (iii) and their related commentary
define ``affiliate'' and ``business partner'' respectively. Under new
Sec. 1026.61(a)(5)(i), an affiliate is any company that controls, is
controlled by, or is under common control with another company, as set
forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).
Under new Sec. 1026.61(a)(5)(iii), a business partner is a person
(other than the prepaid account issuer or its affiliates) that can
extend credit through a separate credit feature, where the person or
its affiliate has an ``arrangement'' with a prepaid account issuer or
its affiliate. New comment 61(a)(5)(iii)-1 describes two types of
``arrangements'' that would make such a person that can extend credit a
``business partner'' of the prepaid account issuer under new Sec.
1026.61(a)(5)(iii). As described in new comment 61(a)(5)(iii)-1.i, the
first arrangement is where the unaffiliated person that can extend
credit, or its affiliate, has an agreement with the prepaid account
issuer, or its affiliate, that allows a prepaid card from time to time
to draw, transfer, or authorize a draw or transfer of credit from a
separate credit feature offered by the person that can extend credit in
the course of authorizing, settling, or otherwise completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers. New comment 61(a)(5)(iii)-1.i
provides, however, that the parties are not considered to have such an
agreement merely because the parties participate in a card network or
payment network.
Second, new comment 61(a)(5)(iii)-1.ii provides that an
unaffiliated person that can extend credit through a separate credit
feature is a business partner of the prepaid account issuer if (1) the
prepaid account issuer or its affiliate has a business, marketing, or
promotional agreement or other arrangement with the person that can
extend credit, or its affiliate, where the agreement or arrangement
provides that prepaid accounts offered by the prepaid account issuer
will be marketed to the customers of the person who is extending
credit, or that the credit feature will be marketed to the holders of
prepaid accounts offered by the prepaid account issuer (including any
marketing to customers to link the separate credit feature to the
prepaid account to be used as an overdraft credit feature); and (2) at
the time of the marketing agreement or arrangement, or at any time
afterwards, the prepaid card from time to time can draw, transfer, or
authorize the draw or transfer of credit from the separate credit
feature in the
[[Page 84166]]
course of transactions conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers. In this case, this
requirement is satisfied even if there is no specific agreement between
the parties that the card can access the separate credit feature, as
described above under new comment 61(a)(5)(iii)-1.i. For example, this
requirement is satisfied even if the draw, transfer, or authorization
of the draw or transfer from the separate credit feature is effectuated
through a card network or payment network.
The Bureau is amending the commentary to existing Sec.
1026.2(a)(7)'s definition of card issuer to effectuate coverage of
these relationships. Specifically, under the final rule, the Bureau is
moving the existing language of current comment 2(a)(7)-1 to new
comment 2(a)(7)-1.i. In addition, the Bureau is adding new comment
2(a)(7)-1.ii to provide that with respect to a covered separate credit
feature accessible by a hybrid prepaid-credit card where that credit
feature is offered by an affiliate or business partner of the prepaid
account issuer, the affiliate or business partner offering the credit
feature is an agent of the prepaid account issuer and thus, is itself a
card issuer with respect to the hybrid prepaid-credit card. Consistent
with the general existing definition of card issuer, the Bureau
believes that it is appropriate to consider a prepaid account issuer's
affiliate or business partner to be an ``agent'' of the prepaid account
issuer because, in those cases, there is a sufficient connection
between the parties such that the affiliate or business partner should
know that its credit feature is accessible by a prepaid card as an
overdraft credit feature for the prepaid account.
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. With regard to
hybrid prepaid-credit cards, the final rule incorporates and expands
upon this concept of when a person is an agent of a card issuer. The
Bureau believes that the new, more expansive language provides
additional clarity as to when there is an agent relationship in the
prepaid context and, therefore, prevents circumvention of the final
rules applicable to covered separate credit features accessible by
hybrid prepaid-credit cards as defined by new Sec. 1026.61 that are
offered by the prepaid account issuer's affiliates or business
partners.
In particular, the Bureau is concerned that without new comment
2(a)(7)-1.ii, prepaid account issuers could structure arrangements with
their affiliates or business partners to avoid an agency relationship
under State law. Such a result could frustrate the operation of certain
consumer protections provided in the final rule. In addition, without
considering the person that can extend credit through the covered
separate credit feature to be an agent of the prepaid account issuer
(and thus considering both the prepaid account issuer and the person
that can extend credit to be ``card issuers''), it may not be clear
whether the person that can extend credit through the covered separate
credit feature or the prepaid account issuer must comply with
particular provisions in Regulation Z. For example, existing 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 cases where the prepaid account issuer's affiliate or
business partner offers the covered separate credit feature accessible
by the hybrid prepaid-credit card, it would not be clear what
obligations under existing Sec. 1026.51(a), if any, apply to the
prepaid account issuer (who is a ``card issuer'' but who is not
offering the credit card account) and what obligations, if any, apply
to the affiliate or business partner (who is offering the credit card
account but is not a card issuer) if the affiliate or business partner
were not a card issuer under final Sec. 1026.2(a)(7) with respect to
the hybrid prepaid-credit card.
Accordingly, under the final rule, new comment 2(a)(7)-1.ii
provides that with respect to a prepaid card that is a hybrid prepaid-
credit card that can access a covered separate credit feature offered
by an affiliate or business partner as those terms are defined in new
Sec. 1026.61, the affiliate or business partner offering the credit
feature that is accessible by the hybrid prepaid-credit card is an
agent of the prepaid account issuer and thus, is a card issuer with
respect to the hybrid prepaid-credit card. As a result, in the example
above related to existing Sec. 1026.51(a), the affiliate or business
partner would be a ``card issuer'' for purposes of that provision and
would be required to comply with it.
Nonetheless, as discussed in more detail below and in the section-
by-section analysis of Sec. 1026.61(a)(2), the Bureau has decided to
provide that a prepaid card is not a hybrid prepaid-credit card with
respect to a credit feature that is offered by a third party that is
not an affiliate or business partner of a prepaid account issuer, even
if the consumer decides to link his or her prepaid card to the credit
feature offered by the third party. This type of credit feature is a
``non-covered separate credit feature'' as defined in new Sec.
1026.61(a)(2)(ii). The Bureau does not believe that it is appropriate
to subject such an unrelated third party to the provisions in the final
rule applicable to hybrid prepaid-credit cards. In this case, there is
not a sufficient connection between the prepaid account issuer and the
unrelated third party, and the unrelated third party may not know that
its separate credit feature is functioning as an overdraft credit
feature with respect to the prepaid account.
Accordingly, as discussed in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, new Sec. 1026.61(a)(2)(ii)
provides that a prepaid card is not a hybrid prepaid-credit card with
respect to the non-covered separate credit feature discussed above.
However, as described in new Sec. 1026.61(a)(2)(ii), the unrelated
third party that offers the non-covered separate credit feature
typically will be subject to Regulation Z in its own right based on the
terms and conditions of the separate credit feature, independent of the
connection to the prepaid account.
Credit Features That Are Not Accessible by Hybrid Prepaid-Credit Cards
As discussed above, the Bureau proposed to exclude from the
regulation as a credit card situations in which a 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 the
credit is not payable by written agreement in more than four
installments. Consistent with this approach, proposed comment 2(a)(7)-2
would have explained that a person is not a card issuer where a prepaid
card only accesses credit meeting this description. As discussed above,
the Bureau has decided to exclude prepaid cards from being covered as
credit cards under Regulation Z when they access certain specified
types of credit. Accordingly, the Bureau is not finalizing language
that it had proposed in comment 2(a)(7)-2 to effectuate the narrower
exclusion contemplated under the
[[Page 84167]]
proposal. Instead, the Bureau is adopting new language in final comment
2(a)(7)-2 consistent with new Sec. 1026.61 with regard to prepaid
cards that are not hybrid prepaid-credit cards, as discussed in that
section. Specifically, final comment 2(a)(7)-2 provides cross-
references to new Sec. 1026.61(a), new comment 61(a)(2)-5.iii, and new
comment 61(a)(4)-1.iv for guidance on the applicability of Regulation Z
in connection with credit accessible by prepaid cards that are not
hybrid prepaid-credit cards. The Bureau's intent is to assure that
where the prepaid card is not a hybrid prepaid-credit card with respect
to a credit feature, the person that is offering the credit feature is
not deemed to be a card issuer under final Sec. 1026.2(a)(7) with
respect to the prepaid card.
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. With respect to separate credit features,
there are two circumstances, described in new Sec. 1026.61(a)(2)(ii),
where a prepaid card is not a hybrid prepaid-credit card when it
accesses a separate credit feature. The first is where the prepaid card
cannot be used to access credit from the separate credit feature in the
course of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers. The second is where the separate credit feature
is offered by an unrelated third party, rather than the prepaid account
issuer, its affiliate, or its business partner. In addition, under new
Sec. 1026.61(a)(4), a prepaid card is not a hybrid prepaid-credit card
when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Sec. 1026.61 or a
credit card under final Sec. 1026.2(a)(15)(i) when it accesses credit
from these types of credit features. For more detailed explanations of
when prepaid cards are not credit cards under Regulation Z, see the
section-by-section analyses of Sec. 1026.61(a)(2) and (4) below.
2(a)(14) Credit
TILA section 103(f) defines the term ``credit'' as the right
granted by a creditor to a debtor to defer payment of debt or to incur
debt and defer its payment.\598\ Consistent with the definition of
credit in TILA, Regulation Z defines ``credit'' in existing Sec.
1026.2(a)(14) to mean ``the right to defer payment of debt or to incur
debt and defer its payment.'' Under existing Sec. 1026.2(a)(17)(i), 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. Under existing Sec. 1026.2(a)(17)(iii), 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.
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\598\ 15 U.S.C. 1602(f).
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The Bureau's Proposal
Proposed comment 2(a)(14)-3 would have provided that credit, for
purposes of existing 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 have included 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 proposed
definition would have included 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 prepaid account to cover
the amount of the transaction at the time the transaction is paid.
Comments Received
Several commenters, including industry trade associations, a
program manager, and a credit reporting agency, asserted that overdraft
credit does not meet the definition of ``credit'' because, with respect
to overdraft credit, there is no ``right to defer payment'' and/or ``no
right to incur debt.'' One industry trade association and one issuing
bank requested that the Bureau clarify that the treatment of overdrafts
in connection with prepaid accounts as credit for Regulation Z purposes
is not intended to imply any similar treatment under State laws.
Several industry commenters suggested that the Bureau should consider a
dollar threshold below which overdraft transactions would not be
covered as ``credit'' under Regulation Z. For example, one credit union
service organization urged the Bureau to set a threshold of $250 for
when negative balances on the prepaid account are considered credit,
such that negative balances on the prepaid account exceeding $250 in
magnitude would meet the definition of ``credit'' and negative balances
on the prepaid account of $250 in magnitude or below would not be
``credit'' under Regulation Z.
The Final Rule
Definition of Credit
As discussed in more detail below, the Bureau is adopting new
comment 2(a)(14)-3 as proposed with technical revisions to simplify the
language of the comment and to be consistent with new Sec. 1026.61.
This comment provides that credit includes authorization of a
transaction on an asset feature of a prepaid account as defined in
Sec. 1026.61 where the consumer has insufficient or unavailable funds
in the asset feature of the prepaid account at the time the transaction
is authorized to cover the amount of the transaction. It also includes
settlement of a transaction on an asset feature of a prepaid account
where the consumer has insufficient or unavailable funds in the asset
feature of the prepaid account at the time the transaction is settled
to cover the amount of the transaction. Credit also includes a
transaction where the consumer has sufficient or available funds in the
asset feature of a prepaid account to cover the amount of the
transaction at the time the transaction is authorized but insufficient
or unavailable funds in the asset feature of the prepaid account to
cover the transaction amount at the time the transaction is settled.
The comment also includes a cross-reference to new Sec. 1026.61 and
related commentary on the applicability of this regulation to credit
extended in connection with a prepaid account.
The Bureau continues to believe that new comment 2(a)(14)-3
reflects a straightforward interpretation of the statutory term
``credit.'' The Bureau believes that plain language of the definition
of ``credit'' in TILA covers the situation when a consumer makes a
transaction that exceeds the funds in the consumer's account and a
person elects to cover the transaction by advancing funds to the
consumer. Nothing in the statutory definition (or elsewhere in TILA)
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
[[Page 84168]]
sufficient or available funds in the asset feature of 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. Thus, the
person, in extending overdraft funds, has provided the consumer with
``the right . . . to incur debt and defer its payment.''
The Bureau further emphasizes that the final rule does not change
how overdraft services on accounts other than prepaid accounts are
treated under Regulation Z. As discussed in more detail in the Overview
of the Final Rule's Amendments to Regulation Z 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 under final
Sec. 1026.4(c)(3). Thus, under this final rule, 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'' with respect to the overdraft
service under the general definition of creditor set forth in Sec.
1026.2(a)(17)(i), 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 card issuer or a creditor by
issuing a debit card that accesses an overdraft service. Specifically,
existing comment 2(a)(15)-2.ii.A provides that a debit card is not a
credit card if there is no credit feature or agreement to extend
credit, even if the creditor occasionally honors an inadvertent
overdraft. Thus, a person does not become a card issuer under existing
Sec. 1026.2(a)(7) and does not become a creditor under existing Sec.
1026.2(a)(17)(iii) or (iv) by issuing a debit card that accesses an
overdraft service. The final rule does not change the provisions in
Regulation Z effectuating this treatment of overdraft services on
accounts other than prepaid accounts.
Definition of Credit Under State Laws
As discussed above, one industry trade association and one issuing
bank requested that the Bureau clarify that the treatment of overdrafts
in connection with prepaid accounts as credit for Regulation Z purposes
is not intended to imply any similar treatment under State laws. The
Bureau does not provide any specific guidance on how the treatment of
overdrafts in connection with prepaid accounts as credit for Regulation
Z purposes may impact State laws. The State law itself will determine
whether, and the extent to which, the State law is impacted by the
treatment of overdrafts in connection with prepaid accounts as credit
under Regulation Z.
Threshold Amount of Negative Balance
As discussed above, several industry commenters suggested that the
Bureau should consider a dollar threshold below which overdraft
transactions would not be covered as ``credit'' under Regulation Z. For
example, one credit union service organization urged the Bureau to set
a threshold of $250 for when overdraft funds are considered ``credit''
under Regulation Z, where negative balances on the prepaid account
exceeding $250 in magnitude would meet the definition of ``credit'' and
negative balances on the prepaid account of $250 in magnitude or below
would not be ``credit'' under Regulation Z. The Bureau does not adopt
such an approach. The Bureau is concerned that allowing consumers to
incur substantial debt in connection with a prepaid account that most
consumers do not intend to use as a credit account may pose a risk to
those consumers by compromising their ability to manage and control
their finances. Thus, while new Sec. 1026.61(a)(4) would permit a
prepaid account issuer to offer an incidental ``payment cushion'' of
$10 without triggering the rules governing credit cards under
Regulation Z so long as the issuer generally does not impose credit-
related fees, the Bureau believes that the provision of a higher dollar
amount of credit in connection with a prepaid account should be subject
to full credit card protections unless otherwise excluded under new
Sec. 1026.61(a)(4).
2(a)(15)
2(a)(15)(i) Credit Card
TILA section 103(l) defines ``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.\599\
Regulation Z defines the term ``credit card'' in existing 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)-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
existing Sec. Sec. 1026.12 and 1026.60; for card issuers offering a
``credit card account under an open-end (not home-secured) consumer
credit plan,'' see, e.g., existing Sec. Sec. 1026.5(b)(2)(ii)(A),
1026.7(b)(11), and 1026.51 through 1026.59. Any card issuer that
extends credit also is a creditor under Regulation Z and must comply
with certain disclosure and other requirements in Regulation Z, as
discussed in the section-by-section analysis of Sec. 1026.2(a)(17)
below. The proposal would have provided 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 proposed Sec. 1026.2(a)(15)(vi) consistent with proposed
Regulation E; and (2) account numbers that are not prepaid cards 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 does 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
proposed Sec. 1026.2(a)(15)(vii). Each of these circumstances is
discussed in more detail below.
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\599\ 15 U.S.C. 1602(l).
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Hybrid Prepaid-Credit Cards
Under the proposal, credit plans, including overdraft services and
overdraft lines of credit, that are directly accessed by prepaid cards
generally would have been credit card accounts under Regulation Z. In
particular, proposed comment 2(a)(15)-2.i.F would have provided 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
have been a credit card if it satisfied the requirements of proposed
comment 2(a)(15)-2.i.F. The proposal would have revised existing
comment 2(a)(15)-2.ii.C that provides guidance on when account numbers
are credit cards. The proposal
[[Page 84169]]
would have revised existing comment 2(a)(15)-2.ii.C to provide that the
current guidance for when a prepaid card is a credit card is set forth
in proposed comment 2(a)(15)-2.i.F, rather than in comment 2(a)(15)-
2.ii.C. As discussed below and in more detail in the section-by-section
analysis of Sec. 1026.61, the Bureau is revising from the proposal the
circumstances in which a prepaid card is a credit card under Regulation
Z (i.e., a hybrid prepaid-credit card). See the section-by-section
analysis of Sec. 1026.61 for a detailed description of the proposal to
define prepaid cards as credit cards, the comments received on the
proposal to define prepaid cards as credit cards, and the circumstances
in which the final rule defines a prepaid card as a hybrid prepaid-
credit card.
The Bureau is making conforming revisions to existing Sec.
1026.2(a)(15)(i) to provide that the term ``credit card'' includes a
hybrid prepaid-credit card, as defined in Sec. 1026.61. In addition,
the Bureau is revising new comment 2(a)(15)-2.i.F from the proposal to
provide that the term ``credit card'' includes a prepaid card that is a
hybrid prepaid-credit card, as defined in new Sec. 1026.61. The Bureau
also is adding new comment 2(a)(15)-2.ii.D to provide that the term
``credit card'' does not include a prepaid card that is not a hybrid
prepaid-credit card, as defined in new Sec. 1026.61. The Bureau also
is revising existing comment 2(a)(15)-2.ii.C that provides guidance on
when account numbers are credit cards. The Bureau is revising this
comment to provide that the rules in new Sec. 1026.61 and related
commentary determine when a hybrid prepaid-credit card that solely is
an account number is a credit card, as discussed in new comment
61(a)(1)-2.
As discussed above, if a person issues a prepaid card that is a
hybrid prepaid-credit card, the person is a ``card issuer'' under final
Sec. 1026.2(a)(7) with respect to the prepaid card. In addition, with
respect to a covered separate credit feature accessible by a hybrid
prepaid-credit card, an affiliate or business partner offering the
credit feature (if applicable) also is a ``card issuer'' under final
Sec. 1026.2(a)(7). Under existing Sec. 1026.2(a)(17)(iii) and (iv),
the person also is a ``creditor'' if the card issuer extends credit
under a covered separate credit feature accessible by the hybrid
prepaid-credit card as described above. If the card issuer extends
open-end (not home-secured) 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
in the section-by-section analysis of Sec. 1026.2(a)(20) below, the
Bureau believes that prepaid account issuers, their affiliates, or
their business partners that offer covered separate credit features
accessible by hybrid prepaid-credit cards will be creditors offering
open-end (not home-secured) credit under Regulation Z. See the section-
by-section analysis of Sec. 1026.2(a)(17) below for a discussion of
situations in which a creditor may not be offering open-end credit in
relation to a prepaid account.
Account Numbers That Are Not Prepaid Cards
Currently, under comment 2(a)(15)-2.ii.C, an account number for a
credit plan is a credit card when that 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. However, if the account number
also can 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, regardless of
whether the creditor treats such transactions as purchases, cash
advances, or some other type of transaction.
The Bureau's proposal. The Bureau proposed not to follow the
current guidance in existing comment 2(a)(15)-2.ii.C in the context of
credit accessed in connection with prepaid accounts. Instead, proposed
Sec. 1026.2(a)(15)(vii) would have included within the definition of
credit card an ``account number where extensions of credit are
permitted to be deposited directly only into particular prepaid
accounts specified by the creditor.'' As used in the proposal, this
term would have meant 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.
Proposed comment 2(a)(15)-2.i.G would have provided that these
account numbers were credit cards under the proposal. In addition, the
proposal would have revised existing comment 2(a)(15)-2.ii.C to provide
that the current guidance for when an account number is a credit card
under Regulation Z would not have applied to these account numbers, as
described in proposed Sec. 1026.2(a)(15)(vii) and proposed comment
2(a)(15)-2.i.G. Proposed comment 2(a)(15)-5 would have provided
additional guidance on these account numbers. Specifically, proposed
comment 2(a)(15)-5 would have provided that a credit plan that permits
a consumer to deposit directly extensions of credit into a checking
account would not constitute a credit plan where extensions of credit
are permitted to be deposited directly only into particular prepaid
accounts specified by the creditor. Nonetheless, under proposed comment
2(a)(15)-5, a credit plan accessible by a consumer through checks or
in-person withdrawals would have constituted a credit plan where
extensions of credit are permitted to be deposited directly only into
particular prepaid accounts specified by the creditor, so long as the
credit plan allowed deposits directly into particular prepaid accounts
specified by the creditor but did not allow the consumer to deposit
directly extensions of credit into other asset accounts.
With respect to account numbers where extensions of credit are
permitted to be deposited directly only into particular prepaid
accounts specified by the creditor, the proposed rule would have
covered credit plans that are not accessed directly by prepaid cards
but are structured as ``push'' accounts. 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. In the proposal, the Bureau
expressed concern that these types of credit plans could act as
substitutes for credit plans directly accessible by a prepaid card. The
Bureau did not, however, propose to cover general purpose lines of
credit where a consumer has the freedom to choose where to deposit
directly the credit funds.
Comments received. Consumer group commenters indicated that the
proposal with respect to push accounts was too limited. Several
consumer group commenters suggested that the credit card rules should
apply to a credit account even if the credit account did not function
as an overdraft credit feature with respect to a prepaid account, so
long as credit from the credit account was deposited into the prepaid
account. These consumer group
[[Page 84170]]
commenters indicated that the Bureau should apply the credit card rules
to all credit transferred to a prepaid account, even if there is
another way to access the credit.
Another consumer group commenter indicated that the Bureau should
apply the credit card rules to all open-end lines of credit where
credit is deposited or transferred to prepaid accounts if either (1)
the creditor is the same institution as or has a business relationship
with the prepaid issuer; or (2) the creditor reasonably anticipates
that a prepaid card will be used as an access device for the line of
credit. Nonetheless, this commenter said that the final rule should not
impact a completely unrelated credit account that has no connection to
prepaid issuers or consumers identified as prepaid card users, even
though the creditor allows credit to be transferred from the credit
account through the ACH system.
One issuing bank and one law firm writing on behalf of a coalition
of prepaid issuers did not support subjecting push accounts to credit
card rules. These industry commenters indicated that the Board should
leave in place the rule currently in Regulation Z that determines when
an account number for a credit plan is a credit card. One of these
industry commenters indicated that attempting to cover push accounts as
credit card accounts under the proposal would create an overly complex
regulatory regime to address the perceived risk of circumvention or
evasion of the rules for overdraft plans set forth in the proposal.
This commenter believed the Bureau has better tools (e.g., its unfair,
deceptive, or abusive acts or practices authority) to address
circumvention or evasion, as well as the other risks of consumer harms
discussed in the proposal.
One industry trade association commenter indicated that it would be
inappropriate to treat the line of credit (or its associated account
number) as a credit card when the consumer has the choice of whether to
use the line of credit to cover specified overdrafts or to use the line
of credit funds for other purposes. This commenter believed that the
consumer's ability to choose how to use the line of credit makes it
clear that the line of credit is a general use line of credit and not a
substitute for an overdraft line of credit.
The final rule. Upon review of the comments and its own analysis,
the Bureau has decided not to adopt the proposal to provide that an
account number for a credit account would be a credit card where
extensions of credit are permitted to be deposited directly only into
particular prepaid accounts specified by the creditor. In proposing
these provisions, the Bureau was concerned that a prepaid account
issuer and a creditor could design arrangements to circumvent the
proposed rules in Regulation Z applicable to prepaid cards that are
credit cards. In this case, a third-party creditor could have an
arrangement with the prepaid account issuer such that credit from the
credit account is pushed from the credit account to the prepaid account
during the course of a particular prepaid account transaction to
prevent the transaction from taking the prepaid account balance
negative. These provisions related to credit account numbers were
designed to prevent this type of evasion.
The Bureau is addressing this type of evasion by generally covering
a prepaid card as a credit card (i.e., ``hybrid prepaid-credits card'')
when the card can access a separate credit feature that functions as an
overdraft credit feature and is offered by a prepaid account issuer,
its affiliate, or its business partner. Specifically, new Sec.
1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature if the card
meets the following two conditions: (1) The card can be used from time
to time to access credit from the separate credit feature in the course
of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
New Sec. 1026.61(a)(2)(i) defines such a separate credit feature
accessible by a hybrid prepaid-credit card as a ``covered separate
credit feature.'' Thus, the hybrid prepaid-credit card can access both
the covered separate credit feature and the asset feature of the
prepaid account, and the hybrid prepaid-credit card is a credit card
under Regulation Z with respect to the covered separate credit feature.
In this case, as described in new comment 61(a)(2)-1.ii, the prepaid
card is a hybrid prepaid-credit card with respect to the covered
separate credit feature regardless of whether (1) the credit is pushed
from the covered separate credit feature to the asset feature of the
prepaid account in the course of authorizing, settling, or otherwise
completing transactions conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers; or (2) the credit is
pulled from the covered separate credit feature to the asset feature of
the prepaid account in the course of authorizing, settling, or
otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct P2P transfers.
In addition, as described in new comment 61(a)(2)-1.iii, a prepaid
card is a hybrid prepaid-credit card with respect to a covered separate
credit feature, as discussed above, regardless of whether the covered
separate credit feature can only be used as an overdraft credit
feature, solely accessible by the hybrid prepaid-credit card, or
whether it is a general line of credit that can be accessed in other
ways. For the reasons set forth in the Overview of the Final Rule's
Amendments to Regulation Z section, the Bureau believes that consumers
will benefit from the application of the credit card rules generally to
a credit account that functions as an overdraft credit feature in
connection with a prepaid account when that overdraft feature is
offered by a prepaid account issuer, its affiliate, or its business
partner, regardless of whether the credit account can be used
exclusively as an overdraft credit feature. In addition, the Bureau is
concerned about potential evasion if the provisions applicable to
overdraft credit features could be avoided simply by providing other
uses for the credit account.
The Bureau believes that the provisions in the final rule described
above with respect to a covered separate credit feature adequately
capture situations where a separate credit feature offered by a prepaid
account issuer, its affiliate, or its business partner functions as an
overdraft credit feature in relation to a prepaid account. Thus, the
Bureau believes that it is no longer necessary to treat a credit
account number as a credit card to capture situations when the credit
account may function as an overdraft credit feature in relation to the
prepaid account. As a result, the Bureau has not adopted proposed Sec.
1026.2(a)(15)(vii) and proposed comments 2(a)(15)-2.i.G and 2(a)(15)-5.
The Bureau also has not adopted proposed revisions to existing comment
2(a)(15)-2.ii.C related to account numbers described in proposed Sec.
1026.2(a)(15)(vii) and proposed comment 2(a)(15)-2.i.G. The Bureau
proposed changes to other provisions in Regulation Z and related
commentary to provide guidance on how these provisions would apply to
such account numbers, which would have been credit cards under the
proposal. The Bureau has not adopted these proposed changes to
provisions in Regulation Z related to
[[Page 84171]]
these account numbers.\600\ The Bureau also proposed changes to certain
provisions in Regulation E and related commentary to provide guidance
on how these Regulation E provisions would apply to such account
numbers. The Bureau has not adopted these proposed changes to
provisions in Regulation E related to these account numbers.\601\
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\600\ Specifically, the proposal would have revised or added the
following provisions in Regulation Z related to these account
numbers: Sec. Sec. 1026.2(a)(15)(ii)(C)(2) and (vii);
1026.4(b)(2)(ii), (c)(3), and (4); 1026.7(b)(11)(ii)(A)(2);
1026.12(d)(3)(ii) and (h) (renumbered in the final rule as Sec.
1026.61(c)); 1026.60(a)(5)(iv); and comments 2(a)(15)-2.i.G,
2(a)(15)-2.ii.C, 2(a)(15)-3.ii, 2(a)(15)-4.ii, 2(a)(15)-5, 2(a)(20)-
2.iii, 2(a)(20)-4.ii, 4(a)-4.iv, 4(b)(2)-1.ii through iv, 4(c)(3)-1,
5(b)(2)(ii)-4, 8(b)-1.vi, 10(a)-2.ii, 12(c)(1)-1.i, 12(d)(3)-3,
13(a)(3)-2.ii, 13(i)-1, 52(a)(2)-3, 52(b)(2)(i)-7, 57(a)(1)-1,
57(a)(5)-1, 57(b)-3, 57(c)-7, and 60(b)(8)-5. The final rule does
not adopt the proposed changes to these provisions related to these
account numbers.
\601\ The proposal would have made changes to existing Sec.
1005.10(e)(1) and comments 10(e)(1)-2 and -3 and added proposed
Sec. 1005.18(g)(1) and comments 18(g)-1 and -2 related to these
account numbers. The final rule does not adopt the proposed
provisions related to these account numbers.
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As discussed above, several consumer group commenters suggested
that the credit card rules should apply to a credit account even if the
credit account did not function as an overdraft credit feature with
respect to a prepaid account, so long as credit from the credit account
was deposited into the prepaid account. These consumer group commenters
indicated that the Bureau should apply the credit card rules to all
credit transferred to a prepaid account, even if there is another way
to access the credit. Another consumer group commenter indicated that
the Bureau should apply the credit card rules to all open-end lines of
credit where credit is deposited or transferred to prepaid accounts if
either (1) the creditor is the same institution, as or has a business
relationship with, the prepaid issuer; or (2) the creditor reasonably
anticipates that a prepaid card will be used as an access device for
the line of credit.
As discussed above and in more detail in the section-by-section
analysis of Sec. 1026.61 below, the Bureau generally intends to cover
under Regulation Z overdraft credit features in connection with prepaid
accounts where the credit features are offered by the prepaid account
issuer, its affiliates, or its business partners. As discussed in the
section-by-section analysis of Sec. 1026.61 below, the Bureau also has
decided to exclude prepaid cards from being covered as credit cards
under Regulation Z when they access certain specified types of credit.
First, under new Sec. 1026.61(a)(2)(ii), a prepaid card is not a
hybrid prepaid-credit card with respect to a ``non-covered separate
credit feature,'' which means that the separate credit feature either
(1) cannot be accessed in the course of a prepaid card transaction to
obtain goods or services, obtain cash, or conduct P2P transfers, or (2)
is offered by an unrelated third party that is not the prepaid account
issuer, its affiliate, or its business partner. Second, under new Sec.
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card
when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Sec. 1026.61 or a
credit card under final Sec. 1026.2(a)(15)(i) when it accesses credit
from these types of credit features. For more detailed explanations of
when prepaid cards are not credit cards under Regulation Z, see the
section-by-section analyses of Sec. 1026.61(a)(2) and (4) below.
Debit Cards
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 have defined 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.'' The proposed definition of ``debit
card'' also would have specified that it does not include a prepaid
card. Because the term ``debit card'' under the proposal would not have
included all cards that access asset accounts, existing comment
2(a)(15)-2.i.B would have been revised to be consistent with the
proposed definition of debit card. Specifically, proposed comment
2(a)(15)-2.i.B would have been revised to provide that the term
``credit card'' includes a debit card (other than a debit card that is
solely an account number) that also accesses a credit account (that is,
a debit-credit card). This comment also would have been revised to
provide a cross-reference to existing comment 2(a)(15)-2.ii.C for
guidance on whether a debit card that is solely an account number is a
credit card. No substantive changes were intended to the current rules
for when debit cards are credit cards under existing Sec.
1026.2(a)(15)(i).
The Bureau did not receive specific comment on this proposed
definition. The Bureau is adopting the definition of ``debit card'' as
proposed with one technical revision to provide a cross-reference to
the definition of ``prepaid account'' in new Sec. 1026.61. The Bureau
also is adopting the changes to existing comment 2(a)(15)-2.i.B as
proposed.
2(a)(15)(ii) Credit Card Account Under an Open-End (not Home-Secured)
Consumer Credit Plan
Regulation Z defines the term ``credit card account under an open-
end (not home-secured) consumer credit plan'' in existing 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.'' As discussed above, 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., existing Sec. Sec.
1026.5(b)(2)(ii)(A), 1026.7(b)(11), and 1026.51 to 1026.59.
The proposal would have clarified that the exception in current
Sec. 1026.2(a)(15)(ii)(B) regarding overdraft lines of credit accessed
by a debit card or account number would not have applied to open-end
credit plans accessed by prepaid cards that would have been credit
cards under the proposal. The proposed definition of ``debit card'' in
proposed Sec. 1026.15(a)(2)(iv) would have excluded a prepaid
card.\602\ Thus, the exception in existing Sec. 1026.2(a)(15)(ii)(B)
would not have applied to overdraft lines of credit that are accessed
by a prepaid card. In addition, the proposal would have revised
existing Sec. 1026.2(a)(15)(ii)(B) to only include the exception for
overdraft lines of credit accessed by a debit card. The proposal also
would have moved the exception for overdraft lines of credit that are
accessed by account numbers from existing Sec. 1026.2(a)(15)(ii)(B) to
proposed Sec. 1026.2(a)(15)(ii)(C). The proposal also would have
amended proposed Sec. 1026.2(a)(15)(ii)(C) and existing comment
2(a)(15)-4 to provide that the exception would not have applied to an
overdraft line of credit that is accessed by an account number
[[Page 84172]]
where the account number is a prepaid card that is a credit card.
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\602\ Proposed Sec. 1026.2(a)(15)(iv) would have defined 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.'' The proposed
definition of ``debit card'' also would have specified that it does
not include a prepaid card.
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The Bureau did not receive specific comments on the proposed
changes to existing Sec. 1026.2(a)(15)(ii) and related commentary. The
Bureau is revising existing Sec. 1026.2(a)(15)(ii) and existing
comment 2(a)(15)-4 as proposed with revisions consistent with Sec.
1026.61.\603\ Consistent with the proposal, the Bureau is revising
existing Sec. 1026.2(a)(15)(ii)(B) to only include the exception for
overdraft lines of credit accessed by a debit card. Consistent with the
proposal, the Bureau is defining ``debit card'' in new Sec.
1026.2(a)(15)(iv) to exclude a prepaid card.\604\ Thus, under the final
rule, the exception in final Sec. 1026.2(a)(15)(ii)(B) does not apply
to overdraft lines of credit that are accessible by a hybrid prepaid-
credit card as that term is defined in new Sec. 1026.61. In addition,
consistent with the proposal, the Bureau is moving the exception for
overdraft lines of credit that are accessed by account numbers from
existing Sec. 1026.2(a)(15)(ii)(B) to new Sec. 1026.2(a)(15)(ii)(C)
and is revising that provision. The Bureau is amending new Sec.
1026.2(a)(15)(ii)(C) and existing comment 2(a)(15)-4 to provide that
the exception does not apply to a covered separate credit feature
accessible by an account number where the account number is a hybrid
prepaid-credit card as defined in new Sec. 1026.61. As discussed in
more detail in the section-by-section analysis of Sec. 1026.61(a)(2)
below, a covered separate credit feature accessible by a hybrid
prepaid-credit card includes an overdraft credit feature offered by a
prepaid account issuer, its affiliate, or its business partner that can
be accessed by a prepaid card (except as provided in new Sec.
1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit card under
new Sec. 1026.61 and a credit card under final Sec. 1026.2(a)(15)(i)
with respect to the covered separate credit feature.
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\603\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Thus, under proposed Sec. 1026.2(a)(15)(ii)(C) and
proposed comment 2(a)(15)-4, the exception in proposed Sec.
1026.2(a)(15)(ii)(C) would not have applied to credit plans that
would have been accessed by such account numbers. For the reasons
set forth in the section-by-section analysis of Sec.
1026.2(a)(15)(i) above, the final rule does not adopt the proposed
changes to Sec. 1026.2(a)(15)(ii)(C) and comment 2(a)(15)-4 related
to these account numbers.
\604\ Consistent with the proposal, new Sec. 1026.2(a)(15)(iv)
defines 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 as
defined in Sec. 1026.61.'' The definition of ``debit card''
specifies that it does not include a prepaid card as defined in
Sec. 1026.61.
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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 existing Sec. 1026.2(a)(20), that is not home-
secured and the open-end (not home-secured) credit plan must be
accessible by a ``credit card,'' as defined in final Sec.
1026.2(a)(15)(i). As discussed in the section-by-section analysis of
Sec. 1026.2(a)(20) below, the Bureau anticipates that most covered
separate credit features accessible by hybrid prepaid-credit cards will
meet the definition of ``open-end credit'' and that credit will not be
home-secured.\605\ In addition, under the final rule, a prepaid card
that is a hybrid prepaid-credit card as discussed in new Sec. 1026.61
is a credit card under Regulation Z with respect to the covered
separate credit feature. Thus, the Bureau anticipates that most covered
separate credit features accessible by hybrid prepaid-credit cards will
meet the definition of ``credit card account under an open-end (not
home-secured) consumer credit plan'' in final Sec.
1026.2(a)(15)(ii).\606\ These covered separate credit features will be
subject to the disclosure and credit card provisions set forth in
subpart B and G.
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\605\ As discussed in more detail below in the section-by-
section analysis of Sec. 1026.2(a)(17), a person is not a creditor
that is extending open-end credit where the person offers a covered
separate credit feature accessible by a hybrid prepaid-credit card
and a finance charge is not imposed in connection with the credit.
Nonetheless, as discussed in the section-by-section analysis of
Sec. 1026.2(a)(17), such a person would still be subject to certain
Regulation Z requirements under certain circumstances.
\606\ The Bureau plans to monitor the development of covered
separate credit features accessible by hybrid prepaid-credit cards
after the final rule becomes effective.
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2(a)(15)(iii) Charge Card
Regulation Z defines the term ``charge card'' in existing Sec.
1026.2(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, in general, 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 existing
Sec. Sec. 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 1026.60, and Appendices G-10
through G-13. See also the discussion in the section-by-section
analysis of Sec. 1026.2(a)(20) below relating to charge card accounts
as open-end credit.
The proposal would have revised existing 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 have been placed in proposed comment 2(a)(15)-3.i and a new
comment 2(a)(15)-3.ii would have been added. Specifically, proposed
comment 2(a)(15)-3.ii would have explained 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. This proposed comment also would have
explained that, unlike other charge cards, a prepaid card that is a
charge card that accesses a credit card account under an open-end (not
home-secured) consumer credit plan would be subject to the requirements
in proposed Sec. 1026.7(b)(11)(i)(A), which would have required
payment due dates to be disclosed on periodic statements for a credit
card account under an open-end (not home-secured) consumer credit plan.
See the section-by-section analysis of Sec. 1026.7(b)(11) below. Thus,
under proposed Sec. 1026.5(b)(2)(ii)(A), for credit card accounts
under an open-end (not home-secured) consumer credit plan, a card
issuer of a prepaid card that meets the definition of a charge card
would have been required to adopt reasonable procedures designed to
ensure that (1) periodic statements for the charge card account
accessed by the prepaid card that is a charge card are mailed or
delivered at least 21 days prior to the payment due date disclosed on
the statement pursuant to proposed 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 on the charge card account 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 have been renumbered as proposed comment 2(a)(15)-3.i)
would have been revised to be consistent with new proposed comment
2(a)(15)-3.ii and the definition of ``charge card.''
[[Page 84173]]
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 an outstanding balance cannot be carried from one billing cycle
to another and is payable when a periodic statement is received. This
sentence would have been revised to be more consistent with the
definition of charge card in existing Sec. 1026.2(a)(15)(iii) to state
that charge cards are credit cards where no periodic rate is used to
compute the finance charge; no substantive change would have been
intended by this proposed revision. In addition, the last sentence of
the existing comment would have been revised to cross-reference new
proposed comment 2(a)(15)-3.ii.
The Bureau did not receive specific comments on the proposed
changes to comment 2(a)(15)-3. Consistent with the proposal, the final
rule places the language of current comment 2(a)(15)-3 in new comment
2(a)(15)-3.i and revises that language as proposed. The Bureau also is
adding a new comment 2(a)(15)-3.ii as proposed, with revisions to
clarify the intent of the language and to be consistent with new Sec.
1026.61.\607\
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\607\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 2(a)(15)-3.ii would have provided
that such an account number is a charge card if it accesses a credit
card account where no periodic rate is used to compute the finance
charge. For the reasons set forth in the section-by-section analysis
of Sec. 1026.2(a)(15)(i) above, the final rule does not adopt the
proposed changes to comment 2(a)(15)-3.ii related to these account
numbers.
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Specifically, new comment 2(a)(15)-3.ii provides that a hybrid
prepaid-credit card, as defined in new Sec. 1026.61, is a charge card
with respect to a covered separate credit feature if no periodic rate
is used to compute the finance charge in connection with the covered
separate credit feature. As discussed in more detail in the section-by-
section analysis of Sec. 1026.61(a)(2) below, a covered separate
credit feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
New comment 2(a)(15)-3.ii also explains that, unlike other charge
card accounts, the requirements in final Sec. 1026.7(b)(11) apply to a
covered separate credit feature accessible by a hybrid prepaid-credit
card that is a charge card when that covered separate credit feature is
a credit card account under an open-end (not home-secured) consumer
credit plan. Thus, under final Sec. 1026.5(b)(2)(ii)(A), with respect
to a covered separate credit feature that is a credit card account
under an open-end (not home-secured) consumer credit plan, a card
issuer of a hybrid prepaid-credit card that meets the definition of a
charge card because no periodic rate is used to compute a finance
charge in connection with the covered separate credit feature must
adopt reasonable procedures for the covered separate credit feature
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 final 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.
2(a)(15)(iv) Debit Card
Although current Regulation Z and its commentary use the term
``debit card,'' that term is not defined. Generally, under existing
comment 2(a)(15)-2.i.B, the term ``debit card'' refers to a card that
accesses an asset account. Specifically, existing 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, existing 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.
Under the proposal, different rules generally would have applied in
Regulation Z depending on whether credit is accessed by a card or
device that accesses a prepaid account (which would have been defined
in proposed Sec. 1026.2(a)(15)(vi) to match the definition under
proposed Regulation E Sec. 1005.2(b)(3)) or a card or device that
accesses another type of asset account. To assist compliance with the
regulation, the proposal would have defined ``debit card'' for purposes
of Regulation Z in proposed 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 have specified that it does not
include a prepaid card. Proposed Sec. 1026.2(a)(15)(v) would have
defined ``prepaid card'' to mean ``any card, code, or other device that
can be used to access a prepaid account'' and would have defined
``prepaid account'' in proposed Sec. 1026.2(a)(15)(vi) to mean a
prepaid account as defined in proposed Regulation E Sec. 1005.2(b)(3).
Proposed comment 2(a)(15)-6 would have provided that the term ``prepaid
card'' in proposed Sec. 1026.2(a)(15)(v) would have included 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
would have provided 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 Bureau did not receive specific comment on the proposed
definition of ``debit card.'' The Bureau is adopting the definition of
``debit card'' in new Sec. 1026.2(a)(15)(iv) as proposed with one
technical revision to cross-reference the definition of ``prepaid
account'' in new Sec. 1026.61.\608\ In addition, the Bureau is
adopting the definitions of ``prepaid account'' and ``prepaid card'' as
proposed, renumbered as new Sec. 1026.61(a)(5)(v) and new Sec.
1026.61(a)(5)(vii) respectively. The Bureau also is adopting comment
2(a)(15)-6 with revisions to provide guidance on the definition of
``prepaid card,'' renumbered as new comment 61(a)(5)(vii)-1. See the
section-by-section analysis of Sec. 1026.61(a)(5) below for a
discussion of the ``prepaid account'' and ``prepaid card'' definitions
and related commentary.
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\608\ As in the proposal, this definition of ``debit card'' does
not apply to Regulation E, including the rules that apply to debit
cards that access checking accounts with overdraft services.
---------------------------------------------------------------------------
2(a)(17) Creditor
Certain disclosure requirements and other requirements in TILA and
Regulation Z generally apply to creditors. TILA section 103(g)
generally defines the term ``creditor'' to mean a person who both (1)
regularly extends, whether in connection with loans, sales of property
or services, or otherwise, consumer 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
[[Page 84174]]
indebtedness, by agreement.\609\ Also, for purposes of certain
disclosure provisions in TILA that relate to account-opening
disclosures, and periodic statement disclosures, for open-end credit
plans, 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.\610\
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\609\ 15 U.S.C. 1602(g).
\610\ Id.
---------------------------------------------------------------------------
Consistent with TILA, Regulation Z generally defines the term
``creditor'' in existing 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 existing Sec.
1026.2(a)(17)(v) and existing comment 2(a)(17)(i)-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 existing 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, under existing Sec. 1026.2(a)(17)(iii), 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. Thus, under existing 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 existing Sec. 1026.60.
The Bureau's Proposal
The Bureau's proposal generally would have applied this existing
framework to the prepaid context. Thus, under the proposal, a card
issuer that issues a prepaid card that is a credit card (or its agent)
that extends open-end (not home-secured) credit would have met the
general definition of ``creditor'' because the person charges a finance
charge and would have been 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. Under existing Sec. 1026.2(a)(17)(iv), a
card issuer that issues a prepaid card that is a credit card (or its
agent) that extends closed-end (not home-secured) credit would have met
the general definition of ``creditor'' where the person charges a
finance charge or extends credit payable by written agreement in more
than four installments. Such person would have been subject to the
closed-end provisions in subpart C and, certain open-end (not home-
secured) disclosure rules in subpart B, and the credit card rules in
subpart B. A card issuer that issues a prepaid card that is a credit
card (or its agent), extends credit (not home-secured), and charges a
fee described in Sec. 1026.4(c), but does not charge a finance charge
and does not extend credit payable by written agreement in more than
four installments, would have been a ``creditor'' under existing Sec.
1026.2(a)(17)(iii) and would have been subject to the open-end (not
home-secured) disclosure rules and the credit card rules in subpart B.
Proposed comment 2(a)(15)-2.i.F, however, would have provided that
a prepaid card is not a credit card when the prepaid card only accesses
credit that (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. The Bureau would have
clarified in proposed comment 2(a)(17)(iii)-2 that existing 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 meets these same
three restrictions. In this case, under the proposal, the prepaid card
would not have been a credit card and therefore the person issuing the
card would not have been a card issuer. Prepaid account issuers that
satisfied this exclusion still would have been subject to Regulation
E's requirements, such as error resolution, and limits on liability for
unauthorized use.
Comments Received and the Final Rule
The Bureau did not receive comment on this aspect of the proposal,
other than those related to general comments from industry not to cover
overdraft plans offered on prepaid accounts under Regulation Z and
instead cover these overdraft plans under existing Regulation E Sec.
1005.17. See the Overview of the Final Rule's Amendments to Regulation
Z section for a discussion of those comments. As discussed in the
section-by-section analysis of Sec. 1026.61 below, the Bureau is
revising from the proposal the circumstances in which a prepaid card is
a credit card under Regulation Z. Under final Sec. 1026.2(a)(15)(i), a
prepaid card is a credit card under Regulation Z when it is a ``hybrid
prepaid-credit card'' as defined in new Sec. 1026.61. See also new
Sec. 1026.61(a), and new comment 2(a)(15)-2.i.F. The Bureau generally
intends to cover under Regulation Z overdraft credit features in
connection with prepaid accounts where the credit features are offered
by the prepaid account issuer, its affiliates, or its business
partners. New Sec. 1026.61(b) generally requires that such credit
features be structured as separate subaccounts or accounts, distinct
from the prepaid asset account, to facilitate transparency and
compliance with various Regulation Z requirements. Specifically, new
Sec. 1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid
prepaid-credit card'' with respect to a separate credit feature if the
card meets the following two conditions: (1) The card can be used from
time to time to access credit from the separate credit feature in the
course of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
The term ``covered separate credit feature'' is defined in new Sec.
1026.61(a)(2)(i) to mean a separate credit feature accessible by a
hybrid prepaid-credit card as described in new Sec. 1026.61(a)(2)(i).
Thus, the hybrid prepaid-credit card can access both the covered
separate credit feature and the asset feature of the prepaid account,
and the hybrid prepaid-credit card is a credit card under Regulation Z
with respect to the covered separate credit feature.
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau also has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. First, new Sec. 1026.61(a)(2)(ii) provides
that a prepaid card is not a hybrid prepaid-credit card with respect to
a separate credit feature that does not meet both of the conditions
above, for example, where the credit feature is offered by an unrelated
third party that is not the prepaid account issuer, its affiliate or
its business partner. Such credit features are defined as ``non-covered
separate
[[Page 84175]]
credit features,'' as discussed in the section-by-section analysis of
Sec. 1026.61(a)(2) below. Second, under new Sec. 1026.61(a)(4), a
prepaid card also is not a hybrid prepaid-credit card when the prepaid
card accesses incidental credit in the form of a negative balance on
the asset account where the prepaid account issuer generally does not
charge credit-related fees for the credit. A prepaid card is not a
hybrid prepaid-credit card under new Sec. 1026.61 or a credit card
under final Sec. 1026.2(a)(15)(i) when it accesses credit from these
types of credit features. For more detailed explanations of when
prepaid cards are not credit cards under Regulation Z, see the section-
by-section analyses of Sec. 1026.61(a)(2) and (4) below.
Consistent with the proposal, the Bureau generally applies the
existing framework for the definition of ``creditor'' to the prepaid
context. Thus, a card issuer of a hybrid prepaid-credit card (or its
agent) that extends credit under a covered separate credit feature is a
``creditor'' under existing Sec. 1026.2(a)(17). The card issuer must
comply with different provisions in Regulation Z depending on the type
of credit extended. Under existing Sec. 1026.2(a)(17)(iii), a card
issuer of a hybrid prepaid-credit card (or its agent) that extends
open-end (not home-secured) credit (and thus charges a finance charge
for the credit) in connection with the covered separate credit feature
is a ``creditor'' for purposes of the rules governing open-end (not
home-secured) credit plans in subpart B in connection with the covered
separate credit feature. The card issuer also must comply with the
credit card rules set forth in subparts B and G with respect to the
covered separate credit feature and the hybrid prepaid-credit card.
Under existing Sec. 1026.2(a)(17)(iii), a card issuer of a hybrid
prepaid-credit card (or its agent) that extends credit (not home-
secured) through the covered separate credit feature that is not
subject to a finance charge and is not payable in more than four
installments generally is a ``creditor'' for purposes of the open-end
(not home-secured) rules in subpart B with respect to the covered
separate credit feature. The card issuer also generally must comply
with the credit card rules in subpart B with respect to the covered
separate credit feature and the hybrid prepaid-credit card, but
generally need not comply with the credit card rules in subpart G,
except for the credit card disclosures required by existing Sec.
1026.60 and the provisions in new Sec. 1026.61.\611\ Under existing
Sec. 1026.2(a)(17)(iv), a card issuer of a hybrid prepaid-credit card
(or its agent) that extends closed-end (not home-secured) credit
through the covered separate credit feature, and charges a finance
charge or extends credit payable by written agreement in more than four
installments is a ``creditor'' for purposes of the closed-end
provisions in subpart C and certain open-end (not home-secured)
disclosure rules in subpart B. The card issuer also generally must
comply with the credit card rules in subpart B with respect to the
covered separate credit feature and the hybrid prepaid-credit card, but
generally need not comply with the credit card rules in subpart G
except for the provisions in Sec. 1026.61.
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\611\ As discussed in the section-by-section analysis of Sec.
1026.2(a)(15)(ii) above, certain requirements in the Credit CARD
Act, which are generally set forth in subpart G, only apply to card
issuers offering a credit card account under an open-end (not home-
secured) consumer credit plan.
---------------------------------------------------------------------------
With respect to guidance on the definition of ``creditor'' related
to prepaid cards that are not hybrid prepaid-credit cards, the Bureau
is revising new comment 2(a)(17)(iii)-2 from the proposal and is adding
new comment 2(a)(17)(i)-8 to cross-reference new Sec. 1026.61(a), new
comment 61(a)(2)-5.iii and new comment 61(a)(4)-1.iv for guidance on
the applicability of Regulation Z to prepaid cards that are not hybrid
prepaid-credit cards.
2(a)(20) Open-End Credit
TILA section 103(j) defines the term ``open-end credit plan'' 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.\612\ Regulation Z defines the
term ``open-end credit'' in existing 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.
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\612\ See 15 U.S.C. 1602(j).
---------------------------------------------------------------------------
With respect to a credit accessed by a prepaid card that would have
been a credit card under the proposal, the proposal would have provided
additional guidance on the meaning of the following three terms used in
the definition of ``open-end credit:'' (1) ``credit;'' (2) ``plan;''
and (3) ``finance charge.'' For a discussion of the proposal and the
final rule related to the term ``credit,'' see the section-by-section
analysis of Sec. 1026.2(a)(14) above. The term ``plan'' is discussed
below. For a discussion of the proposal and the final rule related to
the term ``finance charge,'' see below and the section-by-section
analysis of Sec. 1026.4.
Definition of ``Plan''
The Bureau's proposal. The term ``plan'' currently is discussed in
current comment 2(a)(20)-2, which provides in relevant part that the
term ``plan'' connotes a contractual arrangement between the creditor
and the consumer. The proposal would have revised current 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. Under the proposal, a new comment 2(a)(20)-2.ii
would have provided 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. The
proposal would have provided that 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 have constituted 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.
[[Page 84176]]
To accommodate the proposed changes, the proposal also would have
made several technical revisions to comment 2(a)(20)-2. Specifically,
the first sentence of the existing language in comment 2(a)(20)-2 would
have been moved to proposed comment 2(a)(20)-2.i, and the remaining
language of the existing comment would have been moved to proposed
comment 2(a)(20)-2.iv.
Comments received and the final rule. The Bureau did not receive
specific comment on the proposed changes to comment 2(a)(20)-2.
Consistent with the proposal, the Bureau is moving the first sentence
of the existing language in comment 2(a)(20)-2 to new comment
20(a)(20)-2.i. The Bureau also is moving the remaining language of the
existing comment to new comment 2(a)(20)-2.iii.
The Bureau also is modifying the proposed language in new comment
2(a)(20)-2.ii to be consistent with the provisions set forth in Sec.
1026.61.\613\ Specifically, the final rule does not adopt an example
contained in proposed comment 2(a)(20)-2.ii where credit is accessed by
a prepaid card where the credit is extended on the prepaid account as a
negative balance. As discussed in the section-by-section analysis of
Sec. 1026.61(b) below, a negative balance feature accessible by a
prepaid card triggers application of the credit card rules under the
final rule for purposes of coverage except as provided in new Sec.
1026.61(a)(4). However, new Sec. 1026.61(b) requires that an overdraft
credit feature offered by a prepaid account issuer, its affiliate, or
its business partner in connection with a prepaid account (except as
provided in new Sec. 1026.61(a)(4)) must be structured as a separate
subaccount or account, distinct from the prepaid asset account, in
order to facilitate transparency and compliance with various elements
of Regulation Z. Such a separate credit feature is defined as a
``covered separate credit feature'' under new Sec. 1026.61(a)(2)(i).
Accordingly, the Bureau is revising new comment 20(a)(2)-2.ii from the
proposal to discuss a situation where a hybrid prepaid-credit card
accesses a ``covered separate credit feature'' under new Sec.
1026.61(a)(2)(i) rather than credit in the form of a negative balance
on the asset account that would violate new Sec. 1026.61(b).
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\613\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 2(a)(20)-2.iii would been added to
provide guidance on when depositing credit proceeds into a prepaid
account would be considered extending credit under a plan. For the
reasons set forth in the section-by-section analysis of Sec.
1026.2(a)(15)(i) above, the final rule does not adopt proposed
comment 2(a)(20)-2.iii related to these account numbers.
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Specifically, under the final rule, new comment 2(a)(20)-2.ii
provides that with respect to a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Sec. 1026.61,
a plan includes a program under which a creditor routinely extends
credit where the prepaid card can be used from time to time to draw,
transfer, or authorize the draw or transfer of credit from a covered
separate credit feature offered by a prepaid account issuer, its
affiliate, or its business partner in the course of authorizing,
settling, or otherwise completing transactions conducted with the card
to obtain goods or services, obtain cash, or conduct P2P transfers, and
the consumer is obligated contractually to repay those credit
transactions. Such a program constitutes a plan notwithstanding that,
for example, the creditor has not agreed in writing to extend credit
for those transactions, the creditor retains discretion not to extend
credit for those transactions, or the creditor does not extend credit
for those transactions once the consumer has exceeded a certain amount
of credit. The comment also cross-references new Sec. 1026.61(a) and
related commentary for guidance on the applicability of this regulation
to credit accessible by hybrid prepaid-credit cards.
With respect to the programs described above, the Bureau believes
these programs are plans notwithstanding that, for example, 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 covered separate
credit features accessible by hybrid prepaid-credit cards does not
connote the absence of an open-end credit plan. If consumers using
covered separate credit features accessible by hybrid prepaid-credit
cards must agree to repay the debt created by an overdraft or advance,
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 overdraft services are comparable.
Finance Charge Imposed From Time to Time on an Outstanding Unpaid
Balance
The Bureau's proposal. 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. Existing 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 existing 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
as 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 have revised various components of the
definition of finance charge in existing Sec. 1026.4 and its
commentary to (1) distinguish credit provided in connection with
prepaid accounts addressed by the proposal from overdraft services on
checking accounts, which is subject to a different rulemaking process;
and (2) broaden the definition of ``finance charge,'' as applied in the
prepaid context, to assure broad coverage of the credit card rules to
credit plans accessed by prepaid cards that would have been credit
cards under the proposal and to better reflect the full cost of credit.
Consistent with this approach, the proposal also would have added
proposed comment 2(a)(20)-4.ii to state that with respect to credit
accessed by a prepaid card (including a prepaid card that is solely an
account number), any service, transaction, activity, or carrying
charges imposed on a credit account, and any such charges imposed on a
prepaid account related to an extension of credit, carrying a credit
balance, or credit availability, generally would be finance charges.
Such charges would have included periodic participation fees for the
credit plan and transaction charges imposed in connection with a credit
extension. In addition, proposed comment 2(a)(20)-4.ii would have
provided 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
[[Page 84177]]
for the plan for which the finance charge, total of payments, and
payment schedule can be calculated. The proposal also would have moved
the existing language of comment 2(a)(20)-4 to proposed comment
2(a)(20)-4.i.
Comments received and the final rule. The Bureau did not receive
specific comments on the proposed changes to existing comment 2(a)(20)-
4. Consistent with the general approach in the proposal, the Bureau is
revising various components of the definition of finance charge in
existing Sec. 1026.4 and its commentary to (1) distinguish credit
provided in connection with prepaid accounts addressed by the final
rule from overdraft services on checking accounts, which is subject to
a different rulemaking process; and (2) broaden the definition of
``finance charge,'' as applied in the prepaid context, to assure broad
coverage of the credit card rules to covered separate credit features
accessible by hybrid prepaid-credit cards and to better reflect the
full cost of credit. As discussed in more detail in the section-by-
section analysis of Sec. 1026.61(a)(2) below, a covered separate
credit feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
The Bureau is adding a new Sec. 1026.4(b)(11) and related
commentary to provide guidance as to the application of Regulation Z to
covered separate credit features accessible by hybrid prepaid-credit
cards. In particular, Sec. 1026.4(b)(11) and related commentary
describe how to treat charges that may be imposed on the separate
credit subaccount or account as compared to charges that may be imposed
on the prepaid asset feature. The commentary to new Sec. 1026.4(b)(11)
also provides guidance as to the treatment of fees imposed on the
prepaid account in relation to credit features accessible by prepaid
cards that are not credit cards under the final rule.
The Bureau is adopting changes to the commentary concerning the
prong of the open-end credit definition in existing Sec. 1026.2(a)(20)
concerning the creditor's ability to impose finance charges from time
to time on an outstanding unpaid balance, consistent with the general
approach adopted in final Sec. Sec. 1026.4 and new 1026.61.
Specifically, the Bureau is moving the existing language of comment
2(a)(20)-4 to new comment 2(a)(20)-4.i. The Bureau also is adding new
comment 2(a)(20)-4.ii but revises this comment from the proposal to
reflect changes from the proposal set forth in the final rule under
final Sec. Sec. 1026.4 and new 1026.61.\614\ Specifically, new comment
2(a)(20)-4.ii provides that with regard to a covered separate credit
feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in new Sec.
1026.61, any service, transaction, activity, or carrying charges
imposed on the separate credit feature, and any such charges imposed on
the asset feature of the prepaid account to the extent that the amount
of the charge exceeds comparable charges imposed on prepaid accounts in
the same prepaid account program that do not have a credit feature
accessible by a hybrid prepaid-credit, generally are finance charges,
as described in existing Sec. 1026.4(a) and new Sec. 1026.4(b)(11).
Such charges include a periodic fee to participate in the covered
separate credit feature, regardless of whether this fee is imposed on
the credit feature or on the asset feature of the prepaid account. With
respect to credit from a covered separate credit feature, any service,
transaction, activity, or carrying charges that are finance charges
under final Sec. 1026.4 constitute finance charges imposed from time
to time on an outstanding unpaid balance, as described in existing
Sec. 1026.2(a)(20), if there is no specific amount financed for the
credit feature for which the finance charge, total of payments, and
payment schedule can be calculated.
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\614\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 2(a)(20)-4.ii would been added to
provide guidance on when finance charges imposed on credit accounts
accessed by those account numbers would have satisfied the
requirement for ``open-end credit'' that the creditor may impose a
``finance charge'' from time to time on an outstanding unpaid
balance. For the reasons set forth in the section-by-section
analysis of Sec. 1026.2(a)(15)(i) above, the final rule does not
adopt the proposed changes to comment 2(a)(20)-4.ii related to these
account numbers.
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The Bureau does not anticipate that there will be a specific amount
financed for covered separate credit features accessible by hybrid
prepaid-credit cards. Instead, the Bureau anticipates that the credit
lines on covered separate credit features generally will be
replenishing. In such cases, an amount financed for the credit feature
could not be calculated because the creditor will not know at the time
the credit feature is established the amount of credit that will be
extended. Thus, to the extent that any finance charge may be imposed on
such a credit feature, the credit feature will meet this criterion.
The Bureau believes that it is appropriate to consider covered
separate credit features accessible by hybrid prepaid-credit cards that
are charge cards to meet this criterion of open-end credit. Under the
Bureau's interpretation, a finance charge may be imposed time to time
on an outstanding unpaid balance when any finance charge (including
transaction fees or participation fees that are finance charges) may be
imposed on the covered separate credit feature or asset feature of the
prepaid account that are both accessible by the hybrid prepaid-credit
card. In contrast, if the Bureau were to interpret narrowly the
criterion of open-end credit that a finance charge may be imposed time
to time on an outstanding unpaid balance and include only finance
charges resulting from periodic rates, covered separate credit features
accessible by hybrid prepaid-credit cards that are charge card accounts
instead would constitute closed-end credit. Under existing Sec.
1026.2(a)(17)(iv), a card issuer offering such a charge card account
would be a ``creditor'' for purposes of, and would need to comply with,
the closed-end disclosure provisions in subpart C as well as certain
open-end (not home-secured) disclosures rules in subpart B.
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 those disclosures received in
connection with other open-end credit card accounts. Where the
transactions otherwise would appear to be part of 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 a
covered separate credit feature accessible by a hybrid prepaid-credit
card where that credit feature is a charge card account, 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 is retaining
the current interpretation in existing comment 2(a)(20)-4 that a
finance charge is considered to be imposed from time to time on an
outstanding unpaid balance, as
[[Page 84178]]
described in existing Sec. 1026.2(a)(20), if there is no specific
amount financed for the credit feature for which the finance charge,
total of payments, and payment schedule can be calculated. This means
that most covered separate credit features accessible by hybrid
prepaid-credit cards will meet the definition of ``open-end credit'' if
any finance charge may be imposed on the covered separate credit
feature or asset feature of the prepaid account that are both
accessible by a hybrid prepaid-credit card.
The Bureau also notes that persons that offer covered separate
credit features accessible by hybrid prepaid-credit cards where no
finance charge may be imposed on the covered separate credit feature or
asset feature of the prepaid account that are both accessible by the
hybrid prepaid-credit card still would be subject to certain Regulation
Z provisions. See the section-by-section analysis of Sec.
1026.2(a)(17) above.
Section 1026.4 Finance Charge
TILA section 106(a) provides generally that the term ``finance
charge'' in connection with any consumer credit transaction is 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.\615\
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\615\ 15 U.S.C. 1605(a).
---------------------------------------------------------------------------
Regulation Z generally defines the term ``finance charge'' in
existing 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 as 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 as
described in existing Sec. 1026.4(c)(3) and (4) respectively: (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.
As discussed in more detail below, the proposal would have revised
various components of the definition of finance charge in existing
Sec. 1026.4 and its commentary as applied to credit offered in
connection with a prepaid account to (1) distinguish credit provided in
connection with prepaid accounts addressed by the proposal from
overdraft services on checking accounts, which is subject to a
different rulemaking; and (2) broaden the definition of ``finance
charge,'' as applied in the prepaid context, to assure broad coverage
of the credit card rules to credit plans accessed by prepaid cards that
would have been credit cards under the proposal and to better reflect
the full cost of credit.
Specifically, the proposal would have provided that existing Sec.
1026.4(c)(3)'s exclusion of fees imposed in connection with overdraft
services on checking accounts from the definition of finance charge
would not have applied to credit accessed by a prepaid card. It also
would have exempted credit accessed by a prepaid card from the
exclusion in existing Sec. 1026.4(c)(4) for participation fees. As
discussed in more detail in the section-by-section analyses of Sec.
1026.4(a) and (b) below, the proposal also would have made other
modifications to general finance charge precepts as applied to credit
offered in connection with prepaid cards, to assure broad coverage of
the credit card rules to such credit.
As discussed in more detail below, consistent with the goals of the
proposal in relation to the definition of ``finance charge,'' the
Bureau is revising the definition of ``finance charge'' with regard to
the covered separate credit features accessible by hybrid prepaid-
credit cards as defined under new Sec. 1026.61 to (1) distinguish
credit provided in connection with prepaid accounts addressed by the
final rule from overdraft services on checking accounts, which is
subject to a different rulemaking process; and (2) broaden the
definition of ``finance charge,'' as applied in the prepaid context, to
assure broad coverage of the credit card rules to covered separate
credit features accessible by hybrid prepaid-credit cards and to better
reflect the full cost of credit. The Bureau also is adding language to
the definition of ``finance charge'' in existing Sec. 1026.4 and
related commentary to provide greater guidance regarding the treatment
of fees that are charged to the separate credit subaccount or account
accessible by a hybrid prepaid-credit card, as compared to fees charged
to the prepaid asset feature. Finally, the Bureau has added commentary
to Sec. 1026.4 to provide guidance as to the application of the
definition of ``finance charge'' to credit features accessible by
prepaid cards that are not credit cards under the final rule.
As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section above and in more detail in the section-by-section
analysis of Sec. 1026.61 below, the Bureau generally intends to cover
under Regulation Z overdraft credit features in connection with prepaid
accounts where the credit feature is offered by the prepaid account
issuer, its affiliate, or its business partner. New Sec. 1026.61(b)
generally requires that such credit features be structured as separate
subaccounts or accounts, distinct from the prepaid asset account, to
facilitate transparency and compliance with various Regulation Z
requirements. New Sec. 1026.61(a)(2)(i) provides that a prepaid card
is a ``hybrid prepaid-credit card'' with respect to such a separate
credit feature if the card meets the following two conditions: (1) The
card can be used from time to time to access credit from the separate
credit feature in the course of authorizing, settling, or otherwise
completing transactions conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers; and (2) the separate
credit feature is offered by the prepaid account issuer, its affiliate,
or its business partner. New Sec. 1026.61(a)(2)(i) defines such a
separate credit feature accessible by a hybrid prepaid-credit card as a
``covered separate credit feature.'' The hybrid prepaid-credit card can
access both the covered separate credit feature and the asset feature
of the prepaid account, and the hybrid prepaid-credit card is a credit
card under Regulation Z with respect to the covered separate credit
feature.
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau also has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. First, new Sec. 1026.61(a)(2)(ii) provides
that a prepaid card is not a hybrid prepaid-credit card with respect to
a separate credit feature that does not meet both of the conditions
above, for example, where the credit feature is offered by an unrelated
third party that is not the prepaid account issuer, its affiliate or
its business partner. Such credit features are defined as ``non-covered
separate credit features,'' as discussed in the section-by-section
analysis of Sec. 1026.61(a)(2) below. Second, under new Sec.
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card
when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-
[[Page 84179]]
credit card under new Sec. 1026.61 or a credit card under final Sec.
1026.2(a)(15)(i) when it accesses credit from these types of credit
features. For more detailed explanations of when prepaid cards are not
credit cards under Regulation Z, see the section-by-section analyses of
Sec. 1026.61(a)(2) and (4) below.
As discussed in more detail below, the Bureau is amending existing
Sec. 1026.4 and its commentary to (1) distinguish credit provided in
connection with prepaid accounts addressed by the final rule from the
overdraft services on checking accounts, which is subject to a
different rulemaking process; and (2) broaden the definition of
``finance charge,'' as applied in the prepaid context, to assure broad
coverage of the credit card rules to covered separate credit features
accessible by hybrid prepaid-credit cards and to better reflect the
full cost of credit. Specifically, the final rule provides that the
exclusion in existing Sec. 1026.4(c)(3) for certain charges in
connection with overdraft services on checking accounts does not apply
to credit offered in connection with a prepaid account and that the
exclusion in existing Sec. 1026.4(c)(4) for participation fees does
not apply to a fee to participate in a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in new Sec.
1026.61, regardless of whether this fee is imposed on the credit
feature or on the asset feature of the prepaid account.
In addition, the Bureau is amending existing 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 offered in connection with a prepaid account. For example, with
regard to covered separate credit features accessible by hybrid
prepaid-credit cards, the Bureau has added new Sec. 1026.4(b)(11) and
related commentary to address the classification of fees as finance
charges depending on whether those fees are imposed on the covered
separate credit feature or on the asset feature of the prepaid account.
Specifically, new Sec. 1026.4(b)(11) provides that the following fees
generally are finance charges with respect to such covered separate
credit features and asset features: (1) Any fee or charge, such as
interest rates and service, transaction, activity, or carrying charges,
imposed on the covered separate credit feature, whether it is
structured as a credit subaccount of the prepaid account or a separate
credit account; and (2) any fee or charge imposed on the asset feature
of the prepaid account to the extent that the amount of the fee or
charge exceeds comparable fees or charges imposed on prepaid accounts
in the same prepaid account program that do not have a covered separate
credit feature accessible by a hybrid prepaid-credit card.
The commentary to new Sec. 1026.4(b)(11) also provides guidance
with regard to the treatment of fees imposed on the prepaid account in
relation to credit features accessible by prepaid cards that are not
hybrid prepaid-credit cards. For example, with regard to non-covered
separate credit features, the final rule provides that new Sec.
1026.4(b)(11) and related commentary do not apply to fees or charges
imposed on the non-covered separate credit feature; instead, the non-
covered credit feature is evaluated in its own right under the general
rules set forth in existing Sec. 1026.4 to determine whether these
fees or charges are finance charges. In addition, with respect to these
non-covered separate credit features, fees or charges on the asset
feature of the prepaid account are not finance charges under existing
Sec. 1026.4 with respect to the non-covered separate credit feature.
The commentary also provides that with respect to incidental credit
that is provided via a negative balance on the prepaid account under
new Sec. 1026.61(a)(4), fees that can be imposed on the prepaid
account under Sec. 1026.61(a)(4) are not finance charges under final
Sec. 1026.4.
4(a) Definition
Under Regulation Z, the term ``finance charge'' generally is
defined in existing 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 as a condition of the extension of
credit. It does not include any charge of a type payable in a
comparable cash transaction.
With regard to credit card accounts, generally all transaction fees
imposed on the account are treated as finance charges, even if the
creditor imposes comparable transaction fees on asset accounts.
Existing comment 4(a)-4 provides guidance on when transaction charges
imposed on credit card accounts are finance charges under existing
Sec. 1026.4(a). (Transaction charges that are imposed on checking
accounts or other transaction accounts are discussed in the section-by-
section analyses of Sec. 1026.4(b) and (b)(11) below.) Specifically,
existing 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.
The proposal would have added proposed comment 4(a)-4.iii to
provide that any transaction charge imposed on a cardholder by a card
issuer for credit accessed by a prepaid 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.
The Bureau received substantial comment on the circumstances in
which fees imposed on a prepaid account should be considered finance
charges under Sec. 1026.4. These comments are discussed in the
section-by-section analysis of Sec. 1026.4(b)(11) below. As discussed
in the section-by-section analysis of Sec. 1026.4(b)(11), new Sec.
1026.4(b)(11) and related commentary set forth guidance regarding the
circumstances in which a fee is a finance charge for credit offered in
connection with a prepaid account. Thus, the Bureau is not revising
existing comment 4(a)-4 to include the proposed prepaid card example
discussed above.\616\ Instead, the final rule revises
[[Page 84180]]
existing comment 4(a)-4 to provide that comment does not apply to a
covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card as
defined in new Sec. 1026.61. The comment also is revised to cross-
reference new Sec. Sec. 1026.4(b)(11) and 1026.61 for guidance on the
circumstances in which a fee is a finance charge in connection with a
covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card.
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\616\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 4(a)-4 would have been revised to
provide that any transaction charge imposed on a cardholder by a
card issuer for credit accessed by such an account number 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 the reasons set forth in the section-by-section
analysis of Sec. 1026.2(a)(15)(i) above, the final rule does not
adopt the proposed changes to comment 4(a)-4 related to these
account numbers.
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4(b) Examples of Finance Charges
4(b)(2)
Existing Sec. 1026.4(b) provides examples of the types of charges
that are finance charges, except if those charges are specifically
excluded under existing Sec. 1026.4(c) through (e). In particular,
existing 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 any charge imposed on a checking or other transaction account,
such a 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. Existing 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 existing 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 existing Sec. 1026.4(b)(2). For purposes of existing
Sec. 1026.4(b)(2), a per transaction fee imposed on a checking account
with a credit feature (i.e., overdraft line of credit where the
financial institution has agreed in writing to pay an overdraft) can be
compared with a fee imposed for paying or returning each item on a
similar account without a credit feature. Thus, if a per transaction
fee imposed on a checking account with a credit feature for accessing
credit does not exceed the fee for paying an overdraft or NSF fee on
the checking account with no credit feature, the per transaction fee
imposed on the checking account with the credit feature is not a
finance charge under existing Sec. 1026.4(b)(2).
The proposal would have set forth a different rule for when fees
imposed on prepaid accounts would have been finance charges than the
standard set forth in existing Sec. 1026.4(b)(2). Specifically,
proposed Sec. 1026.4(b)(2)(ii) would have provided that any charge
imposed in connection with an extension of credit, for carrying a
credit balance, or for credit availability would have been a finance
charge where that fee is imposed on a prepaid account in connection
with credit accessed by a prepaid card, 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. Proposed comment 4(b)(2)-1.ii
through iv, would have clarified the rule set forth in proposed Sec.
1026.4(b)(2)(ii). The existing language in Sec. 1026.4(b)(2) would
have been moved to proposed Sec. 1026.4(b)(2)(i). The existing
language in comment 4(b)(2)-1 would have been moved to proposed comment
4(b)(2)-1.i.
The Bureau received substantial comments on the circumstances in
which fees imposed on prepaid accounts should be considered finance
charges under Sec. 1026.4. These comments are discussed in the
section-by-section to Sec. 1026.4(b)(11) below. As discussed in the
section-by-section analysis of Sec. 1026.4(b)(11), new Sec.
1026.4(b)(11) and related commentary set forth guidance regarding the
circumstances in which a fee is a finance charge for credit offered in
connection with a prepaid account. Thus, the Bureau has not adopted
proposed Sec. 1026.4(b)(2)(ii) and the changes to comment 4(b)(2)-1 as
proposed.\617\ Instead, the Bureau is revising Sec. 1026.4(b)(2) and
comment 4(b)(2)-1 to provide that final Sec. 1026.4(b)(2) does not
apply to prepaid accounts as defined in Sec. 1026.61. In addition, the
Bureau is adding new comment 4(b)(2)-2 to state that fees or charges
related to credit offered in connection with prepaid accounts as
defined in Sec. 1026.61 are discussed in new Sec. Sec. 1026.4(b)(11)
and 1026.61, and related commentary.
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\617\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed Sec. 1026.4(b)(2)(ii) and comment 4(b)(2)-
1.ii through iv would have set forth the rule for when a fee imposed
on a prepaid account is a finance charge in connection with credit
accessed by such account numbers. For the reasons set forth in the
section-by-section analysis of Sec. 1026.2(a)(15)(i) above, the
final rule does not adopt the proposed changes to Sec.
1026.4(b)(2)(ii) and comment 4(b)(2)-1.ii through iv related to
these account numbers.
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4(b)(11)
The Bureau's Proposal
As discussed in the section-by-section analyses of Sec. 1026.4(a)
and (b)(2) above, the Bureau proposed Sec. 1026.4(b)(2) and comments
4(a)-4.iii and 4(b)(2)-1.ii through iv to provide guidance regarding
when a fee imposed in relation to credit accessed by a prepaid card
would have been a finance charge under Sec. 1026.4.
Proposed comment 4(a)-4.iii would have set forth guidance on when
transaction fees imposed on credit card accounts accessed by prepaid
cards would have been considered finance charges under the proposal.
Specifically, this comment would have provided that any transaction
charge imposed on a cardholder by a card issuer for credit accessed by
a prepaid 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.
Proposed Sec. 1026.4(b)(2)(ii) and proposed comment 4(b)(2)-1.ii
through iv would have provided guidance on when service, transaction,
activity, and carrying charges imposed on a prepaid account in
connection with credit accessed by a prepaid card would have been a
finance charge under the proposal. Specifically, proposed Sec.
1026.4(b)(2)(ii) would have provided that any charge imposed on the
prepaid account in connection with an extension of credit, for carrying
a credit balance, or for credit availability would have been a finance
charge where that fee is imposed on a prepaid account in connection
with credit accessed by a prepaid card, 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.
Under proposed comment 4(b)(2)-1.ii, transaction fees imposed on a
prepaid account for credit extensions would have been finance charges,
regardless of whether the creditor imposes the same, greater, or lesser
per transaction fee to withdraw funds from the prepaid account. To
illustrate, 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
[[Page 84181]]
transaction is paid. Under the proposal, the $1.50 transaction charge
would have been 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 addition, under proposed comment 4(b)(2)-1.ii, a fee imposed on
the prepaid account for the availability of an open-end plan that is
accessed by a prepaid card would have been a finance charge regardless
of whether the creditor imposes the same, greater, or lesser monthly
service charge to hold the prepaid account. For example, assume a
creditor imposes $5 monthly service charge on the prepaid account for
the availability of an open-end plan that is accessed by a prepaid
card. Under the proposal, the $5 monthly service charge would have been
a finance charge regardless of whether the creditor imposes the same,
greater, or lesser monthly service charge to hold the prepaid account.
In the proposal, the Bureau recognized that if a prepaid account
issuer imposes a per transaction fee on a prepaid account for any
transactions authorized or settled on the prepaid account, the prepaid
account issuer would need to waive that per transaction fee imposed on
the prepaid account when the transaction accesses credit to take
advantage of the exception for when a prepaid card would not be a
credit card under the proposal.
Proposed comment 4(b)(2)-1.iii would have provided 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 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 have provided that proposed
Sec. 1026.4(b)(2)(ii) would not apply to: (1) 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);
(2) fees for opening or holding the prepaid account; and (3) 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
have been 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 were not sufficient funds in the
prepaid account to pay the fees at the time they were imposed on the
prepaid account. Nonetheless, under the proposal, any negative balance
on the prepaid account, whether from fees or other transactions, would
have been a credit extension, and if a fee were imposed for such credit
extension, the fee would have been a finance charge under proposed
Sec. 1026.4(b)(2)(ii). For example, if a cash-reload fee were imposed
on the prepaid account and an additional charge were imposed on the
prepaid account for a credit extension because there were not
sufficient funds in the prepaid account to pay the cash reload fee when
it was imposed on the prepaid account, the additional charge would have
been a transaction charge imposed on a prepaid account in connection
with an extension of credit and would have been a finance charge under
proposed Sec. 1026.4(b)(2)(ii).
The Bureau received substantial comment on the circumstances in
which fees imposed in connection with credit accessed by a prepaid card
should be considered finance charges under Sec. 1026.4. As discussed
below, in response to comments received, the Bureau is revising
substantially from the proposal the circumstances in which a fee or
charge imposed with respect to credit extended in connection with a
prepaid account is a finance charge under Sec. 1026.4.
Comments Received
Many industry commenters raised concerns regarding the breadth of
fees that would be considered finance charges under the proposal. Many
industry commenters were concerned that even though they did not intend
to offer credit in connection with the prepaid account, credit could
result in certain circumstances, such as forced pay-transactions as
discussed in the section-by-section analysis of Sec. 1026.61 below.
Because this credit could be extended, many commenters were concerned
that fees that generally applied to the prepaid account, but were not
specific to the overdraft credit, could be finance charges under the
proposal and thus would subject the prepaid account issuer to the
credit card rules under Regulation Z. These commenters were concerned
that they could not charge certain fees on the prepaid account, or
would have to waive certain fees, for the prepaid card not to be
considered to be a credit card under the proposal. In particular,
proposed comment 2(a)(15)-2.i.F would have provided 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 for when the 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.
Under the proposal, for a prepaid card not to be a credit card when it
accesses a credit plan, the credit accessed by the prepaid card could
not be subject to any finance charge, as defined in Sec. 1026.4, or
any fee described in Sec. 1026.4(c), and any credit accessed could not
be payable by written agreement in more than four installments.
Many industry commenters indicated that certain fees should not be
considered finance charges in connection with credit accessed by a
prepaid card, and thus, a prepaid account issuer could continue to
charge these fees on the prepaid account without the prepaid card
becoming a credit card under the proposal.
For example, several commenters, including an industry trade
association, an issuing bank, a program manager, and a digital wallet
provider, indicated that consistent with existing Sec. 1026.4(b)(2), a
fee that is imposed on a prepaid account in both credit and cash
transactions should not be a finance charge when the fee is imposed on
a prepaid account. They argued that these fees are exempt from the
definition of finance charge under the ``comparable cash transaction''
exception. Existing Sec. 1026.4(b)(2) provides that examples of
finance charges generally include service, transaction, activity, and
carrying charges. However, existing Sec. 1026.4(b)(2) contains a
partial exception to this example stating that for any charge imposed
on a checking or other transaction account, such a 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.
In addition, several commenters, including an industry trade
association, an issuing bank, a program manager,
[[Page 84182]]
and a digital wallet provider, indicated that the term ``finance
charge'' should not include per transaction fees charged on a prepaid
account for an extension of credit that are the same amount as the fee
that would be charged for transactions paid entirely with funds
available in the prepaid account. These industry commenters were
concerned that a prepaid account issuer would need to waive per
transaction fees charged for credit extensions even if they were the
same amount as the fee charged for transactions it paid entirely with
funds available in the prepaid account to avoid charging a finance
charge under the proposal. As discussed above, under the proposal, all
per transaction fees for credit transactions were finance charges.
Thus, under the proposal, a prepaid account issuer would need to waive
per transaction fees imposed on the prepaid account for credit
transactions for the prepaid card not to be a credit card under the
proposal.
Two industry trade associations indicated that the term ``finance
charge'' should only include fees or charges arising from the fact that
the transaction is an overdraft and specifically exclude other fees or
charges that are wholly unrelated to the fact that the transaction is
an overdraft, such as a fee for a balance inquiry at an ATM. These two
commenters argued that such unrelated fees or charges should not be
``finance charges'' even if they are imposed when the prepaid account
balance is negative. Another industry trade association indicated that
a monthly fee to hold the prepaid account should not be a ``finance
charge'' simply because it may be imposed when the balance on the
prepaid account is negative or because negative balances can occur on
the prepaid account.
Several consumer groups commented on this aspect of the proposal.
One consumer group commenter indicated that per transaction fees for
credit extensions imposed on prepaid accounts should be finance charges
even if they are the same amount as the fee charged for transactions
paid entirely with funds available in the prepaid account. This
consumer group commenter indicated that if a prepaid account issuer
wanted to avoid charging a finance charge on the prepaid account, the
cleanest solution is the one the Bureau proposed: Simply waive the fee.
Another consumer group commenter indicated that any fee or charge that
occurs when credit is accessed should be considered a finance charge.
The Final Rule
The Bureau is amending existing 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 offered in
connection with a prepaid account. First, the Bureau provides guidance
on the definition of finance charge in relation to covered separate
credit features accessible by a hybrid prepaid-credit cards. Second,
the Bureau also provides guidance on the definition of finance charge
in relation to credit features accessible by prepaid cards that are not
hybrid prepaid-credit cards. Starting with the first category, as
described above, the Bureau generally intends the final rule to
regulate prepaid cards as credit cards when they can access overdraft
credit features offered by the prepaid account issuer, its affiliates,
or its business partners (except as provided in new Sec.
1026.61(a)(4)). Such credit features are generally required under new
Sec. 1026.61(b) to be structured as a separate subaccount or account,
distinct from the prepaid asset account, to facilitate transparency and
compliance with Regulation Z. To effectuate this decision and provide
compliance guidance to industry, new Sec. 1026.4(b)(11) and its
related commentary specify rules for distinguishing when particular
types of fees or charges that are imposed on the covered separate
credit feature or on the asset feature on a prepaid account, which are
both accessible by a hybrid prepaid-credit card, are finance charges
under Regulation Z. Specifically, new Sec. 1026.4(b)(11) provides that
the following fees generally are finance charges with respect to such
covered separate credit features and asset features: (1) Any fee or
charge, such as interest rates and service, transaction, activity, or
carrying charges, imposed on the covered separate credit feature,
regardless of whether the credit feature is structured as a credit
subaccount of the prepaid account or a separate credit account; and (2)
any fee or charge imposed on the asset feature of the prepaid account
to the extent that the amount of the fee or charge exceeds comparable
fees or charges imposed on prepaid accounts in the same prepaid account
program that do not have a covered separate credit feature accessible
by a hybrid prepaid-credit card. These provisions are discussed in more
detail in the section-by-section analyses of Sec. 1026.4(b)(11)(i) and
(ii).
The commentary to new Sec. 1026.4(b)(11) also provides guidance
regarding credit features that are accessible by prepaid cards that are
not credit cards under the final rule. As discussed in the section-by-
section analysis of Sec. 1026.61 below, the Bureau also has decided to
exclude prepaid cards from being covered as credit cards under
Regulation Z when they access certain specified types of credit. First,
under new Sec. 1026.61(a)(2)(ii), a prepaid card is not a hybrid
prepaid-credit card with respect to a ``non-covered separate credit
feature,'' which means that the separate credit feature either (1)
cannot be accessed in the course of a prepaid card transaction to
obtain goods or services, obtain cash, or conduct P2P transfers; or (2)
is offered by an unrelated third party that is not the prepaid account
issuer, its affiliate, or its business partner. Second, under new Sec.
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card
when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Sec. 1026.61 or a
credit card under final Sec. 1026.2(a)(15)(i) when it accesses credit
from these types of credit features. For more detailed explanations of
when prepaid cards are not credit cards under Regulation Z, see the
section-by-section analyses of Sec. 1026.61(a)(2) and (4) below.
New comment 4(b)(11)-1.i provides that the rules for classification
of fees or charges as finance charges in connection with a covered
separate credit feature and the asset feature of the prepaid account
that are both accessible by a hybrid prepaid-credit card are specified
in Sec. 1026.4(b)(11) and related commentary. This guidance is
discussed in more detail in the section-by-section analyses of Sec.
1026.4(b)(11)(i) and (ii). As discussed in more detail below, new
comment 4(b)(11)-1.ii and iii sets forth guidance on when fee or
charges are finance charges under Sec. 1026.4 when these fees or
charges are imposed in connection with credit features that are
accessible by prepaid cards that are not credit cards.\618\
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\618\ One industry commenter noted the proposed definition of
``finance charge'' in connection with prepaid accounts and raised
questions about the impact these proposed changes would have in
terms of obligations to notify consumers of adverse actions under
the Equal Credit Opportunity Act and Regulation B. The Bureau
believes that it has addressed these concerns in the final rule by
providing additional guidance on the type of fees that are ``finance
charges'' with respect to covered separate credit features
accessible by hybrid prepaid-credit cards. In addition, the final
rule also excludes prepaid cards from being covered as credit cards
under Regulation Z when they access non-covered separate credit
features as defined in new Sec. 1026.61(a)(2)(ii), or access
incidental credit as a negative balance on the prepaid account as
set forth in new Sec. 1026.61(a)(4).
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[[Page 84183]]
Non-covered separate credit features. With respect to separate
credit features, as noted above, under Sec. 1026.61(a)(2)(ii), there
are two circumstances in which new Sec. 1026.61 provides that a
prepaid card is not a hybrid prepaid-credit card when it accesses a
separate credit feature. The first is where the prepaid card cannot be
used to access credit from the separate credit feature in the course of
authorizing, settling, or otherwise completing transactions conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers. The second is where the separate credit feature is offered
by an unrelated third party, rather than the prepaid account issuer,
its affiliate, or its business partner.
New Sec. 1026.61(a)(2)(ii) defines a separate credit feature that
does not meet these two conditions as a ``non-covered separate credit
feature.'' As described in new Sec. 1026.61(a)(2)(ii), a non-covered
separate credit feature is not subject to the rules applicable to
hybrid prepaid-credit cards; however, it typically will be subject to
Regulation Z in its own right, depending on the terms and conditions of
the product.
New comment 4(b)(11)-1.ii provides that new Sec. 1026.4(b)(11) and
related commentary do not apply to fees or charges imposed on the non-
covered separate credit feature; instead, the general rules set forth
in existing Sec. 1026.4 determine whether these fees or charges are
finance charges. In addition, fees or charges on the asset feature of
the prepaid account are not finance charges under final Sec. 1026.4
with respect to the non-covered separate credit feature.
Overdraft credit features excepted under Sec. 1026.61(a)(4). As
described in new Sec. 1026.61(a)(4), a prepaid card is not a hybrid
prepaid-credit card (and is not a credit card under Regulation Z) where
the prepaid card accesses incidental credit in the form of a negative
balance on the asset account where the prepaid account issuer generally
does not charge credit-related fees for the credit. Specifically, under
this exception, the prepaid account issuer (1) must have a general
policy and practice of declining to authorize transactions made with
the card where there are insufficient or unavailable funds in the asset
feature of the prepaid account at the time the transaction is
authorized to cover the amount of the transactions or to only authorize
such negative balance transactions in circumstances related to payment
cushions and delayed load cushions; and (2) must not charge any credit-
related fees as defined in new Sec. 1026.61(a)(4) for any credit
extended through a negative balance on the asset feature of the prepaid
account, except for fees or charges for the actual costs of collecting
the credit extended if otherwise permitted by law. As discussed in more
detail in the section-by-section analysis of Sec. 1026.61(a)(4) below,
such credit features will not trigger coverage of the credit card
rules.
With respect to what ``credit-related fees'' will cause such a
credit feature to fall outside the scope of the new Sec. 1026.61(a)(4)
exclusion, new Sec. 1026.61(a)(4)(ii)(B) provides that with respect to
prepaid accounts that are accessible by the prepaid card, the prepaid
account issuer may not charge the following fees or charges on the
asset feature of the prepaid account: (1) Any fees or charges for
opening, issuing, or holding a negative balance on the asset feature,
or for the availability of credit, whether imposed on a one-time or
periodic basis. This would not include fees or charges to open, issue,
or hold the prepaid account where the amount of the fee or charge
imposed on the asset feature is not higher based on whether credit
might be offered or has been accepted, whether or how much credit the
consumer has accessed, or the amount of credit available; (2) any fees
or charges that will be imposed only when credit is extended on the
asset feature or when there is a negative balance on the asset feature,
except that a prepaid account issuer may impose fees or charges for the
actual costs of collecting the credit extended if otherwise permitted
by law; or (3) any fees or charges where the amount of the fee or
charge is higher when credit is extended on the asset feature or when
there is a negative balance on the asset feature.
This language in new Sec. 1026.61(a)(4)(ii)(B) allows a prepaid
account issuer to qualify for the exception in new Sec. 1026.61(a)(4)
even if it charges transaction fees on the asset feature of the prepaid
account for overdrafts so long as the amount of the per transaction fee
does not exceed the amount of the per transaction fee imposed for
transactions conducted entirely with funds available in the asset
feature of a prepaid account. New Sec. 1026.61(a)(4)(ii)(C) also makes
clear that a prepaid account issuer may still satisfy the exception in
new Sec. 1026.61(a)(4) even if it debits fees or charges from the
asset feature when there are insufficient or unavailable funds in the
asset feature to cover those fees or charges at the time they are
imposed, so long as those fees or charges are not the type of fees or
charges enumerated in new Sec. 1026.61(a)(4)(ii)(B) as discussed
above.
Thus, in order to qualify for the exception in new Sec.
1026.61(a)(4), a prepaid account issuer generally may not charge
additional fees or higher fees when credit is extended on the asset
feature of the prepaid account or there is a negative balance on the
asset feature of the prepaid account, except for fees or charges for
the actual costs of collecting the credit extended if otherwise
permitted by law. Provided it meets this limitation and the other
requirements of new Sec. 1026.61(a)(4), the prepaid account issuer
will not be a ``card issuer'' under final Sec. 1026.2(a)(7) and thus
the credit card rules in Regulation Z do not apply to such a credit
feature.
In addition, new comment 4(b)(11)-1.iii provides that fees charged
on the asset feature of the prepaid account in accordance with new
Sec. 1026.61(a)(4)(ii)(B) are not finance charges. This ensures that a
prepaid account issuer is not a ``creditor'' under the general
definition of ``creditor'' set forth in existing Sec. 1026.2(a)(17)(i)
as a result of charging these fees on the prepaid account.
The Bureau believes that many of the concerns raised by industry
commenters as discussed above with respect to the definition of
``finance charge'' have been addressed by creating new Sec.
1026.61(a)(4) and its treatment of credit-related charges in new Sec.
1026.61(a)(4)(ii)(B) and new comment 4(b)(11)-1.iii. As discussed
above, many industry commenters were concerned that even though they
did not intend to offer credit in connection with the prepaid account,
credit could result in certain circumstances, such as force pay
transactions as discussed in the section-by-section analysis of Sec.
1026.61 below. Because this credit could be extended, many commenters
were concerned that fees that generally applied to the prepaid account,
but were not specific to the overdraft credit, could be finance charges
under the proposal and thus would subject the prepaid account issuer to
the credit card rules under Regulation Z. Because of these concerns,
many industry commenters urged that that the Bureau not consider
certain fees to be finance charges, and thus, a prepaid account issuer
could continue to charge these fees on the prepaid account without
making the prepaid card also a credit card under the proposal.
For example, several commenters, including an industry trade
association, an issuing bank, a program manager, and a digital wallet
provider, indicated
[[Page 84184]]
that the term ``finance charge'' should not include per transaction
fees charged on a prepaid account for an extension of credit that are
the same amount as the fee that would be charged for transactions paid
entirely with funds available in the prepaid account. These industry
commenters also were concerned that if they generally charged the same
per transaction fee for all transactions paid using a prepaid account,
regardless of whether the transaction is paid entirely with funds
available in the prepaid account or is paid in whole or in part with
credit, a prepaid account issuer would need to waive those per
transaction fees for transactions resulting in an overdraft for a
prepaid card not to be a credit card under the proposal. Also, two
industry trade associations indicated that the term ``finance charge''
should only include fees or charges arising from the fact that the
transaction is an overdraft and specifically exclude other fees or
charges that are wholly unrelated to the fact that the transaction is
an overdraft, such as a fee for a balance inquiry at an ATM. These two
commenters argued that such unrelated fees or charges should not be
``finance charges'' even if they are imposed when the prepaid account
balance is negative. Another industry trade association indicated that
a monthly fee to hold the prepaid account should not be a ``finance
charge'' simply because it may be imposed when the balance on the
prepaid account is negative or because negative balances can occur on
the prepaid account.
The final rule addresses these concerns in a number of ways, so
long as the types of credit provided are limited to the narrow types
addressed in new Sec. 1026.61(a)(4). First, new Sec. 1026.61(a)(4)
does not require a prepaid account issuer to waive per transaction fees
imposed on the asset feature of the prepaid account if the amount of
the per transaction fee imposed for transactions involving credit is
not higher than the amount of the fee that is imposed for transactions
that only access funds in the asset feature of the prepaid account.
Second, under the exception in new Sec. 1026.61(a)(4), the final rule
provides that if a fee is not a fee enumerated in new Sec.
1026.61(a)(4)(ii)(B), the prepaid account issuer may still debit these
fees or charges from the asset feature when there are insufficient or
unavailable funds in the asset feature to cover those fees or charges
at the time they are imposed. Third, the final rule clarifies that
under this exception, a prepaid account issuer may charge a fee to hold
the prepaid account, so long as the amount of the fee or charge imposed
on the asset feature of the prepaid account is not higher based on
whether credit might be offered or has been accepted, whether or how
much credit the consumer has accessed, or the amount of credit
available.
In addition, as discussed above, new comment 4(b)(11)-1.iii
provides that fees charged on the asset feature of the prepaid account
in accordance with new Sec. 1026.61(a)(4)(ii)(B) are not finance
charges. This ensures that a prepaid account issuer is not a
``creditor'' under the general definition of ``creditor'' set forth in
existing Sec. 1026.2(a)(17)(i) as a result of charging these fees on
the prepaid account.
4(b)(11)(i)
New Sec. 1026.4(b)(11)(i) provides that with regard to a covered
separate credit feature and an asset feature on a prepaid account that
are both accessible by a hybrid prepaid-credit card, as defined in new
Sec. 1026.61, any fee or charge described in final Sec. 1026.4(b)(1)
through (10) imposed on the covered separate credit feature is a
finance charge, regardless of whether the separate credit feature is
structured as a credit subaccount of the prepaid account or a separate
credit account. Fees would be excluded from the definition of finance
charge if they are described in final Sec. 1026.4(c) through (e), as
applicable, although as discussed in more detail below, the Bureau is
narrowing certain of these existing exclusions as they are applied to
credit in connection with prepaid accounts. This approach is similar to
the approach to the definition of ``finance charge'' that currently
applies to credit card accounts generally, except the Bureau is
narrowing certain exclusions contained in Sec. 1026.4(c)(3) and (4) as
discussed in the section-by-section analysis of Sec. 1026.4(c) below.
Comment 4(b)(11)(i)-1 provides further guidance on this framework.
Specifically, it provides that any transaction charge imposed on a
cardholder by a card issuer on a covered separate credit feature
accessible by a hybrid prepaid-credit card is a finance charge. This
comment also provides that transaction charges that are imposed on the
asset feature of a prepaid account are subject to new Sec.
1026.4(b)(11)(ii) and related commentary, instead of new Sec.
1026.4(b)(11)(i).
New comment 4(b)(11)(i)-1 also clarifies that the treatment of
transaction fees on the separate covered credit feature is consistent
with the treatment of transaction fees on a credit card account, as
specified in existing comment 4(a)-4. As discussed in more detail in
the section-by-section analysis of Sec. 1026.4(a) above, existing
comment 4(a)-4 provides guidance on when transaction charges imposed on
credit card accounts are finance charges under Sec. 1026.4(a).\619\
Specifically, existing 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.
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\619\ Transaction charges that are imposed on checking accounts
or other transaction accounts (other than prepaid accounts) are
discussed in the section-by-section analysis of Sec. 1026.4(b)
above, and transaction charges imposed on the asset feature of a
prepaid account accessible by a hybrid prepaid-credit card are
discussed in the section-by-section analysis of Sec.
1026.4(b)(11)(ii) below.
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In the supplemental information accompanying the rule that adopted
this comment, the Board noted the inherent complexity of distinguishing
transactions that are ``comparable cash transactions'' to credit card
transactions from transactions that are not.\620\ For example, the
Board discussed the case where a card issuer imposes a transaction fee
on the credit card account for a cash advance obtained through an ATM.
The Board found that a transaction fee for a cash advance obtained
through an ATM would not always be a finance charge if fees that are
imposed on debit cards offered by the credit card issuer were
considered in applying the ``comparable cash transaction'' exception.
In particular,
[[Page 84185]]
whether the transaction fee for the cash advance is a finance charge
would depend on whether the credit card issuer provided asset accounts
and offered debit cards on those accounts and whether the fee exceeds
the fee imposed for a cash advance transaction through an ATM on such
asset accounts. The Board believed this type of distinction was not
helpful for consumers in understanding transaction fees imposed on
their credit card accounts. Thus, the Board adopted existing 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 existing 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 existing comment 4(b)(2)-1 addresses
situations distinct from those addressed by comment 4(a)-4.
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\620\ 74 FR 5244, 5263 (Jan. 29, 2009).
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With respect to whether a per transaction charge imposed on the
covered separate credit feature accessible by a hybrid prepaid-credit
card should be a finance charge, the Bureau believes that it is
appropriate to follow the same rules that generally apply to credit
cards, as set forth in existing comment 4(a)-4. Thus, consistent with
existing comment 4(a)-4, any transaction charge imposed on a cardholder
by a card issuer on a covered separate credit feature accessible by a
hybrid prepaid-credit card is a finance charge. With regard to a
covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card,
transaction charges that are imposed on the asset feature of a prepaid
account are subject to new Sec. 1026.4(b)(11)(ii) and related
commentary, instead of new Sec. 1026.4(b)(11)(i).
4(b)(11)(ii)
In contrast to the rule for fees imposed on a covered separate
credit feature accessible by a hybrid prepaid-credit card, new Sec.
1026.4(b)(11)(ii) provides that any fee or charge imposed on the asset
feature of a prepaid account is a finance charge only to the extent
that the amount of the fee or charge exceeds comparable fees or charges
imposed on prepaid accounts in the same prepaid account program that do
not have a credit feature accessible by a hybrid prepaid-credit card.
Fees described in final Sec. 1026.4(c) through (e), as applicable, are
excluded from the definition of finance charge, although, as discussed
in more detail below, the Bureau is narrowing certain of these existing
exclusions as they are applied to credit offered in connection with
prepaid accounts.
The Bureau's approach with regard to fees charged on an asset
feature accessible by a hybrid prepaid-credit card is consistent with
the comparable cash exception to the definition of finance charge. This
approach is similar to the existing approach that Regulation Z takes
outside the credit card context in exempting fees from the definition
of finance charge if they are comparable to fees charged on a checking
or other asset account for transactions that do not involve a credit
feature as discussed in final Sec. 1026.4(b)(2), although there are
important distinctions as discussed below.
Compared to the proposed approach, the Bureau believes that the
approach adopted in the final rule with respect to the asset feature
will make it easier for both prepaid account issuers and for consumers
to track and understand how the separate credit feature and asset
features operate in connection with a hybrid prepaid-credit card. The
Bureau is concerned that excluding all fees charged on an asset feature
from the definition of finance charge would invite prepaid account
issuers to structure their programs in ways that make it very difficult
for consumers to analyze the true cost of credit on a hybrid prepaid-
credit card. At the same time, the Bureau recognizes that certain fees
charged in conjunction with the operation of the prepaid asset feature
are not driven by credit use, and that it is useful to both prepaid
account issuers and consumers to differentiate those fees from other
charges. The Bureau believes that new Sec. 1026.4(b)(11)(ii)
appropriately balances these considerations by providing that with
regard to a covered separate credit feature and an asset feature on a
prepaid account that are both accessible by a hybrid prepaid-credit
card, fees or charges imposed on the asset feature of the prepaid
account are finance charges only to the extent that the amount of the
fee or charge exceeds comparable fees or charges imposed on prepaid
accounts in the same prepaid account program that do not have a covered
separate credit feature accessible by a hybrid prepaid-credit card.
Comparable Fees
While the Bureau's approach with regard to charges imposed on an
asset feature accessible by a hybrid prepaid-credit card is somewhat
similar to the rule provided in existing Sec. 1026.4(b)(2) with regard
to when transaction fees, service fees, and carrying fees imposed on
checking and other transaction accounts are finance charges under
Regulation Z, the final rule differs in one particularly important
respect: It provides detailed guidance in new comment 4(b)(11)(ii)-1
regarding how fees on prepaid accounts without a covered separate
credit feature should be compared to fees imposed on prepaid accounts
with a covered separate credit feature accessible by a hybrid prepaid-
credit card. This guidance is more detailed and more restrictive than
the guidance provided under final Sec. 1026.4(b)(2) with regard to
checking and transaction accounts other than prepaid accounts.
In developing these rules, as set forth in new Sec.
1026.61(a)(2)(i)(B) and new comment 61(a)(2)-4.ii, the Bureau was
conscious that there were two potentially distinct types of credit
extensions that could occur on a covered separate credit feature
accessible by a hybrid prepaid-credit card. The first type of credit
extension is where the hybrid prepaid-credit card accesses credit in
the course of authorizing, settling, or otherwise completing a
transaction conducted with the card to obtain goods or services, obtain
cash, or conduct P2P transfers. The second type of credit extension is
where a consumer makes a standalone draw or transfer of credit from the
covered separate credit feature, outside the course of any transactions
conducted with the card to obtain goods or service, obtain cash, or
conduct P2P transfers. For example, a consumer may use the prepaid card
at the prepaid account issuer's Web site to load funds from the covered
separate credit feature outside the course of a transaction conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers. Because the two scenarios involve different sets of
activities, the range of fees triggered is also likely to be different.
As discussed in more detail below, new comment 4(b)(11)(ii)-1 therefore
provides separate guidance on the comparable fees under new Sec.
1026.4(b)(11)(ii) with respect to each of the two types of credit
extensions.
New comment 4(b)(11)(ii)-1.i explains that new comment
4(b)(11)(ii)-1.ii and iii provides guidance with respect to comparable
fees under Sec. 1026.4(b)(11)(ii) for these two types of
[[Page 84186]]
credit extensions on a covered separate credit feature. New comment
4(b)(11)(ii)-1.ii provides guidance for credit extensions where the
hybrid prepaid-credit card accesses credit from the covered separate
credit feature in the course of authorizing, settling, or otherwise
completing a transaction conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers. In addition, new
comment 4(b)(11)(ii)-1.iii provides guidance for credit extensions
where a consumer draws or transfers credit from the covered separate
credit feature outside the course of a transaction conducted with the
card to obtain goods or services, obtain cash, or conduct P2P
transfers. New comment 4(b)(11)(ii)-1.ii and iii are discussed in more
detail below.
Credit extensions from the covered separate credit feature within
the course of a transaction. New comment 4(b)(11)(ii)-1.ii provides
guidance for credit extensions where the hybrid prepaid-credit card
accesses credit from the covered separate credit feature in the course
of authorizing, settling, or otherwise completing a transaction
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers. Specifically, new comment 4(b)(11)(ii)-1.ii
provides that where the hybrid prepaid-credit card accesses credit from
a covered separate credit feature in the course of authorizing,
settling, or otherwise completing such a transaction, any per
transaction fees imposed on the asset feature of the prepaid account,
including load and transfer fees, for such credit from the credit
feature should be compared to the per transaction fees for each
transaction to access funds in the asset feature of a prepaid account
that is in the same prepaid account program but does not have such a
credit feature. Thus, per transaction fees for a transaction that is
conducted to load or draw funds into a prepaid account from some other
source are not comparable for purposes of new Sec. 1026.4(b)(11)(ii).
To illustrate these principles, new comment 4(b)(11)(ii)-1.ii sets
forth several examples explaining when a finance charge is imposed on
the asset feature of a prepaid account in situations in which credit is
accessed from a covered separate credit feature in the course of
authorizing, settling, or otherwise completing a transaction conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers.
New comment 4(b)(11)(ii)-1.ii.A provides the following example:
Assume that a prepaid account issuer charges $0.50 on prepaid accounts
without a covered separate credit feature for each transaction that
accesses funds in the asset feature of prepaid accounts. Also, assume
that the prepaid account issuer charges $0.50 per transaction on the
asset feature of prepaid accounts in the same prepaid program where the
hybrid prepaid-credit card accesses credit from a covered separate
credit feature in the course of a transaction. In this case, the $0.50
per transaction fee imposed on the asset feature of the prepaid account
with a covered separate credit feature is not a finance charge because
it is a comparable fee to the $0.50 per transaction fee imposed on the
prepaid account without a covered separate credit feature.
Nonetheless, as described in new comment 4(b)(11)(ii)-1.ii.B, in
this example, if the prepaid account issuer instead charged $1.25 on
the asset feature of a prepaid account for each transaction where the
hybrid prepaid-credit card accesses credit from the covered separate
credit feature in the course of the transaction, the additional $0.75
is a finance charge.
As another example set forth in new comment 4(b)(11)(ii)-1.ii.C,
assume a prepaid account issuer charges $0.50 on prepaid accounts
without a covered separate credit feature for each transaction that
accesses funds in the asset feature of prepaid accounts. Assume also
that the prepaid account issuer charges both a $0.50 per transaction
fee and a $1.25 transfer fee on the asset feature of prepaid accounts
in the same prepaid program where the hybrid prepaid-credit card
accesses credit from a covered separate credit feature in the course of
a transaction. In this case, both fees charged on a per-transaction
basis for the credit transaction (i.e., a combined fee of $1.75 per
transaction) must be compared to the $0.50 per transaction fee to
access funds in the asset feature of the prepaid account without a
covered separate credit feature. Accordingly, the $1.25 excess is a
finance charge.
New comment 4(b)(11)(ii)-1.ii.D provides another example. Under
this example, assume a prepaid account issuer charges both a $0.50 fee
for each transaction that accesses funds in the asset feature of
prepaid accounts without a covered separate credit feature, and charges
a load fee of $1.25 whenever funds are transferred or loaded from a
separate asset account, such as from a deposit account via a debit
card, in the course of a transaction on prepaid accounts without a
covered separate credit feature. Assume also that the prepaid account
issuer charges both a $0.50 per transaction fee and a $1.25 transfer
fee on the asset feature of prepaid accounts in the same prepaid
program when the hybrid prepaid-credit card accesses credit from a
covered separate credit feature in the course of a transaction. In this
case, both fees charged on a per-transaction basis for the credit
transaction (i.e., a combined fee of $1.75 per transaction) must be
compared to the $0.50 per transaction fee to access funds in the asset
feature of the prepaid account without a covered separate credit
feature. Per transaction fees for a transaction that is conducted to
load or draw funds into a prepaid account from some other source (in
this example, the $1.25 fee to load funds from another asset account)
are not comparable for purposes of new Sec. 1026.4(b)(11)(ii).
Accordingly, the $1.25 excess is a finance charge.
The Bureau also notes that the per transaction fee for a credit
extension in the course of a transaction from a covered separate credit
feature cannot be compared to a fee for declining to pay a transaction
that is imposed on a prepaid account without such a credit feature in
the same prepaid account program.
The Bureau believes that the above standard for determining
comparable fees with respect to fees or charges imposed on the asset
feature of prepaid accounts accessible by hybrid prepaid-credit cards
will help prevent evasion of the rules set forth in the final rule with
respect to hybrid prepaid-credit cards. The Bureau believes that many
prepaid cardholders who wish to use covered separate credit features
may not have other deposit accounts or savings accounts from which they
can transfer funds to prevent an overdraft on the prepaid account in
the course of authorizing, settling, or otherwise completing a
transaction to obtain goods or services, obtain cash, or conduct P2P
transfers. As a result, the Bureau does not believe that a per
transaction fee for credit drawn or transferred from a covered separate
credit feature accessible by a hybrid prepaid-credit card during the
course of a transaction should be allowed to be compared with a per
transaction fee for a service that many prepaid cardholders who wish to
use covered separate credit features may not be able to use.
The Bureau is concerned that if it permitted such a comparison,
card issuers could charge a substantial fee to transfer funds from the
checking account or savings account during the course of a transaction
using the prepaid account (which many prepaid cardholders who wish to
use covered separate credit features may not be able to use as a
practical matter) and then
[[Page 84187]]
charge that same substantial per transactions fees for credit drawn or
transferred from the covered separate credit feature during the course
of a transaction without such fees being considered a finance charge.
This could allow the prepaid account issuer to avoid charging a finance
charge and avoid the application of the Credit CARD Act provisions that
are generally set forth in subpart G, such as the restriction on fees
set forth in Sec. 1026.52. For this reason, the Bureau believes that
it is appropriate to limit the comparable fee in this case to per
transaction fees imposed on prepaid accounts for transactions that
access funds in the prepaid account in the same prepaid account program
that does not have a covered separate credit feature. All prepaid
accountholders can use prepaid accounts to make transactions that
access available funds in the prepaid account, so these types of
transactions will be available to all prepaid accountholders.
Credit extensions from a covered separate credit feature outside
the course of a transaction. New comment 4(b)(11)(ii)-1.iii provides
guidance for credit extensions where a consumer draws or transfers
credit from the covered separate credit feature outside the course of a
transaction conducted with the card to obtain goods or service, obtain
cash, or conduct P2P transfers, as discussed above.
New comment 4(b)(11)(ii)-1.iii provides that load or transfer fees
imposed for draws or transfers of credit from the covered separate
credit feature outside the course of a transaction are compared only
with fees, if any, to load funds as a direct deposit of salary from an
employer or a direct deposit of government benefits that are charged on
prepaid accounts without a covered separate credit feature. Fees
imposed on prepaid accounts without a covered separate credit feature
for a one-time load or transfer of funds from a separate asset account
or from a non-covered separate credit feature are not comparable for
purposes of new Sec. 1026.4(b)(11)(ii).
New comment 4(b)(11)(ii)-1.iii provides examples to illustrate this
guidance. New comment 4(b)(11)(ii)-1.iii.A provides the following
example: Assume a prepaid account issuer charges a $1.25 load fee to
transfer funds from a non-covered separate credit feature, such as a
non-covered separate credit card account, into prepaid accounts that do
not have a covered separate credit feature and does not charge a fee
for a direct deposit of salary from an employer or a direct deposit of
government benefits on those prepaid accounts. Assume the prepaid
account issuer charges $1.25 on the asset feature of a prepaid account
with a covered separate credit feature to load funds from the covered
separate credit feature outside the course of a transaction. In this
case, the $1.25 fee imposed on the asset feature of the prepaid account
with a covered separate credit feature is a finance charge because no
fee is charged for a direct deposit of salary from an employer or a
direct deposit of government benefits on prepaid accounts without such
a credit feature. Fees imposed on prepaid accounts without a covered
separate credit feature for a one-time load or transfer of funds from a
non-covered separate credit feature (in this example, the $1.25 fee to
load funds from the non-covered separate credit feature) are not
comparable for purposes of new Sec. 1026.4(b)(11)(ii).
In a second example described in new comment 4(b)(11)(ii)-1.iii.B,
assume that a prepaid account issuer charges a $1.25 load fee for a
one-time transfer of funds from a separate asset account, such as from
a deposit account via a debit card, to a prepaid account without a
covered separate credit feature and does not charge a fee for a direct
deposit of salary from an employer or a direct deposit of government
benefits on those prepaid accounts. Assume the prepaid account issuer
charges $1.25 on the asset feature of a prepaid account with a covered
separate credit feature to load funds from the covered separate credit
feature outside the course of a transaction. In this case, the $1.25
fee imposed on the asset feature of the prepaid account with a covered
separate credit feature is a finance charge because no fee is charged
for a direct deposit of salary from an employer or a direct deposit of
government benefits on prepaid accounts without a covered separate
credit feature. Fees imposed on prepaid accounts without a covered
separate credit feature for a one-time load or transfer of funds from a
separate asset account (in this example, the $1.25 fee to load funds
form the separate asset account) are not comparable for purposes of new
Sec. 1026.4(b)(11)(ii).
As an initial matter, the Bureau believes that it is appropriate to
compare fees imposed to load or transfer credit from a covered separate
credit feature outside the course of transactions conducted with the
card to fees, if any, for a direct deposit of salary from an employer
or a direct deposit of government benefits on prepaid accounts with no
covered separate credit feature because those direct deposits also
occur outside the course of transactions conducted with the card that
access funds in the prepaid account. Thus, the Bureau believes that
these two types of situations are comparable because they both occur
outside the course of transactions conducted with the card to obtain
goods or service, obtain cash, or conduct P2P transfers.
The Bureau recognizes that there may be other types of loads or
transfers of asset funds or credit that can occur outside the course of
a transaction, including loads or transfers of funds from other asset
accounts, such as checking accounts or savings accounts, or loads or
transfers of credit from other credit accounts that are not covered
separate credit features. Nonetheless, the Bureau believes that many
prepaid accountholders who wish to use covered separate credit features
may not have other asset accounts, such as checking accounts or savings
accounts, or other credit accounts, from which they can draw or
transfer asset funds or credit for deposit into the prepaid account
outside the course of a transaction conducted with the card to obtain
goods or service, obtain cash, or conduct P2P transfers. As a result,
the Bureau does not believe that load or transfer fees for credit from
a covered separate credit feature accessible by a hybrid prepaid-credit
card outside the course of a transaction should be allowed to be
compared with a load or transfer fees from an asset account, or non-
covered separate credit feature, outside the course of a transaction.
The Bureau is concerned that if it did so, card issuers could
charge a substantial fee to load or transfer funds from the checking
account or savings account or a non-covered separate credit feature
(which many prepaid cardholders who wish to use covered separate credit
features may not be able to use as a practical matter) and then charge
that same substantial fee for load or transfer fees for credit loaded
or transferred from the covered separate credit feature outside the
course of a transaction without that fee being a finance charge. This
could allow the prepaid account issuer to avoid charging a finance
charge and avoid the application of the Credit CARD Act provisions that
are generally set forth in subpart G, such as the restriction on fees
set forth in Sec. 1026.52. For this reason, the Bureau believes that
it is appropriate to limit the comparable fee in this case to fees, if
any, to load funds as a direct deposit of salary from an employer or a
direct deposit of government benefits that are charged on prepaid
accounts without a covered separate credit feature. The Bureau believes
that such direct deposit methods commonly are
[[Page 84188]]
offered on most types of prepaid accounts and that most prepaid
accountholders who wish to use covered separate credit features are
able to avail themselves of these methods.\621\
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\621\ The Bureau understands that prepaid account issuers
currently offering overdraft services condition consumer eligibility
on receipt of a regularly-occurring direct deposit in excess of a
specified threshold.
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Relation to Regulation E Sec. 1005.18(g)
New comment 4(b)(11)(ii)-2 provides a cross-reference to a related
provision in final Regulation E Sec. 1005.18(g). As discussed in more
detail in the section-by-section analysis of Regulation E Sec.
1005.18(g) above, this provision only permits a financial institution
to charge the same or higher fees on the asset feature of a prepaid
account with a covered separate credit feature accessible by a hybrid
prepaid-credit card than the amount of a comparable fee it charges on
prepaid accounts in the same prepaid account program without such a
credit feature. Under that provision, a financial institution cannot
charge a lower fee on the asset feature of a prepaid account with a
covered separate credit feature accessible by a hybrid prepaid-credit
card than the amount of a comparable fee it charges on prepaid accounts
without such a credit feature that are in the same prepaid account
program.
4(c) Charges Excluded From the Finance Charge
Existing Sec. 1026.4(c) provides a list of charges that are
excluded from the definition of finance charge under Sec. 1026.4. The
charges listed in existing 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.
The proposal would have provided that the exclusion from the
definition of finance charge in existing Sec. 1026.4(c)(3) for
overdraft services on checking accounts would not have applied to
credit accessed by a prepaid card. It also would have provided that the
exclusion for participation fees in existing Sec. 1026.4(c)(4) would
not apply to credit accessed by a prepaid card.
As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section, many industry commenters urged the Bureau to
provide that the exception in Sec. 1026.4(c)(3) applies to overdraft
credit accessed in connection with prepaid accounts. One credit union
service organization also indicated that the Bureau should provide that
the exception in existing Sec. 1026.4(c)(4) should apply to annual and
other periodic fees to hold a credit plan in connection with a prepaid
account.
Several consumer group commenters stated that the exception in
Sec. 1026.4(c)(1) for application fees for credit features should not
apply to credit accessed by prepaid cards. One consumer group commenter
urged that the exceptions in existing Sec. 1026.4(c)(2) for late fees,
over the limit fees, and returned payment fees should not apply to
credit accessed by prepaid cards. This commenter expressed concern that
prepaid account issuers might use such fees as a back-end method of
credit pricing, and stated that the Bureau should either include these
fees in definition of ``finance charge'' or make clear that they cannot
be charged on prepaid accounts.
As discussed in more detail below, the Bureau is amending existing
Sec. 1026.4 and its commentary to provide that the exclusion in
existing Sec. 1026.4(c)(3) does not apply to credit offered in
connection with a prepaid account and that the exclusion in existing
Sec. 1026.4(c)(4) does not apply to a fee to participate in a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in new Sec. 1026.61, regardless of whether this fee is imposed
on the credit feature or on the asset feature of the prepaid account.
The Bureau has not adopted any changes to the exception in existing
Sec. 1026.4(c)(1) related to application fees, or to the exception in
existing Sec. 1026.4(c)(2) related to late fees, over the limit fees,
returned check fees, and other fees for delinquency, default, or a
similar occurrence. The Bureau believes these changes are outside the
scope of the proposal and does not believe that these changes are
warranted at this time. The Bureau will continue to monitor whether
changes to these exceptions with respect to covered separate credit
features accessible by hybrid prepaid-credit cards are needed.
4(c)(3)
Existing Sec. 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 in the Overview of the Final Rule's Amendments to
Regulation Z section above, the Board developed this exception to the
term ``finance charge'' 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 the Final Rule's Amendments to
Regulation Z section, the Bureau intended generally that, under its
proposal, Regulation Z would apply to credit accessed by prepaid cards
that are credit cards. Thus, the Bureau proposed to revise existing
Sec. 1026.4(c)(3) and existing comment 4(c)(3)-1 to specify that this
provision would not have applied to credit accessed by a prepaid card.
As a result, under the proposal, charges imposed by a financial
institution for paying items that overdraw a prepaid account would have
been 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 such an overdraft would have been a
creditor.
As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section, many industry commenters indicated that the
Bureau should provide that the exception in existing Sec. 1026.4(c)(3)
applies to overdraft credit accessed in connection with prepaid
accounts. For the reasons discussed in the Overview of the Final Rule's
Amendments to Regulation Z section, the Bureau is revising existing
Sec. 1026.4(c)(3) and existing comment 4(c)(3)-1 to provide that the
exception in that paragraph does not apply to credit offered in
connection with a prepaid account as defined in Sec. 1026.61.\622\ The
Bureau also is adding new comment 4(c)(3)-2 to cross-reference new
comment 4(b)(11)-1 for guidance on when fees imposed with regard to
credit accessed in connection with a prepaid account as defined in
Sec. 1026.61 are finance charges.
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\622\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed Sec. 1026.4(c)(3) and comment 4(c)(3)-1
would have provided that the exception set forth in Sec.
1026.4(c)(3) would not have applied to credit accessed by such
account numbers. For the reasons set forth in the section-by-section
analysis of Sec. 1026.2(a)(15)(i) above, the final rule does not
adopt the proposed changes to Sec. 1026.4(c)(3) and comment
4(c)(3)-1 related to these account numbers.
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[[Page 84189]]
The Bureau notes that existing Sec. 1026.4(c)(3) focuses on
written agreements in determining whether charges imposed by a
financial institution for paying items that overdraw an account are
finance charges. As discussed in the Overview of the Final Rule's
Amendments to Regulation Z section, the Bureau believes that whether
overdraft credit structured as a negative balance on a prepaid account
is covered under Regulation Z should not turn on whether there is an
agreement to extend such overdraft credit. Instead, new Sec.
1026.61(a)(4) sets forth the circumstances in which overdraft credit
structured as a negative balance on a prepaid account can be excluded
from Regulation Z. As discussed in more detail in the section-by-
section analysis of Sec. 1026.61(a)(4) below, the Bureau provides that
a prepaid card is not a hybrid prepaid-credit card (and is not a credit
card under Regulation Z) where the prepaid card accesses incidental
credit in the form of a negative balance on the asset account where the
prepaid account issuer generally does not charge credit-related fees
for the credit. If the conditions of the exception in new Sec.
1026.61(a)(4) are met, the prepaid account issuer will not be a ``card
issuer'' under final Sec. 1026.2(a)(7) and thus the credit card rules
in Regulation Z do not apply to such overdraft credit features. In
addition, new comment 4(b)(11)-1.iii provides that fees charged on the
asset feature of the prepaid account in accordance with the exception
in new Sec. 1026.61(a)(4) are not finance charges. This ensures that
the prepaid account issuer is not a ``creditor'' under the general
definition of ``creditor'' set forth in existing Sec. 1026.2(a)(17)(i)
as a result of charging these fees on the prepaid account.
4(c)(4)
Existing Sec. 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. Existing
comment 4(c)(4)-1 explains that the participation fees described in
existing 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 such a fee may not be treated
as a participation fee.
The Bureau proposed to amend existing Sec. 1026.4(c)(4) and
existing comment 4(c)(4)-1 to provide that this exception would not
have applied to credit accessed by a prepaid card. One credit union
service organization indicated that the Bureau should provide that the
exception in existing Sec. 1026.4(c)(4) should apply to annual and
other periodic fees to hold a credit plan in connection with a prepaid
account. This commenter argued that defining the maintenance fee as a
finance charge is confusing to consumers, and it is not what consumers
expect ``finance charges'' to be. One consumer group supported the
Bureau's proposal to include participation fees within the definition
of ``finance charge'' in Regulation Z when those fees are charged in
connection with credit on prepaid cards. This commenter argued that
participation fees have been used to disguise the cost of credit. This
commenter suggested that including participation fees in the definition
of ``finance charge'' would prevent these evasions.
The Bureau is adopting proposed Sec. 1026.4(c)(4) with revisions
to be consistent with new Sec. 1026.61. Specifically, the Bureau is
amending existing Sec. 1026.4(c)(4) to provide that this exception
does not apply to a fee to participate in a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in new
Sec. 1026.61, regardless of whether this fee is imposed on the credit
feature or on the asset feature of the prepaid account.\623\
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\623\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed Sec. 1026.4(c)(4) would have provided that
the exception set forth in Sec. 1026.4(c)(4) would not have applied
to credit accessed by such account numbers. For the reasons set
forth in the section-by-section analysis of Sec. 1026.2(a)(15)(i)
above, the final rule does not adopt the proposed changes to Sec.
1026.4(c)(4) related to these account numbers.
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The Bureau believes that the exception in existing Sec.
1026.4(c)(4) is not dictated by TILA's definition of ``finance
charge.'' Rather, the Board added this exception to existing Sec.
1026.4(c)(4) in 1981 based on an interpretation letter that the Board
had previously issued.\624\ 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 to or as a condition of any specific extension of credit.\625\
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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\624\ 46 FR 20848, 20855 (Apr. 7, 1981).
\625\ 36 FR 16050 (Aug. 19, 1971).
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As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section, the Bureau intends generally to cover covered
separate credit features accessible by hybrid prepaid-credit cards as
``open-end credit'' under Regulation Z. The Bureau believes these
credit features 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) above 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 covered separate credit features accessible by hybrid
prepaid-credit cards could be significant costs to consumers, even if
interest or transaction fees are not charged with respect to the credit
features, and thus the protections in Regulation Z that apply to open-
end credit, including those in subpart G, should apply to covered
separate credit features 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 accessible by
a credit card will be beneficial to consumers using such credit
features. For example, existing 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, existing 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 will provide
important protections to consumers to help ensure that consumers using
covered separate credit features accessible by hybrid prepaid-credit
cards where only annual or other periodic fees are imposed for
[[Page 84190]]
participation in the credit feature do not become overextended in using
credit, and that the periodic fees imposed during the first year
generally do not exceed more than 25 percent of the initial credit
line.
Thus, the Bureau is revising existing Sec. 1026.4(c)(4) and
existing comment 4(c)(4)-1 to provide that the exception for
participation fees from the definition of ``finance charge'' does not
apply in relation to a covered separate credit feature accessible by a
hybrid prepaid-credit card, regardless of whether this fee is imposed
on the credit feature or on the asset feature of the prepaid account.
The Bureau also is adding new comment 4(c)(4)-3 to cross-reference new
comment 4(b)(11)-1 for guidance on when fees imposed in connection with
credit accessed in connection with a prepaid account as defined in
Sec. 1026.61 are finance charges.
As discussed above, the Bureau is amending existing Sec.
1026.4(c)(4) to provide that the exclusion in that paragraph does not
apply to a fee to participate in a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in new Sec.
1026.61. This change to existing Sec. 1026.4(c)(4) is limited to fees
to participate in a covered separate credit feature accessible by a
hybrid prepaid-credit card, rather than covering all credit in
connection with a prepaid account. The Bureau intends to preserve
existing Sec. 1026.4(c)(4) with respect to non-covered separate credit
features for which a participation fee is charged. Thus, the exclusion
of participation fees from the definition of finance charge in final
Sec. 1026.4(c)(4) would still apply with respect to participation fees
imposed on non-covered separate credit features, as applicable.
When a prepaid account issuer offers incidental credit, new Sec.
1026.61(a)(4) generally does not allow credit-related fees to be
charged for the incidental credit, including fees or charges for
holding a negative balance on the asset feature, or for the
availability of credit, whether imposed on a one-time or periodic
basis. Thus, if a prepaid account issuer did charge these participation
fees, it would fall outside the scope of new Sec. 1026.61(a)(4) and
would become subject to the general rules for hybrid prepaid-credit
cards including new Sec. 1026.4(c)(4). This prepaid account issuer
would be subject to new Sec. 1026.61(b) and thus must structure the
credit feature as a covered separate credit feature, as well as being
subject to new Sec. 1026.4(c)(4).
Subpart B--Open-End Credit
The provisions in subpart B generally apply to a ``creditor,'' as
defined in existing Sec. 1026.2(a)(17), that extends ``open-end
credit,'' as defined in existing Sec. 1026.2(a)(20). As set forth in
existing Sec. 1026.2(a)(17)(iii) and (iv), the provisions of subpart B
also generally apply to card issuers that extend credit. These card
issuers generally would be ``creditors'' for purposes of subpart B.
These provisions generally require that such creditors must provide
account-opening disclosures and periodic statement disclosures. These
provisions also set forth rules for the treatment of payments and
credit balances as well as procedures for resolving credit billing
errors. While most of the provisions in subpart B apply generally to
open-end credit, as described below, some of the provisions only apply
to a ``credit card account under an open-end (not home-secured)
consumer credit plan,'' as that term is defined in existing Sec.
1026.2(a)(15)(ii). In addition, subpart B also sets forth, in existing
Sec. 1026.12, provisions applicable to credit card transactions; those
provisions generally apply to a ``card issuer'' as defined in existing
Sec. 1026.2(a)(7).
As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section above and in more detail in the section-by-section
analysis of Sec. 1026.61 below, the Bureau generally intends to cover
under Regulation Z overdraft credit features in connection with prepaid
accounts where the credit features are offered by the prepaid account
issuer, its affiliates, or its business partners. New Sec. 1026.61(b)
generally requires that such credit features be structured as separate
subaccounts or accounts, distinct from the prepaid asset account, to
facilitate transparency and compliance with various Regulation Z
requirements. New Sec. 1026.61(a)(2)(i) provides that a prepaid card
is a ``hybrid prepaid-credit card'' with respect to a separate credit
feature if the card meets the following two conditions: (1) The card
can be used from time to time to access credit from the separate credit
feature in the course of authorizing, settling, or otherwise completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers; and (2) the separate credit
feature is offered by the prepaid account issuer, its affiliate, or its
business partner. New Sec. 1026.61(a)(2)(i) defines such a separate
credit feature accessible by a hybrid prepaid-credit card as a
``covered separate credit feature.'' Thus, the hybrid prepaid-credit
card can access both the covered separate credit feature and the asset
feature of the prepaid account, and the hybrid prepaid-credit card is a
credit card under Regulation Z with respect to the covered separate
credit feature.
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau also has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. First, new Sec. 1026.61(a)(2)(ii) provides
that a prepaid card is not a hybrid prepaid-credit card with respect to
a separate credit feature that does not meet both of the conditions
above, for example, where the credit feature is offered by an unrelated
third party that is not the prepaid account issuer, its affiliate or
its business partner. Such credit features are defined as ``non-covered
separate credit features,'' as discussed in the section-by-section
analysis of Sec. 1026.61(a)(2) below. Second, under new Sec.
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card
when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Sec. 1026.61 or a
credit card under final Sec. 1026.2(a)(15)(i) when it accesses credit
from these types of credit features. For more detailed explanations of
when prepaid cards are not credit cards under Regulation Z, see the
section-by-section analyses of Sec. 1026.61(a)(2) and (4) below.
As discussed in the section-by-section analysis of Sec.
1026.2(a)(20) above, the Bureau anticipates that most covered separate
credit features accessible by hybrid prepaid-credit cards will meet the
definition of ``open-end credit'' and that credit will not be home-
secured. See the section-by-section analysis of the definition of
``open-end-credit'' in Sec. 1026.2(a)(20), the definition of ``finance
charge'' in Sec. 1026.4, and the definition of ``hybrid prepaid-credit
card'' in Sec. 1026.61(a).
In addition, as discussed in the section-by-section analyses of
Sec. Sec. 1026.2(a)(7), (a)(15)(i) and (ii), and 1026.61(a), a covered
separate credit feature accessible by a hybrid prepaid-credit card that
is an open-end (not home-secured) credit plan is a ``credit card
account under an open-end (not home-secured) consumer credit plan''
under final Sec. 1026.2(a)(15)(ii) and the person issuing the hybrid
prepaid-credit card (and the person offering the covered separate
credit feature) are ``card issuers'' under final Sec. 1026.2(a)(7).
For a discussion of how card issuers would still be subject to certain
[[Page 84191]]
provisions in subpart B if they extend credit that is not ``open-end
credit,'' see the section-by-section analysis of Sec. 1026.2(a)(17)
above.
The Bureau is revising subpart B to provide guidance on how certain
provisions in subpart B apply to covered separate credit features
accessible by hybrid prepaid-credit cards. Specifically, the final rule
provides additional guidance regarding: (1) Disclosure requirements
applicable to account opening in final Sec. 1026.6; (2) disclosure
requirements applicable to periodic statements in final Sec. Sec.
1026.5, 1026.7, and 1026.8; (3) treatment of payment requirements as
set forth in final Sec. 1026.10; and (4) billing error procedures in
final Sec. 1026.13.
The Bureau also is revising certain provisions that apply to credit
card transactions in final Sec. 1026.12 to provide guidance on how
those provisions apply to credit card transactions that are made from a
covered separate credit feature accessible by a hybrid prepaid-credit
card. Specifically, the final rule provides additional guidance on: (1)
Unsolicited issuance of a credit card in final Sec. 1026.12(a); (2)
the right of a cardholder to assert claims or defenses against a card
issuer in final Sec. 1026.12(c); and (3) the prohibition on offsets by
a card issuer in final Sec. 1026.12(d).
To facilitate compliance, the Bureau also is clarifying that with
respect to a non-covered separate credit feature that is accessible by
a prepaid card, as defined in new Sec. 1026.61, fees or charges
imposed on the asset feature of the prepaid account are not ``charges
imposed as part of the plan'' under final Sec. 1026.6(b)(3) with
respect to the non-covered separate credit feature, and thus these fees
or charges are not required to be disclosed under Regulation Z with
respect to the non-covered separate credit feature. In addition, the
Bureau is clarifying that fees or charges that are not charges imposed
as part of the plan are not subject to the offset restrictions set
forth in final Sec. 1026.12(d). As discussed in the section-by-section
analyses of Regulation E Sec. 1005.18(b)(4)(ii) and (f)(1) above, fees
or charges imposed on the asset feature of the prepaid account are
required to be disclosed under Regulation E.
Section 1026.5 General Disclosure Requirements
5(b) Time of Disclosures
5(b)(2) Periodic Statements
5(b)(2)(ii) Timing Requirements
TILA sections 127(b) and 163, which are implemented in existing
Sec. 1026.5(b)(2), set forth the timing requirements for providing
periodic statements for open-end credit accounts and credit card
accounts.\626\ Existing Sec. 1026.5(b)(2)(i) provides that a creditor
that extends open-end credit or credit accessible by a credit card
generally is required to provide a periodic statement, as required by
existing Sec. 1026.7, for each billing cycle at the end of which an
account has a debit or credit balance of more than $1 or on which a
finance charge has been imposed.
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\626\ 15 U.S.C. 1637(b) and 1666b; see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------
Existing Sec. 1026.5(b)(2)(ii)(A) provides that for credit card
accounts under an open-end (not home-secured) consumer credit plan, a
card issuer must adopt reasonable procedures designed to ensure that:
(1) Periodic statements for those accounts are mailed or delivered at
least 21 days prior to the payment due date disclosed on the statement
pursuant to existing Sec. 1026.7(b)(11)(i)(A); and (2) the card issuer
does not treat as late for any purpose 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. See the section-by-section analysis of Sec. 1026.2(a)(15)(ii)
above for a discussion of the term ``credit card account under an open-
end (not home-secured) consumer credit plan.''
TILA sections 127(b)(12) and (o), which are implemented in existing
Sec. 1026.7(b)(11)(i)(A), set forth requirements related to the
disclosure of payment due dates on periodic statements in the case of a
credit card account under an open-end consumer credit plan.\627\
Existing Sec. 1026.7(b)(11)(i)(A) provides that for a credit card
account under an open-end (not home-secured) consumer credit plan, a
card issuer must provide on each periodic statement the due date for a
payment. In addition, the due date disclosed must be the same day of
the month for each billing cycle.
---------------------------------------------------------------------------
\627\ 15 U.S.C. 1637(b)(12), (o).
---------------------------------------------------------------------------
Although TILA sections 127(b)(12) and (o) do not, on their face,
exclude charge card accounts that are open-end credit, the Board, in
implementing these provisions, set forth in existing Sec.
1026.7(b)(11)(ii)(A) that the payment due date requirement in existing
Sec. 1026.7(b)(11)(i)(A) does not apply to periodic statements
provided solely for charge card accounts. Thus, as explained in
existing comment 5(b)(2)(ii)-4.i, the requirement in existing Sec.
1026.5(b)(2)(ii)(A)(1) 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
does not apply to charge card accounts. In the supplemental information
to the final rule adopting the exclusion for charge cards from the due
date disclosure requirement, the Board noted that charge cards are
typically products where outstanding balances cannot be carried over
from one billing cycle to the next and are payable when the periodic
statement is received.\628\ Therefore, the contractual payment due date
for a charge card account is the date on which the consumer receives
the periodic statement (although charge card issuers generally request
that the consumer make payment by some later date). If the due date
disclosure requirement and the 21-day rule for delivery of periodic
statements applied to charge card account, the card issuer could no
longer require payment upon delivery of the statement. Thus, the Board
concluded that it would not be appropriate to apply the payment due
date disclosure in existing Sec. 1026.7(b)(11)(i)(A) to periodic
statements provided solely for charge card accounts.
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\628\ 75 FR 7658 at 7672-7673, Feb. 22, 2010.
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The Bureau's Proposal
The proposal would have amended existing Sec. 1026.7(b)(11)(ii)(A)
to provide that the due date disclosure does apply to periodic
statements provided solely for charge card accounts where the charge
card account is accessed by a charge card that is a prepaid card and
the charge card account is a credit card account under an open-end (not
home-secured) consumer credit plan. Thus, under the proposal, the due
date disclosure in proposed Sec. 1026.7(b)(11)(i)(A) would have
applied to periodic statements provided for a credit card account under
an open-end (not home-secured) consumer credit plan, including a charge
card account, where the account is accessed by a credit card that is a
prepaid card. Thus, as a technical revision, the proposal would have
revised existing comment 5(b)(2)(ii)-4.i to reflect the proposed
changes to existing Sec. 1026.7(b)(11) that the due date requirement
would apply to a charge card account accessed by a prepaid card that is
a charge card where the charge card account is a credit card account
under an open-end (not home-secured) consumer credit plan.
[[Page 84192]]
Comments Received
One industry trade association indicated that the Bureau should not
subject prepaid cards that are charge cards to rules that do not apply
to other types of charge cards but did not specify why this specific
proposal was not necessary.
The Final Rule
The Bureau is modifying comment 5(b)(2)(ii)-4.i as proposed with
technical revisions to clarify the intent of the comment and to be
consistent with new Sec. 1026.61. As discussed in the section-by-
section analysis of Sec. 1026.7(b)(11) below, the final rule provides
that the due date disclosure set forth in final Sec.
1026.7(b)(11)(i)(A) applies to periodic statements provided for a
covered separate credit feature accessible by a hybrid prepaid-credit
card that is a charge card account where the charge card account is a
credit card account under an open-end (not home-secured) consumer
credit plan. Thus, as a technical revision, the final rule revises
comment 5(b)(2)(ii)-4.i to state that the exception from the disclosure
requirements in final Sec. 1026.7(b)(11) for charge card accounts does
not apply to covered separate credit features that are charge card
accounts accessible by hybrid prepaid-credit cards as defined in new
Sec. 1026.61.\629\ As discussed in more detail in the section-by-
section analysis of Sec. 1026.61(a)(2) below, a covered separate
credit feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
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\629\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 5(b)(2)(ii)-4.i would been revised to
reflect the proposed changes to Sec. 1026.7(b)(11) that the due
date requirement does apply to charge card accounts accessed by
these account numbers. For the reasons set forth in the section-by-
section analysis of Sec. 1026.2(a)(15)(i) above, the final rule
does not adopt the proposed changes to comment 5(b)(2)(ii)-4.i
related to these account numbers.
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As discussed in more detail in the section-by-section analyses of
Sec. Sec. 1026.7(b)(11) and 1026.12(d)(3) below, the Bureau believes
that it is important to provide strong protections to prepaid
accountholders to ensure that they can control when and if funds are
swept from their accounts to repay credit extended through a covered
separate credit feature. In particular, the Bureau believes that for
all covered separate credit features--including charge card accounts--
accessible by a hybrid prepaid-credit card, where these credit features
are credit card accounts under an open-end (not home-secured) consumer
credit plan, the card issuer should be required to adopt reasonable
procedures designed to ensure that periodic statements for these credit
features are mailed or delivered at least 21 days prior to the payment
due date disclosed on the statement, pursuant to final Sec.
1026.7(b)(11)(i)(A). As discussed in more detail in the section-by-
section analyses of Sec. Sec. 1026.7(b)(11) and 1026.12(d)(3), the
Bureau believes that this requirement, along with changes to the offset
prohibition in final Sec. 1026.12(d)(3), will ensure that the due date
of the covered separate credit feature accessible by a hybrid prepaid-
credit card is not so closely aligned with the timing of when funds are
deposited into the prepaid account that card issuers can circumvent
TILA's offset prohibition.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.12(d)(3) below, the Bureau is concerned that with respect to
covered separate credit features accessible by hybrid prepaid-credit
cards, some card issuers may attempt to circumvent the prohibition on
offsets by both specifying that each transaction on the covered
separate credit feature is due on the date on which funds are
subsequently deposited into the account and obtaining a consumer's
written authorization to deduct all or part of the cardholder's credit
card debt from the prepaid account when deposits are received into the
prepaid account. The Bureau believes that card issuers that offer
covered separate credit features accessible by hybrid prepaid-credit
cards may rely significantly on obtaining a consumer's written
authorization of daily or weekly debits to the prepaid account to repay
the credit card debt given the overall creditworthiness of prepaid
accountholders who choose to rely on covered separate credit features.
The Bureau also believes that card issuers that offer covered separate
credit features accessible by hybrid prepaid-credit cards may be able
to obtain a consumer's written authorization to debit the prepaid
account more easily than for other types of credit card accounts
because consumers may believe that, in order to obtain credit, they
must provide written authorization to allow a card issuer to deduct all
or part of the cardholder's credit card debt from the linked prepaid
account.
Section 1026.6 Account-Opening Disclosures
TILA section 127(a) requires creditors to provide consumers with
information about key credit terms before opening an open-end account
or a credit card account, such as rates and fees that may be assessed
on the account.\630\ This TILA provision is implemented in existing
Sec. 1026.6.
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\630\ 15 U.S.C. 1637(a); see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------
Existing Sec. 1026.6(b) sets forth the account-opening disclosures
that must be provided with respect to open-end credit or credit card
accounts that are not home-secured. Under existing Sec. 1026.6(b)(1)
and (2), certain account-opening disclosures must be disclosed in a
tabular format. These disclosures include: (1) The APRs applicable to
the account for purchases, cash advances, and balance transfers; (2)
any annual or other periodic fee, expressed as an annualized amount,
that is imposed for the issuance or availability of a credit account,
including any fee based on account activity or inactivity; (3) any non-
periodic fees related to opening the account, such as one-time
membership or participation fees; (4) any minimum or fixed finance
charge that could be imposed during a billing cycle; (5) any
transaction charge imposed on purchases, cash advances or balance
transfers; (6) any late payment fees, over the limit fees, or returned
payment fees; (7) whether a grace period on transactions applies; (8)
the name of the balance computation method used to determine the
balance for each feature on the credit account; (9) any fees for
required insurance, debt cancellation, or debt suspension coverage; and
(10) if the fees imposed at account opening are 15 percent or more of
the minimum credit limit for the credit account, disclosures about the
available credit that will remain after those fees are imposed.
Existing Sec. 1026.6(b)(3) sets forth general disclosure
requirements about costs imposed as part of the plan. Specifically,
existing Sec. 1026.6(b)(3) provides that a creditor must disclose, to
the extent applicable: (1) For charges imposed as part of an open-end
(not home-secured) plan, the circumstances under which the charge may
be imposed, including the amount of the charge or an explanation of how
the charge is determined; and (2) for finance charges, a statement of
when the charge begins to accrue and an explanation of whether or not
any time period exists
[[Page 84193]]
within which any credit that has been extended may be repaid without
incurring the charge.
Existing Sec. 1026.6(b)(3)(ii) provides that charges imposed as
part of the plan are: (1) Finance charges identified under existing
Sec. 1026.4(a) and (b); (2) charges resulting from the consumer's
failure to use the plan as agreed, except amounts payable for
collection activity after default, attorney's fees whether or not
automatically imposed, and post-judgment interest rates permitted by
law; (3) taxes imposed on the credit transaction by a State or other
governmental body, such as documentary stamp taxes on cash advances;
(4) charges for which the payment, or nonpayment, affect the consumer's
access to the plan, the duration of the plan, the amount of credit
extended, the period for which credit is extended, or the timing or
method of billing or payment; (5) charges imposed for terminating a
plan; and (6) charges for voluntary credit insurance, debt
cancellation, or debt suspension.
Existing Sec. 1026.6(b)(3)(iii) provides that charges that are not
imposed as part of the plan include: (1) Charges imposed on a
cardholder by an institution other than the card issuer for the use of
the other institution's ATM in a shared or interchange system; (2) a
charge for a package of services that includes an open-end credit
feature, if the fee is required whether or not the open-end credit
feature is included and the non-credit services are not merely
incidental to the credit feature; and (3) charges under Sec. 1026.4(e)
which are disclosed as specified.
Existing Sec. 1026.5(b)(1) provides that charges imposed as part
of the plan that must be disclosed in the account-opening table under
existing Sec. 1026.6(b)(2) must be provided before the first
transaction is made under the plan. Charges that are imposed as part of
the plan and are not required to be disclosed under existing Sec.
1026.6(b)(2) may be disclosed after account opening but before the
consumer agrees to pay or becomes obligated to pay for the charge,
provided they are disclosed at a time and in a manner that a consumer
would be likely to notice them.
The proposal did not contain proposed changes to existing Sec.
1026.6(b)(2) and (3). Nonetheless, the Bureau believes that additional
guidance is needed with respect to these disclosure requirements given
the changes that the final rule makes to the existing definition of
``finance charge'' in Sec. 1026.4 with respect to credit offered in
connection with prepaid accounts. As discussed in the section-by-
section analysis of Sec. 1026.4(b)(11) above, the final rule provides
guidance on when fees or charges imposed on prepaid accounts are
finance charges under final Sec. 1026.4. Consistent with the changes
to the definition of ``finance charge'' in the final rule, the final
rule also provides guidance with respect to the disclosure requirements
in Sec. 1026.6(b)(2) and (3).
As discussed below, to ensure compliance with the disclosure
requirements in final Sec. 1026.6(b)(2) and (3), with regard to a
covered separate credit feature and an asset feature of the prepaid
account that are both accessible by a hybrid prepaid-credit card, the
final rule provides guidance on how the account-opening disclosure
requirements in final Sec. 1026.6(b)(2) and (3) apply to fees and
charges imposed on the asset feature of the prepaid account.
Specifically, the final rule provides that, with regard to a covered
separate credit feature and an asset feature of the prepaid account
that are both accessible by a hybrid prepaid-credit card, fees or
charges imposed on the asset feature of the prepaid account are not
``charges imposed as part of the plan'' with respect to the covered
separate credit feature to the extent that the amount of the fee or
charge does not exceed comparable fees or charges imposed on prepaid
accounts in the same prepaid account program that do not have a covered
separate credit feature accessible by a hybrid prepaid-credit card.
Thus, these fees or charges are not required to be disclosed in the
account-opening disclosures pursuant to final Sec. 1026.6(b)(2) and
(3) with respect to the covered separate credit feature. As discussed
in the section-by-section analyses of Regulation E Sec.
1005.18(b)(4)(ii) and (f)(1) above, these fees or charges are required
to be disclosed under Regulation E.
In addition, a non-covered separate credit feature may be subject
to the provisions in Sec. 1026.6(b)(2) and (3) in its own right based
on the terms and conditions of the non-covered separate credit feature,
independent of the connection to the prepaid account. To facilitate
compliance, the Bureau also is clarifying that fees or charges imposed
on the asset feature of the prepaid account are not ``charges imposed
as part of the plan'' with respect to the non-covered separate credit
feature. Thus, these fees or charges are not required to be disclosed
under final Sec. 1026.6(b)(2) and (3) with respect to that non-covered
separate credit feature.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit
Cards
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
With regard to a covered separate credit feature and an asset
feature of the prepaid account that are both accessible by a hybrid
prepaid-credit card, the Bureau is adding new Sec.
1026.6(b)(3)(iii)(D) and new comment 6(b)(3)(iii)(D)-1 to provide
guidance on when a fee or charge imposed on the asset feature of the
prepaid account is considered a ``charge imposed as part of the plan''
under final Sec. 1026.6(b)(3) with respect to the covered separate
credit feature. Specifically, new Sec. 1026.6(b)(3)(iii)(D) provides
that with regard to a covered separate credit feature and an asset
feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card, as defined in new Sec. 1026.61, the term
``charges imposed as part of the plan'' does not include any fee or
charge imposed on the asset feature of the prepaid account to the
extent that the amount of the fee or charge does not exceed comparable
fees or charges imposed on prepaid accounts in the same prepaid account
program that do not have a covered separate credit feature accessible
by a hybrid prepaid-credit card.
New comment 6(b)(3)(iii)(D)-1.i provides an example of the rule set
forth in new Sec. 1026.6(b)(3)(iii)(D). For example, assume a prepaid
account issuer charges a $0.50 per transaction fee on an asset feature
of the prepaid account for purchases when a hybrid prepaid-credit card
accesses a covered separate credit feature in the course of
authorizing, settling, or otherwise completing purchase transactions
conducted with the card and a $0.50 transaction fee for purchases that
access funds in the asset feature of a prepaid account in the same
program without such a credit feature. In this case, the $0.50 fees are
comparable. Thus, the $0.50 fee for purchases when a hybrid prepaid-
credit card accesses a covered separate credit feature in the course of
a transaction conducted with the card is not a charge imposed as part
of the plan.
[[Page 84194]]
However, in this example, if the prepaid account issuer imposes a $1.25
per transaction fee on an asset feature of the prepaid account for
purchases when a hybrid prepaid-credit card accesses a covered separate
credit feature in the course of authorizing, settling, or otherwise
completing purchase transactions conducted with the card, the $0.75
excess is a charge imposed as part of the plan with respect to the
covered separate credit feature.
New comment 6(b)(3)(iii)(D)-1.i also states that this $0.75 excess
also is a finance charge under new Sec. 1026.4(b)(11)(ii). New comment
6(b)(3)(iii)(D)-1.ii cross-references new comment 4(b)(11)(ii)-1 for
additional illustrations of when a prepaid account issuer is charging
comparable per transaction fees or load or transfer fees on the asset
feature of the prepaid account.
The Bureau believes that without this clarification, with regard to
a covered separate credit feature and an asset feature of the prepaid
account that are both accessible by a hybrid prepaid-credit card,
certain fees imposed on the asset feature of the prepaid account that
are not finance charges still could be considered charges imposed as
part of the plan under existing Sec. 1026.6(b)(3)(ii) with respect to
the covered separate credit feature. Specifically, existing Sec.
1026.6(b)(3)(ii)(D) provides that the term ``charges imposed as part of
the plan'' includes ``charges for which the payment, or nonpayment,
affect the consumer's access to the plan, the duration of the plan, the
amount of credit extended, the period for which credit is extended, or
the timing or method of billing or payment.'' Existing comment
6(b)(3)(ii)-2.i provides that charges for which the payment or
nonpayment affect the consumer's access to the plan include ``fees for
using a card at a creditor's ATM to obtain a cash advance.''
The Bureau is concerned that without the clarification in new Sec.
1026.6(b)(3)(iii)(D) and new comment 6(b)(3)(iii)(D)-1, with regard to
a covered separate credit feature and an asset feature of the prepaid
account that are both accessible by a hybrid prepaid-credit card,
existing Sec. 1026.6(b)(3)(ii)(D) and existing comment 6(b)(3)(ii)-2.i
could be read to include per transaction fees imposed on the asset
feature of the prepaid account as ``charges imposed as part of the
plan'' with respect to the covered separate credit feature when those
fees are imposed for transactions that involve credit extensions from a
covered separate credit feature, even if the fee is not a finance
charge under new Sec. 1026.4(b)(11)(ii). As a result, any per
transaction fees for those transactions would be disclosed under both
Regulations Z and E, even if the fee is not a finance charge under new
Sec. 1026.4(b)(11)(ii). For example, assume a prepaid account issuer
charges $0.50 on prepaid accounts for each transaction that accesses
funds in the asset balance of the prepaid account without a covered
separate credit feature accessible by a hybrid prepaid-credit card.
Also, assume that the prepaid account issuer charges $0.50 per
transaction on the asset feature of prepaid accounts in the same
prepaid program where the hybrid prepaid-credit card accesses credit
from a covered separate credit feature in the course of a transaction.
In this case, the $0.50 per transaction fee imposed on the asset
feature of the prepaid account with a covered separate credit feature
is not a finance charge under new Sec. 1026.4(b)(11)(ii).
Nonetheless, if these per transaction fees were ``charges imposed
as part of the plan'' under existing Sec. 1026.6(b)(3)(ii) with
respect to the covered separate credit feature, these per transaction
fees would need to be disclosed in the Regulation Z account-opening
table required by existing Sec. 1026.6(b)(1) and (2) with respect to
the covered separate credit feature. In addition, these per transaction
fees would need to be disclosed on the Regulation Z periodic statement
for the covered separate credit feature in any billing cycles in which
they were imposed as set forth in existing Sec. 1026.7(b)(6).
If disclosure of these per transaction fees were required under
Regulation Z, these disclosures would duplicate Regulation E
disclosures of the fees that are required under the Regulation E final
rule. Pursuant to final Regulation E Sec. 1005.18(b)(4) and (f)(1),
these per transaction fees must be disclosed in the long form pre-
acquisition disclosure and in the initial disclosures for the prepaid
account, respectively, because they are imposed on the asset feature of
the prepaid account. In addition, under existing Regulation E Sec.
1005.9(b), these per transaction fees must also be disclosed on the
Regulation E periodic statement or on the written and electronic
transaction histories pursuant to the periodic statement alternative
under final Regulation E Sec. 1005.18(c)(1) because these fees are
imposed on the asset feature of the prepaid account. See also final
Regulation E Sec. 1005.18(c)(4).
New Sec. 1026.6(b)(3)(iii)(D) and new comment 6(b)(3)(iii)(D)-1
make clear that with regard to a covered separate credit feature and an
asset feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card, as defined in new Sec. 1026.61, a fee or charge
imposed on the asset feature of the prepaid account is not a ``charge
imposed as part of the plan'' for purposes of Regulation Z with respect
to the covered separate credit feature if the fee or charge is not a
finance charge under new Sec. 1026.4(b)(11)(ii). As discussed in the
section-by-section analysis of Sec. 1026.4(b)(11)(ii), the Bureau
believes that to the extent that a prepaid account issuer is charging
the same comparable fee on the asset balance of a prepaid account with
a covered separate credit feature as the fee that it charges on a
prepaid account in the same prepaid account program without such a
credit feature, the fee is not being charged for credit and thus, is
not a finance charge. As such, the Bureau believes that these fees are
more appropriately disclosed on the Regulation E disclosures for the
asset feature of the prepaid account and should not be disclosed as
well on the Regulation Z disclosures with respect to the covered
separate credit feature.
Consistent with new Sec. 1026.6(b)(3)(iii)(D) and new comment
6(b)(3)(iii)(D)-1, with regard to a covered separate credit feature and
an asset feature of the prepaid account that are both accessible by a
hybrid prepaid-credit card, the Bureau also is adding new commentary to
Sec. 1026.6(b)(2) regarding the disclosure of fees imposed on the
asset feature of the prepaid account in the account-opening table.
Specifically, new comment 6(b)(2)-1 provides that with regard to a
covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card as
defined in new Sec. 1026.61, a creditor is required to disclose under
existing Sec. 1026.6(b)(2) any fees or charges imposed on the asset
feature of the prepaid account that are charges imposed as part of the
plan under final Sec. 1026.6(b)(3) to the extent those fees or charges
fall within the categories of fees required to be disclosed under
existing Sec. 1026.6(b)(2). For example, assume a creditor imposes a
$1.25 per transaction fee on an asset feature of the prepaid account
for purchases when a hybrid prepaid-credit card accesses a covered
separate credit feature in the course of authorizing, settling, or
otherwise completing purchase transactions conducted with the card and
a $0.50 transaction fee for purchases that access funds in the asset
feature of a prepaid account in the same program without such a credit
feature. In this case, the $0.75 excess is a ``charge imposed as part
of the plan'' under Sec. 1026.6(b)(3)
[[Page 84195]]
and must be disclosed as a transaction fee for purchases under Sec.
1026.6(b)(2)(iv) in the account-opening table. New comment 6(b)(2)-2
clarifies that a creditor is not required to disclose in the account-
opening table under final Sec. 1026.6(b)(2) any fee or charge imposed
on the asset feature of the prepaid account that is not a charge
imposed as part of the plan under final Sec. 1026.6(b)(3).
To ease compliance risk and burden and for other reasons, with
regard to a covered separate credit feature and an asset feature that
are both accessible by a hybrid prepaid-credit card, the Bureau expects
that prepaid account issuers will choose not to impose finance charges
on the asset feature of the prepaid account. Instead, the Bureau
expects that prepaid account issuers will choose to charge comparable
fees on the asset feature of a prepaid account with a linked covered
separate credit feature as those charged on prepaid accounts in the
same prepaid account program that are not linked to a covered separate
credit feature. The Bureau expects that prepaid account issuers will
choose to impose finance charges on the credit feature itself, and not
on the asset feature of the prepaid account.
As noted above, if a prepaid account issuer does impose finance
charges on the asset feature of the prepaid account, as described in
new Sec. 1026.4(b)(11)(ii), these finance charges must be disclosed
under both Regulations Z and E as applicable. In that case, the prepaid
account issuer must coordinate the disclosures under Regulations Z and
E and must provide these disclosures in a way that ensures that
consumers understand the fees that could be imposed. Nonetheless, as
discussed above, the Bureau believes that most prepaid account issuers
will choose to avoid imposing finance charges on the asset feature of
the prepaid account in order to avoid compliance issues and risks
related to providing disclosures with respect to these fees under both
Regulations E and Z.
Non-Covered Separate Credit Features
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. First, under new Sec. 1026.61(a)(2)(ii), a
prepaid card is not a hybrid prepaid-credit card with respect to a
``non-covered separate credit feature,'' which means that the separate
credit feature either (1) cannot be accessed in the course of a prepaid
card transaction to obtain goods or services, obtain cash, or conduct
P2P transfers; or (2) is offered by an unrelated third party that is
not the prepaid account issuer, its affiliate, or its business partner.
Second, under new Sec. 1026.61(a)(4), a prepaid card also is not a
hybrid prepaid-credit card when the prepaid card accesses incidental
credit in the form of a negative balance on the asset account where the
prepaid account issuer generally does not charge credit-related fees
for the credit. A prepaid card is not a hybrid prepaid-credit card
under new Sec. 1026.61 or a credit card under final Sec.
1026.2(a)(15)(i) when it accesses credit from these types of credit
features. For more detailed explanations of when prepaid cards are not
credit cards under Regulation Z, see the section-by-section analyses of
Sec. 1026.61(a)(2) and (4) below.
A non-covered separate credit feature may be subject to the
provisions in Sec. 1026.6(b)(2) and (3) in its own right based on the
terms and conditions of the non-covered separate credit feature,
independent of the connection to the prepaid account. With respect to
non-covered separate credit features that are subject to Sec. 1026.6,
to facilitate compliance with the disclosure requirements in final
Sec. 1026.6(b)(2) and (3), the final rule provides guidance on how the
disclosure requirements in final Sec. 1026.6(b)(2) and (3) apply to
fees and charges imposed on the asset feature of a prepaid account in
relation to non-covered separate credit features accessible by prepaid
cards. Specifically, new Sec. 1026.6(b)(3)(iii)(E) and new comment
6(b)(3)(iii)(E)-1 provide that with regard to a non-covered separate
credit feature accessible by a prepaid card as defined in new Sec.
1026.61, the term ``charges imposed as part of the plan'' does not
include any fee or charge imposed on the asset feature of the prepaid
account. New comment 6(b)(3)(iii)(E)-1 also cross-references new
comment 4(b)(11)-1.ii.B that provides that fees or charges imposed on
the asset feature of the prepaid account are not finance charges with
respect to the non-covered separate credit feature. New comment
6(b)(2)-2 provides that a creditor is not required to disclose in the
account-opening table under final Sec. 1026.6(b)(2) any fee or charge
imposed on the asset feature of the prepaid account that is not a
charge imposed as part of the plan under final Sec. 1026.6(b)(3).
Thus, none of the fees or charges imposed on the asset feature of the
prepaid account would be required to be disclosed under final Sec.
1026.6(b) with respect to the non-covered separate credit feature.
As discussed above in relation to covered separate credit features
accessible by hybrid prepaid-credit cards, the Bureau believes that
without this clarification, certain fees or charges imposed on the
asset feature of the prepaid account that are not finance charges with
respect to the non-covered separate credit features still could be
considered fees imposed as part of the plan under existing Sec.
1026.6(b)(3)(ii). Specifically, existing Sec. 1026.6(b)(3)(ii)(D)
provides that the term ``charges imposed as part of the plan'' includes
``charges for which the payment, or nonpayment, affect the consumer's
access to the plan, the duration of the plan, the amount of credit
extended, the period for which credit is extended, or the timing or
method of billing or payment.'' The Bureau is concerned that without
this clarification, existing Sec. 1026.6(b)(3)(ii)(D) could be read to
include a load or transfer fee imposed on the asset feature of the
prepaid account as a ``charge imposed as part of the plan'' with
respect to a non-covered separate credit feature when the fee is
imposed for a transaction where credit is drawn or transferred from a
non-covered separate credit feature, even if the fee is not a finance
charge with respect to the non-covered separate credit feature. Without
this clarification, the load or transfer fees for those transactions
would need to be disclosed under both Regulations Z and E, even if the
fee or charge is not a finance charge under Sec. 1026.4.
New Sec. 1026.6(b)(3)(iii)(E) and new comment 6(b)(3)(iii)(E)-1
make clear that with regard to a non-covered separate credit feature
accessible by a prepaid card, as defined in new Sec. 1026.61, none of
the fees or charges imposed on the asset feature of the prepaid account
are charges imposed as part of the plan with respect to the non-covered
separate credit feature for purposes of Regulation Z. Under new comment
4(b)(11)-1.ii.B, these fees or charges are not finance charges with
respect to the non-covered separate credit feature. The Bureau believes
that because fees or charges that are imposed on the asset feature of
the prepaid account are not finance charges under final Sec. 1026.4
with regard to a non-covered separate credit feature, these fees or
charges are more appropriately disclosed on the Regulation E
disclosures, and they should not be disclosed as well on the Regulation
Z disclosures with respect to non-covered separate credit features.
[[Page 84196]]
Section 1026.7 Periodic Statement
7(b) Rules Affecting Open-End (Not Home-Secured) Plans & 7(b)(13)
Format Requirements
TILA section 127(b) identifies information about an open-end
account or credit card account that must be disclosed when a creditor
is required to provide periodic statements.\631\ TILA section 127(b) is
implemented in existing Sec. 1026.7.
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\631\ 15 U.S.C. 1637(b); see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------
The periodic statement requirements in existing Sec. 1026.7
generally apply to a ``creditor'' as defined in existing Sec.
1026.2(a)(17) that extends ``open-end credit'' as defined in existing
Sec. 1026.2(a)(20). The periodic statement requirements in existing
Sec. 1026.7 also generally apply to card issuers that extend credit,
as set forth in existing Sec. 1026.2(a)(17)(iii) and (iv). These card
issuers generally are considered ``creditors'' for purposes of the
periodic statement requirements.
Existing Sec. 1026.7(b) sets forth the content requirements for
periodic statements given with respect to open-end plans or credit card
accounts that are not home-secured. Generally, under existing Sec.
1026.7(b), such periodic statements must include, among other things,
information about: (1) The amount of the balance outstanding at the
beginning of the billing cycle; (2) any credit to the account during
the billing cycle, such as payments; (3) any credit transactions that
occurred during a billing cycle, described in accordance with existing
Sec. 1026.8; (4) the APRs that may be used to compute interest charges
during the billing cycle; (5) the amount of the balance to which an APR
was applied and an explanation of how that balance was determined; (6)
the amount of each ``charge imposed as part of the plan'' incurred
during the billing cycle; (7) the date by which or the time period
within which the new balance or any portion of the new balance must be
paid to avoid additional finance charges; (8) the closing date of the
billing cycle and the account balance outstanding on that date; and (9)
the due date for a payment with respect to a credit card account under
an open-end (not home-secured) consumer credit plan.
As discussed above, any ``charge imposed as part of the plan,'' as
that term is defined in existing Sec. 1026.6(b)(3), must be disclosed
on the Regulation Z periodic statement if it was incurred during the
billing cycle. If the charges imposed as part of the plan are interest
charges, these charges must be itemized by type of transaction, and the
total interest charges that were imposed during the billing cycle and
year to date must also be disclosed. If the charges imposed as part of
the plan are fees other than interest charges, these fees must be
itemized by type, and the total fee charges that were imposed during
the billing cycle and year to date must be disclosed.
Existing Sec. 1026.7(b)(13) requires that certain disclosures on
the Regulation Z periodic statement must be disclosed on the front of
the first page of the periodic statement. Existing comment 7(b)(13)-1
explains that some financial institutions provide information about
deposit account and open-end credit account activity on one periodic
statement. This existing comment provides that for purposes of
providing disclosures on the front of the first page of the periodic
statement pursuant to existing Sec. 1026.7(b)(13), the first page of
such a combined statement shall be the page on which credit
transactions first appear.
Existing Sec. 1026.5(a)(1)(iii) also provides that certain
disclosures required by subpart B, including periodic statements
required under Sec. 1026.7, may be provided to the consumer in
electronic form, subject to compliance with the consumer consent and
other applicable provisions of the E-Sign Act.
The periodic statement requirements in final Sec. 1026.7(b) apply
to covered separate credit features accessible by hybrid prepaid-credit
cards because card issuers that extend credit under those credit
features are ``creditors'' that are subject to the periodic statement
requirements in final Sec. 1026.7, pursuant to existing Sec.
1026.2(a)(17)(iii) or (iv). As discussed in more detail in the section-
by-section analysis of Sec. 1026.61(a)(2) below, a covered separate
credit feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
Periodic Statements Under Regulations E and Z
Under the proposal, under Regulation E, periodic statements would
have been required under existing Sec. 1005.9(b) to disclose non-
credit transactions on the prepaid account, unless the financial
institution complied with proposed Sec. 1005.18(c). Specifically, in
lieu of providing periodic statements required under Sec. 1005.9(b),
proposed Sec. 1005.18(c)(1) would have permitted a financial
institution to make available to the consumer: (1) The consumer's
account balance through a readily available telephone line; (2) 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; and (3) a written
history of the consumer's account transactions that is provided
promptly in response to an oral or written request and that covers at
least 18 months preceding the date the financial institution receives
the consumer's request.
In addition, under the proposal, a creditor would have been
required to provide a Regulation Z periodic statement with respect to
credit features accessed by prepaid cards that are credit cards because
card issuers that extend credit under those credit features would have
been ``creditors'' that are subject to the periodic statement
requirements in proposed Sec. 1026.7(b), pursuant to existing Sec.
1026.2(a)(17)(iii) or (iv).
One industry trade association urged the Bureau not to impose a
Regulation Z periodic statement requirement in addition to the
Regulation E statement requirement. This commenter believed that dual
statements would add to consumer confusion. This commenter believed
that the Regulation E statement requirements should be modified to
disclose the finance charge and payment information that otherwise
would be included in a Regulation Z statement.
One consumer group commenter indicated that a periodic statement
under Regulation Z should be required, and supported allowing a
financial institution to combine the Regulations E and Z periodic
statements, so long as the combined periodic statement meets the
requirements of both regulations.
Under the final rule, a creditor is required to provide a
Regulation Z periodic statement under final Sec. 1026.7(b) with
respect to a covered separate credit feature that is accessible by a
hybrid prepaid-credit card because card issuers that extend credit
under those credit features are ``creditors'' that are subject to the
periodic statement requirements in final Sec. 1026.7(b), pursuant to
existing Sec. 1026.2(a)(17)(iii) or (iv).\632\ The Bureau does not
believe
[[Page 84197]]
that modifying the Regulation E periodic statement requirement in
existing Sec. 1005.9(b) or the requirement to provide electronic and
written account transaction histories pursuant to the periodic
statement alternative in final Sec. 1005.18(c)(1) to include
disclosures pertaining to a covered separate credit feature accessible
by a hybrid prepaid-credit card would benefit consumers. As discussed
in the section-by-section analysis of Sec. 1026.61(b) below, new Sec.
1026.61(b) prohibits an overdraft credit feature offered by a prepaid
account issuer, its affiliate, or its business partner in connection
with a prepaid account from being structured as a negative balance to
the asset feature of the prepaid account, except for overdraft credit
features described in new Sec. 1026.61(a)(4). Instead, a card issuer
must structure an overdraft credit feature in connection with a prepaid
account as a separate credit feature, such as a credit account or
credit subaccount to the prepaid account that is separate from the
asset feature of the prepaid account, except for overdraft credit
features described in new Sec. 1026.61(a)(4). This separate credit
feature is a ``covered separate credit feature'' under new Sec.
1026.61(a)(2)(i).
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\632\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Under the proposal, Regulation Z periodic statements
would have been required with respect to credit card accounts that
are accessed by these account numbers. For the reasons set forth in
the section-by-section analysis of Sec. 1026.2(a)(15)(i) above, the
final rule does not adopt the provisions related to the account
numbers that would have made these account numbers into credit cards
under Regulation Z.
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The Bureau believes that retaining the requirement to provide a
Regulation Z periodic statement with respect to such an overdraft
credit feature that is structured as a separate credit feature will
reinforce for consumers that this credit feature is separate from the
asset feature of the prepaid account.
As discussed above, existing Sec. 1026.7(b)(13) requires that
certain disclosures on the Regulation Z periodic statement must be
disclosed on the front of the first page of the periodic statement.
Existing comment 7(b)(13)-1 explains that some financial institutions
provide information about deposit account and open-end credit account
activity on one periodic statement. This existing comment provides that
for purposes of providing disclosures on the front of the first page of
the periodic statement pursuant to existing Sec. 1026.7(b)(13), the
first page of such a combined statement is the page on which credit
transactions first appear. To facilitate compliance, the Bureau is
amending comment 7(b)(13)-1 to provide that the guidance in this
comment also applies to financial institutions that provide information
about prepaid accounts and account activity in connection with covered
separate credit features accessible by hybrid prepaid-credit cards as
defined in Sec. 1026.61 on one periodic statement. This revision to
final comment 7(b)(13)-1 clarifies that if a financial institution
elects to provide a periodic statement under existing Regulation E
Sec. 1005.9(b) to a holder of the prepaid account, the financial
institution is permitted to combine the Regulation E and Regulation Z
periodic statements. In this case, the financial institution must
satisfy the requirements of both Regulation E and Regulation Z in
providing the combined statement. If a financial institution instead
elects to follow the periodic statement alternative set forth in final
Regulation E Sec. 1005.18(c)(1), the financial institution still is
required to provide Regulation Z periodic statements in writing
pursuant to final Sec. 1026.7. Under existing Sec. 1026.5(a)(1)(iii),
financial institutions are permitted to provide the Regulation Z
periodic statements in electronic form, subject to compliance with the
consumer consent and other applicable provisions of the E-Sign Act.
Charges Imposed as Part of the Plan
Existing Sec. 1026.7(b)(6) provides that a creditor must disclose
on the Regulation Z periodic statement, among other things, information
about the amount of each ``charges imposed as part of the plan,'' as
that term is defined in existing Sec. 1026.6(b)(3), if the charge was
incurred during the billing cycle. If the charges imposed as part of
the plan are interest charges, these charges must be itemized by type
of transaction, and the total interest charges that were imposed during
the billing cycle and year to date must also be disclosed. If the
charges imposed as part of the plan are fees other than interest
charges, these charges must be itemized by type, and the total fee
charges that were imposed during the billing cycle and year to date
must be disclosed.
Covered separate credit features accessible by hybrid prepaid-
credit cards. As discussed in the section-by-section analysis of Sec.
1026.6(b)(3) above, the Bureau is adding guidance in new Sec.
1026.6(b)(3)(iii)(D) and new comment 61(b)(3)(iii)(D)-1 on whether fees
or charges imposed on the asset feature of a prepaid account are
``charges imposed as part of the plan'' under final Sec. 1026.6(b)(3)
with respect to a covered separate credit feature where the credit
feature and the asset feature are both accessible by a hybrid prepaid-
credit card. As discussed in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
Under the final rule, new Sec. 1026.6(b)(3)(iii)(D) provides that
with regard to a covered separate credit feature and an asset feature
on a prepaid account that are both accessible by a hybrid prepaid-
credit card, as defined in new Sec. 1026.61, the term ``charges
imposed as part of the plan'' with respect to the covered separate
credit feature does not include any fee or charge imposed on the asset
feature of the prepaid account to the extent that the amount of the fee
or charge does not exceed comparable fees or charges imposed on prepaid
accounts in the same prepaid account program that do not have a covered
separate credit feature accessible by a hybrid prepaid-credit card. As
described in the section-by-section analysis of Sec. 1026.4(b)(11)
above, these fees or charges imposed on the asset feature of the
prepaid account are not finance charges under new Sec.
1026.4(b)(11)(ii) with respect to the covered separate credit feature.
As discussed in the section-by-section analysis of Sec.
1026.4(b)(11)(ii) above, the Bureau believes that to the extent that a
prepaid account issuer charges the same comparable fee on the asset
balance of a prepaid account with a covered separate credit feature as
the fee that it charges on a prepaid account in the same prepaid
account program without such a credit feature, the fee is not related
to credit, and thus, is not a finance charge. As such, the Bureau
believes that these fees are more appropriately disclosed on the
Regulation E disclosures for the asset feature of the prepaid account
and should not be disclosed as well on the Regulation Z disclosures
with respect to the covered separate credit feature. Thus, as discussed
in the section-by-section analysis of Sec. 1026.6 above, the Bureau is
excluding these fees or charges from the term ``charges imposed as part
of the plan'' with respect to covered separate credit features under
new Sec. 1026.6(b)(3)(iii)(D). Because these fees or charges are not
charges imposed as part of the plan, these fees or charges are not
required to be disclosed on the Regulation Z periodic statement under
existing Sec. 1026.7(b)(6) with respect to the covered separate credit
feature.
The fees or charges imposed on the asset feature of the prepaid
account must be disclosed on the Regulation E periodic statement
pursuant to existing
[[Page 84198]]
Sec. 1005.9(b), or on the electronic and written account transaction
histories pursuant to the periodic statement alternative under final
Regulation E Sec. 1005.18(c)(1). See the section-by-section analysis
of Regulation E Sec. 1005.18(c)(1) above.
Non-covered separate credit features. As discussed in the section-
by-section analysis of Sec. 1026.61 below, the Bureau has decided not
to regulate a prepaid card as a credit card under Regulation Z when it
accesses credit from certain credit features. For example, under Sec.
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card
with respect to a ``non-covered separate credit feature,'' which means
that the separate credit feature either (1) cannot be accessed in the
course of a prepaid card transaction to obtain goods or services,
obtain cash, or conduct P2P transfers; or (2) is offered by an
unrelated third party that is not the prepaid account issuer, its
affiliate, or its business partner. A non-covered separate credit
feature is not subject to the rules applicable to hybrid prepaid-credit
cards; however, it typically will be subject to Regulation Z depending
on its own terms and conditions, independent of the connection to the
prepaid account.
As discussed in the section-by-section analysis of Sec. 1026.6
above, to facilitate compliance with the disclosure requirements in
final Sec. 1026.6(b)(2) through (3) for non-covered separate credit
features that are subject to existing Sec. 1026.6, the final rule
provides guidance on how the disclosure requirements in final Sec.
1026.6(b)(2) and (3) apply to fees and charges imposed on the asset
feature of a prepaid account in relation to non-covered separate credit
features accessible by prepaid cards. Specifically, new Sec.
1026.6(b)(3)(iii)(E) and new comment 61(b)(3)(iii)(E)-1 provide that
with regard to a non-covered separate credit feature accessible by a
prepaid card, as defined in new Sec. 1026.61, the term ``charges
imposed as part of the plan'' does not include any fee or charge
imposed on the asset feature of the prepaid account. New comment
6(b)(3)(iii)(E)-1 also cross-references new comment 4(b)(11)-1.ii.B,
which provides that fees or charges imposed on the asset feature of the
prepaid account are not finance charges with respect to the non-covered
separate credit feature.
As discussed in the section-by-section analysis of Sec. 1026.6
above, the Bureau believes that these fees or charges are more
appropriately disclosed on the Regulation E disclosures for the asset
feature of the prepaid account and should not be disclosed as well on
the Regulation Z disclosures with respect to the non-covered separate
credit feature. Thus, as discussed in the section-by-section analysis
of Sec. 1026.6 above, the Bureau is excluding these fees or charges
from the term ``charges imposed as part of the plan'' with respect to
non-covered separate credit features under new Sec.
1026.6(b)(3)(iii)(E). Because these fees or charges are not charges
imposed as part of the plan, these fees or charges are not required to
be disclosed on the Regulation Z periodic statement under existing
Sec. 1026.7(b)(6) with respect to the non-covered separate credit
feature that are subject to final Sec. 1026.7. As discussed above,
fees or charges imposed on the asset feature of the prepaid account
must be disclosed on the Regulation E periodic statement under existing
Sec. 1005.9(b) or on the electronic and written account transaction
histories provided to consumers pursuant to the periodic statement
alternative set forth in final Regulation E Sec. 1005.18(c)(1). See
also final Regulation E Sec. 1005.18(c)(4).
Paper Periodic Statements
One consumer group commenter indicated that the Bureau should
prohibit creditors from making consumers consent to electronic
communications a condition of a credit feature and from charging fees
for providing paper periodic statements under Regulation Z. The
consumer group commenter indicated that while it believes that this
prohibition should apply to all credit cards and open-end credit, the
commenter was particularly concerned that prepaid cardholders whose
cards are linked to credit will be coerced into accepting electronic
communications even if paper would serve them better.
The Bureau believes the change is beyond the scope of the proposal,
and the change is not warranted at this time. Thus, the Bureau is not
including changes to Regulation Z on these issues as part of the final
rule. The Bureau will monitor this issue with respect to prepaid
cardholders who link covered separate credit features accessible by
hybrid prepaid-credit cards to their prepaid accounts.
7(b)(11) Due Date; Late Payment Costs
TILA sections 127(b)(12) and (o), which are implemented in existing
Sec. 1026.7(b)(11)(i), set forth requirements related to the
disclosure of payment due dates on periodic statements in the case of a
credit card account under an open-end consumer credit plan.\633\ Under
existing Sec. 1026.7(b)(11)(i), for a credit card account under an
open-end (not home-secured) consumer credit plan, a card issuer
generally must provide on each periodic statement: (1) The due date for
a payment, and the due date disclosed must be the same day of the month
for each billing cycle; and (2) the amount of any late payment fee and
any increased periodic rate(s) (expressed as an APR(s)) that may be
imposed on the account as a result of a late payment. Existing Sec.
1026.7(b)(11)(ii) provides, however, that the requirements of existing
Sec. 1026.(b)(11)(i) do not apply to the following: (1) Periodic
statements provided solely for charge card accounts; and (2) periodic
statements provided for a charged-off account where payment of the
entire account balance is due immediately.
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\633\ 15 U.S.C. 1637(b)(12), (o).
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As also noted in the section-by-section analysis of Sec.
1026.5(b)(2)(ii) above, although TILA sections 127(b)(12) and (o) do
not, on their face, exclude charge card accounts that are open-end
credit from the requirement to disclose the due date on each periodic
statement, the Board in implementing these provisions set forth in
existing Sec. 1026.7(b)(11)(ii)(A) provided that the payment due date
requirement and other disclosures set forth in existing Sec.
1026.7(b)(11)(i) do not apply to periodic statements provided solely
for charge card accounts. In the supplemental information to the final
rule adopting the exclusion for charge cards from the due date
disclosure requirement, the Board noted that charge cards are typically
products where outstanding balances cannot be carried over from one
billing cycle to the next and are payable when the periodic statement
is received.\634\ Therefore, the contractual payment due date for a
charge card account is the date on which the consumer receives the
periodic statement (although charge card issuers generally request that
the consumer make payment by some later date). If the due date
disclosure requirement and the 21-day rule for delivery of periodic
statements applied to charge card accounts, the card issuer could no
longer require payment upon delivery of the statement. Thus, the Board
concluded that it would not be appropriate to apply the payment due
date disclosure in existing Sec. 1026.7(b)(11)(i)(A) to periodic
statements provided solely for charge card accounts.
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\634\ 75 FR 7658 at 7672-7673, Feb. 22, 2010.
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The proposal would have amended existing Sec. 1026.7(b)(11)(ii)(A)
to provide that the due date disclosure does apply to periodic
statements provided solely
[[Page 84199]]
for charge card accounts where the charge card account is accessed by a
charge card that is a prepaid card. Thus, under the proposal, the due
date disclosure in proposed Sec. 1026.7(b)(11)(i)(A) would have
applied to periodic statements provided for a credit card account under
an open-end (not home-secured) consumer credit plan, including a charge
card account, where the account is accessed by a credit card that is a
prepaid card.
One industry trade association indicated that the Bureau should not
subject prepaid cards that are charge cards to rules that do not apply
to other types of charge cards but did not specify why this specific
proposal was not necessary.
The Bureau is adopting Sec. 1026.7(b)(11)(ii)(A) as proposed, with
revisions to be consistent with new Sec. 1026.61. Specifically, final
Sec. 1026.7(b)(11)(ii)(A) provides that the due date disclosure does
apply to periodic statements provided for covered separate credit
features that are charge card accounts accessible by hybrid prepaid-
credit cards, as defined in Sec. 1026.61, where the charge card
account is a credit card account under an open-end (not home-secured)
consumer credit plan.\635\ Thus, under the final rule, the due date
disclosure in final Sec. 1026.7(b)(11)(i)(A) applies to periodic
statements provided for covered separate credit features accessible by
hybrid prepaid-credit cards, including charge card accounts, where the
covered separate credit feature is a credit card account under an open-
end (not home-secured) consumer credit plan. As discussed in more
detail in the section-by-section analysis of Sec. 1026.61(a)(2) below,
a covered separate credit feature accessible by a hybrid prepaid-credit
card includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Sec. 1026.61
and a credit card under final Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
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\635\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed Sec. 1026.7(b)(11)(ii)(A)(2) would have
provided that the due date disclosure set forth in Sec.
1026.7(b)(11)(i)(A) does apply to periodic statements provided
solely for charge card accounts where the charge card accounts are
accessed by such account numbers. For the reasons set forth in the
section-by-section analysis of Sec. 1026.2(a)(15)(i) above, the
final rule does not adopt the proposed changes to Sec.
1026.7(b)(11)(ii)(A)(2) related to these account numbers.
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The Bureau believes that this due date requirement, the requirement
in final Sec. 1026.5(b)(2)(ii)(A), and the changes to the offset
prohibition in final Sec. 1026.12(d)(3), will ensure that the due date
of a covered separate credit feature accessible by a hybrid prepaid-
credit card that is a credit card account under an open-end (not home-
secured) consumer credit plan is not so closely aligned with the timing
of when funds are deposited into the prepaid account that card issuers
can circumvent the offset prohibition.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.12(d)(3) below, the Bureau is concerned that with respect to
covered separate credit features accessible by hybrid prepaid-credit
cards, including charge card accounts, that are credit card accounts
under an open-end (not home-secured) consumer credit plan, some card
issuers may attempt to circumvent the prohibition on offsets by
specifying that each transaction on the covered separate credit feature
is due on the date on which funds are subsequently deposited into the
account, and obtaining a consumer's written authorization to deduct all
or part of the cardholder's credit card debt when deposits are received
into the prepaid account to help ensure that the debt is repaid. The
Bureau believes that card issuers that offer covered separate credit
features accessible by hybrid prepaid-credit cards may rely
significantly on obtaining a consumer's written authorization of daily
or weekly debits to the prepaid account to repay the credit card debt
given the overall creditworthiness of prepaid accountholders who choose
to use covered separate credit features. The Bureau also believes that
card issuers that offer covered separate credit features accessible by
hybrid prepaid-credit cards may be able to obtain a consumer's written
authorization to debit the prepaid account for the credit card debt
more easily than for other types of credit card accounts because
consumers may believe that, in order to obtain credit, they have no
alternative but to provide written authorization to allow a card issuer
to deduct all or part of the cardholder's credit card debt from the
linked prepaid account.
The revisions adopted in final Sec. 1026.7(b)(11), along with the
changes adopted in final Sec. 1026.5(b)(2)(ii)(A), in the offset
provisions in final Sec. 1026.12(d)(3), and in the compulsory use
provisions in final Regulation E Sec. 1005.10(e)(1), would mean,
respectively, that with respect to covered separate credit features
that are accessible by hybrid prepaid-credit cards, including charge
card accounts, that are credit card accounts under an open-end (not
home-secured) consumer credit plan, card issuers: (1) Would be required
to adopt reasonable procedures designed to ensure that periodic
statements for the covered separate credit features 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; (2) could move funds automatically
from the asset account held by the card issuer to the covered separate
credit feature 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); and (3) would be required to offer
consumers a means to repay their outstanding credit balances on the
covered separate credit feature other than 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 following a cash reload to the asset account).
Section 1026.8 Identifying Transactions on Periodic Statements
TILA section 127(b)(2) requires creditors to identify on periodic
statements credit extensions that occurred during a billing cycle.\636\
The statute calls for the Bureau to implement requirements that are
sufficient to identify the transaction or to relate the credit
extension to sales vouchers or similar instruments previously
furnished.
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\636\ 15 U.S.C. 1637(b)(2).
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Existing Sec. 1026.8 sets forth the requirements for how issuers
must describe each credit transaction on the periodic statement.
Existing Sec. 1026.8 generally provides that a creditor must identify
credit transactions on or with the first periodic statement that
reflects the transaction by furnishing certain information. Existing
Sec. 1026.8(a) sets forth the requirements for describing a ``sale
credit'' transaction on the periodic statement. A ``sale credit''
generally means a credit transaction involving the sale of property or
services. Existing Sec. 1026.8(b) sets forth the requirements for
describing a ``nonsale credit'' transaction on the periodic statement.
A ``nonsale credit'' transaction generally means a credit transaction
that does not involve the sale of property or services.
[[Page 84200]]
The final rule provides guidance on how creditors may comply with the
requirements in final Sec. 1026.8(a) and (b) with respect to covered
separate credit features accessible by hybrid prepaid-credit cards.
8(a) Sale Credit
Existing Sec. 1026.8(a) provides that for each credit transaction
involving the sale of property or services, the creditor generally must
disclose the amount and date of the transaction, and either: (1) A
brief identification of the property or services purchased, for
creditors and sellers that are the same or related; or (2) the seller's
name and the city and State or foreign country where the transaction
took place. The creditor may omit the address or provide any suitable
designation that helps the consumer to identify the transaction when
the transaction took place at a location that is not fixed; took place
in the consumer's home; or was a mail, internet, or telephone order.
Existing comment 8(a)-1 provides that the term ``sale credit'' refers
to a purchase in which the consumer uses a credit card or otherwise
directly accesses an open-end line of credit to obtain goods or
services from a merchant, whether or not the merchant is the card
issuer or creditor.
The Bureau's Proposal
Under the proposal, sale credit would have included credit
transactions where a prepaid card that is a credit card is used to
obtain goods or services from a merchant. Thus, under the proposal, any
time a prepaid card that was a credit card was used to obtain goods or
services from a merchant and the transaction in whole or in part was
funded with credit, the credit transaction would have been disclosed as
``sale credit'' under proposed Sec. 1026.8(a) rather than as nonsale
credit under proposed Sec. 1026.8(b).
Existing comment 8(a)-2 provides guidance on how to disclose the
amount of the credit transaction if sale transactions are not billed in
full on any single statement. The proposal would have moved the
existing language of comment 8(a)-2 to proposed comment 8(a)-2.i. The
proposal also would have added comment 8(a)-2.ii to provide that the
term ``sale credit'' includes a purchase in which the consumer uses a
prepaid card that is a credit card to obtain goods or services from a
merchant and the transaction is wholly or partially funded by credit,
whether or not the merchant is the card issuer or creditor. Proposed
comment 8(a)-2.ii also would have provided guidance on how to disclose
the amount of the credit transaction for purposes of certain prepaid
transactions. Proposed comment 8(a)-2.ii would have set forth guidance
on how to disclose a transaction at point of sale where credit is
accessed by a prepaid card that is a credit card, and that transaction
partially involves the purchase of goods or services and partially
involves other credit, such as cash back given to the cardholder. In
this situation, proposed comment 8(a)-2.ii would have provided that the
creditor must disclose the amount of credit as ``sale credit'' under
existing Sec. 1026.8(a), including the portion of the transaction that
involves credit that is not for a purchase of goods or services.
Proposed comment 8(a)-2.ii also would have provided that if a
prepaid card that is a credit card is used to obtain goods or services
from a merchant and the transaction is partially funded by the
consumer's prepaid account and partially funded by credit, the amount
to be disclosed under existing Sec. 1026.8(a) is the amount of the
credit extension, not the total amount of the purchase transaction. For
example, assume that a cardholder makes a $50 purchase with the prepaid
card but only has $20 in funds in the prepaid account. The $30 of
credit would have been disclosed on the Regulation Z periodic
statement. Under the Regulation E proposal, the amount of the
transaction that is funded from the prepaid account would have been
disclosed either on the Regulation E periodic statement or on the
electronic and written histories of account transactions pursuant to
the periodic statement alternative set forth in proposed Regulation E
Sec. 1005.18(c)(1)(ii).
Comments Received
The Bureau solicited comment on whether the Bureau should consider
a disclosure that would appear on the Regulation Z periodic statement
that would notify consumers when a particular transaction is funded
partially through the prepaid account and partially funded through
credit so that consumers would know to look at the Regulation E
periodic statement or account history for additional information
related to that transaction.
One consumer group commenter indicated that the Bureau should
require that the entire transaction be disclosed on both the Regulation
Z periodic statement and the Regulation E periodic statement under
Sec. 1005.9(b) (or on the electronic and written account transaction
histories pursuant to the periodic statement alternative under proposed
Sec. 1005.18(c)(1)), indicating on each statement that only part of
the transaction came from each account. This commenter believed that
consumers who are trying to identify transactions would be confused if
the amount listed on each statement does not match the transaction
amount.
The Final Rule
The final rule moves proposed comment 8(a)-2.ii to new comment
8(a)-9 and revises this guidance as discussed below. The Bureau also is
revising existing comment 8(a)-1 to provide a cross-reference to new
comment 8(a)-9 for guidance on when credit accessible by a hybrid
prepaid-credit card from a covered separate credit feature must be
disclosed on the Regulation Z periodic statement as sale credit or
nonsale credit.
New comment 8(a)-9 provides guidance on when credit accessible by a
hybrid prepaid-credit card from a covered separate credit feature must
be disclosed on the Regulation Z periodic statement as sale credit or
nonsale credit. As discussed in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
New comment 8(a)-9 recognizes that a card issuer with respect to a
covered separate credit feature accessible by a hybrid prepaid-credit
card may structure the overdraft credit feature in two ways to cover
situations where the consumer has insufficient or unavailable funds in
the asset feature of the prepaid account at the time of authorization
or settlement to cover the amount of the transaction conducted with the
card to obtain goods or services, obtain cash, or conduct P2P
transfers. With respect to the first way, new comment 8(a)-9.i explains
that the covered separate credit feature could be structured such that
a consumer can use a hybrid prepaid-credit card to make a purchase to
obtain goods or services from a merchant, and credit is drawn directly
from the covered separate credit feature without transferring funds
into the asset feature of the prepaid account to cover the amount of
the purchase. For example, assume that the consumer has $10 of funds in
the asset feature of the prepaid account and initiates a transaction
with a merchant to obtain goods or services with the hybrid
[[Page 84201]]
prepaid-credit card for $25. In this case, $10 is debited from the
asset feature, and $15 of credit is drawn directly from the covered
separate credit feature accessed by the hybrid prepaid-credit card
without any transfer of funds into the asset feature of the prepaid
account to cover the amount of the purchase.
New comment 8(a)-9.i provides that such a transaction is a ``sale
credit'' under final Sec. 1026.8(a). In this example, the $15 credit
transaction will be treated as ``sale credit'' under final Sec.
1026.8(a).
With respect to the second way, new comment 8(a)-9.ii explains that
a covered separate credit feature accessible by a hybrid prepaid-credit
card could be structured where a consumer uses a hybrid prepaid-credit
card to make a purchase to obtain goods or services from a merchant,
and credit is transferred from the covered separate credit feature into
the asset feature of the prepaid account to cover the amount of the
purchase. For example, again, assume that the consumer has $10 of funds
in the asset feature of the prepaid account and initiates a transaction
with a merchant to obtain goods or services with the hybrid prepaid-
credit card for $25. In this case, the $15 is transferred from the
covered separate credit feature to the asset feature, and a transaction
of $25 is debited from the asset feature of the prepaid account.
New comments 8(a)-9.ii provides that such a transaction is a
``nonsale credit'' under final Sec. 1026.8(b). In this example, the
$15 credit transaction is treated as ``nonsale credit'' under Sec.
1026.8(b). The Bureau notes, however, that while this type of credit
transaction is disclosed as ``nonsale credit'' under final Sec.
1026.8(b) on the Regulation Z periodic statement, this transaction is
still considered a transaction made with the card to purchase goods or
services under final Sec. 1026.12(c) and would be subject to final
Sec. 1026.12(c). See the section-by-section analysis of Sec.
1026.12(c) below.
The Bureau believes that for disclosure purposes under final
Sec. Sec. 1026.7(b)(2) and 1026.8, it is appropriate to distinguish
these two ways in which a creditor may structure a covered separate
credit feature accessible by a hybrid prepaid-credit card. The Bureau
believes that this distinction will help consumers better recognize and
understand the credit transactions when they are disclosed on the
Regulation Z periodic statement. The Bureau believes that this is
particularly true when a transaction involves situations where the
hybrid prepaid-credit card is used to obtain goods or services from a
merchant and the transaction is partially paid with funds from the
asset feature of the consumer's prepaid account, and partially paid
with credit from a covered separate credit feature.
As discussed above, a credit transaction will be disclosed as
``sale credit'' on the Regulation Z periodic statement where a consumer
uses a hybrid prepaid-credit card to make a purchase to obtain goods or
services from a merchant, and credit is drawn directly from the covered
separate credit feature to cover the amount of the purchase without
transferring funds into the asset feature of the prepaid account. New
comment 8(a)-9.iii provides for these types of transactions, if a
hybrid prepaid-credit card is used to obtain goods or services from a
merchant and the transaction is partially funded by the consumer's
prepaid account and partially funded by credit from the covered
separate credit feature, the amount to be disclosed under final Sec.
1026.8(a) as a ``sale credit' is the amount of the credit extension,
not the total amount of the purchase transaction.
For example, again, assume that the consumer has $10 of funds in
the asset feature of the prepaid account and initiates a transaction
with a merchant to obtain goods or services with the hybrid prepaid-
credit card for $25. In this case, $10 is debited from the asset
feature, and $15 of credit is drawn directly from the covered separate
credit feature to cover the amount of the purchase without any transfer
of funds into the asset feature of the prepaid account. The $15 credit
transaction is disclosed as ``sale credit'' on the Regulation Z
periodic statement, and the $10 part of the transaction is disclosed on
the Regulation E periodic statement under existing Regulation E Sec.
1005.9(b), or alternatively, on the electronic and written account
transaction histories pursuant to the periodic statement alternative
under final Regulation E Sec. 1005.18(c)(1).
In this example, because the credit transaction is treated as
``sale credit'' under existing Sec. 1026.8(a), the following
information regarding the credit portion of the transaction (the $15
credit portion, in the example above) generally will be disclosed on
the Regulation Z periodic statement: (1) The amount of the transaction;
(2) the date of the transaction; (3) the merchant's name; and (4) the
merchant's location. In this example, as set forth in existing
Regulation E Sec. 1005.9(b)(1) and final Sec. 1005.18(c)(3), similar
information will be disclosed on the Regulation E periodic statement,
or alternatively, the electronic and written account transaction
histories regarding the portion of the transaction that involves asset
funds ($10 in the above example), namely: (1) The amount of the
transaction; (2) the date of the transaction; (3) the merchant's name;
and (4) the merchant's location. The Bureau believes that because both
parts of the transaction are disclosed consistently on the Regulation Z
and Regulation E periodic statements (or on the electronic and written
account transaction histories provided to consumers pursuant to the
periodic statement alternative under final Regulation E Sec.
1005.18(c)(1)), a consumer will be better able to match up the two
parts of the transaction. Thus, the Bureau does not believe that it is
necessary in this case to disclose both portions of the transaction on
each periodic statement, as suggested by a consumer group commenter as
discussed above.
The Bureau recognizes that for purchases of goods or services that
involve overdrafts on asset accounts that are executed via debit cards,
the credit transaction may be disclosed as nonsale credit. In
particular, comment 8(b)-1.iii provides that nonsale credit includes
the use of an overdraft credit plan accessed by a debit card, even if
such use is in connection with a purchase of goods or services. In a
1981 rulemaking implementing the Truth in Lending Simplification and
Reform Act, the Board indicated that several commenters requested
clarification regarding whether a creditor should identify a
transaction as sale or nonsale credit when a consumer uses a debit card
with an overdraft feature to purchase goods, and in doing so, activates
the overdraft. The Board expressed its belief that the credit portions
of such transactions could be viewed as cash advances, and therefore
permitted the credit portions to be disclosed as nonsale credit at the
creditor's option even though a purchase is involved.\637\ As discussed
in the Overview of the Final Rule's Amendments to Regulation Z section,
the Bureau is not intending to revise rules in Regulation Z that apply
to overdraft plans accessed by debit cards. Nonetheless, for
transactions discussed above with respect to covered separate credit
features accessible by hybrid prepaid-credit cards, the Bureau believes
that disclosing the credit transaction as sale credit would be more
helpful to consumers than disclosing the transaction as nonsale credit
because consumers would receive the seller's name, and the city and
State or
[[Page 84202]]
foreign country where the transaction took place.
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\637\ 46 FR 20848, 20861 (Apr. 7, 1981).
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If the credit transaction were treated as nonsale credit, the
consumer would not receive the information about the seller's name and
address. As discussed above, the Bureau believes that the information
about the seller's name and address may be useful to consumers in
identifying the credit transactions where a hybrid prepaid-credit card
is used to obtain goods or services from a merchant, and credit is
drawn directly from the covered separate credit feature to cover the
amount of the purchase without transferring funds into the asset
feature of the prepaid account. As discussed above, the Bureau also
notes that under Regulation E, on the periodic statement, or the
electronic and written account transaction histories under the periodic
statement alternative, a transaction that involves a withdrawal from
the prepaid account at point of sale must include the merchant's name
and location. Thus, as discussed above, with respect to a single
transaction that involves both a withdrawal from the prepaid account
and an extension of credit, disclosing such a credit transaction as
sale credit could help consumers match up the part of the transaction
that appears on the Regulation Z periodic statement with the part of
the transaction that appears on the Regulation E periodic statement or
account transaction history.
On the other hand, as set forth in new comments 8(a)-9.ii and 8(b)-
1.vi a credit transaction is disclosed as ``nonsale credit'' under
final Sec. 1026.8(b) on the Regulation Z periodic statement where a
consumer uses a hybrid prepaid-credit card to make a purchase to obtain
goods or services from a merchant, and credit is transferred from the
covered separate credit feature accessed by the hybrid prepaid-credit
card into the asset feature of the prepaid account to cover the amount
of the purchase. For example, again assume that the consumer has $10 of
funds in the asset feature of the prepaid account and initiates a
transaction with a merchant to obtain goods or services with the hybrid
prepaid-credit card for $25. In this case, $15 will be transferred from
the covered separate credit feature to the asset feature, and a
transaction of $25 is debited from the asset feature of the prepaid
account.
In this example, the following information must be disclosed under
Sec. 1026.8(b) on the Regulation Z periodic statement with respect to
the portion of the transaction that involves credit ($15 in this
example): (1) A brief identification of the transaction; (2) the amount
of the transaction; and (3) at least one of the following dates: The
date of the transaction; the date the transaction was debited to the
consumer's account; or if the consumer signed the credit document, the
date appearing on the document.
Also, in this example, as set forth in existing Regulation E Sec.
1005.9(b)(1) and final Sec. 1005.18(c)(3), the following information
will be given on the Regulation E periodic statement (or alternatively,
the electronic and written account transaction histories) regarding the
transfer of credit into the asset feature of the prepaid account (the
$15 transfer from the covered separate credit feature): (1) The type of
transfer and type of account from which funds were transferred; (2) the
amount of the transfer; and (3) the date the transfer was credited to
the consumer's account. In addition, as set forth in existing
Regulation E Sec. 1005.9(b)(1) and final Sec. 1005.18(c)(3), the
following information will be provided on the Regulation E periodic
statement (or alternatively, the electronic and written account
transaction histories) regarding the $25 debit to the asset feature:
(1) The amount of the transaction; (2) the date of the transaction; and
(3) the merchant's name and location.
The Bureau believes that this information on the Regulation Z and E
periodic statements (or alternatively, on the electronic and written
account transaction histories pursuant to the periodic statement
alternative under final Regulation E Sec. 1005.18(c)(1)) will allow
consumers to understand better the connection between outgoing
transfers from covered separate credit features that are shown on the
Regulation Z periodic statements and the incoming transfers that are
shown on the Regulation E periodic statements (or alternatively, the
electronic and written account transaction histories). The Regulation E
periodic statement or account transaction histories also will show
information about the purchase transaction made with the card. In the
example above, the entire amount of the transaction ($25 purchase
transaction) will be shown on the Regulation E periodic statement or
the account transaction histories.
Transactions that partially involve the purchase of goods or
services and partially involves other credit. New comment 8(a)-9.iii
also provides that if a transaction is ``sale credit'' as described
above, for a transaction at point of sale conducted using a hybrid
prepaid-credit card that accesses credit from a covered separate credit
feature where the transaction partially involves the purchase of goods
or services and partially involves other credit, such as cash back
given to the cardholder, the creditor must disclose the entire amount
of the credit as sale credit, including the part of the transaction
that does not relate to the purchase of goods or services.
The Bureau understands that creditors may not be able to identify
separately the amount of the credit transaction that relates to the
purchase of goods or services at a merchant and the amount of the
credit transaction that relates to other types of credit, such as cash
back given to the cardholder. In this case, the card issuer may only be
able to determine the total amount of credit extended for that
transaction. To ensure that consumers are better able to recognize
credit transactions disclosed on periodic statements, new comment 8(a)-
9.iii requires that a creditor disclose the entire amount of the credit
transaction as ``sale credit'' under final Sec. 1026.8(a). Under this
approach, a creditor must disclose the entire amount of the credit
transaction, the date of the transaction, and the merchant's name and
location on the Regulation Z periodic statement. The Bureau believes
such information is sufficient to allow a consumer to identify a
transaction, even where part of the amount of the transaction is for
cash back or other forms of credit given to the cardholder at point of
sale. For these types of transactions, the Bureau anticipates that the
cardholder will associate the entire credit transaction, including the
cash back portion of the credit, with the merchant's name.
8(b) Nonsale Credit
Existing Sec. 1026.8(b) provides that for each credit transaction
not involving the sale of property or services, the creditor generally
must disclose a brief identification of the transaction; the amount of
the transaction; and at least one of the following dates: (1) The date
of the transaction; (2) the date the transaction was debited to the
consumer's account; or (3) if the consumer signed the credit document,
the date appearing on the document. Existing comment 8(b)-1 provides
that the term ``nonsale credit'' refers to any form of loan credit,
including, for example: (1) A cash advance; (2) an advance on a credit
plan that is accessed by overdrafts on a checking account; (3) the use
of a ``supplemental credit device'' in the form of a check or draft or
the use of the overdraft credit plan accessed by a debit card, even if
such use is in connection with a purchase of goods or services; and (4)
miscellaneous debits to remedy mispostings, returned checks, and
similar entries.
[[Page 84203]]
The proposal would have added an additional example to existing
comment 8(b)-1 to provide guidance on when credit transactions are
``nonsale credit'' when credit is accessed by a prepaid card that is a
credit card. First, proposed comment 8(b)-1.v would have explained that
``nonsale credit'' includes an advance at an ATM on a credit plan that
is accessed by a prepaid card that is a credit card. This proposed
comment also would have clarified that if a prepaid card that is a
credit card is used to obtain an advance at an ATM and the transaction
is partially funded by the consumer's prepaid account and partially
funded by a credit extension, the amount to be disclosed under proposed
Sec. 1026.8(b) is the amount of the credit extension, not the total
amount of the ATM transaction.
The proposal also would have made technical revisions to two
comments--existing comment 8(b)-1.ii and existing comment 8(b)-2--which
would have provided guidance regarding overdraft credit plans in order
to make clear that these comments do not apply to overdraft credit
plans related to prepaid accounts.
The Bureau did not receive any specific comments on this aspect of
the proposal. The Bureau is adopting new comment 8(b)-1.v as proposed,
with revisions to be consistent with new Sec. 1026.61.\638\ New
comment 8(b)-1.v provides that an advance at an ATM on a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in Sec. 1026.61 is an example of nonsale credit under Sec.
1026.8(b). This comment also provides that if a hybrid prepaid-credit
card is used to obtain an advance at an ATM and the transaction is
partially paid with funds from the asset feature of the prepaid account
and partially paid with a credit extension from the covered separate
credit feature, the amount to be disclosed under final Sec. 1026.8(b)
is the amount of the credit extension, not the total amount of the ATM
transaction.
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\638\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 8(b)-1.vi would have explained that
``nonsale credit' includes an advance on a credit plan accessed by
such an account number. For the reasons set forth in the section-by-
section analysis of Sec. 1026.2(a)(15)(i) above, the final rule
does not adopt the proposed comment 8(b)-1.vi related to these
account numbers.
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As discussed in more detail in the section-by-section analysis of
Sec. 1026.8(a), the Bureau also is adding new comment 8(b)-1.vi to
provide that a credit transaction will be disclosed as ``nonsale
credit'' under final Sec. 1026.8(b) on the Regulation Z periodic
statement where a consumer uses a hybrid prepaid-credit card as defined
in new Sec. 1026.61 to make a purchase to obtain goods or services
from a merchant, and credit is transferred from a covered separate
credit feature accessed by the hybrid prepaid-credit card into the
asset feature of the prepaid account to cover the amount of the
purchase, as described in new comment 8(a)-9.ii. In this scenario, the
amount to be disclosed under final Sec. 1026.8(b) is the amount of the
credit extension, not the total amount of the purchase transaction.
Consistent with the proposal, the final rule also adopts final
comments 8(b)-1.ii and comment 8(b)-2 as proposed with revisions to
specify that the term ``prepaid account'' is defined in new Sec.
1026.61.
Section 1026.10 Payments
10(a) General Rule
TILA section 164(a), which is implemented in existing Sec.
1026.10(a), provides that payments received from an obligor under an
open-end consumer credit plan or a credit card account by the creditor
shall be posted promptly to the obligor's account as specified in
regulations of the Bureau.\639\ Existing Sec. 1026.10(a) generally
provides that a creditor for open-end credit or a credit card account
shall credit a payment to the consumer's account as of the date of
receipt, except when a delay in crediting does not result in a finance
or other charge or except as provided in Sec. 1026.10(b). Existing
comment 10(a)-2 provides guidance on the term ``date of receipt'' as
used in existing Sec. 1026.10(a). Specifically, existing comment
10(a)-2 provides that the ``date of receipt'' is the date that the
payment instrument or other means of completing the payment reaches the
creditor. Existing comment 10(a)-2.ii provides an example illustrating
the date of receipt for payments related to payroll deduction plans.
Specifically, existing comment 10(a)-2.ii provides that in a payroll
deduction plan in which funds are deposited to an asset account held by
the creditor, and from which payments are made periodically to an open-
end credit account, payment is received on the date when it is debited
to the asset account (rather than on the date of the deposit), provided
the payroll deduction method is voluntary and the consumer retains use
of the funds until the contractual payment date.
---------------------------------------------------------------------------
\639\ 15 U.S.C. 1666c; see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------
The proposal would have amended this comment to reference proposed
changes that would have been added to proposed Sec. 1026.12(d)(3)
related to the prohibition on offsets. As discussed in more detail in
the section-by-section analysis of Sec. 1026.12(d) below, existing
Sec. 1026.12(d)(1) provides that 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. Nonetheless, existing
Sec. 1026.12(d)(3) provides that the prohibition on offsets does not
prohibit a plan, if authorized in writing by the cardholder, under
which the card issuer may periodically deduct all or part of the
cardholder's credit card debt from a deposit account held with the card
issuer (subject to the limitations in existing Sec. 1026.13(d)(1)).
With respect to credit cards that are also prepaid cards, the proposal
would have added proposed Sec. 1026.12(d)(3)(ii) to define
``periodically'' to mean no more frequently than once per calendar
month. Thus, under proposed Sec. 1026.12(d)(3), with respect to such
credit card accounts that would have been accessed by a prepaid card
that is a credit card, a card issuer would have been permitted to
deduct automatically all or a part of the cardholder's credit card debt
from the prepaid account or other deposit account held by the card
issuer no more frequently than once per month, pursuant to a signed,
written authorization by the cardholder to do so.
The proposal would have revised existing comment 10(a)-2.ii to
explain that proposed Sec. 1026.12(d)(3)(ii) prevents card issuers,
with respect to credit card accounts accessed by prepaid cards that are
credit cards, from automatically deducting credit card account payments
from a prepaid account or other deposit account held by the card issuer
more frequently than once per calendar month. In a payroll deduction
plan in which funds are deposited to a prepaid account held by the
creditor, and from which payments are made on a monthly basis to a
credit card account accessed by a prepaid card that is a credit card,
payment would have been considered to be received on the date when it
is debited to the prepaid account (rather than on the date of the
deposit), provided the payroll deduction method is voluntary and the
consumer retains use of the funds until the contractual payment date.
The Bureau did not receive comment on this aspect of the proposal.
The
[[Page 84204]]
Bureau is adopting revisions to existing comment 10(a)-2.ii as
proposed, with technical revisions to clarify the intent of the
provision and to be consistent with new Sec. 1026.61.\640\ Final
comment 10(a)-2.ii explains that in a payroll deduction plan in which
funds are deposited to an asset account held by the creditor, and from
which payments are made periodically to an open-end credit account,
payment is received on the date when it is debited to the asset account
(rather than on the date of the deposit), provided the payroll
deduction method is voluntary and the consumer retains use of the funds
until the contractual payment date. The comment also explains that
final Sec. 1026.12(d)(3)(ii) defines ``periodically'' to mean no more
frequently than once per calendar month for payments made periodically
from a deposit account, such as prepaid account, held by a card issuer
to pay credit card debt incurred with respect to a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined in
new Sec. 1026.61 that is held by the card issuer. In a payroll
deduction plan in which funds are deposited to a prepaid account held
by the card issuer, and from which payments are made on a monthly basis
to a covered separate credit feature accessible by a hybrid prepaid-
credit card that is held by the card issuer, payment is received on the
date when it is debited to the prepaid account (rather than on the date
of the deposit), provided the payroll deduction method is voluntary and
the consumer retains use of the funds until the contractual payment
date. As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
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\640\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. The proposal would have revised comment 10(a)-2.ii to
explain that Sec. 1026.12(d)(3)(ii) prevents card issuers, with
respect to credit card accounts accessed by such account numbers,
from automatically deducting credit card account payments from a
prepaid account or other deposit account held by the card issuer
more frequently than once per calendar month. For the reasons set
forth in the section-by-section analysis of Sec.
1026.2(a)(15)(i)above, the final rule does not adopt the proposed
changes to comment 10(a)-2.ii related to these account numbers.
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10(b) Specific Requirements for Payments
Existing Sec. 1026.10(b) generally sets forth certain rules
related to how creditor must handle payments received from consumers.
Existing Sec. 1026.10(b)(1) generally provides that a creditor may
specify reasonable requirements for payments that enable most consumers
to make conforming payments. Nonetheless, existing comment 10(b)-1
explains that a creditor may be prohibited from specifying payment by
preauthorized EFT and cross-references EFTA section 913.
As a technical revision, the proposal would have amended this
comment to cross-reference Regulation E Sec. 1005.10(e), which
implements EFTA section 913. The Bureau did not receive any comments on
this proposed revision. Consistent with the proposal, the final rule
adopts final comment 10(b)-1 to explain that a creditor may be
prohibited from specifying payment by preauthorized EFT and to cross-
reference both EFTA section 913 and Regulation E Sec. 1005.10(e).
Section 1026.12 Special Credit Card Provisions
Existing Sec. 1026.12 contains special rules applicable to credit
cards and credit card accounts, including conditions under which a
credit card may be issued, liability of cardholders for unauthorized
use, cardholder rights to assert merchant claims and defenses against
the card issuer, and the prohibition on offsets by issuers.
12(a) Issuance of Credit Cards
TILA section 132, which is implemented by existing Sec.
1026.12(a), generally prohibits a person from issuing credit cards
except in response to a request or application. Section 132 explicitly
exempts from this prohibition credit cards issued as renewals of or
substitutes for previously accepted credit cards.\641\
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\641\ 15 U.S.C. 1642.
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Existing 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. As discussed in more detail below, the final rule provides
guidance on how the prohibition on issuing unsolicited credit cards
applies to hybrid prepaid-credit cards that can access covered separate
credit features.
12(a)(1) Addition of a Credit Feature
Under the proposal, a prepaid card could not have accessed
automatically a credit feature that would make the prepaid card into a
credit card at the time the card is purchased by the consumer at point
of sale. A card issuer could have added a credit card feature to a
prepaid card only in response to a consumer's explicit request or
application.
The proposal would have modified existing comment 12(a)(1)-2
specifically to explain that the addition of a credit card feature to
an existing prepaid card constitutes ``issuance'' for purposes of
unsolicited issuance under existing Sec. 1026.12(a). Specifically, the
existing comment 12(a)(1)-2 provides that if the consumer has a non-
credit card, the addition of credit features to the card (for example,
the granting of overdraft privileges on a checking account when the
consumer already has a check guarantee card) constitutes issuance of a
credit card. The proposal would have revised existing comment 12(a)(1)-
2 to provide guidance relating to prepaid cards. Specifically, proposed
comment 12(a)(1)-2 would have provided that if the consumer has a non-
credit card, including a prepaid card, the addition of a credit feature
or plan to the card that would make the card into a credit card under
Sec. 1026.2(a)(15)(i) constitutes issuance of a credit card. The
proposal also would have added an example related to prepaid cards.
Specifically, the proposal would have added proposed comment 12(a)(1)-
2.ii to provide that allowing a prepaid card to access a credit plan
that would make the card into a credit card under Sec.
1026.2(a)(15)(i) would constitute issuance of a credit card. The
existing example relating to check guarantee cards would have been
moved to proposed comment 12(a)(1)-2.i.
The Bureau did not receive any specific comments on the proposed
revisions to existing comment 12(a)(1)-2. The Bureau is adopting
comment 12(a)(1)-2 as proposed, with revisions to be consistent with
new Sec. 1026.61. Consistent with the proposal, the final rule revises
existing comment 12(a)(1)-2 to provide that if the consumer has a non-
credit card, including a prepaid card, the addition of a credit feature
or plan to the card that would make the card into a credit card under
Sec. 1026.2(a)(15)(i) constitutes issuance of a credit card. The final
rule also moves the existing example related
[[Page 84205]]
to check guarantee cards to final comment 12(a)(1)-2.i. The final rule
also adds a new example in final comment 12(a)(1)-2.ii to provide that
issuance of a credit card includes allowing a prepaid card to access a
covered separate credit feature that would make the card into a hybrid
prepaid-credit card as defined in new Sec. 1026.61 with respect to the
covered separate credit feature. As discussed in more detail in the
section-by-section analysis of Sec. 1026.61(a)(2) below, a covered
separate credit feature accessible by a hybrid prepaid-credit card
includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Sec. 1026.61
and a credit card under final Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
Issuance of a Non-Credit Card
Existing comment 12(a)(1)-7.i explains that a non-credit card may
be sent on an unsolicited basis by an issuer that does not propose to
connect the card to any credit plan.\642\ The comment states that a
credit feature may be added to a previously issued non-credit card only
upon the consumer's specific request. Existing comment 12(a)(1)-7.ii
provides as an example, that a purchase-price discount card may be sent
on an unsolicited basis by an issuer that does not propose to connect
the card to any credit plan. The comment further explains that an
issuer demonstrates that it proposes to connect the card to a credit
plan by, for example, including promotional materials about credit
features or account agreements and disclosures required by Sec.
1026.6. The comment also states that the issuer violates the rule
against unsolicited issuance if, for example, at the time the card is
sent a credit plan can be accessed by the card or the recipient of the
unsolicited card has been preapproved for credit that the recipient can
access by contacting the issuer and activating the card.
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\642\ The Bureau notes that a prepaid card is an access device
under Regulation E, as that term is defined in existing Regulation E
Sec. 1005.2(a)(1), and is subject to the issuance rules set forth
in existing Regulation E Sec. 1005.5. See also the commentary to
final Sec. 1005.18(a).
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Under the proposal, the current language of existing comment
12(a)(1)-7.i and ii would have been moved to proposed comment 12(a)(1)-
7.i.A and B respectively and would have been limited to the issuance of
non-credit cards that are not prepaid cards. The proposal also would
have added comment 12(a)(1)-7.ii to provide guidance on when the
issuance of a prepaid card would be viewed as the issuance of a credit
card. Specifically, proposed comment 12(a)(1)-7.ii would have provided
that existing Sec. 1026.12(a)(1) would not apply to the issuance of a
prepaid card where an issuer does not connect the card to any credit
plan that would make the prepaid card into a credit card at the time
the card is issued and only opens a credit card account, or provides an
application or solicitation, to open a credit or charge card account,
that would be accessed by that card in compliance with proposed Sec.
1026.12(h) (which has been moved to new Sec. 1026.61(c) in the final
rule). As discussed in more detail in the section-by-section analysis
of Sec. 1026.61(c) below, the Bureau proposed to add Sec. 1026.12(h)
to require a card issuer to wait at least 30 days after the prepaid
account has been registered before opening a credit card account for
the holder of the prepaid account that will be accessed by the prepaid
card, or providing 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. Proposed comment 12(a)(1)-7.ii also
would have explained that a credit 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 comment 12(a)(1)-7.ii further would have explained,
however, that an issuer does not make a prepaid card into a credit card
simply by providing the disclosures required by proposed Regulation E
Sec. 1005.18(b)(2)(i)(B)(9) and (ii)(B) with the prepaid card. As
discussed in the section-by-section analyses of Regulation E Sec.
1005.18(b)(2)(x) and (4)(vii) above, under the proposal, a financial
institution would have been required to provide certain disclosures
about credit card accounts that may be offered in connection with
prepaid accounts. Under the proposal, a financial institution would
have been required to disclose in the short form and long form
disclosures provided in connection with the prepaid account certain
information about any credit plan that may be offered at any point to
the holder of the prepaid account where the credit plan would be
accessed by a credit card that also is a prepaid card. These
disclosures would have enabled consumers to shop more effectively for
prepaid accounts by informing them of both whether a credit card
account may be offered in connection with the prepaid account and some
of the terms of such a credit card account. Proposed comment 12(a)(1)-
7.ii would have provided guidance that providing these disclosures
would not have violated the rule against unsolicited issuance of a
credit card because, otherwise, selling such cards in retail locations
or otherwise providing them on an unsolicited basis to consumers would
violate Regulation Z if these required disclosures were included with
the prepaid card.
The Bureau did not receive any specific comments on proposed
comment 12(a)(1)-7.ii. As technical revisions, consistent with the
proposal, the final rule moves the current language of existing comment
12(a)(1)-7.i and ii to final comment 12(a)(1)-7.i.A and B respectively
and limits this language to the issuance of non-credit cards that are
not prepaid cards.
The Bureau also is adopting new comment 12(a)(1)-7.ii as proposed,
with revisions to be consistent with new Sec. 1026.61. New comment
12(a)(1)-7.ii provides that existing Sec. 1026.12(a)(1) does not apply
to the issuance of a prepaid card where an issuer does not connect the
card to any covered separate credit feature that would make the prepaid
card into a hybrid prepaid-credit card as defined in Sec. 1026.61 at
the time the card is issued and only opens a covered separate credit
feature, provides an application or solicitation to open a covered
separate credit feature, or allows an existing credit feature to become
a covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in new Sec. 1026.61 in compliance with new Sec.
1026.61(c). As discussed in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
New comment 12(a)(1)-7.ii also clarifies that a covered separate
credit feature may be added to a previously issued prepaid card only
upon the consumer's application or specific request and only in
compliance with new Sec. 1026.61(c). This comment clarifies that an
issuer does not make a prepaid card into a hybrid prepaid-credit card
simply by providing the disclosures required by Regulation E
[[Page 84206]]
Sec. 1005.18(b)(2)(x), (4)(iv), and (vii) with the prepaid card. In
addition, the comment provides a cross-reference to existing Sec.
1026.12(a)(2) and related commentary for when a hybrid prepaid-credit
card as defined in Sec. 1026.61 may be issued as a replacement or
substitute for another hybrid prepaid-credit card. The comment also
provides a cross-reference to existing Regulation E Sec. 1005.5 and
final Sec. 1005.18(a), and related commentary, that govern the
issuance of access devices under Regulation E.
12(a)(2)
Existing 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. Existing comments 12(a)(2)-5 and -6 provide guidance on
the exception to the unsolicited issuance rule when a card is issued as
a renewal of, or substitute for, an accepted credit card.
Specifically, existing comment 12(a)(2)-5 (the so-called ``one for
one'' rule) provides that an accepted card generally may be replaced by
no more than one renewal or substitute card. For example, the card
issuer may not replace a credit card permitting purchases and cash
advances with two cards, one for the purchases and another for the cash
advances. Existing comment 12(a)(2)-6 provides, however, two exceptions
to this general ``one for one'' rule. First, existing comment 12(a)(2)-
6.i provides that the unsolicited issuance rule in existing Sec.
1026.12(a) does not prohibit the card issuer from replacing a debit/
credit card with a credit card and another card with only debit
functions (or debit functions plus an associated overdraft capability)
because the latter card could be issued on an unsolicited basis under
Regulation E. Existing comment 12(a)(2)-6.ii also provides that
existing Sec. 1026.12(a) does not prohibit a card issuer from
replacing an accepted card with more than one renewal or substitute
card, provided that: (1) No replacement card accesses any account not
accessed by the accepted card; (2) for terms and conditions required to
be disclosed in account-opening disclosures under existing Sec.
1026.6, all replacement cards are issued subject to the same terms and
conditions, except that a creditor may vary terms for which no change-
in-terms notice is required under existing Sec. 1026.9(c); and (3)
under the account's terms the consumer's total liability for
unauthorized use with respect to the account does not increase.
Under the proposal, the example in existing comment 12(a)(2)-6.ii
would have been moved to proposed comment 12(a)(2)-6.iii. The proposal
also would have added comment 12(a)(2)-6.ii to explain that the one-
for-one rule would not prevent an issuer from replacing a single card
that is both a prepaid card and a credit card with two cards--one card
that is a credit card and another card that is a separate prepaid card,
where the latter card is not a credit card. In addition, under the
proposal, the example in comment 12(a)(2)-6.i related to debit cards
would have been revised for clarity; no substantive changes would have
been intended.
The Bureau did not receive comments on the proposed revision to
existing comment 12(a)(2)-6. The Bureau is adopting this comment as
proposed, with revisions as discussed below. First, the Bureau is
revising the example in existing comment 12(a)(2)-6.i related to debit
cards for clarity; no substantive changes are intended. Second, the
Bureau is moving existing comment 12(a)(2)-6.ii to final comment
12(a)(2)-6.iii.
Third, the Bureau is adopting comment 12(a)(2)-6.ii as proposed
with revisions to use consistent terminology with new Sec. 1026.61.
Specifically, the Bureau is adding new comment 12(a)(2)-6.ii to provide
that the one-for-one rule does not prevent an issuer from replacing a
single card that is both a prepaid card and a credit card with two
cards--one card that is a credit card and one card that is a separate
prepaid card where the latter card is not a hybrid prepaid-credit card
as defined in new Sec. 1026.61. As discussed in more detail in the
section-by-section analysis of Sec. 1026.61(a)(2) below, a covered
separate credit feature accessible by a hybrid prepaid-credit card
includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Sec. 1026.61
and a credit card under final Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
12(c) Right of Cardholder To Assert Claims or Defenses Against Card
Issuer
Under TILA section 170, as implemented in existing Sec.
1026.12(c), a cardholder may assert against the card issuer a claim or
defense for disputes as to goods or services purchased in a consumer
credit transaction with a credit card. The claim or defense applies
only as to unpaid balances for the goods or services and any finance or
other charges imposed on that amount if the merchant honoring the card
fails to resolve the dispute. The right is further limited generally to
disputes exceeding $50 for purchases made in the consumer's home State
or within 100 miles of the cardholder's address.\643\
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\643\ See 15 U.S.C. 1666i.
---------------------------------------------------------------------------
Existing comment 12(c)-3 and existing comment 12(c)(1)-1 provides
guidance on the types of transactions that are covered by existing
Sec. 1026.12(c) and the types of transactions that are not covered.
Existing comment 12(c)(1)-1 provides that the consumer may assert
claims or defenses only when the goods or services are ``purchased with
the credit card.'' This could include mail, internet, or telephone
orders, if the purchase is charged to the credit card account.
The Bureau's Proposal
The proposal would have amended existing comment 12(c)(1)-1 and
added proposed comment 12(c)-5 to explain that existing Sec.
1026.12(c) would apply when goods or services are purchased using a
credit card that also is a prepaid card. Proposed comment 12(c)-5 also
would have provided guidance on how existing Sec. 1026.12(c) applies
to transactions at point of sale where a prepaid card that is a credit
card is used to obtain goods or services from a merchant, and the
transaction is partially funded by the consumer's prepaid account and
partially funded by credit. For these types of transactions, proposed
comment 12(c)-5 would have provided that the amount of the purchase
transaction that is funded by credit generally would be subject to the
requirements of existing Sec. 1026.12(c), and it also would have
provided that the amount of the transaction funded from the prepaid
account would not be subject to the requirements of Sec. 1026.12(c).
Existing comments 12(c)-3 and 12(c)(1)-1.iv provide that the
provisions in existing Sec. 1026.12(c) generally do not apply to
purchases effected by use of either a check guarantee card or a debit
card when used to draw on overdraft credit plans. Existing comment
12(c)(1)-1.ii also provides that the provisions in existing Sec.
1026.12(c) do not apply to the purchase of goods or services using a
check accessing an overdraft account and a credit card used solely for
identification of the consumer. On the other hand, if the credit card
is used to make partial payment for the purchase and not merely for
identification, the right to assert claims or defenses would apply to
credit extended via the credit
[[Page 84207]]
card, although not to the credit extended on the overdraft line. The
Board adopted these exceptions in 1981 as part of implementing the
Truth in Lending Simplification and Reform Act.\644\ In the
supplemental information provided with that rulemaking, the Board
indicated that it had decided to exempt check guarantee cards and debit
cards when used to draw on an overdraft line because of serious
operational problems cited by commenters as arising from applying the
claims and defenses provisions to check guarantee and debit card
transactions. The proposal would not have revised these provisions,
except to revise existing comment 12(c)(1)-1.ii to specify that the
comment does not apply to an overdraft line in connection with a
prepaid account.
---------------------------------------------------------------------------
\644\ 46 FR 20848, 20865 (Apr. 7, 1981); see also 46 FR 50288,
50313 (Oct. 9, 1981).
---------------------------------------------------------------------------
Comments Received
The Bureau did not receive comments from industry on proposed
comments 12(c)(1)-1 and 12(c)-5. With respect to split-tender
transactions discussed above, two consumer group commenters urged the
Bureau to use its authority under TILA section 105 to extend the claim
and defenses provision to the amount of the transaction that is funded
from the prepaid account. They believed that doing so would help reduce
consumer confusion.
The Final Rule
The Bureau is adopting proposed comments 12(c)(1)-1 and 12(c)-5
with revisions.\645\ Consistent with the proposal, final comment
12(c)(1)-1 provides that the provisions in existing Sec. 1026.12(c)
apply to property or services purchased with the hybrid prepaid-credit
card that accesses a covered separate credit feature, as defined in new
Sec. 1026.61. In addition, new comment 12(c)-5 is revised from the
proposal to clarify that existing Sec. 1026.12(c) applies to purchases
made with a hybrid prepaid-credit card that accesses a covered separate
credit feature, regardless of whether the covered separate credit
feature is structured such that credit is transferred from the covered
separate credit feature to the asset feature of the prepaid account to
cover the amount of the purchase transaction made with the hybrid
prepaid-credit card, or whether the covered separate credit feature is
structured such that credit is directly drawn from the covered separate
credit feature to cover the amount of the purchase transaction made
with the hybrid prepaid-credit card.
---------------------------------------------------------------------------
\645\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed 12(c)(1)-1.i would have provided that the
provision in Sec. 1026.12(c) would not apply to an advance on a
credit plan accessed by such an account number. For the reasons set
forth in the section-by-section analysis of Sec. 1026.2(a)(15)(i)
above, the final rule does not adopt the proposed changes to comment
12(c)(1)-1.i related to these account numbers.
---------------------------------------------------------------------------
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.8(a) above, the Bureau recognizes that a card issuer with
respect to a covered separate credit feature accessible by a hybrid
prepaid-credit card may structure the credit feature in two ways to
cover situations where the consumer has insufficient or unavailable
funds in the asset feature of the prepaid account at the time of
authorization or settlement to cover the amount of the transaction
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers. First, the covered separate credit feature could
be structured such that a consumer can use a hybrid prepaid-credit card
to make a purchase to obtain goods or services from a merchant, and
credit is drawn directly from the covered separate credit feature
without transferring funds into the asset feature of the prepaid
account to cover the amount of the purchase. For example, assume that
the consumer has $10 of funds in the asset feature of the prepaid
account and initiates a transaction with a merchant to obtain goods or
services with the hybrid prepaid-credit card for $25. In this case, $10
is debited from the asset feature, and $15 of credit is drawn directly
from the covered separate credit feature accessed by the hybrid
prepaid-credit card without any transfer of funds into the asset
feature of the prepaid account to cover the amount of the purchase.
Second, the covered separate credit feature accessible by a hybrid
prepaid-credit card could be structured such that when a consumer uses
a hybrid prepaid-credit card to make a purchase to obtain goods or
services from a merchant, credit is transferred from the covered
separate credit feature into the asset feature of the prepaid account
to cover the amount of the purchase. For example, assume the same facts
as above, except that the $15 is transferred from the covered separate
credit feature to the asset feature, and a transaction of $25 is
debited from the asset feature of the prepaid account.
The Bureau is adding new comment 12(c)-5.i to provide that both of
these situations would be examples of a consumer using a hybrid
prepaid-credit card to access a covered separate credit feature to
purchase property or services. This is true even though the latter
situation (where credit is transferred from the covered separate credit
feature to the asset feature of the prepaid account to cover the amount
of the purchase transaction) is disclosed as nonsale credit under final
Sec. 1026.8(b).
Consistent with the proposal, the Bureau has not exempted from the
provisions of existing Sec. 1026.12(c) credit extended for purchases
made with hybrid prepaid-credit cards. For the reasons set forth in the
Overview of the Final Rule's Amendments to Regulation Z section, the
Bureau believes that covered separate credit features that are
accessible by hybrid prepaid-credit cards generally should be subject
to the provisions in Regulation Z that apply to credit features
accessible by credit cards.
Consistent with the proposal, the Bureau also is adding new comment
12(c)-5.ii to provide that for a transaction at point of sale where a
hybrid prepaid-credit card is used to obtain goods or services from a
merchant and the transaction is partially paid with funds from the
asset feature of the prepaid account and partially paid with credit
from the covered separate credit feature, the amount of the purchase
transaction that is funded by credit is subject to the requirements of
existing Sec. 1026.12(c). The amount of the transaction funded from
the prepaid account is not subject to the requirements of existing
Sec. 1026.12(c).
With respect to split-tender transactions where a purchase with the
hybrid prepaid-credit card is partially paid with funds from the asset
feature of the prepaid account and partially paid with credit from the
covered separate credit feature, the Bureau is not using its adjustment
authority under TILA section 105 to extend the claims and defenses
provision in existing Sec. 1026.12(c) to the amount of the transaction
that is funded from the asset feature of the prepaid account. In split-
tender transactions, the Bureau believes that the provision in existing
Sec. 1026.12(c) should only apply to the
[[Page 84208]]
amount of the transaction that is paid with credit and is accessed by
the hybrid prepaid-credit card when it is acting as a credit card to
access the covered separate credit feature.
For the reasons discussed in the Overview of the Final Rule's
Amendments to Regulation Z section, the Bureau also is retaining the
existing exemptions contained in existing comments 12(c)-3 and
12(c)(1)-1.ii and iv related to purchases effected by use of either a
check guarantee card or a debit card when used to draw on overdraft
credit plans. Existing comments 12(c)-3 and 12(c)(1)-1.iv provide that
the provisions in existing Sec. 1026.12(c) generally do not apply to
purchases effected by use of either a check guarantee card or a debit
card when used to draw on overdraft credit plans. In addition, existing
comment 12(c)(1)-1.ii also provides that the provisions in existing
Sec. 1026.12(c) do not apply to the purchase of goods or services by
using a check accessing an overdraft account and a credit card used
solely for identification of the consumer. Consistent with the
proposal, the Bureau is revising the example in existing comment
12(c)(1)-1.ii to specify that the comment does not apply to covered
separate credit features accessible by hybrid prepaid-credit cards.
12(d) Offsets by Card Issuer Prohibited
TILA section 169 generally prohibits card issuers from taking any
action to offset a cardholder's credit card indebtedness against funds
of the cardholder held on deposit with the card issuer. Nonetheless, a
card issuer would not violate this provision if the card issuer
periodically deducts all or a portion of a consumer's credit card debt
from the consumer's deposit account, if the periodic deductions are in
accordance with a preauthorized written authorization by the consumer
and the card issuer does not deduct payment for any portion of the
outstanding balance that is in dispute.\646\ This TILA section also
provides that the prohibition described above does not alter or affect
the right under State law of a card issuer to attach or otherwise levy
upon funds of a cardholder held on deposit with the card issuer if that
remedy is constitutionally available to creditors generally.\647\ TILA
section 169 is implemented by Sec. 1026.12(d).
---------------------------------------------------------------------------
\646\ 15 U.S.C. 1666h(a).
\647\ 15 U.S.C. 1666h(b).
---------------------------------------------------------------------------
Existing Sec. 1026.12(d)(1) provides that 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. Existing
Sec. 1026.12(d)(2) provides that the prohibition on offsets in
existing Sec. 1026.12(d)(1) does not alter or affect the right of a
card issuer acting under State or Federal law to do any of the
following with regard to funds of a cardholder held on deposit with the
card issuer if the same procedure is constitutionally available to
creditors generally: (1) Obtain or enforce a consensual security
interest in the funds; (2) attach or otherwise levy upon the funds; or
(3) obtain or enforce a court order relating to the funds. Existing
Sec. 1026.12(d)(3) provides that the prohibition on offsets set forth
in existing Sec. 1026.12(d)(1) does not prohibit a plan, if authorized
in writing by the cardholder, under which the card issuer may
periodically deduct all or part of the cardholder's credit card debt
from a deposit account held with the card issuer (subject to the
limitations in existing Sec. 1026.13(d)(1)).
Congress added the offset provision in TILA section 169 as part of
the Fair Credit Billing Act.\648\ In adding this offset provision,
Congress was concerned that
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\648\ Public Law 93-495, 88 Stat. 1500 (Oct. 28, 1974).
Funds in these accounts can be attached without any recourse to
the courts and in spite of any valid legal defense the cardholder
may have against the bank. Banks which issue cards and also have the
cardholder's funds on deposit may thus obtain a unique leverage over
the consumer. Other creditors would have to apply to a court before
being permitted to attach funds in a borrowers' deposit
account.\649\
---------------------------------------------------------------------------
\649\ S. Rep. No. 93-278, at 9 (June 28, 1973).
---------------------------------------------------------------------------
12(d)(1) General Rule
Existing Sec. 1026.12(d)(1) provides that 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.
The Bureau's Proposal
The proposal would have provided 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. Thus, under the
proposal, the offset provision in existing Sec. 1026.12(d) would have
applied to credit plans that are accessed by prepaid cards that are
credit cards under the proposal. The proposal also would have added
proposed comment 12(d)-1 to make clear that for purposes of the
prohibition on offsets in existing Sec. 1026.12(d), funds of the
cardholder held on deposit include funds in a consumer's prepaid
account and the term deposit account includes a prepaid account.
Existing comment 12(d)(1)-2 provides that if the consumer tenders
funds as a deposit (to a checking account, for example) held by the
card issuer, the card issuer may not apply the funds to repay
indebtedness on the consumer's credit card account. The proposal would
have amended this comment to provide guidance on the tender of funds as
a deposit to a prepaid account. Specifically, this comment would have
been revised to specify that if the card issuer receives funds
designated for the consumer's prepaid account with the issuer, such as
by means of an ACH deposit or cash reload, the card issuer may not
automatically apply the funds to repay indebtedness on the consumer's
credit card account. As a technical revision, the proposal also would
have added the title ``General rule'' to existing Sec. 1026.12(d)(1);
no substantive change would have been intended by this addition.
Comments Received
Several commenters, including industry trade associations and
issuing banks, opposed applying the offset provision to overdrafts on
prepaid accounts. One of these commenters indicated that applying the
offset provision to overdraft credit features accessed by prepaid cards
would deny consumers the ability to access short-term credit in
connection with prepaid accounts. Another of these industry commenters
believed that when a prepaid account user overdraws his account, the
consumer likely intends funds subsequently deposited into the prepaid
account to satisfy the overdraft. This industry commenter believed that
the offset provision would prevent a consumer from achieving that
expected outcome and could mislead prepaid account users into thinking
they have more funds available than they actually do. Another of these
industry commenters indicated that the offset prohibition would
increase the cost of credit to consumers. This commenter indicated that
the offset prohibition would make it more difficult for
[[Page 84209]]
creditors to recover debts owed to them. This commenter indicated the
longer and more difficult it is for creditors to recover debts, the
more costly it is for consumers to access credit.
Several consumer groups supported application of the offset
provision to prepaid cards that would have been credit cards under the
proposal. One consumer group commenter urged the Bureau to make clear
that payroll deduction plans are covered by the offset prohibition.
The Final Rule
Consistent with the proposal, the final rule adds the title
``General rule'' to existing Sec. 1026.12(d)(1); no substantive change
is intended. The Bureau also is adopting comments 12(d)-1 and 12(d)(1)-
2 as proposed with revisions to refer to Sec. 1026.61 for the
definition of ``prepaid account.''
Pursuant to the final rule, the offset prohibition in existing
Sec. 1026.12(d) applies to covered separate credit features accessible
by hybrid prepaid-credit cards because these credit features are credit
card accounts under the final rule.\650\ As discussed in more detail in
the section-by-section analysis of Sec. 1026.61(a)(2) below, a covered
separate credit feature accessible by a hybrid prepaid-credit card
includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Sec. 1026.61
and a credit card under final Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
---------------------------------------------------------------------------
\650\ The proposal would have provided that the term ``credit
card'' includes an account number that is not a prepaid card where
that account number accesses a credit plan where extensions of
credit are permitted to be deposited directly only into particular
prepaid accounts specified by the creditor. The proposal would have
applied the offset prohibition in Sec. 1026.12(d) to credit card
accounts accessed by such account numbers. For the reasons set forth
in the section-by-section analysis of Sec. 1026.2(a)(15)(i) above,
the offset prohibition does not apply to accounts simply because
they are accessed by these account numbers because under the final
rule, these account numbers are not credit cards.
---------------------------------------------------------------------------
As discussed above, several commenters, including industry trade
associations and issuing banks, opposed applying the offset provision
to overdrafts on prepaid accounts. One of these commenters indicated
that applying the offset provision to overdraft credit features
accessed by prepaid cards would deny consumers the ability to access
short-term credit in connection with prepaid accounts. One industry
commenter indicated that the offset prohibition would increase the cost
of credit to consumers by making it more difficult for creditors to
recover debts owed to them. For the reasons set forth in the Overview
of the Final Rule's Amendments to Regulation Z section, the Bureau
believes that covered separate credit features accessible by hybrid
prepaid-credit cards should receive the important protections that
apply to credit card accounts generally under Regulation Z, including
the offset prohibitions in final Sec. 1026.12(d). The Bureau also
believes that additional protections with respect to the offset
provision in final Sec. 1026.12(d) are needed with respect to covered
separate credit features accessible by hybrid prepaid-credit cards, as
discussed in the section-by-section discussion of Sec. 1026.12(d)(2)
and (3). The Bureau believes that the requirements in final Sec.
1026.12(d), along with changes to the timing requirement for a periodic
statement in final Sec. 1026.5(b)(2)(ii)(A) and the compulsory use
provision in Regulation E (final Sec. 1005.10(e)(1)), are important
protections that will allow consumers to retain control over the funds
in their prepaid accounts if a covered separate credit feature becomes
associated with those accounts because they will be able to control
when and how debts are repaid.
As discussed above, one industry commenter believed that when a
prepaid account user overdraws his account, the consumer likely intends
funds subsequently deposited into the prepaid account to satisfy the
overdraft. This industry commenter believed that the offset provision
would prevent a consumer from achieving that expected outcome and could
mislead prepaid account users into thinking they have more funds
available than they actually do. The Bureau believes that the
Regulation Z account-opening disclosures and periodic statement
disclosures, as well as explanations of contractual terms that card
issuers typically provide to consumers, will help ensure that consumers
understand the terms of their covered separate credit features,
including how to make payments on the credit card accounts.
As discussed above, one consumer group commenter urged the Bureau
to make clear that payroll deduction plans are covered by the offset
prohibition. The Bureau has not added any additional guidance in final
Sec. 1026.12(d) or its related commentary regarding the applicability
of the offset provision to payroll deduction plans. The Bureau does not
believe that special guidance related to payroll deduction plans is
necessary. The Bureau believes that under the current offset provision
(and the final rule), the offset provision would apply to payroll
deductions that are deposited into a consumer's asset account that is
held by the credit card issuer. Nonetheless, the offset provision does
not apply if the payroll deductions are deposited into a consumer's
asset account that is held with the employer or with a person other
than the credit card issuer. The offset provision also would not apply
to payroll deductions that are used directly to pay a covered separate
credit feature that is accessible by a hybrid prepaid-credit card where
payroll deduction funds are never deposited into a consumer's asset
account with the credit card issuer.
12(d)(2) Rights of the Card Issuer
TILA section 169(a) generally prohibits card issuers from taking
any action to offset a cardholder's credit card indebtedness against
funds of the cardholder held on deposit with the card issuer.\651\ TILA
section 169(b) provides, however, that the prohibition on offset does
not alter or affect the right under State law of a card issuer to
attach or otherwise levy upon funds of a cardholder held on deposit
with the card issuer if that remedy is constitutionally available to
creditors generally.\652\
---------------------------------------------------------------------------
\651\ 15 U.S.C. 1666h(a).
\652\ 15 U.S.C. 1666h(b).
---------------------------------------------------------------------------
Implementing TILA section 169, existing Sec. 1026.12(d)(2)
provides that that the prohibition on offsets in existing Sec.
1026.12(d)(1) does not alter or affect the right of a card issuer
acting under State or Federal law to attach or otherwise levy upon the
funds of a cardholder held on deposit with the card issuer if the same
procedure is constitutionally available to creditors generally.
Existing Sec. 1026.12(d)(2) also provides two additional methods for
obtaining funds that the Board found were not prohibited by the
prohibition on offsets in TILA section 169. Specifically, existing
Sec. 1026.12(d)(2) provides that the prohibition on offsets in
existing Sec. 1026.12(d)(1) does not alter or affect the right of a
card issuer acting under State or Federal law to use either of the
following two methods if the same method is constitutionally available
to creditors generally: (1) Obtain or enforce a consensual security
interest in the funds; or (2) obtain or enforce a court order relating
to the funds.
The Board adopted these additional two methods in 1981 as part of
its rulemaking to implement the Truth in Lending Simplification and
Reform Act.\653\ In the supplemental information
[[Page 84210]]
to that rulemaking, with respect to the method related to security
interests, the Board stated its belief that TILA section 169 was not
intended to apply to the granting of security interests in cardholders'
deposit accounts. In addition, the Board imposed certain limitations on
the use of security interests that it believed would prevent
circumvention of the offset prohibition because: (1) Only consensual
security interests are permitted, and thus the cardholder must
affirmatively agree to grant the security interest; (2) the security
interest can be enforced only through procedures by which other
creditors could enforce their security interests in the same funds; and
(3) any security interest granted to secure credit card indebtedness
will be disclosed in the card issuer's initial disclosures to the
cardholder. The Board considered but rejected limiting the amount of
the security interest to a specified amount, reasoning that other
third-party creditors are not required to do so. The Board believed
that these requirements should eliminate the possibility of unfair
surprise to consumers and of unfair advantage for depository
institutions over other creditors that Congress sought to avoid in
enacting TILA section 169.\654\
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\653\ 46 FR 20848 (Apr. 7, 1981).
\654\ 46 FR 20848, 20866 (Apr. 7, 1981).
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Existing comment 12(d)(2)-1 is intended to ensure that the security
interest is consensual. Specifically, existing comment 12(d)(2)-1
provides that in order to qualify for the exception stated in Sec.
1026.12(d)(2), a security interest must be affirmatively agreed to by
the consumer and must be disclosed in the issuer's account-opening
disclosures under Sec. 1026.6. The security interest must not be the
functional equivalent of a right of offset; as a result, routinely
including in agreements contract language indicating that consumers are
giving a security interest in any deposit accounts maintained with the
issuer does not result in a security interest that falls within the
exception in existing Sec. 1026.12(d)(2).
For a security interest to qualify for the exception under existing
Sec. 1026.12(d)(2), as discussed in existing comment 12(d)(2)-1.i and
ii, the following conditions must be met: (1) the consumer must be
aware that granting a security interest is a condition for the credit
card account (or for more favorable account terms) and must
specifically intend to grant a security interest in a deposit account;
and (2) the security interest must be obtainable and enforceable by
creditors generally. If other creditors could not obtain a security
interest in the consumer's deposit accounts to the same extent as the
card issuer, the security interest is prohibited by existing Sec.
1026.12(d)(2).
Current comment 12(d)(2)-1.i provides that indicia of the
consumer's awareness and intent to provide a security interest include
at least one of the following (or a substantially similar procedure
that evidences the consumer's awareness and intent): (1) Separate
signature or initials on the separate agreement indicating that a
security interest is being given; (2) placement of the security
agreement on a separate page, or otherwise separating the security
interest provisions from other contract and disclosure provisions; or
(3) reference to a specific amount of deposited funds or to a specific
deposit account number.
The Bureau's Proposal
The proposal would have retained current guidance in comment
12(d)(2)-1.i requiring that the consumer must be aware that granting a
security interest is a condition for the credit card account (or for
more favorable account terms) and must specifically intend to grant a
security interest in a deposit account. The proposal would have moved
the current guidance in comment 12(d)(2)-1.i discussing indicia of the
consumer's awareness and intent to grant a security interest to
proposed comment 12(d)(2)-1.ii and would have amended that comment to
indicate that guidance only applies to deposit accounts that are not
prepaid accounts. The proposal would have added new comment 12(d)(2)-
1.iii discussing indicia of the consumer's awareness and intent to
grant a security interest with respect to prepaid accounts. The
proposal also would have moved guidance in existing comment 12(d)(2)-
1.ii to new proposed comment 12(d)(2)-1.iv; no substantive change would
have been intended.
With respect to proposed comment 12(d)(2)-1.iii, the Bureau
believed that additional protections may be needed to ensure that
consumers understand that they are giving a security interest with
respect to credit features that are accessed by prepaid cards that are
credit cards. To prevent the security interest from becoming the
functional equivalent to an offset, the proposal would have set forth
in proposed comment 12(d)(2)-1.iii the steps that card issuers must
take to demonstrate a consumer's awareness of and intent to grant a
security interest in a prepaid account. Specifically, a card issuer
would have been required to meet all the following conditions: (1) In
addition to being disclosed in the issuer's account-opening disclosures
under Sec. 1026.6, the security agreement must be provided to the
consumer in a document separate from the prepaid account agreement and
the credit card account agreement; (2) the separate document setting
forth the security agreement must be signed by the consumer; (3) the
separate document setting forth the security agreement must refer to
the prepaid account number and to a specific amount of funds in the
prepaid account in which the card issuer is taking a security interest,
and these two elements of the document must be separately signed or
initialed by the consumer; and (4) the separate document setting forth
the security agreement must specifically enumerate the conditions under
which the card issuer will enforce the security interest, and each of
those conditions must be separately signed or initialed by the
consumer.
In addition, as a technical revision, the proposal would have added
the title ``Rights of the card issuer'' to Sec. 1026.12(d)(2); no
substantive change was intended.
Comments Received
The Bureau solicited comment on the approach discussed above. The
Bureau also solicited comment on whether these additional protections
are sufficient to ensure that security interests do not become the
functional equivalent to an offset when a credit card account is
directly linked to a prepaid account through an overdraft feature. If
these additional protections were not sufficient, the Bureau sought
comment on what additional protections would be sufficient to ensure
that the security interests taken in prepaid accounts are consensual.
Alternatively, the Bureau sought comment on whether it should prohibit
a card issuer from obtaining or enforcing any consensual security
interest in the funds of a cardholder held in a prepaid account with
the card issuer, to ensure that card issuers cannot circumvent the
prohibition on offsets by taking routinely a security interest in the
prepaid account funds without consumer awareness of the security
interest.
The Bureau did not receive specific comments from industry
commenters on proposed comment 12(d)(2)-1.iii. One consumer group
commenter indicated that the Bureau should ban card issuers from taking
a security interest in prepaid accounts or require they be established
only using a separate account. This commenter believed that even with
the proposed safeguards, it would be too easy for a card issuer to
obtain the consumer's signature on a
[[Page 84211]]
document. This commenter indicated that at a minimum, the Bureau should
require funds from a prepaid card that would be the security interest
to be segregated into a different, separate account that is not a
transaction account, such as a savings account. In addition, this
commenter indicated that the security interest should be limited to the
initial deposit.
The Final Rule
The Bureau is adopting comment 12(d)(2)-1 as proposed with
technical revisions to clarify the intent of the provision and with
revisions to be consistent with new Sec. 1026.61. Consistent with the
proposal, the final rule retains current guidance in 12(d)(2)-1.i
requiring that the consumer must be aware that granting a security
interest is a condition for the credit card account (or for more
favorable account terms) and must specifically intend to grant a
security interest in a deposit account. The final rule also moves the
current guidance 1.ii and revises this current guidance to clarify the
intent of the provision and to provide that it only applies in relation
to credit card accounts other than covered separate credit features
accessible by hybrid prepaid-credit cards as defined in Sec. 1026.61.
As discussed in more detail below, the final rule also adds new comment
12(d)(2)-1.iii discussing indicia of the consumer's awareness and
intent to provide a security interest in relation to covered separate
credit features accessible by hybrid prepaid in comment 12(d)(2)-1.i
discussing indicia of the consumer's awareness and intent to provide a
security interest to final comment 12(d)(2)--credit cards. The final
rule also moves guidance in existing comment 12(d)(2)-1.ii to final
comment 12(d)(2)-1.iv; no substantive change is intended. As technical
revisions, the final rule adds the title ``Rights of the card issuer''
to Sec. 1026.12(d)(2) and revises the existing language of Sec.
1026.12(d)(2) to use the phrase ``this paragraph (d)'' instead of
``this paragraph''; no substantive change is intended.
As discussed above, the Bureau is adopting new comment 12(d)(2)-
1.iii as proposed, with technical revisions to clarify the intent of
the provision and with revisions to be consistent with new Sec.
1026.61. Specifically, new comment 12(d)(2)-1.iii provides that with
respect to a covered separate credit feature accessible by a hybrid
prepaid-credit card as defined in Sec. 1026.61, for a consumer to show
awareness and intent to grant a security interest in a deposit account,
including a prepaid account, all of the following conditions must be
met: (1) In addition to being disclosed in the issuer's account-opening
disclosures under existing Sec. 1026.6, the security agreement must be
provided to the consumer in a document separate from the deposit
account agreement and the credit card account agreement; (2) the
separate document setting forth the security agreement must be signed
by the consumer; (3) the separate document setting forth the security
agreement must refer to the deposit account number, and to a specific
amount of funds in the deposit account in which the card issuer is
taking a security interest and these two elements of the document must
be separately signed or initialed by the consumer; and (4) the separate
document setting forth the security agreement must specifically
enumerate the conditions under which the card issuer will enforce the
security interest, and each of those conditions must be separately
signed or initialed by the consumer.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
The Bureau believes that prepaid account issuers may have
significant interest in securing credit card debt on a covered separate
credit feature accessible by a hybrid prepaid-credit card by means of
the prepaid account. These credit features will always be associated
with this linked asset account, and the Bureau believes that prepaid
card users who use the cards to obtain consumer credit from a covered
separate credit feature are likely to have lower credit scores than
credit card users overall. Unlike traditional secured credit cards,
these prepaid cards likely would not be marketed as secured credit
cards and would not require consumers to establish a new separate
account or to set aside specific funds. As a result, prepaid consumers
are less likely than secured credit card users to understand that they
are required to provide a security interest in the prepaid account in
order to receive the covered separate credit feature. In addition,
these prepaid consumers may have a need to be able to manage their
prepaid accounts very carefully to cover both daily expenses and any
credit repayments.
With regard to security interests in connection with covered
separate credit features accessible by hybrid prepaid-credit cards, the
Bureau believes that all of the indicia in new comment 12(d)(2)-2.iii,
including delineating a specific dollar amount as being subject to the
security interest, will help to ensure that such security interest
arrangements do not circumvent the offset provision in TILA section 169
by ensuring that consumers focus careful attention on the consequences
of granting security interests so that consumers are better prepared to
manage their accounts to both cover daily expenses and repay any credit
extensions.
At this time, the Bureau does not believe that it is necessary to
ban security interests in prepaid accounts or to provide that a covered
separate credit feature accessible by a hybrid prepaid-credit card only
can be secured by a separate asset account that is not the prepaid
account. The Bureau believes that the protections adopted in the final
rule are sufficient to protect consumers from security interests taken
in prepaid account with respect to a covered separate credit feature
from becoming functional equivalents of offsets, but the Bureau will
continue to monitor how providers in the prepaid market use consensual
security interests.
12(d)(3) Periodic Deductions
Implementing TILA section 169, existing Sec. 1026.12(d)(3)
provides that the prohibition on offsets set forth in Sec.
1026.12(d)(1) does not prohibit a plan, if authorized in writing by the
cardholder, under which the card issuer may periodically deduct all or
part of the cardholder's credit card debt from a deposit account held
with the card issuer (subject to the limitations in existing Sec.
1026.13(d)(1)).
The Bureau's Proposal
Neither TILA section 169 nor existing Sec. 1026.12(d)(3) defines
``periodically'' for purposes of existing Sec. 1026.12(d)(3). The
proposal would have added proposed Sec. 1026.12(d)(3)(ii) to provide
that with respect to prepaid cards that are credit cards, for purposes
of existing Sec. 1026.12(d)(3), ``periodically'' means no more
frequently than once per calendar month. For example, a deduction could
be scheduled for each monthly due date disclosed on the applicable
periodic statement in accordance with the requirements of proposed
Sec. 1026.7(b)(11)(i)(A) or on an earlier date in each calendar month
in accordance with a written authorization signed by the consumer.
Thus, under proposed Sec. 1026.12(d)(3), with respect to such credit
plans accessed by prepaid
[[Page 84212]]
card that is a credit card, a card issuer would have been permitted to
deduct all or a part of the cardholder's credit card debt automatically
from the prepaid account or other deposit account held by the card
issuer no more frequently than once per month, pursuant to a signed,
written authorization by the cardholder to do so. Proposed comment
12(d)(3)-3 would have provided an example to illustrate when card
issuers could deduct automatically all or part of the cardholder's
credit card debt from a deposit account (such as a prepaid account)
held with the card issuer under proposed Sec. 1026.12(d)(3) with
respect to credit cards that are also prepaid cards. Proposed comment
12(d)(3)-3 would have provided that with respect to those credit cards,
a card issuer would not be prohibited under proposed 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 existing 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. The proposed comment would have provided the following
example: With respect to credit cards that are also prepaid cards,
assume that a periodic statement is sent out each month to a cardholder
on the first day of the month and the payment due date for the amount
due on that statement is the 25th day of each month. In this case, the
card issuer would not have been prohibited under proposed Sec.
1026.12(d) from automatically deducting the amount due on the periodic
statement on the 25th of each month, or on an earlier date in each
calendar month, from a deposit account held by the card issuer if the
deductions were pursuant to a plan that was authorized in writing by
the cardholder (as discussed in existing comment 12(d)(3)-1) and
complied with the limitations in existing Sec. 1026.13(d)(1). Proposed
comment 12(d)(3)-3 also would have explained that the card issuer would
be prohibited under proposed 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.
As technical revisions, the proposal also would have: (1) Added the
title ``Periodic deductions'' to Sec. 1026.12(d)(3); and (2) moved
existing Sec. 1026.12(d)(3) to proposed Sec. 1026.12(d)(3)(i). No
substantive changes would have been intended.
Comments Received
One credit union service organization indicated that the Bureau
should not adopt the proposed definition of ``periodically.'' This
commenter indicated that consumers should have the choice to allow for
automatic multiple payments within the same month, like consumers have
with other financial products such as traditional credit card programs.
This commenter indicated that some consumers may prefer to pay smaller
amounts more frequently instead of paying a larger amount once a month.
One consumer group commenter indicated that the preauthorized
payment plan exception set forth in existing Sec. 1026.12(d)(3) should
not apply to credit features accessed by prepaid cards that are credit
cards. Thus, card issuers of those credit features should not be
permitted to deduct credit card balances on those credit features from
prepaid accounts pursuant to existing Sec. 1026.12(d)(3). Another
consumer group commenter indicated that with respect to credit features
accessed by prepaid cards that are credit cards, a card issuer should
be permitted under proposed Sec. 1026.12(d)(3) to deduct no more than
4 percent of the outstanding balance on a monthly basis from the
prepaid account pursuant to the preauthorized payment plan.
One consumer group commenter indicated that the Bureau should make
clear that consumers have the right to revoke authorization for a
payment plan described in proposed Sec. 1026.12(d)(3). This commenter
indicated that consumers should be able to exercise the right to revoke
authorization under existing Sec. 1026.12(d)(3) easily, such as in
writing, electronically or orally. One consumer group commenter
indicated that the Bureau should monitor the process that card issuers
use to gain automatic payment authorization to ensure that it is not
coercive or misleading so that consumers understand that they have
signed up for it.
The Final Rule
As discussed in more detail below, the Bureau is adopting Sec.
1026.12(d)(3) as proposed, with revisions to be consistent with new
Sec. 1026.61. Consistent with the proposal, the final rule moves the
current language in existing Sec. 1026.12(d)(3) to new Sec.
1026.12(d)(3)(i). The final rule also adds new Sec. 1026.12(d)(3)(ii)
and new comment 12(d)(3)-3 as proposed, with revisions to be consistent
with new Sec. 1026.61. New Sec. 1026.12(d)(3)(ii) provides that with
respect to covered separate credit features accessible by hybrid
prepaid-credit cards, for purposes of Sec. 1026.12(d)(3),
``periodically'' means no more frequently than once per calendar month.
Thus, under new Sec. 1026.12(d)(3)(ii), with respect to a covered
separate credit feature accessible by a hybrid prepaid-credit card, a
card issuer may deduct all or a part of the cardholder's credit card
debt on the covered separate credit feature automatically from the
prepaid account or other deposit account held by the card issuer no
more frequently than once per month, pursuant to a signed, written
authorization by the cardholder to do so. As discussed in more detail
in the section-by-section analysis of Sec. 1026.61(a)(2) below, a
covered separate credit feature accessible by a hybrid prepaid-credit
card includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Sec. 1026.61
and a credit card under final Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
As discussed in more detail below, the Bureau also is amending
existing comment 12(d)(3)-2 to provide that a card issuer is not
prohibited under final Sec. 1026.12(d) from automatically deducting
from the consumer's deposit account any fee or charge imposed on the
asset feature of the prepaid account that is not a charge imposed as
part of the plan under final Sec. 1026.6(b)(3).
The Bureau also is making three technical revisions to final Sec.
1026.12(d)(3) and related commentary. First, the final rule adds the
title ``Periodic deductions'' to Sec. 1026.12(d)(3). Second, the final
rule revises the language of existing Sec. 1026.12(d)(3) (renumbered
as final Sec. 1026.12(d)(3)(i)) to use the phrase ``this paragraph
(d)'' rather than ``this paragraph.'' Third, the final rule revises
existing comment 12(d)(3)-1.iii, which references EFTA section 913, to
also reference final Regulation E Sec. 1005.10(e), which implements
that section of EFTA.
Definition of ``periodically.'' New Sec. 1026.12(d)(3)(ii)
provides that with respect to covered separate credit features
accessible by hybrid prepaid-credit cards, for purposes of final Sec.
1026.12(d)(3), ``periodically'' means
[[Page 84213]]
no more frequently than once per calendar month. For example, a
deduction could be scheduled for each monthly due date disclosed on the
applicable periodic statement in accordance with the requirements of
final Sec. 1026.7(b)(11)(i)(A) or on an earlier date in each calendar
month in accordance with a written authorization signed by the
consumer. Thus, under final Sec. 1026.12(d)(3), with respect to a
covered separate credit feature accessible by a hybrid prepaid-credit
card, a card issuer may deduct all or a part of the cardholder's credit
card debt on the covered separate credit feature automatically from the
prepaid account or other deposit account held by the card issuer no
more frequently than once per month, pursuant to a signed, written
authorization by the cardholder to do so.\655\
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\655\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. With respect to these account numbers, the proposal
would have set forth a new proposed Sec. 1026.12(d)(3)(ii) and
comment 12(d)(3)-3 that would have provided that for purposes of the
exception for automatic payment plans as discussed in Sec.
1026.12(d)(3), ``periodically'' would have meant no more frequently
than once per calendar month. For the reasons set forth in the
section-by-section analysis of Sec. 1026.2(a)(15)(i)above, the
final rule does not adopt the proposed revisions to Sec.
1026.12(d)(3)(ii) and comment 12(d)(3)-3 related to these account
numbers.
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The Bureau also is adopting comment 12(d)(3)-3 as proposed, with
revisions to be consistent with new Sec. 1026.61. New comment
12(d)(3)-3 provides that with respect to covered separate credit
features accessible by hybrid prepaid-credit cards, a card issuer would
not be prohibited under final Sec. 1026.12(d) from periodically
deducting all or part of the cardholder's credit card debt on the
covered separate credit feature from a deposit account (such as a
prepaid account) held with the card issuer (subject to the limitations
of existing 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
more frequently than once per calendar month pursuant to such a plan.
This comment provides the following example: With respect to a
covered separate credit feature accessible by a hybrid prepaid-credit
card, assume that a periodic statement is sent out each month to a
cardholder on the first day of the month and the payment due date for
the amount due on that statement is the 25th day of each month. In this
case, the card issuer is not prohibited under final Sec. 1026.12(d)
from automatically deducting the amount due on the periodic statement
on the 25th of each month, or on an earlier date in each calendar
month, from a deposit account held by the card issuer, if the
deductions are pursuant to a plan that is authorized in writing by the
cardholder (as discussed in final comment 12(d)(3)-1) and comply with
the limitations in existing Sec. 1026.13(d)(1). New comment 12(d)(3)-3
also explains that the card issuer is prohibited under final Sec.
1026.12(d) from automatically deducting all or part of the cardholder's
credit card debt on the covered separate credit feature 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 or expected to be made to the
deposit account.
The Bureau believes that allowing a card issuer to execute a
preauthorized transfer once per calendar month to repay all or some of
a consumer's credit card balance on a covered separate credit feature
accessible by a hybrid prepaid-credit card is appropriate because card
issuers of covered separate credit features linked to prepaid accounts
generally are restricted from providing periodic statements more
frequently than on a monthly basis, and the due date must be the same
day of the month for each billing cycle. As discussed in the section-
by-section analyses of Sec. Sec. 1026.5(b)(2)(ii) and 1026.7(b)(11)
above, for covered separate credit features accessible by hybrid
prepaid-credit cards that are credit card accounts under an open-end
(not home-secured) consumer credit plan, the card issuer must adopt
reasonable procedures 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 must be the same day of the
month for each billing cycle.
The Bureau is concerned that, with respect to covered separate
credit features that are accessible by hybrid prepaid-credit cards,
some card issuers may attempt to circumvent the prohibition on offsets
by obtaining a consumer's written authorization to deduct all or part
of the cardholder's credit card debt on the covered separate credit
feature on a daily or weekly basis from the prepaid account to help
ensure that the debt is repaid. If ``periodically'' is not defined for
purposes of final Sec. 1026.12(d)(3), the Bureau believes that card
issuers that offer covered separate credit features accessible by
hybrid prepaid-credit cards may obtain a consumer's written
authorization to daily or weekly debits to the prepaid account to repay
the credit card debt on the covered separate credit feature given the
overall creditworthiness of prepaid accountholders who rely on covered
separate credit features. In addition, the Bureau believes prepaid
consumers may grant the authorization more readily than other credit
cardholders because these consumers may believe that providing such
authorization is required.
An appropriate interval for ``periodic[]'' deduction plans may
depend on the facts and circumstances of the particular credit feature,
but because of the above reasons, the Bureau believes that an
appropriate interval for covered separate credit features accessible by
hybrid prepaid-credit cards is no more frequently than once per
calendar month.
The Bureau believes that the requirement in final Sec.
1026.12(d)(3), along with changes to the timing requirement for a
periodic statement in final Sec. 1026.5(b)(2)(ii)(A) and the
compulsory use provision in Regulation E (final Sec. 1005.10(e)(1)),
are necessary to fully effectuate the intent of the provisions and
would allow consumers to retain control over the funds in their prepaid
accounts even when a covered separate credit feature accessible by a
hybrid prepaid-credit card becomes associated with that account, which
is consistent with the prohibition on offsets. In particular, with
these changes, such card issuers (1) are required to adopt reasonable
procedures designed to ensure that periodic statements for covered
separate credit features 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; (2) can move funds automatically from the 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 on covered separate credit
features 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); and (3) are required to offer consumers a means to
repay their outstanding credit balances on covered separate credit
features other than 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).
[[Page 84214]]
As discussed above, one credit union service organization indicated
that the Bureau should not adopt the proposed definition of
``periodically.'' This commenter indicated that consumers should have
the choice to allow for automatic multiple payments within the same
month, like consumers have with other financial products such as
traditional credit card programs. This commenter indicated that some
consumers may prefer to pay smaller amounts more frequently instead of
paying a larger amount once a month. The Bureau notes that under
existing comment 12(d)(3)-2.ii, a card issuer is not prohibited under
the offset provision in Sec. 1026.12(d)(1) from debiting the
cardholder's deposit account on the cardholder's specific request
rather than on an automatic periodic basis (for example, a cardholder
might check a box on the credit card bill stub, requesting the issuer
to debit the cardholder's account to pay that bill). Thus, under the
final rule, a consumer may still provide specific requests for payment
more frequently than once per month as described in existing comment
12(d)(3)-2.ii (for example, a cardholder might check a box on the
credit card bill stub, requesting the issuer to debit the cardholder's
account to pay that bill), so long as those payments are not on an
automatic periodic basis more frequently than once per month.
In addition, as discussed above, one consumer group commenter
indicated that the preauthorized payment plan exception set forth in
existing Sec. 1026.12(d)(3) should not apply to credit features
accessed by prepaid cards that are credit cards. Thus, card issuers of
those credit features should not be permitted to deduct credit card
balances on those credit features from prepaid accounts pursuant to
existing Sec. 1026.12(d)(3). Another consumer group commenter
indicated that with respect to credit features accessed by prepaid
cards that are credit cards, a card issuer should be permitted under
proposed Sec. 1026.12(d)(3) to deduct no more than 4 percent of the
outstanding balance on a monthly basis from the prepaid account
pursuant to the preauthorized payment plan. The Bureau does not adopt
these additional protections suggested by these commenters at this
time. The Bureau believes that the requirement in final Sec.
1026.12(d)(3), along with changes to the timing requirement for a
periodic statement in final Sec. 1026.5(b)(2)(ii)(A) and the
compulsory use provision in Regulation E (final Sec. 1005.10(e)(1)),
provide sufficient protections to consumers to help ensure that
consumers retain control over the funds in their prepaid accounts even
when a covered separate credit feature accessible by a hybrid prepaid-
credit card becomes associated with that account, which is consistent
with the prohibition on offsets. The Bureau will continue to monitor
the use of automatic payment plans.
Also, as discussed above, one consumer group commenter indicated
that the Bureau should make clear that consumers have the right to
revoke authorization for a payment plan, described in proposed Sec.
1026.12(d)(3). This commenter indicated that consumers should be able
to exercise the right to revoke authorization under existing Sec.
1026.12(d)(3) easily, such as in writing, electronically or orally.
Another consumer group commenter indicated that the Bureau should
monitor the process that card issuers use to gain automatic payment
authorization to ensure that it is not coercive or misleading so that
consumers understand that they have signed up for it.
The final rule does not provide specific guidance on how consumers
may revoke the authorization provided pursuant to final Sec.
1026.12(d)(3). The Bureau notes that under final Sec. 1026.12(d)(3),
the exception from the offset provision for automatic payments only
applies to automatic payment plans that are ``authorized'' in writing
by the cardholder. At this time, the Bureau believes that State or
other applicable law, including UDAAP law, should determine whether an
automatic payment plan has been ``authorized'' and when an
authorization has been revoked for purposes of final Sec.
1026.12(d)(3). The Bureau will continue to monitor the processes that
card issuers use to gain automatic payment authorization and the
processes by which consumers can revoke authorization, to ensure that
processes provided by card issuers for obtaining authorization are
understandable to consumers and that consumers have reasonable methods
available to revoke the authorization.
Fees or charges imposed on the asset feature of a prepaid account
that are not charges imposed as part of the plan. Existing Sec.
1026.12(d)(1) provides that 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. Existing comment 12(d)(1)-3
provides that the offset prohibition applies to any indebtedness
arising from transactions under a credit card plan, including accrued
finance charges and other charges on the account. Existing comment
12(d)(3)-2 provides that Sec. 1026.12(d)(1) does not prohibit a card
issuer from automatically deducting charges for participation in a
program of banking services (one aspect of which may be a credit card
plan).
The Bureau did not propose revisions to existing comments 12(d)(1)-
3 or 12(d)(3)-2. Nonetheless, as discussed in more detail below, the
Bureau is adopting revisions to comment 12(d)(3)-2 to be consistent
with new Sec. 1026.61, changes in the final rule to the definition of
``finance charge'' in final Sec. 1026.4, and the definition of
``charges imposed as part of the plan'' in final Sec. 1026.6(b)(3). To
reflect these changes and to facilitate compliance with Sec.
1026.12(d), the Bureau is adding comment 12(d)(3)-2.iii to provide that
the offset prohibition in final Sec. 1026.12(d) does not prohibit a
card issuer from automatically deducting any fee or charge imposed on
the asset feature of the prepaid account that is not a charge imposed
as part of the plan under final Sec. 1026.6(b)(3) from a consumer's
deposit account, such a prepaid account, held by the card issuer. This
clarification applies to both covered separate credit features
accessible by a hybrid prepaid-credit card and non-covered separate
credit features that are subject to final Sec. 1026.12(d).\656\
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\656\ With respect to incidental credit that meets the
conditions set forth in new Sec. 1026.61(a)(4), new Sec.
1026.61(a)(4)(ii)(C) makes clear that a prepaid account issuer may
still satisfy the exception in new Sec. 1026.61(a)(4) even if it
debits fees or charges from the asset feature when there are
insufficient or unavailable funds in the asset feature to cover
those fees or charges at the time they are imposed, so long as those
fees or charges are not credit-related fees enumerated in new Sec.
1026.61(a)(4)(ii)(B). New comment 61(a)(4)-1.iv.A states that for
this type of credit, the prepaid account issuer is not a card issuer
under Sec. 1026.2(a)(7) with respect to the prepaid card.
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As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, new Sec. 1026.61(a)(2)(i) provides that a
prepaid card is a ``hybrid prepaid-credit card'' with respect to a
separate credit feature if the card meets the following two conditions:
(1) The card can be used from time to time to access credit from the
separate credit feature in the course of authorizing, settling, or
otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct P2P transfers; and (2) the
separate credit feature is offered by the prepaid account issuer,
[[Page 84215]]
its affiliate, or its business partner. New Sec. 1026.61(a)(2)(i)
defines such a separate credit feature accessible by a hybrid prepaid-
credit card as a ``covered separate credit feature.'' Thus, the hybrid
prepaid-credit card can access both the covered separate credit feature
and the asset feature of the prepaid account, and the hybrid prepaid-
credit card is a credit card under Regulation Z with respect to the
covered separate credit feature.
Nonetheless, new Sec. 1026.61(a)(2)(ii) provides that a prepaid
card is not a hybrid prepaid-credit card with respect to a separate
credit feature that does not meet both of the conditions above, for
example, where the credit feature is offered by an unrelated third
party that is not the prepaid account issuer, its affiliate or its
business partner. As described in new Sec. 1026.61(a)(2)(ii), a non-
covered separate credit feature is not subject to the rules applicable
to hybrid prepaid-credit cards; however, it typically will be subject
to Regulation Z depending on its own terms and conditions, independent
of the connection to the prepaid account. Thus, a non-covered separate
credit feature may be subject to the provisions in Sec. 1026.12(d) in
its own right based on the terms and conditions of the non-covered
separate credit feature, independent of the connection to the prepaid
account.
As discussed in the section-by-section analysis of Sec.
1026.6(b)(3) above, the Bureau is adding new Sec. 1026.6(b)(3)(iii)(D)
and new comment 6(b)(3)(iii)(D)-1 which provide that with regard to a
covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card as
defined in new Sec. 1026.61, the term ``charges imposed as part of the
plan'' does not include any fee or charge imposed on the asset feature
of the prepaid account to the extent that the amount of the fee or
charge does not exceed comparable fees or charges imposed on prepaid
accounts in the same prepaid account program that do not have a credit
feature accessible by a hybrid prepaid-credit card. As described in the
section-by-section analysis of Sec. 1026.4(b)(11) above, these fees or
charges imposed on the asset feature of the prepaid account are not
finance charges under new Sec. 1026.4(b)(11)(ii). With respect to a
covered separate credit feature, new comment 12(d)(3)-2.iii makes clear
that final Sec. 1026.12(d) does not prevent a card issuer from
automatically deducting from a consumer's deposit account, such as a
prepaid account, held with the card issuer any fee or charge imposed on
the asset feature of the prepaid account that is not a charge imposed
as part of the plan under new Sec. 1026.6(b)(3)(iii)(D) with respect
to the covered separate credit feature. As discussed in more detail in
the section-by-section analyses of Sec. Sec. 1026.4 and 1026.6, the
Bureau believes that fees or charges imposed on the asset feature of a
prepaid account that are not finance charges, and thus are not charges
imposed as part of the plan under new Sec. 1026.6(b)(3)(iii)(D), are
more appropriately regulated under Regulation E than under Regulation Z
with respect to the covered separate credit feature.
The Bureau also is adding new Sec. 1026.6(b)(3)(iii)(E) and new
comment 6(b)(3)(iii)(E)-1, which provide that with regard to a non-
covered separate credit feature accessible by a prepaid card, as
defined in Sec. 1026.61, the term ``charges imposed as part of the
plan'' does not include any fee or charge imposed on the asset feature
of the prepaid account. New comment 61(b)(3)(iii)(E)-1 also cross-
references new comment 4(b)(11)-1.ii.B, which provides that fees or
charges imposed on the asset feature of the prepaid account are not
finance charges with respect to the non-covered separate credit
feature. With respect to a non-covered separate credit feature, new
comment 12(d)(3)-2.iii makes clear that final Sec. 1026.12(d) does not
prevent a card issuer from automatically deducting from a consumer's
deposit account, such as a prepaid account, held with the card issuer
any fee or charge imposed on the asset feature of the prepaid account
that is not a charge imposed as part of the plan under new Sec.
1026.6(b)(3)(iii)(E) with respect to the non-covered separate credit
feature. Because none of the fees or charges imposed on the asset
feature of the prepaid account are charges imposed as part of the plan
with respect to a non-covered separate credit feature under new Sec.
1026.6(b)(3)(iii)(E), final Sec. 1026.12(d) does not prevent a card
issuer from automatically deducting any of these fees or charges from a
consumer's deposit account, such as a prepaid account, held with the
card issuer. As discussed in more detail in the section-by-section
analyses of Sec. Sec. 1026.4 and 1026.6, the Bureau believes that fees
or charges imposed on the asset feature of a prepaid account are more
appropriately regulated under Regulation E rather than Regulation Z
with respect to the non-covered separate credit feature.
Section 1026.13 Billing Error Resolution
TILA section 161, as implemented in existing Sec. 1026.13, sets
forth error resolution procedures for billing errors that relate to any
extension of credit that is made in connection with an open-end account
or credit card account. Specifically, it requires a consumer to provide
written notice of an error within 60 days after the first periodic
statement reflecting the alleged error is sent.\657\ The written notice
triggers a creditor's duty to investigate the claim within prescribed
time limits.
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\657\ 15 U.S.C. 1666; see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------
13(a) Definition of Billing Error
13(a)(3)
Existing Sec. 1026.13(a) defines a ``billing error'' for purposes
of the error resolution procedures. Under existing Sec. 1026.13(a)(3),
the term ``billing error'' includes disputes about an extension of
credit for property or services not accepted by the consumer or not
delivered to the consumer as agreed. Existing comment 13(a)(3)-2
explains that, in certain circumstances, a consumer may assert a
billing error under existing Sec. 1026.13(a)(3) with respect to
property or services obtained through any extension of credit made in
connection with a consumer's use of a third-party payment service.
Proposed Sec. 1026.2(a)(15)(vii) would have provided a definition
for ``account number where extensions of credit are permitted to be
deposited directly only into particular prepaid accounts specified by
the creditor.'' As used in the proposal, this term would have meant 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. Proposed comment 2(a)(15)-2.i.G would have
provided that these account numbers were credit cards under the
proposal.
Similar to the provision relating to third-party intermediaries,
the proposal would have added proposed comment 13(a)(3)-2.ii to address
situations where goods or services are purchased using funds deposited
into a prepaid account and those funds are credit drawn from a credit
plan that is accessed by an account number where extensions of credit
are permitted to be deposited directly only into particular prepaid
[[Page 84216]]
accounts specified by the creditor. The proposal would have moved the
existing guidance in comment 13(a)(3)-2 to proposed 13(a)(3)-2.i.
The Bureau did not receive specific comments on proposed comment
13(a)(3)-2.ii. For the reasons set forth in the section-by-section
analysis of Sec. 1026.2(a)(15)(i), the Bureau has not adopted proposed
Sec. 1026.2(a)(15)(vii) and proposed comment 2(a)(15)-2.i.G that would
have made these account numbers into credit cards under Regulation Z.
Thus, Bureau has not adopted proposed comment 13(a)(3)-2.ii related to
these account numbers.
13(i) Relation to Electronic Fund Transfer Act and Regulation E
Existing Sec. 1026.13(i) provides guidance on whether billing
error provisions under Regulation E or Regulation Z apply in certain
overdraft-related transactions. Specifically, existing Sec. 1026.13(i)
provides that if an extension of credit is incident to an EFT and is
under 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, the creditor must
comply with the requirements of Regulation E Sec. 1005.11 governing
error resolution rather than those of existing Sec. 1026.13(a), (b),
(c), (e), (f), and (h). The provisions of existing Sec. 1026.13 (d)
and (g) would still apply to the credit portion of these transactions.
As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section, currently under Regulation Z, overdraft credit is
subject to Regulation Z only if there is an agreement to extend credit,
which is typically described as an overdraft line of credit. In those
cases, existing Sec. 1026.13(i) applies when a transaction is
partially funded through an EFT from an asset account and partially
funded through an overdraft credit line. Such transactions will be
subject to both Regulation Z and E. Under existing Sec. 1026.13(i),
for those transactions, the creditor must comply with the requirements
of Regulation E Sec. 1005.11 governing error resolution rather than
those of existing Sec. 1026.13(a), (b), (c), (e), (f), and (h). The
provisions of existing Sec. 1026.13(d) and (g) would still apply to
the credit portion of these transactions. Currently under Regulation Z,
with respect to an asset account with a linked overdraft line of
credit: (1) if a transaction only accesses the overdraft line of credit
and does not access funds in the asset account, the error resolution
provisions in Regulation Z apply, and the error resolution provisions
in Regulation E do not apply; and (2) if a transaction only accesses
the funds in the asset account and does not access the overdraft line
of credit, the error resolution provisions in Regulation E apply, and
the error resolution provisions in Regulation Z do not apply. In
addition, current Regulation Z does not apply to overdraft credit where
there is not an agreement to extend credit. As discussed in existing
comment 13(i)-2, overdraft transactions made under those overdraft
credit programs are governed solely by the error resolution provisions
in Regulation E. Existing comment 13(i)-3 provides an example of the
application of existing Sec. 1026.13(i) to transactions where a
consumer withdraws money at an ATM machine and activates an overdraft
line of credit on the checking account.
As discussed in existing comment 13(i)-1, credit extended directly
from a non-overdraft credit line is governed solely by Regulation Z,
even though a combined credit card/access device is used to obtain the
extension.
The Bureau's Proposal
First, the proposal would have moved the existing language of
current Sec. 1026.13(i) to proposed Sec. 1026.13(i)(1) and would have
revised that language to specify that this provision would apply to
asset accounts that are not prepaid accounts. Second, existing comment
13(i)-2 would have been revised to specify that the comment only apply
to asset accounts that are not prepaid accounts. Third, existing
comment 13(i)-3 would have been revised to specify that the example set
forth in that comment only applies to debit cards. Proposed Sec.
1026.2(a)(15)(iv) would have defined ``debit card'' 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'' also would have specified that it does not
include a prepaid card.
The proposal would have added proposed Sec. 1026.13(i)(2) to
provide that with respect to a credit plan in connection with a prepaid
account, a creditor must comply with the requirements of existing
Regulation E Sec. 1005.11 governing error resolution rather than those
of Sec. 1026.13(a), (b), (c), (e), (f), and (h) with respect to an
extension of credit incident to an EFT when the consumer's prepaid
account is overdrawn if the credit plan is subject to subpart B of this
regulation. The provisions of existing Sec. 1026.13(d) and (g) would
still apply to the credit portion of these transactions.
The proposal also would have added proposed comment 13(i)-4 to
provide guidance on how proposed Sec. 1026.13(i)(2) would have applied
to credit plans in connection with prepaid accounts. Specifically,
proposed comment 13(i)-4 would have provided that for a credit
extension involving a credit plan in connection with a prepaid account
that is subject to subpart B, when the credit extension is incident to
an EFT and occurs when the prepaid account is overdrawn, 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 under an overdraft plan and does not include a
debit to the prepaid account, the error resolution requirements of
Regulation Z would have applied. If the transaction debited a prepaid
account only (with no credit extended under the overdraft plan), the
provisions of Regulation E would have applied. Nonetheless, under the
proposal, if the transaction debits a prepaid account but also draws on
an overdraft plan subject to subpart B, a creditor would have been
required to comply with the requirements of existing Regulation E Sec.
1005.11 and proposed Sec. 1005.18(e) governing error resolution,
rather than those of Sec. 1026.13 (a), (b), (c), (e), (f), and (h).
Proposed comment 13(i)-5 would have explained that an overdraft
credit plan would not be subject to subpart B if the credit plan is
only accessed by a prepaid card that is not a credit card. Under
proposed comment 2(a)(15)-2.i.F, a prepaid card would not have been a
credit card 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. For these types of credit plans, under
the proposal, only the error resolution provisions in Regulation E
would have applied.
Comments Received and Final Rule
The Bureau did not receive comment on this aspect of the proposal.
Consistent with the proposal, the Bureau is adopting Sec. 1026.13(i)
as proposed, with several technical revisions to clarify the intent of
the provision and to be consistent with new Sec. 1026.61.\658\
Consistent with the
[[Page 84217]]
proposal, the Bureau is moving existing Sec. 1026.13(i) to new Sec.
1026.13(i)(1) and is revising this language to specify that this
provision does not apply to transactions involving prepaid accounts as
defined in Sec. 1026.61. In addition, the Bureau is revising existing
comment 13(i)-2 to make clear that the comment do not apply to
transactions involving prepaid accounts defined in Sec. 1026.61.
Consistent with the proposal, the final rule also amends final comment
13(i)-3 to make clear that the example set forth in the comment only
applies to debit cards. New Sec. 1026.2(a)(5)(iv) defines ``debit
card'' 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 definition of ``debit card'' also specifies that it does
not include a prepaid card.
---------------------------------------------------------------------------
\658\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Existing comment 13(i)-1 would have been revised to
explain that with respect to a credit account accessed by such an
account number, proposed Sec. 1026.13(i) would not have applied to
transfers from that plan to a prepaid account. For the reasons set
forth in the section-by-section analysis of Sec. 1026.2(a)(15)(i)
above, the final rule does not adopt the proposed revision to
existing comment 13(i)-1 related to these account numbers.
---------------------------------------------------------------------------
As discussed in more detail below, the Bureau also is adding new
Sec. 1026.13(i)(2) to provide guidance on how the error resolution
provision in Regulations E and Z apply to transactions with respect to
a covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in new Sec. 1026.61. As a technical revision, the
Bureau also is revising final Sec. 1026.13(i) to reference the error
resolution provisions in both final Regulation E Sec. Sec. 1005.11 and
1005.18(e) as applicable because the Regulation E error resolution
rules that apply to prepaid accounts are set forth in both final
Sec. Sec. 1005.11 and 1005.18(e). Specifically, with respect to
covered separate credit features, a creditor must comply with the
requirements of final Regulation E Sec. Sec. 1005.11 and 1005.18(e)
governing error resolution rather than those of existing Sec.
1026.13(a), (b), (c), (e), (f), and (h) with respect to an extension of
credit incident to an EFT when the hybrid prepaid-credit card accesses
both funds in the asset feature of the prepaid account and a credit
extension from the credit feature with respect to a particular
transaction. The provisions of existing Sec. 1026.13(d) and (g) still
apply to the credit portions of these transactions. The final rule also
is adopting comment 13(i)-4 as proposed with revisions to be consistent
with new Sec. 1026.61. The Bureau has revised the guidance in new
comment 13(i)-5 to be consistent with new Sec. 1026.61.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit
Cards
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
The Bureau is adding new Sec. 1026.13(i)(2) to provide guidance on
how the error resolution provisions in Regulations E and Z apply to
transactions with respect to a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in new Sec.
1026.61. Specifically, with respect to these credit features, a
creditor must comply with the requirements of final Regulation E
Sec. Sec. 1005.11 and 1005.18(e) governing error resolution rather
than those of existing Sec. 1026.13(a), (b), (c), (e), (f), and (h)
with respect to an extension of credit incident to an EFT when the
hybrid prepaid-credit card accesses both funds in the asset feature of
the prepaid account and a credit extension from the credit feature with
respect to a particular transaction. The provisions of existing Sec.
1026.13(d) and (g) still apply to the credit portion of these
transactions.
In addition, the Bureau is adopting proposed comment 13(i)-4 with
revisions to be consistent with new Sec. 1026.61. New comment 13(i)-4
provides that with respect to a covered separate credit feature
accessible by a hybrid prepaid-credit card, whether Regulation E or
Regulation Z applies depends on the nature of the transaction. If the
transaction solely involves an extension of credit under a covered
separate credit feature and does not access funds from the asset
feature of the prepaid account, the error resolution requirements of
Regulation Z apply. New comment 13(i)-4.i provides the following
example: Assume that there is $0 in the asset feature of the prepaid
account, and the consumer makes a $25 transaction with the card. The
error resolution requirements of Regulation Z apply to the transaction.
New comment 13(i)-4.i provides that this is true regardless of whether
the $25 of credit is drawn directly from the covered separate credit
feature without a transfer to the asset feature of the prepaid account
to cover the amount of the transaction, or whether the $25 of credit is
transferred from the covered separate credit feature to the asset
feature of the prepaid account to cover the amount of the transaction.
New comment 13(i)-4.ii provides that if the transaction accesses
funds from the asset feature of a prepaid account only (with no credit
extended under the covered separate credit feature), the provisions of
Regulation E apply.
New comment 13(i)-4.iii provides that if the transaction accesses
funds from the asset feature of a prepaid account but also involves an
extension of credit under the covered separate credit feature, a
creditor must comply with the requirements of final Regulation E
Sec. Sec. 1005.11 and 1005.18(e) governing error resolution rather
than those of Sec. 1026.13(a), (b), (c), (e), (f), and (h). New
comment 13(i)-4.iii provides the following illustration: Assume that
there is $10 in the asset feature of the prepaid account, and the
consumer makes a $25 transaction with the card. The error resolution
requirements of Regulations E and Z apply as described above to the
transaction. New comment 13(i)-4.iii also provides that this is true
regardless of whether $10 is debited from the asset feature and $15 of
credit is drawn directly from the covered separate credit feature
without a transfer to the asset feature of the prepaid account to cover
the amount of the transaction, or whether $15 of credit is transferred
from the covered separate credit feature to the asset feature of the
prepaid account and a $25 transaction is debited from the asset feature
to cover the amount of the transaction.
Except with respect to prepaid accounts as defined in Sec.
1026.61, new Sec. 1026.13(i)(1) focuses on 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, consistent with
current Sec. 1026.13(i). On the other hand, for covered separate
credit features accessible by a hybrid prepaid-credit card, new Sec.
1026.13(i)(2) applies if credit is extended under a covered separate
credit feature that is accessible by hybrid prepaid-credit card and the
transaction involves an extension of credit incident to an EFT when the
hybrid prepaid-credit card accesses both funds in the asset feature of
the prepaid account and a credit extension from the credit feature. As
described in new comment 61(a)(1)-1, a prepaid card can be a hybrid
prepaid-credit card under Regulation Z even if, for example, the person
that can extend credit does not
[[Page 84218]]
agree in writing to extend the credit, the person retains discretion
not to extend the credit, or the person does not extend the credit once
the consumer has exceeded a certain amount of credit.
The Bureau believes that it is appropriate to apply the error
resolution procedures in Regulation E generally to transactions that
debit a prepaid account but also draw on a covered separate credit
feature accessible by the hybrid prepaid-credit card. The Bureau
believes that this 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 EFT 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.\659\
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\659\ 15 U.S.C. 1693g(c).
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An unauthorized EFT on a prepaid account generally would be subject
to the limits on liability in existing Regulation E Sec. 1005.6 and
final Sec. 1005.18(e); an unauthorized EFT on a prepaid account also
is an error for purposes of the error resolution procedures set forth
in existing Regulation E Sec. 1005.11(a)(1) and final Sec.
1005.18(e). Although billing errors under existing Sec. 1026.13(a)
include a broader category than only unauthorized use, the Bureau
believes it is necessary and proper to exercise its adjustment and
exception authority under TILA section 105(a) 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 draw on a covered separate credit
feature accessible by a hybrid prepaid-credit card if Regulation E's
provisions applied to limits on liability 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, new Sec.
1026.13(i)(2) requires a creditor to comply with the requirements of
final Regulation E Sec. Sec. 1005.11 and 1005.18(e) governing error
resolution, rather than those of Sec. 1026.13(a), (b), (c), (e), (f),
and (h), if the transaction debits a prepaid account but also draws on
a covered separate credit feature accessible by a hybrid prepaid-credit
card. This approach is also consistent with the existing provisions in
Regulation E Sec. 1005.12(a)(1)(iv) and Regulation Z Sec. 1026.13(i),
which apply Regulation E's liability limitation and error resolution
procedures to an extension of credit that is incident to an EFT for
overdraft lines of credit accessed by debit cards.
Credit Features That Are Not Accessible by a Hybrid Prepaid-Credit Card
As discussed above, proposed comment 13(i)-5 would have explained
that an overdraft credit plan would not be subject to subpart B if the
credit plan is only accessed by a prepaid card that is not a credit
card. Under proposed comment 2(a)(15)-2.i.F, a prepaid card would not
have been a credit card 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. For these types of credit
plans, under the proposal, only the error resolution provisions in
Regulation E would have applied.
The Bureau did not receive any specific comment on proposed comment
13(i)-5. The Bureau has revised the guidance in new comment 13(i)-5 to
be consistent with new Sec. 1026.61 and with revisions to Regulation E
Sec. 1005.12(a).
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. First, under new Sec. 1026.61(a)(2)(ii), a
prepaid card is not a hybrid prepaid-credit card with respect to a
``non-covered separate credit feature,'' which means that the separate
credit feature either (1) cannot be accessed in the course of a prepaid
card transaction to obtain goods or services, obtain cash, or conduct
P2P transfers; or (2) is offered by an unrelated third party that is
not the prepaid account issuer, its affiliate, or its business partner.
A non-covered separate credit feature is not subject to the rules
applicable to hybrid prepaid-credit cards; however, it typically will
be subject to Regulation Z depending on its own terms and conditions,
independent of the connection to the prepaid account. Second, under new
Sec. 1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit
card when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Sec. 1026.61 or a
credit card under final Sec. 1026.2(a)(15)(i) when it accesses credit
from these types of credit features. For more detailed explanations of
when prepaid cards are not credit cards under Regulation Z, see the
section-by-section analyses of Sec. 1026.61(a)(2) and (4) below.
New comment 13(i)-5 explains that Regulation E Sec.
1005.12(a)(1)(iv)(C) and (D), and (2)(iii) provide guidance on whether
error resolution procedures in Regulations E or Z apply to transactions
involving credit features that are accessed by prepaid cards that are
not hybrid prepaid-credit cards as defined in Sec. 1026.61. New
Regulation E Sec. 1005.12(a)(1)(iv)(C) provides that with respect to
transactions that involve credit extended through a negative balance to
the asset feature of a prepaid account that meets the conditions set
forth in Sec. 1026.61(a)(4), these transactions are governed solely by
error resolution procedures in Regulation E, and Regulation Z does not
apply. New Regulation E Sec. 1005.12(a)(1)(iv)(D) and (2)(iii), taken
together, provide that with respect to transactions involving a prepaid
account and a non-covered separate credit feature as defined in Sec.
1026.61, a financial institution must comply with Regulation E's error
resolution procedures with respect to transactions that access the
prepaid account as applicable, and the creditor must comply with
Regulation Z's error resolution procedures with respect to transactions
that access the non-covered separate credit feature, as applicable.
The Bureau notes that overdraft credit features that are exempt
under new Sec. 1026.61(a)(4) would not be subject to final Sec.
1026.13(i) because these credit features are not accessible by hybrid
prepaid-credit cards and are not subject to Regulation Z generally
(including Sec. 1026.13).
A non-covered separate credit feature may be subject to the
provisions in Sec. 1026.13 generally in its own right based on the
terms and conditions of the non-covered separate credit feature,
independent of the connection to the prepaid account. Nonetheless, even
if Sec. 1026.13 generally is applicable to a non-covered separate
credit feature, final Sec. 1026.13(i) will not be applicable to the
credit feature. Instead, the prepaid account issuer must comply with
Regulation E with respect to the transactions on the prepaid account,
and the creditor must comply with Regulation Z with respect to the non-
covered separate credit feature. The Bureau believes that it is
appropriate that a non-related third-party creditor must comply only
with Regulation Z error resolution procedures with respect to the non-
covered separate credit feature even if the credit feature functions as
an overdraft credit feature
[[Page 84219]]
because this creditor may not know that its credit feature is being
used as an overdraft credit feature in relation to the prepaid account.
Subpart G--Special Rules Applicable to Credit Card Accounts and Open-
End Credit Offered to College Students
Except for existing Sec. 1026.60, which concerns certain credit
card disclosures, all of the provisions in subpart G implement the
Credit CARD Act. The provisions in subpart G that implement the Credit
CARD Act generally apply to a ``card issuer,'' as defined in existing
Sec. 1026.2(a)(7), that extends credit under a ``credit card account
under an open-end (not home-secured) consumer credit plan,'' as defined
in existing Sec. 1026.2(a)(15)(ii).\660\ Among other things, subpart G
contains provisions to implement the Credit CARD Act that:
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\660\ Section 1026.57(c) applies to all open-end credit. That
section prohibits a card issuer or creditor from offering a tangible
item to a college student on or near a college campus or at an event
sponsored by the college to induce the student to apply for or open
an open-end credit plan.
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Prohibit 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.\661\
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\661\ Sec. 1026.51.
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Restrict the amount of required fees that an issuer can
charge during the first year after an account is opened.\662\
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\662\ Sec. 1026.52(a)(1).
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Limit the amount card issuers can charge for ``back-end''
penalty fees, such as when a consumer makes a late payment or exceeds
his or her credit limit.\663\
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\663\ Sec. 1026.52(b)(1).
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Ban ``declined transaction fees'' and other penalty fees
where there is no cost to the card issuer associated with the violation
of the account agreement.\664\
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\664\ Sec. 1026.52(b)(2).
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Restrict the circumstances under which card issuers can
increase interest rates and certain fees on credit card accounts and
establish procedures for doing so.\665\
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\665\ Sec. Sec. 1026.55 and 1026.59.
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Restrict fees for over-the-limit transactions to one per
billing cycle and require that the consumer opt-in to payment of such
transactions in order for the fee to be charged.\666\
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\666\ Sec. 1026.56.
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Require institutions of higher education to publicly
disclose agreements with card issuers and limit the marketing of credit
cards on or near college campuses.\667\
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\667\ Sec. 1026.57.
In addition, subpart G also contains existing Sec. 1026.60, which sets
forth disclosures that card issuers generally must provide on or with a
solicitation or an application to open a credit or charge card account.
The Bureau is adding a new Sec. 1026.61 which defines when a
prepaid card is a credit card under Regulation Z (using the term
``hybrid prepaid-credit card''). As discussed in the Overview of the
Final Rule's Amendments to Regulation Z section above and in more
detail in the section-by-section analysis of Sec. 1026.61 below, the
Bureau generally intends to cover under Regulation Z overdraft credit
features in connection with prepaid accounts where the credit features
are offered by the prepaid account issuer, its affiliates, or its
business partners. New Sec. 1026.61(b) generally requires that such
credit features be structured as separate subaccounts or accounts,
distinct from the prepaid asset account, to facilitate transparency and
compliance with various Regulation Z requirements. New Sec.
1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature if the card
meets the following two conditions: (1) The card can be used from time
to time to access credit from the separate credit feature in the course
of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
New Sec. 1026.61(a)(2)(i) defines such a separate credit feature
accessible by a hybrid prepaid-credit card as a ``covered separate
credit feature.'' Thus, the hybrid prepaid-credit card can access both
the covered separate credit feature and the asset feature of the
prepaid account, and the hybrid prepaid-credit card is a credit card
under Regulation Z with respect to the covered separate credit feature.
New Sec. 1026.61(c) (moved from Sec. 1026.12(h) in the proposal)
provides that with respect to a covered separate credit feature that
could be accessible by a hybrid prepaid-credit card at any point, a
card issuer must not do any of the following until 30 days after the
prepaid account has been registered: (1) Open a covered separate credit
feature accessible by the hybrid prepaid-credit card; (2) make a
solicitation or provide an application to open a covered separate
credit feature accessible by the hybrid prepaid-credit card; or (3)
allow an existing credit feature that was opened prior to the consumer
obtaining the prepaid account to become a covered separate credit
feature accessible by the hybrid prepaid-credit card.
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau also has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. First, under new Sec. 1026.61(a)(2)(ii), a
prepaid card is not a hybrid prepaid-credit card with respect to a
``non-covered separate credit feature,'' which means that the separate
credit feature either (1) cannot be accessed in the course of a prepaid
card transaction to obtain goods or services, obtain cash, or conduct
P2P transfers; or (2) is offered by an unrelated third party that is
not the prepaid account issuer, its affiliate, or its business partner.
Second, under new Sec. 1026.61(a)(4), a prepaid card also is not a
hybrid prepaid-credit card when the prepaid card accesses incidental
credit in the form of a negative balance on the asset account where the
prepaid account issuer generally does not charge credit-related fees
for the credit. A prepaid card is not a hybrid prepaid-credit card
under new Sec. 1026.61 or a credit card under new Sec.
1026.2(a)(15)(i) when it accesses credit from these types of credit
features. For more detailed explanations of when prepaid cards are not
credit cards under Regulation Z, see the section-by-section analyses of
Sec. 1026.61(a)(2) and (4) below.
As discussed in the section-by-section analysis of Sec.
1026.2(a)(20) above, the Bureau anticipates that most covered separate
credit features accessible by hybrid prepaid-credit cards will meet the
definition of ``open-end credit'' and that credit will not be home-
secured. See the section-by-section analysis of the definition of
``credit'' in final Sec. 1026.2(a)(14), the definition of ``open-end-
credit'' in final Sec. 1026.2(a)(20), and the definition of ``finance
charge'' in final Sec. 1026.4. In addition, as discussed in the
section-by-section analyses of Sec. 1026.2(a)(7), (15)(i), and (ii)
above, a covered separate credit feature accessible by a hybrid
prepaid-credit card that is an open-end (not home-secured) credit plan
is a ``credit card account under an open-end (not home-secured)
consumer credit plan,'' and the person issuing the hybrid prepaid-
credit card (and its affiliate or business partner if that entity is
offering the covered separate credit feature accessible by the hybrid
prepaid-credit card) are ``card issuers.'' As a result, pursuant to the
final rule, provisions in subpart G generally will apply to covered
separate credit features accessible by hybrid
[[Page 84220]]
prepaid-credit cards that are open-end (not home-secured) credit
plans.\668\
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\668\ A person would not be extending open-end credit where the
covered separate credit feature accessed by the hybrid prepaid-
credit card does not meet the definition of ``open-end credit,''
such as when a finance charge is not imposed in connection with the
credit feature. See the section-by-section analysis of Sec.
1026.2(a)(20) above.
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As discussed in more detail below, the Bureau is amending
commentary to the following provisions to provide guidance on how
certain provisions in subpart G would apply to covered separate credit
features accessible by hybrid prepaid-credit cards that are open-end
(not home-secured) credit plans: \669\
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\669\ One commenter asked the Bureau to provide specific
guidance in the commentary to Sec. 1026.51 that modeled income may
be used with respect to credit card accounts accessed by prepaid
cards that are credit cards to meet the requirements set forth in
Sec. 1026.51. The Bureau notes that existing comment 51(a)(1)(i)-
5.iv provides that for purposes of Sec. 1026.51(a), a card issuer
may consider the consumer's current or reasonably expected income
and assets based on information obtained through any empirically
derived, demonstrably and statistically sound model that reasonably
estimates a consumer's income or assets, including any income or
assets to which the consumer has a reasonable expectation of access.
The Bureau notes that this existing guidance in comment 51(a)(1)(i)-
5.iv applies to covered separate credit features accessible by
hybrid prepaid-credit cards that are subject to Sec. 1026.51. The
Bureau does not believe that additional guidance is needed with
respect to these credit features.
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(1) Section 1026.52(a), which restricts required fees charged
during the first year the account is opened;
(2) Section 1026.52(b), which restricts the imposition of penalty
fees, including the ban on declined transaction fees;
(3) Section 1026.55(a), which restricts the circumstances under
which card issuers can increase interest rates and certain fees on
credit card accounts; and
(4) Section 1026.57, which limits the marketing of credit cards to
college students.\670\
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\670\ The Overview of the Final Rule's Amendments to Regulation
Z section above describes some of the benefits from these
regulations for prepaid account consumers.
The final rule also provides guidance on how Sec. 1026.60, which
requires disclosures to be provided on or with a solicitation or
application to open a credit or charge card account, applies to covered
separate credit features accessible by hybrid prepaid-credit cards.
The final rule also provides guidance on how provisions in existing
Sec. 1026.52(a) and (b), and in existing Sec. Sec. 1026.55 and
1026.60, apply to non-covered separate credit features that are
accessible by prepaid cards as defined by new Sec. 1026.61. A non-
covered separate credit feature may be subject to the provisions in
Sec. 1026.52(a) and (b), and in existing Sec. Sec. 1026.55 and
1026.60, in its own right based on the terms and conditions of the non-
covered separate credit feature, independent of the connection to the
prepaid account. The final rule provides that with respect to such non-
covered separate credit features, the provisions in existing Sec.
1026.52(a) and (b), and in existing Sec. Sec. 1026.55 and 1026.60, do
not apply to fees or charges imposed on a prepaid account in relation
to non-covered separate credit features.
Section 1026.52 Limitations on Fees
52(a) Limitations During First Year After Account Opening
52(a)(1) General Rule
TILA section 127(n)(1) restricts the imposition of certain fees
during the first year after opening a credit card account under an
open-end consumer credit plan in order to restrict certain ``fee
harvester'' or subprime credit cards that charged a large amount of
fees early in the account relationship to the credit line, which
significantly reduced the credit available to a consumer during the
first year. Specifically, the statute provides that no payment of any
fees (other than any late fee, over-the-limit fee, or fee for a payment
returned for insufficient funds) may be made from the credit made
available under the terms of the account where the account terms would
require consumers to pay an aggregate amount of non-exempt fees in
excess of 25 percent of the total amount of credit authorized under the
account when the account is opened.
This provision is implemented in existing Sec. 1026.52(a).
Specifically, existing Sec. 1026.52(a)(1) provides that generally the
total amount of fees a consumer is required to pay with respect to a
credit card account under an open-end (not home-secured) consumer
credit plan during the first year after account opening must not exceed
25 percent of the credit limit in effect when the account is opened.
Under existing Sec. 1026.52(a)(2), fees not subject to the 25 percent
restriction are late payment fees, over-the-limit fees, returned-
payment fees, or fees that the consumer is not required to pay with
respect to the account. Existing comment 52(a)(1)-1 provides that the
25 percent limit in existing Sec. 1026.52(a)(1) applies to fees that
the card issuer charges to the account as well as to fees that the card
issuer requires the consumer to pay with respect to the account through
other means (such as through a payment from the consumer's asset
account to the card issuer or from another credit account provided by
the card issuer).
The proposal would have amended existing comment 52(a)(1)-1 to add
a prepaid account as an example of a consumer's asset account. Thus,
under the proposal, for a credit card account under an open-end (not
home-secured) consumer credit plan that is accessed by a prepaid card
that is a credit card, the 25 percent limit in existing Sec.
1026.52(a)(1) would have applied to fees that the card issuer charges
to the credit card account as well as to fees that the card issuer
requires the consumer to pay with respect to the account through other
means (such as through a payment to the card issuer from the consumer's
prepaid account or other asset account or from another credit account
provided by the card issuer). Proposed comment 52(a)(1)-1.iii and iv
would have added two new examples to existing comment 52(a)(1)-1 to
illustrate how the prohibition in existing Sec. 1026.52(a) would have
applied to credit card accounts under an open-end (not home-secured)
consumer credit plan that are accessed by prepaid cards that are credit
cards.
One industry trade association indicated that the Bureau should not
apply the 25 percent cap to fees imposed for overdrafts on prepaid
accounts or should include broader exemptions for fees (such as for
cash advance fees) that are more appropriately tailored for prepaid
account usage. This commenter believed that the 25 percent cap on fees
imposed during the first year the credit card account is opened will
likely make it cost-prohibitive for issuers to provide overdraft and
other credit features.
Several consumer group commenters indicated that the restriction in
existing Sec. 1026.52(a) should be expanded to apply beyond the first
year after a credit feature accessed by a prepaid card that is a credit
card is opened. One of the consumer groups indicated that in the
alternative, the rule could state that any increase in the credit limit
under a credit feature accessed by a prepaid card that is a credit card
constitutes a new credit agreement and results in another year where
fees cannot exceed 25 percent of the credit limit. This commenter
indicated that without this safeguard, a card issuer could offer a very
small amount of credit free of charge for a year, and then increase the
credit limit after the first year while charging any fees it wishes,
potentially causing cardholders serious harm.
Several consumer group commenters also indicated that the
restriction in existing Sec. 1026.52(a) should apply to fees that are
charged by the card issuer
[[Page 84221]]
for the credit feature prior to the credit feature being opened.
The Bureau sought comment on whether additional amendments to the
regulation or commentary would be helpful to effectuate its
interpretation of the statute or to facilitate compliance. For example,
the Bureau sought comment on whether it would be helpful to mandate the
disclosure to consumers of the initial credit line that is made
available under the terms of the account, including any linked credit
accounts. One consumer group commenter also indicated that with respect
to a credit feature accessed by prepaid cards that are credit cards,
card issuers should be required to disclose to consumers the credit
limit that will apply to the credit feature. This commenter indicated
that consumers should not have to guess at their credit limits. This
commenter indicated that the restrictions in existing Sec. 1026.52(a)
cannot fully protect consumers unless they know what their credit limit
is and can check to see if fees exceed 25 percent of that limit.
As discussed below, consistent with the proposal, existing Sec.
1026.52(a) applies to a covered separate credit feature accessible by a
hybrid prepaid-credit card that is a ``credit card account under an
open-end (not home-secured) consumer credit plan,'' as that term is
defined in final Sec. 1026.2(a)(15)(ii). As discussed in more detail
in the section-by-section analysis of Sec. 1026.61(a)(2) below, a
covered separate credit feature accessible by a hybrid prepaid-credit
card includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Sec. 1026.61
and a credit card under final Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
In addition, the Bureau is adopting revisions to existing comment
52(a)(1)-1 consistent with the proposal with a technical revision to
refer to Sec. 1026.61 for the definition of ``prepaid account.'' Also,
the Bureau is adopting the examples in proposed comment 52(a)(1)-1.iii
and iv as proposed, with several technical revisions to clarify the
intent of the examples and to be consistent with new Sec. 1026.61.
With respect to covered separate credit features accessible by
hybrid prepaid-credit cards, the Bureau has not expanded the scope of
the restriction in existing Sec. 1026.52(a) to apply this restriction
beyond the first year the credit feature is opened, or to apply to fees
that are charged prior to account opening. In addition, the Bureau has
not provided that that any increase in the credit limit under a credit
feature accessible by a hybrid prepaid-credit card constitutes a new
credit agreement and results in another year where fees cannot exceed
25 percent of the credit limit. Also, the Bureau has not exempted
additional credit-related fees (such as for cash advance fees) from the
restriction in existing Sec. 1026.52(a), as requested by one industry
commenter as discussed above. The Bureau believes that existing Sec.
1026.52(a) should apply to covered separate credit features accessible
by hybrid prepaid-credit cards in similar circumstances in which it
applies to other credit card accounts that are subject to that
restriction.
The Bureau also has not required card issuers to disclose credit
limits on covered separate credit features accessible by hybrid
prepaid-credit cards. For customer-service reasons and other reasons,
credit card issuers typically disclose the credit limits applicable to
credit card accounts to consumers even though that disclosure is not
specifically required by TILA and Regulation Z. For similar reasons,
the Bureau believes that card issuers that are providing covered
separate credit features accessible by hybrid prepaid-credit cards will
have an incentive to disclose the credit limits on these credit
features as well. For these reasons, the Bureau at this time does not
believe that it is necessary under Regulation Z to require that card
issuers providing covered separate credit features accessible by hybrid
prepaid-credit cards must disclose a credit limit with respect to these
credit features.
52(a)(2) Fees Not Subject to Limitations
Existing Sec. 1026.52(a)(2) provides that the 25 percent
restriction does not apply to late payment fees, over-the-limit fees,
returned-payment fees, or fees that the consumer is not required to pay
with respect to the account. Existing comment 52(a)(2)-1 provides
guidance on the types of fees that are included in the 25 percent
threshold. Specifically, existing comment 52(a)(2)-1 provides that
except as provided in existing Sec. 1026.52(a)(2), existing Sec.
1026.52(a) applies to any fees or other charges that a card issuer will
or may require the consumer to pay with respect to a credit card
account during the first year after account opening, other than charges
attributable to periodic interest rates. The existing comment further
clarifies that for example, Sec. 1026.52(a) applies to: (1) Fees that
the consumer is required to pay for the issuance or availability of
credit described in Sec. 1026.60(b)(2), including any fee based on
account activity or inactivity and any fee that a consumer is required
to pay in order to receive a particular credit limit; (2) fees for
insurance described in Sec. 1026.4(b)(7) or debt cancellation or debt
suspension coverage described in Sec. 1026.4(b)(10) written in
connection with a credit transaction, if the insurance or debt
cancellation or debt suspension coverage is required by the terms of
the account; (3) fees that the consumer is required to pay in order to
engage in transactions using the account (such as cash advance fees,
balance transfer fees, foreign transaction fees, and fees for using the
account for purchases); (4) fees that the consumer is required to pay
for violating the terms of the account (except to the extent
specifically excluded by existing Sec. 1026.52(a)(2)(i)); (5) fixed
finance charges; and (6) minimum charges imposed if a charge would
otherwise have been determined by applying a periodic interest rate to
a balance except for the fact that such charge is smaller than the
minimum.
The Bureau's Proposal
The proposal would have moved current comments 52(a)(2)-2 and -3 to
proposed comments 52(a)(2)-4 and -5, respectively with no intended
substantive change. The Bureau proposed to add new comment 52(a)(2)-2
that would have provided additional examples of the types of fees that
would be covered by the 25 percent limitation for credit card accounts
under an open-end (not home-secured) consumer credit plan that are
accessed by prepaid cards that are credit cards. Specifically, proposed
comment 52(a)(2)-2 would have provided that except as provided in
existing Sec. 1026.52(a)(2), existing Sec. 1026.52(a) applies to any
charge or fee, other than a charge attributable to a periodic interest
rate, that the card issuer will or may require the consumer to pay in
connection with a credit account accessed by a prepaid card that is a
credit card, including fees that are assessed on the prepaid account in
connection with credit accessed by the prepaid card. Under proposed
comment 52(a)(2)-2, these fees would have included, but would not have
been limited to: (1) Per transaction fees for ``shortages'' or
``overdrafts;'' (2) fees for transferring funds from a credit account
to a prepaid account that are both accessed by the prepaid card; (3) a
daily, weekly, or monthly (or other periodic) fee (other than a
periodic interest rate) 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 accessed by the prepaid card; or
(4) a daily, weekly, or
[[Page 84222]]
monthly (or other periodic) fee (other than a periodic interest rate)
assessed each period a line of credit accessed by the prepaid card has
an outstanding balance.
The proposal also would have revised the section heading to Sec.
1026.52(a) to delete the reference to limitations prior to account
opening to be consistent with the scope of the limitations set forth in
Sec. 1026.52(a); no substantive change would have been intended.
Comments Received
One consumer group commenter indicated that the Bureau should
clarify that ``load'' fees are included for purposes of the 25 percent
restriction, even if they are charged to the prepaid account. This
commenter indicated that transfer fees and a load fees are essentially
the same thing and the card issuer should not be allowed to evade the
restriction in existing Sec. 1026.52(a) by charging the fees to the
prepaid account.
The Final Rule
In the final rule, the Bureau is moving existing comments 52(a)(2)-
2 and -3 to final comments 52(a)(2)-4 and -5 respectively; no
substantive change is intended. In addition, the section heading to
Sec. 1026.52(a) is revised to delete the reference to limitations
prior to account opening to be consistent with the scope of the
limitations set forth in Sec. 1026.52(a); no substantive change is
intended. As discussed in more detail below, the Bureau is adding new
comments 52(a)(2)-2 and -3 to provide guidance on how Sec. 1026.52(a)
applies to covered separate credit features accessible by hybrid
prepaid-credit cards and non-covered separate credit features as
defined in Sec. 1026.61 that are subject to Sec. 1026.52(a).\671\
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\671\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 52(a)(2)-3 would have provided an
additional example of the types of fees that that would be covered
by the 25 percent limitation for credit card accounts under an open-
end (not home-secured) consumer credit plan that are accessed by
such account numbers. For the reasons set forth in the section-by-
section analysis of Sec. 1026.2(a)(15)(i), the final rule does not
adopt proposed comment 52(a)(2)-3 related to these account numbers.
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Covered separate credit features accessible by hybrid prepaid-
credit cards. The Bureau is revising proposed comment 52(a)(2)-2 from
the proposal to be consistent with new Sec. 1026.61. New comment
52(a)(2)-2 provides that with regard to a covered separate credit
feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in new Sec.
1026.61 where the credit feature is a credit card account under an
open-end (not home-secured) consumer credit plan, final Sec.
1026.52(a) applies to the following fees: (1) Except as provided in
Sec. 1026.52(a)(2), any fee or charge imposed on the covered separate
credit feature, other than a charge attributable to a periodic interest
rate, during the first year after account opening that the card issuer
will or may require the consumer to pay in connection with the credit
feature; and (2) except as provided in existing Sec. 1026.52(a)(2),
any fee or charge imposed on the asset feature of the prepaid account
(other than a charge attributable to a periodic interest rate) during
the first year after account opening that the card issuer will or may
require the consumer to pay where that fee or charge is a charge
imposed as part of the plan under final Sec. 1026.6(b)(3). As
discussed in more detail in the section-by-section analysis of Sec.
1026.61(a)(2) below, a covered separate credit feature accessible by a
hybrid prepaid-credit card includes an overdraft credit feature offered
by a prepaid account issuer, its affiliate, or its business partner
that can be accessed by a prepaid card (except as provided in new Sec.
1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit card under
new Sec. 1026.61 and a credit card under final Sec. 1026.2(a)(15)(i)
with respect to the covered separate credit feature.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.6 above, with regard to a covered separate credit feature
and an asset feature on a prepaid account that are both accessible by a
hybrid prepaid-credit card, a fee or charge imposed on the asset
feature of the prepaid account is a ``charge imposed as part of the
plan'' under final Sec. 1026.6(b)(3) to the extent that the amount of
the fee or charge exceeds comparable fees or charges imposed on prepaid
accounts in the same prepaid account program that do not have a covered
separate credit feature accessible by a hybrid prepaid-credit card.
This fee or charge also is a finance charge under new Sec.
1026.4(b)(11)(ii).
The Bureau believes that the restriction on fees set forth in TILA
section 127(n)(1), as implemented in existing Sec. 1026.52(a),
provides important protections for consumers, particularly in the
context of covered separate credit features accessible by hybrid
prepaid-credit cards. As discussed above, a covered separate credit
feature accessible by a hybrid prepaid-credit card under new Sec.
1026.61(a)(2)(ii) includes an overdraft credit feature offered by
prepaid account issuer, its affiliate, or its business partner in
connection with a prepaid account. In this case, the covered separate
credit feature accessible by a hybrid prepaid-credit card is designed
to provide liquidity to the prepaid account. As discussed above, except
as provided in existing Sec. 1026.52(a)(2), with regard to a covered
separate credit feature and an asset feature on a prepaid account that
are both accessible by a hybrid prepaid-credit card as defined in new
Sec. 1026.61, the restriction in final Sec. 1026.52(a) applies to
fees or charges imposed on the covered separate credit feature
accessible by a hybrid prepaid-credit card, as well as fees or charges
imposed on the asset feature of the prepaid account when those fees are
``charges imposed as part of the plan'' under final Sec. 1026.6(b)(3).
Although the Bureau believes that issuers will generally assess
credit-related fees on the covered separate credit feature, TILA
section 127(n)(1) applies to ``any fees,'' with some exceptions, that
the consumer is required to pay under the terms of a credit card
account under an open-end consumer credit plan. That term readily
encompasses credit-related fees that are imposed on the asset feature
of the prepaid account because it speaks to what the fees relate to,
not where they are placed. Even if the term were ambiguous, the Bureau
believes--based on its expertise and experience with respect to credit
card markets--that interpreting it to encompass credit-related fees
imposed on the asset feature would promote the purposes of TILA to
protect the consumer against inaccurate and unfair credit billing and
credit card practices. The Bureau believes that from the consumer's
perspective, there is no practical difference between a fee charged
against the covered separate credit feature and a credit-related fee
charged to the asset feature of the prepaid account in order to access
credit because both functionally reduce the total amount of credit
available to the consumer through the covered separate credit feature
accessible by the hybrid prepaid-credit card until such fees are paid.
If TILA section 127(n)(1) were not interpreted to include credit-
related fees charged across any linked accounts, the Bureau is
concerned that card issuers could hide non-exempt fees by imposing them
on the asset feature of the prepaid account or by creating separate
artificially distinct credit accounts and attempting to collect the
non-exempt fees from those linked credit accounts.
The Bureau also is adding new comment 52(a)(2)-3 to provide that
final Sec. 1026.52(a) does not apply to any fee or
[[Page 84223]]
charge imposed on the asset feature of the prepaid account that is not
a charge imposed as part of the plan under new Sec.
1026.6(b)(3)(iii)(D) with respect to the covered separate credit
feature. The Bureau notes that under new Sec. 1026.6(b)(3)(iii)(D) and
new comment 6(b)(3)(iii)(D)-1, with regard to a covered separate credit
feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in new Sec.
1026.61, a fee or charge imposed on the asset feature of the prepaid
account is not a ``charge imposed as part of the plan'' with respect to
the covered separate credit feature to the extent that the amount of
the fee or charge does not exceed comparable fees or charges imposed on
prepaid accounts in the same prepaid account program that do not have a
credit feature accessible by a hybrid prepaid-credit card. As described
in the section-by-section analysis of Sec. 1026.4(b)(11)(ii), these
fees or charges imposed on the asset feature of the prepaid account are
not finance charges under new Sec. 1026.4(b)(11)(ii). As discussed in
more detail in the section-by-section analyses of Sec. Sec. 1026.4 and
1026.6 above, the Bureau believes that fees or charges imposed on the
asset feature of a prepaid account that are not finance charges (and
thus, not charges imposed as part of the plan under new Sec.
1026.6(b)(3)(iii)(D)) with respect to the covered separate credit
feature are more appropriately regulated under Regulation E, rather
than regulated under Regulation Z, with respect to the covered separate
credit feature.
As discussed above, one consumer group commenter indicated that the
Bureau should clarify that ``load'' fees are included for purposes of
the 25 percent restriction, even if they are charged to the prepaid
account. As discussed in the section-by-section analysis of Sec.
1026.4(b)(11)(ii) above, new comment 4(b)(11)(ii)-1 sets forth the
circumstances in which load or transfer fees imposed on the asset
feature of the prepaid account are finance charges under new Sec.
1026.4(b)(11)(ii). To the extent that a load fee or transfer fee that
is imposed on the asset feature of a prepaid account is a finance
charge under new Sec. 1026.4(b)(11)(ii), that load or transfer fee is
subject to the 25 percent restriction under Sec. 1026.52(a) because
those fees would be ``charges imposed as part of the plan'' under final
Sec. 1026.6(b)(3).
Non-covered separate credit features. As discussed in more detail
in the section-by-section analysis of Sec. 1026.61(a)(2) below, a
prepaid card is not a hybrid prepaid-credit card with respect to a
``non-covered separate credit feature,'' which means that the separate
credit feature either (1) cannot be accessed in the course of a prepaid
card transaction to obtain goods or services, obtain cash, or conduct
P2P transfers; or (2) is offered by an unrelated third party that is
not the prepaid account issuer, its affiliate, or its business partner.
As described in new Sec. 1026.61(a)(2)(ii), a non-covered separate
credit feature is not subject to the rules applicable to hybrid
prepaid-credit cards; however, it typically will be subject to
Regulation Z depending on its own terms and conditions, independent of
the connection to the prepaid account. Thus, a non-covered separate
credit feature may be subject to the provisions in Sec. 1026.52(a) in
its own right.
With respect to such non-covered separate credit features that are
subject to Sec. 1026.52(a), new comment 52(a)(2)-3 also provides that
final Sec. 1026.52(a) does not apply to any fee or charge imposed on
the asset feature of the prepaid account that is not a charge imposed
as part of the plan under new Sec. 1026.6(b)(3)(iii)(E) with respect
to the non-covered separate credit feature. Under new Sec.
1026.6(b)(3)(iii)(E) and new comment 6(b)(3)(iii)(E)-1, with respect to
a non-covered separate credit feature that is accessible by a prepaid
card as defined in new Sec. 1026.61, none of the fees or charges
imposed on the asset feature of the prepaid account are ``charges
imposed as part of the plan'' under final Sec. 1026.6(b)(3) with
respect to the non-covered separate credit feature. New comment
6(b)(3)(iii)(E)-1 also cross-references new comment 4(b)(11)-1.ii.B,
which provides that none of the fees or charges imposed on the asset
feature of the prepaid account are finance charges under final Sec.
1026.4 with respect to the non-covered separate credit feature. Thus,
final Sec. 1026.52(a) does not apply to any fees or charges imposed on
the asset feature of the prepaid account with respect to the non-
covered separate credit feature. As discussed in more detail in the
section-by-section analyses of Sec. Sec. 1026.4 and 1026.6 above, the
Bureau believes that fees or charges imposed on the asset feature of a
prepaid account are more appropriately regulated under Regulation E,
rather than regulated under Regulation Z, with respect to the non-
covered separate credit feature.
52(b) Limitations on Penalty Fees
TILA section 149(a) provides that the amount of any penalty fee or
charge that a card issuer may impose with respect to a credit card
account under an open-end consumer credit plan in connection with any
omission with respect to, or violation of, the cardholder agreement,
including any late payment fee, over-the-limit fee, or any other
penalty fee or charge, shall be reasonable and proportional to such
omission or violation.\672\ TILA section 149(e) provides that the
Bureau, in consultation with certain agencies, may issue rules to
provide an amount for any penalty fee or charge described in TILA
section 149(a) that is presumed to be reasonable and proportional to
the omission or violation to which the fee or charge relates.\673\
---------------------------------------------------------------------------
\672\ 15 U.S.C. 1665d(a).
\673\ 15 U.S.C. 1665d(e).
---------------------------------------------------------------------------
Implementing TILA section 149, existing Sec. 1026.52(b) provides
that a card issuer must not impose a fee for violating the terms or
other requirements of a credit card account under an open-end (not
home-secured) consumer credit plan unless the dollar amount of the fee:
(1) Is consistent with either the cost analysis in existing Sec.
1026.52(b)(1)(i) or the safe harbors in existing Sec.
1026.52(b)(1)(ii); and (2) does not exceed the dollar amount associated
with the violation in accordance with existing Sec. 1026.52(b)(2)(i).
Under existing Sec. 1026.52(b)(2)(ii), a card issuer also must not
impose more than one fee for violating the terms or other requirements
of a credit card account under an open-end (not home-secured) consumer
credit plan based on a single event or transaction.
As discussed in the section-by-section analysis of Sec.
1026.52(b)(2)(i)(B) below, the Bureau proposed guidance on declined
transaction fees in relation to credit card accounts under an open-end
(not home-secured) consumer credit plan accessed by prepaid cards that
would have been credit cards under the proposal. These declined
transaction fees are discussed in more detail in the section-by-section
analysis of Sec. 1026.52(b)(2)(i)(B) below.
The Bureau did not propose any other additional guidance in
relation to Sec. 1026.52(b) with respect to credit card accounts under
an open-end (not home-secured) consumer credit plan accessed by prepaid
cards that would have been credit cards under the proposal.
Nonetheless, the Bureau believes that additional guidance is needed
with respect to the restrictions on penalty fees contained in final
Sec. 1026.52(b) given the changes in the final rule to the definition
of ``finance charge'' in final Sec. 1026.4, and the definition of
``charges imposed as part of the plan'' in final Sec. 1026.6(b)(3),
and the addition of new Sec. 1026.61.
[[Page 84224]]
As discussed in more detail below, the final rule adds new comment
52(b)-3 to provide guidance on how the restrictions in final Sec.
1026.52(b) generally apply to fees or charges imposed in connection
with covered separate credit features accessible by hybrid prepaid-
credit cards, as defined in new Sec. 1026.61, where the credit feature
is a credit card account under an open-end (not home-secured) consumer
credit plan. The final rule also adds new comment 52(b)-4 to provide
that the restrictions in final Sec. 1026.52(b) do not apply to fees or
charges imposed on the asset feature of the prepaid account with
respect to covered separate credit features accessible by hybrid
prepaid-credit cards when the fees or charges are not ``charges imposed
as part of the plan'' under new Sec. 1026.6(b)(3)(iii)(D) with respect
to the covered separate credit feature. Comment 52(b)-4 also provides
that the restrictions in final Sec. 1026.52(b) do not apply to fees or
charges imposed on the asset feature of a prepaid account with respect
to non-covered separate credit features.
In addition, in the proposal, the Bureau solicited comment on
issues related to fees imposed by card issuers when preauthorized
payments are returned unpaid. Specifically, the Bureau solicited
comment on situations where at the time a preauthorized payment is set
to occur, the prepaid account does not have sufficient funds to cover
the amount of the credit card payment. The Bureau solicited comment on:
(1) How credit card issuers anticipate handling this situation,
including cases where the prepaid account contains funds sufficient to
pay some but not all of the credit card payment due; (2) whether
issuers anticipate charging a specific fee because the preauthorized
payment could not be completed, in addition to any late fee that might
be charged if the credit card balance were not paid by the due date;
and (3) whether the Bureau should adopt any specific rules to address
these issues, and if so, what rules should the Bureau adopt.
The proposal included this request for comment in the discussion of
the offset prohibition in proposed Sec. 1026.12(d). With respect to
credit card accounts accessed by prepaid cards that would have been
credit cards under the proposal, proposed Sec. 1026.12(d)(3) would
have allowed an exception for certain preauthorized payment plans to
the offset prohibition in proposed Sec. 1026.12(d)(1). In response to
this request for comment, several consumer group commenters indicated
that the Bureau should adopt additional restrictions in Sec.
1026.52(b) related to the circumstances in which card issuers can
charge fees when preauthorized payments are returned unpaid and/or
related to the amount of the fees. As discussed in more detail below,
one consumer group commenter indicated that the Bureau should prohibit
these fees under Sec. 1026.52(b). Several consumer group commenters
indicated that the Bureau should adopt additional restrictions in Sec.
1026.52(b) limiting the circumstances in which these fees can be
charged and limiting the amount of the fees.
As discussed in the section-by-section analysis of Sec.
1026.12(d)(3) above, respect to covered separate credit features
accessible by hybrid prepaid-credit cards, as defined in new Sec.
1026.61, final Sec. 1026.12(d)(3) sets forth an exception for certain
preauthorized payment plans with respect to the offset prohibition in
final Sec. 1026.12(d). As discussed in more detail below, the
restrictions in existing Sec. 1026.52(b) related to returned payment
fees apply to fees that are imposed by card issuers when preauthorized
payments are returned unpaid. The Bureau does not believe that
additional restrictions are needed at this time under final Sec.
1026.52(b) with respect to the circumstances in which these fees can be
charged or the amount of the fees in connection with covered separate
credit features accessible by hybrid prepaid-credit cards.
General Guidance
Covered separate credit features accessible by hybrid prepaid-
credit cards. As discussed in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
New Sec. 1026.61(b) generally requires that such credit features
be structured as separate subaccounts or accounts, distinct from the
prepaid asset account, to facilitate transparency and compliance with
various Regulation Z requirements. To reflect this change and to ensure
compliance with the restrictions in Sec. 1026.52(b), new comment
52(b)-3 provides that with regard to a covered separate credit feature
and an asset feature on a prepaid account that are both accessible by a
hybrid prepaid-credit card as defined in new Sec. 1026.61 where the
credit feature is a credit card account under an open-end (not home-
secured) consumer credit plan, final Sec. 1026.52(b) applies to any
fee for violating the terms or other requirements of the credit
feature, regardless of whether those fees are imposed on the credit
feature or on the asset feature of the prepaid account. For example,
assume that a late fee will be imposed by the card issuer if the
separate credit feature becomes delinquent or if a payment is not
received by a particular date. This fee is subject to final Sec.
1026.52(b) regardless of whether the fee is imposed on the asset
feature of the prepaid account or on the covered separate credit
feature.
The Bureau believes that the restriction on penalty fees set forth
in TILA section 149(a), and implemented in existing Sec. 1026.52(b),
provides important protections for consumers, particularly in the
context of covered separate credit features accessible by hybrid
prepaid-credit cards. Covered separate credit features accessible by
hybrid prepaid-credit cards are designed to provide liquidity to the
prepaid account.
As described above, new comment 52(b)-3 provides that with regard
to a covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card, as
defined in Sec. 1026.61 where the credit feature is a credit card
account under an open-end (not home-secured) consumer credit plan,
Sec. 1026.52(b) applies to any fee for violating the terms or other
requirements of the credit feature, regardless of whether those fees
are imposed on the credit feature or on the asset feature of the
prepaid account. TILA section 149(a) applies to any penalty fee or
charge that a card issuer may impose with respect to a credit card
account under an open-end consumer credit plan. Those terms readily
encompass credit-related fees that are imposed on the asset feature of
the prepaid account. Even if the terms were ambiguous, the Bureau
believes--based on its expertise and experience with respect to credit
markets--that interpreting them to encompass credit-related fees
imposed on the asset feature would promote the purposes of TILA to
protect the consumer against inaccurate and unfair credit billing and
credit card practices. From the consumer's perspective, there is no
practical difference when a penalty fee for a violation of the covered
separate credit feature is charged against the covered separate credit
feature and when it is charged to the asset feature of the prepaid
account. If TILA section 149(a)
[[Page 84225]]
were not interpreted to include penalty fees for violations of the
covered separate credit feature charged to the asset feature, the
Bureau is concerned that card issuers could avoid the restrictions set
forth in TILA section 149(a) and final Sec. 1026.52(b) with respect to
these fees simply by imposing them on the asset feature of the prepaid
account.
In addition, to facilitate compliance with final Sec. 1026.52(b),
new comment 52(b)-4 provides that final Sec. 1026.52(b) does not apply
to any fee or charge imposed on the asset feature of the prepaid
account that is not a charge imposed as part of the plan under new
Sec. 1026.6(b)(3)(iii)(D) with respect to a covered separate credit
feature. As discussed above, the Bureau believes this additional
guidance is needed given the changes in the final rule to the
definition of ``finance charge'' in final Sec. 1026.4, the definition
of ``charges imposed as part of the plan'' in final Sec. 1026.6(b)(3),
and the addition of new Sec. 1026.61.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.6 above, with respect to a fee or charge imposed on the
asset feature of a prepaid account accessible by a hybrid prepaid-
credit card, a fee or charge imposed on the asset feature of the
prepaid account is a ``charge imposed as part of the plan'' under final
Sec. 1026.6(b)(3) to the extent that the amount of the fee or charges
exceeds comparable fees or charges imposed on prepaid accounts in the
same prepaid account program that do not have a credit feature
accessible by a hybrid prepaid-credit card. This fee or charge also is
a finance charge under new Sec. 1026.4(b)(11)(ii).
Nonetheless, under new Sec. 1026.6(b)(3)(iii)(D) and new comment
6(b)(3)(iii)(D)-1, with regard to a covered separate credit feature and
an asset feature on a prepaid account that are both accessible by a
hybrid prepaid-credit card, as defined in new Sec. 1026.61, a fee or
charge imposed on the asset feature of the prepaid account is not a
``charge imposed as part of the plan'' with respect to the covered
separate credit feature to the extent that the amount of the fee or
charges does not exceed comparable fees or charges imposed on prepaid
accounts in the same prepaid account program that do not have a credit
feature accessible by a hybrid prepaid-credit card. As described in the
section-by-section analysis of Sec. 1026.4(b)(11)(ii) above, these
fees or charges imposed on the asset feature of the prepaid account are
not finance charges under new Sec. 1026.4(b)(11)(ii).
As discussed in more detail in the section-by-section analyses of
Sec. Sec. 1026.4 and 1026.6 above, the Bureau believes that fees or
charges imposed on the asset feature of a prepaid account that are not
finance charges (and thus, not charges imposed as part of the plan
under new Sec. 1026.6(b)(3)(iii)(D)) with respect to the covered
separate credit feature are more appropriately regulated under
Regulation E, rather than regulated under Regulation Z, with respect to
the covered separate credit feature. Thus, new comment 52(b)-4 provides
that final Sec. 1026.52(b) does not apply to any fee or charge imposed
on the asset feature of the prepaid account that is not a charge
imposed as part of the plan under new Sec. 1026.6(b)(3)(iii)(D) with
respect to the covered separate credit feature.
Non-covered separate credit features. As discussed in more detail
in the section-by-section analysis of Sec. 1026.61(a)(2) below, a
prepaid card is not a hybrid prepaid-credit card with respect to a
``non-covered separate credit feature,'' which means that the separate
credit feature either (1) cannot be accessed in the course of a prepaid
card transaction to obtain goods or services, obtain cash, or conduct
P2P transfers; or (2) is offered by an unrelated third party that is
not the prepaid account issuer, its affiliate, or its business partner.
As described in new Sec. 1026.61(a)(2)(ii), a non-covered separate
credit feature is not subject to the rules applicable to hybrid
prepaid-credit cards; however, it typically will be subject to
Regulation Z depending on its own terms and conditions, independent of
the connection to the prepaid account. Thus, a non-covered separate
credit feature may be subject to the provisions in Sec. 1026.52(b) in
its own right.
With respect to non-covered separate credit features that are
subject to final Sec. 1026.52(b), new comment 52(b)-4 also provides
that final Sec. 1026.52(b) does not apply to any fee or charge imposed
on the asset feature of the prepaid account that is not a charge
imposed as part of the plan under new Sec. 1026.6(b)(3)(iii)(E) with
respect to a non-covered separate credit feature. Under new Sec.
1026.6(b)(3)(iii)(E) and new comment 6(b)(3)(iii)(E)-1, with respect to
a non-covered separate credit feature as defined in new Sec. 1026.61,
none of the fees or charges imposed on the asset feature of the prepaid
account are ``charges imposed as part of the plan'' under final Sec.
1026.6(b)(3) with respect to the non-covered separate credit feature.
New comment 6(b)(3)(iii)(E)-1 also cross-references new comment
4(b)(11)-1.ii.B, which provides that none of the fees or charges
imposed on the asset feature of the prepaid account are finance charges
under final Sec. 1026.4 with respect to the non-covered separate
credit feature. Thus, final Sec. 1026.52(b) does not apply to fees or
charges imposed on the asset feature of the prepaid account with
respect to the non-covered separate credit feature. As discussed in
more detail in the section-by-section analyses of Sec. Sec. 1026.4 and
1026.6 above, the Bureau believes that fees or charges imposed on the
asset feature of a prepaid account are more appropriately regulated
under Regulation E, rather than regulated under Regulation Z, with
respect to the non-covered separate credit feature.
Fees for Preauthorized Payments That Are Returned Unpaid
As discussed above, in the proposal, the Bureau solicited comment
on situations where at the time a preauthorized payment is set to
occur, the prepaid account does not have sufficient funds to cover the
amount of the credit card payment. The Bureau solicited comment on: (1)
How credit card issuers anticipate handling this situation, including
cases where the prepaid account contains funds sufficient to pay some,
but not all, of the credit card payment due; (2) whether issuers
anticipate charging a specific fee because the preauthorized payment
could not be completed, in addition to any late fee that might be
charged if the credit card balance was not paid by the due date; and
(3) whether the Bureau should adopt any specific rules to address these
issues, and if so, what rules should the Bureau adopt.
The proposal included this request for comment in the discussion of
the offset prohibition in proposed Sec. 1026.12(d). With respect to
credit card accounts accessed by prepaid cards that would have been
credit cards under the proposal, proposed Sec. 1026.12(d)(3) would
have allowed an exception for certain preauthorized payment plans to
the offset prohibition in proposed Sec. 1026.12(d)(1). In response to
this request for comment, several consumer group commenters indicated
that the Bureau should adopt additional restrictions in Sec.
1026.52(b) related to the circumstances in which card issuers can
charge fees when preauthorized payments are returned unpaid and/or
related to the amount of the fees. One consumer group commenter
indicated that the Bureau should adopt rules to cover the situation
where the consumer authorizes periodic deductions, but there is not
enough money to cover a payment when due. In particular, this commenter
indicated the Bureau should
[[Page 84226]]
prohibit fees that are imposed by card issuers when preauthorized
payments are returned unpaid under existing Sec.
1026.52(b)(2)(i)(B)(1) as a ``declined transaction fee.'' Existing
Sec. 1026.52(b)(2)(i)(B) provides that a card issuer must not impose a
fee for violating the terms or other requirements of a credit card
account under an open-end (not home-secured) consumer credit plan when
there is no dollar amount associated with the violation. Existing Sec.
1026.52(b)(2)(i)(B)(1) provides that there is no dollar amount
associated with transactions that the card issuer declines to
authorize, and thus fees charged for those declined transactions are
prohibited under existing Sec. 1026.52(b)(2)(i)(B).
In the alternative, this commenter indicated that the Bureau should
use its authority to establish ``additional requirements'' to provide
for a ``right to cure'' period for the limited circumstance of prepaid
consumers who have authorized automatic deductions to repay credit
associated with their prepaid card. This commenter indicated that the
Bureau should require the card issuer to provide a limited time period,
such as one week, to add funds to the prepaid account before a penalty
fee under Sec. 1026.52(b) could be imposed. In that case, any penalty
fees would be subject to the limitations of existing Sec. 1026.52(b),
namely, that the fee amount (1) must be consistent with either the cost
analysis in existing Sec. 1026.52(b)(1)(i) or the safe harbors in
existing Sec. 1026.52(b)(1)(ii); and (2) does not exceed the dollar
amount associated with the violation under existing Sec.
1026.52(b)(2)(i). In addition, under existing Sec. 1026.52(b)(2)(ii),
a card issuer could not impose more than one fee for violating the
terms or other requirements of a credit card account under an open-end
(not home-secured) consumer credit plan based on a single event or
transaction.
Another consumer group commenter indicated that if the prepaid
account does not have enough funds to satisfy a requested transfer or a
preauthorized payment, the Bureau should provide some kind of cushion
where consumers could avoid a fee if the debt obligation falls below a
certain threshold--i.e., less than $20--and that no fee should be
greater than the minimum 4 percent repayment amount and/or the
overdraft service charge.
As discussed in the section-by-section analysis of Sec.
1026.12(d)(3) above, with respect to covered separate credit features
accessible by hybrid prepaid-credit cards, as defined in Sec. 1026.61,
final Sec. 1026.12(d)(3) sets forth an exception for certain
preauthorized payment plans with respect to the offset prohibition in
final Sec. 1026.12(d). The Bureau does not believe that fees imposed
by card issuers when preauthorized payments are returned unpaid are
fees for declined transactions under Sec. 1026.52(b)(2)(i)(B)(1). The
Bureau believes that it is clear under existing comment 52(b)-1.i.B
that fees imposed by card issuers when preauthorized payments are
returned unpaid constitute fees for returned payments and are regulated
as returned payment fees under Sec. 1026.52(b)(1), (2)(i)(A), and
(2)(ii). Specifically, existing comment 52(b)(1)-i.B provides that the
limitations in Sec. 1026.52(b) apply to returned payment fees and any
other fees imposed by a card issuer if a payment initiated via check,
ACH, or other payment method is returned. Existing commentary to Sec.
1026.52(b)(1), (2)(i)(A), and (2)(ii) provide guidance on how the
restrictions in existing Sec. 1026.52(b)(1), (2)(i)(A) and (2)(ii)
apply to returned payment fees. See, e.g., comments 52(b)(1)(i)-7,
52(b)(1)(ii)-1.i.B, 52(b)(1)(ii)-1.iii.C, 52(b)(2)(i)-2, and
52(b)(2)(ii)-1.ii, iii and v through vii. For example, Sec.
1026.52(b)(1), and (b)(2)(i)(A) and related commentary restrict the
amount of the fee that a card issuer can impose for a returned payment.
In addition, if a payment has been returned and is submitted again for
payment by the card issuer, comment 52(b)(2)(i)-2 provides that there
is no additional dollar amount associated with a subsequent return of
that payment and a card issuer is prohibited from imposing an
additional returned payment fee. Also, comment 52(b)(2)(ii)-1.ii.A and
B provide that a card issuer is prohibited from assessing both a late
payment fee and a returned payment fee based on a single event or
transaction. The existing restrictions in Sec. 1026.52(b)(1),
(2)(i)(A), and (2)(ii), and related commentary regarding returned
payment fees apply to fees imposed by card issuers when preauthorized
payments are returned unpaid in connection with covered separate credit
features accessible by hybrid prepaid-credit cards, as defined in Sec.
1026.61, that are subject to Sec. 1026.52(b).
The Bureau has not established additional requirements beyond those
contained in Sec. 1026.52(b)(1), (2)(i)(A), and (2)(ii) and related
commentary regarding returned payment fees in connection with covered
separate credit features accessible by hybrid prepaid-credit cards,
such as a right to cure period for prepaid consumers where
preauthorized payments have been returned unpaid. At this time, the
Bureau believes that the fee restrictions that apply generally to
credit card accounts in existing Sec. 1026.52(b)(1), (2)(i)(A), and
(2)(ii) and related commentary with respect to returned payments are
sufficient to protect consumers with respect to the circumstances in
which card issuer can impose fees for preauthorized payments that are
returned unpaid in connection with covered separate credit features
accessible by hybrid prepaid-credit cards. The Bureau will continue to
monitor whether additional safeguards are needed.
52(b)(2) Prohibited Fees
52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation
52(b)(2)(i)(B) No Dollar Amount Associated With Violation
Existing Sec. 1026.52(b)(2)(i)(B) provides that a card issuer must
not impose a fee for violating the terms or other requirements of a
credit card account under an open-end (not home-secured) consumer
credit plan when there is no dollar amount associated with the
violation. Existing Sec. 1026.52(b)(2)(i)(B)(1) through (3),
respectively, prohibit the following fees because there is no dollar
amount associated with the following violations: (1) Transactions that
the card issuer declines to authorize; (2) account inactivity; and (3)
the closure or termination of an account.
The Bureau's Proposal
The Bureau proposed to add comment 52(b)(2)(i)-7, which would have
provided guidance on when the ban on declined transaction fees in
existing Sec. 1026.52(b)(2)(i)(B)(1) would apply in the context of
prepaid accounts. Specifically, this proposed comment would have
provided that existing Sec. 1026.52(b)(2)(i)(B)(1) applies to the
consumer's transactions using the prepaid card where a declined
transaction would have accessed the consumer's credit account with the
card issuer had it been authorized. Finally, the proposed comment would
have provided that fees imposed for declining a transaction that would
have only accessed the prepaid account and would not have accessed the
consumer's credit card account would not be covered by existing Sec.
1026.52(b)(2)(i)(B)(1).
Comments Received
The Bureau requested comment on whether once a credit card account
has been added to a prepaid card, it should prohibit a card issuer from
thereafter assessing a fee for declining to authorize a prepaid card
transaction,
[[Page 84227]]
notwithstanding that a given transaction would not have accessed the
credit card account even had it been authorized. Several consumer group
commenters indicated that the Bureau should prohibit declined
transaction fees on prepaid accounts generally. One of these consumer
group commenters indicated that it could be confusing to determine
whether a declined transaction would have accessed the prepaid account
or a credit feature. This commenter believed that these fees are unfair
penalty fees, especially if they exceed the cost (if any) to the
prepaid account issuer of the declined transaction.
Also, as discussed in more detail below, several consumer groups
requested that the Bureau adopt additional protections under Sec.
1026.52(b) with respect to credit card accounts that are accessed by
prepaid cards that are credit cards. For example, one consumer group
commenter indicated that the Bureau should clarify that the following
two types of fees are penalty fees prohibited under existing Sec.
1026.52(b)(2)(i)(B) because no dollar amount is associated with the
violation: (1) Fees for placing a stop payment on preauthorized
transfers; and (2) legal process fees. Another consumer group commenter
indicated that any expenditure not associated with a purchase
transaction should not be able to trigger an overdraft fee.
The Final Rule
As discussed in more detail below, the final rule adopts new
comment 52(b)(2)(i)-7 as proposed with revisions to be consistent with
new Sec. 1026.61. New comment 52(b)(2)(i)-7 provides that with regard
to a covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card as
defined in Sec. 1026.61, Sec. 1026.52(b)(2)(i)(B)(1) prohibits
declined transaction fees from being imposed in connection with the
covered separate credit feature, regardless of whether the declined
transaction fee is imposed on the credit feature or on the asset
feature of the prepaid account.
Also, as discussed above and in more detail below, several consumer
groups requested that the Bureau adopt additional protections under
Sec. 1026.52(b) with respect to credit card accounts that are accessed
by prepaid cards that are credit cards. As discussed in more detail
below, the Bureau has not adopted such restrictions in final Sec.
1026.52(b) or related commentary in relation to covered separate credit
features accessible by hybrid prepaid-credit cards.
Declined transaction fees. As discussed above, the Bureau proposed
to add comment 52(b)(2)(i)-7, which would have provided guidance on
when the ban on declined transaction fees in existing Sec.
1026.52(b)(2)(i)(B)(1) would apply in the context of prepaid accounts.
Specifically, this proposed comment would have provided that existing
Sec. 1026.52(b)(2)(i)(B)(1) applies to the consumer's transactions
using the prepaid card where a declined transaction would have accessed
the consumer's credit account with the card issuer had it been
authorized. Finally, the proposed comment would have provided that fees
imposed for declining a transaction that would have only accessed the
prepaid account and would not have accessed the consumer's credit card
account would not be covered by existing Sec. 1026.52(b)(2)(i)(B)(1).
The Bureau requested comment on whether, once a credit card account
has been added to a prepaid card, the Bureau should prohibit a card
issuer from thereafter assessing a fee for declining to authorize a
prepaid card transaction, notwithstanding that a given transaction
would not have accessed the credit card account even had it been
authorized. Several consumer group commenters indicated that the Bureau
should prohibit declined transaction fees on prepaid accounts
generally. One of these consumer group commenters indicated that it
could be confusing to determine whether a declined transaction would
have accessed the prepaid account or a credit feature. This commenter
believed that these fees are unfair penalty fees, especially if they
exceed the cost (if any) to the prepaid account issuer of the declined
transaction.
The Bureau is adopting proposed comment 52(b)(2)(i)-7 with
revisions to reflect terminology consistent with new Sec.
1026.61.\674\ New comment 52(b)(2)(i)-7 provides that with regard to a
covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card as
defined in Sec. 1026.61 where the credit feature is a credit card
account under an open-end (not home-secured) consumer credit plan,
Sec. 1026.52(b)(2)(i)(B)(1) prohibits card issuers from imposing
declined transaction fees in connection with the covered separate
credit feature, regardless of whether the declined transaction fee is
imposed on the credit feature or on the asset feature of the prepaid
account. For example, if the hybrid prepaid-credit card attempts to
access credit from the covered separate credit feature and the
transaction is declined, existing Sec. 1026.52(b)(2)(i)(B)(1)
prohibits the card issuer from imposing a declined transaction fee,
regardless of whether the fee is imposed on the credit feature or on
the asset feature of the prepaid account. Fees imposed for declining a
transaction that would have only accessed the asset feature of the
prepaid account and would not have accessed the covered separate credit
feature accessible by the hybrid prepaid-credit card are not covered by
existing Sec. 1026.52(b)(2)(i)(B)(1).
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\674\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 52(b)(2)(i)-7 would have provided
that the prohibition in Sec. 1026.52(b)(2)(i)(B)(1) applies to
declined transaction fees imposed on credit card accounts accessed
by such account numbers. For the reasons set forth in the section-
by-section analysis of Sec. 1026.2(a)(15)(i) above, the final rule
does not adopt the proposed changes to comment 52(b)(2)(i)-7 related
to these account numbers.
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As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
The Bureau believes that a fee for declining a transaction where
the prepaid account issuer attempts to access credit from the covered
separate credit feature accessible by the hybrid prepaid-credit card
and the transaction is declined is no different than a fee for
declining a credit card transaction, which is prohibited by current
Sec. 1026.52(b)(2)(i)(B)(1). Thus, such a declined transaction fee is
prohibited by final Sec. 1026.52(b)(2)(i)(B)(1), regardless of whether
the fee is imposed on the credit feature or on the asset feature of the
prepaid account.
As discussed above, several consumer group commenters indicated
that the Bureau should prohibit declined transaction fees on prepaid
accounts generally. One of these consumer group commenters indicated
that it could be confusing to determine whether a declined transaction
would have accessed the prepaid account or a credit feature. This
commenter believed that these fees are unfair penalty fees, especially
if they exceed the cost (if any) to the prepaid account issuer of the
declined transaction. Consistent with
[[Page 84228]]
the proposal, new comment 52(b)(2)(i)-7 makes clear that fees imposed
for declining a transaction that would have only accessed the asset
feature of the prepaid account and would not have accessed the covered
separate credit feature accessible by the hybrid prepaid-credit card
are not covered by final Sec. 1026.52(b)(2)(i)(B)(1). The Bureau does
not believe that it is appropriate to apply final Sec.
1026.52(b)(2)(i)(B)(1) to fees for declined transactions that would not
have accessed the covered separate credit feature accessible by the
hybrid prepaid-credit card because fees for those declined transactions
are not directly related to credit.\675\
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\675\ As discussed above, certain commenters indicated that
declined transaction fees should be prohibited on prepaid accounts
generally or should be deemed unfair penalty fees, irrespective of
when there is a credit feature in connection with the prepaid
account. The Bureau believes such changes are outside the scope of
the proposal, and does not make the change at this time. However,
the Bureau continues to monitor such fees generally and whether any
practices raise concerns. The Bureau further notes, however, that
although the Board did not address declined transaction fees in its
2009 rulemaking addressing overdraft services, the Board noted in
response to comments received that such fees could raise significant
fairness issues under the FTC Act, because the institution bears
little, if any, risk or cost to decline authorization of an ATM or
one-time debit card transaction. See 74 FR 59033, 59041 (Nov. 17,
2009).
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Stop payment fees and legal process fees. As discussed above, one
consumer group commenter indicated that the Bureau should clarify that
the following two types of fees are penalty fees prohibited under
existing Sec. 1026.52(b)(2)(i)(B) because no dollar amount is
associated with the violation: (1) Fees for placing a stop payment on
preauthorized transfers; and (2) legal process fees. The Bureau does
not believe it is appropriate at this time to include these
clarifications because these requirements are beyond the scope of the
proposal, and the Bureau has not collected information about whether
there are costs for prepaid account issuers related to the
circumstances in which these fees are charged.
Restriction on overdraft fees. As indicated above, one consumer
group commenter indicated that any expenditure not associated with a
purchase transaction should not be able to trigger an overdraft fee.
This commenter indicated that a consumer should never be charged an
overdraft fee because the consumer incurred another fee that caused the
overdraft. The commenter suggested that the general principle should be
that prepaid account issuers should never be able to charge an
overdraft fee of any kind if the issuer has not extended a payment to a
third party.
The Bureau has not adopted a restriction on imposing credit-related
fees on a credit extension from a covered separate credit feature
unless the credit extension is for a purchase transaction. The
requirement is beyond the scope of the proposal. In addition, as
discussed above and in the section-by-section analysis of Sec.
1026.52(a), the Bureau notes that the provisions in Sec. 1026.52(a)
and (b) apply to credit-related fees in connection with covered
separate credit features accessible by hybrid prepaid-credit cards, as
applicable.
Section 1026.55 Limitations on Increasing Annual Percentage Rates,
Fees, and Charges
TILA section 171(a) generally prohibits creditors from increasing
any APR, fee, or finance charge applicable to any outstanding balance
on a credit card account under an open-end consumer credit plan, with
some exceptions.\676\ TILA section 172 provides that a creditor
generally cannot increase a rate, fee, or finance charge during the
first year after account opening and that a promotional rate generally
cannot expire earlier than six months.\677\
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\676\ See 15 U.S.C. 1666i-1.
\677\ See 15 U.S.C. 1666i-2.
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TILA sections 171 and 172 are implemented in existing Sec.
1026.55. Existing Sec. 1026.55(a) provides that except as provided in
existing Sec. 1026.55(b), a card issuer must not increase an APR or a
fee or charge required to be disclosed under existing Sec.
1026.6(b)(2)(ii), (iii), or (xii) on a credit card account under an
open-end (not home-secured) consumer credit plan.
The Bureau did not propose changes to Sec. 1026.55 or related
commentary. Nonetheless, the Bureau believes that additional guidance
is needed with respect to the restrictions in final Sec. 1026.55 given
the changes in the final rule to the definition of ``finance charge''
in final Sec. 1026.4, the definition of ``charges imposed as part of
the plan'' in final Sec. 1026.6(b)(3), and the addition of new Sec.
1026.61.
As discussed in more detail below, the final rule adds new comment
55(a)-3 to provide guidance on how the restrictions in final Sec.
1026.55 generally apply to fees or charges imposed in connection with
covered separate credit features accessible by hybrid prepaid-credit
cards, as defined in new Sec. 1026.61, where the credit feature is a
credit card account under an open-end (not home-secured) consumer
credit plan. The final rule also adds new comment 55(a)-4 to provide
that the restrictions in final Sec. 1026.55 do not apply to fees or
charges imposed on the asset feature of the prepaid account with
respect to covered separate credit features accessible by hybrid
prepaid-credit cards when the fees or charges are not ``charges imposed
as part of the plan'' under new Sec. 1026.6(b)(3)(iii)(D) with respect
to the covered separate credit feature. New comment 55(a)-4 also
provides that final Sec. 1026.55 does not apply to fees or charges
imposed on the asset feature of a prepaid account with respect to a
non-covered separate credit feature.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit
Cards
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
New Sec. 1026.61(b) generally requires that such credit features
be structured as separate subaccounts or accounts, distinct from the
prepaid asset account, to facilitate transparency and compliance with
various Regulation Z requirements. Given this change and to ensure
compliance with Sec. 1026.55, the Bureau is adding new comment 55(a)-3
to provide guidance on when fees or charges imposed in connection with
covered separate credit features are subject to the restrictions in
existing Sec. 1026.55. New comment 55(a)-3 provides that with regard
to a covered separate credit feature and an asset feature on a prepaid
account that are both accessible by a hybrid prepaid-credit card as
defined in new Sec. 1026.61 where the credit feature is a credit card
account under an open-end (not home-secured) consumer credit plan,
final Sec. 1026.55(a) prohibits card issuers from increasing an APR or
any fee or charge required to be disclosed under existing Sec.
1026.6(b)(2)(ii), (iii), or (xii) on a credit card account unless
specifically permitted by one of the exceptions in existing Sec.
1026.55(b). This is true regardless of whether these fees or APRs are
imposed on the asset feature of the prepaid account or on the credit
feature.
TILA section 171 and 172 apply, respectively, to any APR, fee, or
finance charge applicable to any outstanding balance and to any APR,
fee, or finance charge on any credit card account under
[[Page 84229]]
an open-end consumer credit plan. Those terms readily encompass credit-
related fees that are imposed on the asset feature of the prepaid
account. Even if the terms were ambiguous, the Bureau believes--based
on its expertise and experience with respect to credit markets--that
interpreting them to encompass credit-related fees imposed on the asset
feature would promote the purposes of TILA to protect the consumer
against inaccurate and unfair credit billing and credit card practices.
From the consumer's perspective, there is no practical difference when
an APR or any fee or charge described in existing Sec. 1026.55(a)
imposed in connection with a covered separate credit feature is charged
against the separate credit feature and when it is charged to the asset
feature of the prepaid account. If TILA sections 171 and 172 were not
interpreted to include APRs or fees or charges described in existing
Sec. 1026.55(a) in connection to the covered separate credit feature
when those fees or charges are imposed on the asset feature, the Bureau
is concerned that card issuers could avoid the restrictions set forth
in TILA sections 171 and 172 and Sec. 1026.55(a) with respect to these
fees or charges simply by imposing them on the asset feature of the
prepaid account.
New comment 55(a)-4 provides that with regard to a covered separate
credit feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in new Sec.
1026.61, final Sec. 1026.55(a) does not apply to any fee or charge
imposed on the asset feature of the prepaid account that is not a
charge imposed as part of the plan under new Sec. 1026.6(b)(3)(iii)(D)
with respect to the covered separate credit feature. As discussed in
more detail in the section-by-section analysis of Sec. 1026.6 above,
with respect to a fee or charge imposed on the asset feature of a
prepaid account accessible by a hybrid prepaid-credit card, a fee or
charge imposed on the asset feature of the prepaid account is a
``charge imposed as part of the plan'' to the extent that the amount of
the fee or charges exceeds comparable fees or charges imposed on
prepaid accounts in the same prepaid account program that do not have a
credit feature accessible by a hybrid prepaid-credit card. This fee or
charge also is a finance charge under new Sec. 1026.4(b)(11)(ii).
Under new Sec. 1026.6(b)(3)(iii)(D) and new comment
6(b)(3)(iii)(D)-1, a fee or charge imposed on the asset feature of the
prepaid account is not a ``charge imposed as part of the plan'' to the
extent that the amount of the fee or charges does not exceed comparable
fees or charges imposed on prepaid accounts in the same prepaid account
program that do not have a credit feature accessible by a hybrid
prepaid-credit card. These fees or charges imposed on the asset feature
of the prepaid account are not finance charges under new Sec.
1026.4(b)(11)(ii) in relation to the covered separate credit feature.
The Bureau believes that this guidance facilitates compliance with
final Sec. 1026.55(a) by providing additional clarity to card issuers
on how the restrictions in final Sec. 1026.55(a) apply to fees or
charges imposed on the asset feature of the prepaid account accessible
by a hybrid prepaid-credit card. As discussed in more detail in the
section-by-section analyses of Sec. Sec. 1026.4 and 1026.6 above, the
Bureau believes that fees or charges imposed on the asset feature of a
prepaid account that are not finance charges (and thus, not charges
imposed as part of the plan under new Sec. 1026.6(b)(3)(iii)(D)) with
respect to the covered separate credit feature are more appropriately
regulated under Regulation E, rather than regulated under Regulation Z,
with respect to the covered separate credit feature.
Non-Covered Separate Credit Features
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a prepaid card is not a hybrid prepaid-
credit card with respect to a ``non-covered separate credit feature,''
which means that the separate credit feature either (1) cannot be
accessed in the course of a prepaid card transaction to obtain goods or
services, obtain cash, or conduct P2P transfers; or (2) is offered by
an unrelated third party that is not the prepaid account issuer, its
affiliate, or its business partner. As described in new Sec.
1026.61(a)(2)(ii), a non-covered separate credit feature is not subject
to the rules applicable to hybrid prepaid-credit cards; however, it
typically will be subject to Regulation Z depending on its own terms
and conditions, independent of the connection to the prepaid account.
Thus, a non-covered separate credit feature may be subject to the
provisions in Sec. 1026.55 in its own right.
With respect to non-covered separate credit features that are
subject to Sec. 1026.55, new comment 55(a)-4 provides that final Sec.
1026.55 does not apply to any fee or charge imposed on the asset
feature of the prepaid account that is not a charge imposed as part of
the plan under new Sec. 1026.6(b)(3)(iii)(E). The Bureau notes that
under new Sec. 1026.6(b)(3)(iii)(E) and new comment 6(b)(3)(iii)(E)-1,
with respect to a non-covered separate credit feature as defined in new
Sec. 1026.61, none of the fees or charges imposed on the asset feature
of the prepaid account are ``charges imposed as part of the plan''
under final Sec. 1026.6(b)(3) with respect to the non-covered separate
credit feature. New comment 6(b)(3)(iii)(E)-1 also cross-references new
comment 4(b)(11)-1.ii.B which provides that none of the fees or charges
imposed on the asset feature of the prepaid account are finance charges
under final Sec. 1026.4 with respect to the non-covered separate
credit feature. Thus, final Sec. 1026.55 does not apply to any fees or
charges imposed on the asset feature of the prepaid account with
respect to the non-covered separate credit feature. As discussed in
more detail in the section-by-section analyses of Sec. Sec. 1026.4 and
1026.6 above, the Bureau believes that fees or charges imposed on the
asset feature of a prepaid account are more appropriately regulated
under Regulation E, rather than regulated under Regulation Z, with
respect to the non-covered separate credit feature.
Section 1026.57 Reporting and Marketing Rules for College Student Open-
End Credit
57(a) Definitions
TILA section 127(r) requires creditors to submit an annual report
to the Bureau containing the terms and conditions of all business,
marketing, promotional agreements, and college affinity card agreements
with an institution of higher education, or other related entities,
with respect to any college student credit card issued to a college
student at such institution.\678\ This TILA section is implemented by
existing Sec. 1026.57(d), which requires card issuers that are a party
to one or more ``college credit card agreements'' to submit annual
reports to the Bureau regarding those agreements.
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\678\ 15 U.S.C. 1637(r).
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Existing Sec. 1026.57(a)(5) defines ``college credit card
agreement'' to mean any business, marketing, or promotional agreement
between a card issuer and an institution of higher education or an
affiliated organization in connection with which college student credit
cards are issued to college students currently enrolled at that
institution. Existing Sec. 1026.57(a)(1) defines ``college student
credit card'' as used in the term ``college credit card agreement'' to
mean a credit card issued under a credit card account under an open-end
(not home-secured) consumer credit plan to any college student.
[[Page 84230]]
The Bureau's Proposal
Existing comment 57(a)(1)-1 provides guidance on the definition of
``college student credit card'' which is used in the definition of
``college credit card agreement.'' The proposal would have amended this
comment to include a prepaid card that is a credit card that is issued
to any college student under a credit card account under an open-end
(not home-secured) consumer credit plan. Proposed comment 57(a)(1)-1
also would have provided that the definition of college student credit
card includes a prepaid account that is issued to any college student
where an open-end (not home-secured) consumer credit plan may be added
in connection with the prepaid account and the credit account may be
accessed by a prepaid card that is a credit card.
Existing comment 57(a)(5)-1 provides guidance on the definition of
``college credit card agreement.'' The proposal would have amended this
comment to include guidance on when an agreement related to a prepaid
account would be considered a ``college credit card agreement.''
Proposed comment 57(a)(5)-1 would have provided that the definition of
``college credit card agreement'' includes a business, marketing, or
promotional agreement between a card issuer and a college or university
(or an affiliated organization, such as an alumni club or a foundation)
if the agreement either provides for the addition of open-end (not
home-secured) consumer credit plans to previously-issued prepaid
accounts that were issued to full-time or part-time students, where
that credit account would be accessed by a prepaid card that is a
credit card. Proposed comment 57(a)(5)-1 also would have provided that
the definition of ``college credit card agreement'' includes a
business, marketing, or promotional agreement between a card issuer and
a college or university (or an affiliated organization, such as an
alumni club or a foundation) if (1) an agreement provides for the
issuance of prepaid accounts to full-time or part-time students; and
(2) an open-end (not home-secured) consumer credit plan may be added in
connection with the prepaid account where that credit account may be
accessed by a prepaid card that is a credit card.
Comments Received and the Final Rule
The Bureau did not receive any comment on this aspect of the
proposal. The Bureau is adopting proposed comments 57(a)(1)-1 and
57(a)(5)-1 with technical revisions to clarify the intent of the
comments, and to be consistent with new Sec. 1026.61.\679\ Final
comment 57(a)(1)-1 provides that the definition of ``college student
credit card'' includes a hybrid prepaid-credit card as defined by new
Sec. 1026.61 that is issued to any college student where the card
accesses a covered separate credit feature that is a credit card
account under an open-end (not home-secured) consumer credit plan. The
definition of ``college student credit card'' also includes a prepaid
account as defined in Sec. 1026.61 that is issued to any college
student where a covered separate credit feature that is a credit card
account under an open-end (not home-secured) consumer credit plan may
be added in the future to the prepaid account. As discussed in more
detail in the section-by-section analysis of Sec. 1026.61(a)(2) below,
a covered separate credit feature accessible by a hybrid prepaid-credit
card includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Sec. 1026.61
and a credit card under final Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
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\679\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. The proposal would have provided in comments 57(a)(1)-
1 and 57(a)(5)-1 guidance on the definitions of ``college student
credit card'' and ``college credit card agreement'' related to
credit card accounts that are accessed by these account numbers. For
the reasons set forth in the section-by-section analysis of Sec.
1026.2(a)(15)(i) above, the final rule does not adopt the proposed
changes to comments 57(a)(1)-1 and 57(a)(5)-1 related to these
account numbers.
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Final comment 57(a)(5)-1 provides that the definition of ``college
credit card agreement'' includes a business, marketing, or promotional
agreement between a card issuer and a college or university (or an
affiliated organization, such as an alumni club or a foundation) if the
agreement provides for the addition of a covered separate credit
feature that is a credit card account under an open-end (not home-
secured) consumer credit plan accessible by a hybrid prepaid-credit
card to prepaid accounts previously issued to full-time or part-time
students. This definition also includes a business, marketing, or
promotional agreement between a card issuer and a college or university
(or an affiliated organization, such as an alumni club or a foundation)
if (1) the agreement provides for the issuance of prepaid accounts as
defined in Sec. 1026.61 to full-time or part-time students; and (2) a
covered separate credit feature that is a credit card account under an
open-end (not home-secured) consumer credit plan may be added in the
future to the prepaid account.
Pursuant to the Bureau's amendments to commentary, final Sec.
1026.57(d) requires a card issuer that is a party to one or more
college credit card agreements in connection with covered separate
credit features accessible by hybrid prepaid-credit cards to submit
annual reports to the Bureau regarding those agreements. In addition, a
card issuer is required to submit agreements that provide for the
issuance of prepaid accounts to full-time or part-time students even if
a covered separate credit feature is not linked to the prepaid account
when the prepaid accounts are issued, so long as such credit features
may be added in connection with the prepaid accounts.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(c) below, new Sec. 1026.61(c) provides that with respect
to a covered separate credit feature that could be accessible by a
hybrid prepaid-credit card at any point, a card issuer must not do any
of the following until 30 days after the prepaid account has been
registered: (1) Open a covered separate credit feature accessible by
the hybrid prepaid-credit card; (2) make a solicitation or provide an
application to open a covered separate credit feature accessible by the
hybrid prepaid-credit card; or (3) allow an existing credit feature
that was opened prior to the consumer obtaining the prepaid account to
become a covered separate credit feature accessible by the hybrid
prepaid-credit card. Thus, a prepaid card in connection with a prepaid
account cannot access a covered separate credit feature at the time the
prepaid account is opened. Nonetheless, the Bureau believes that the
marketing efforts related to a prepaid account, including the
inducements given by a card issuer to open a prepaid account, have an
impact on whether consumers may request that a covered separate credit
feature accessible by a hybrid prepaid-credit card be linked to the
prepaid account when such covered separate credit features are offered
to them. Thus, even though a prepaid account will not have a covered
separate credit feature linked to it at the time the prepaid account is
opened, if a covered separate credit feature that is a credit card
account under an open-end (not home-secured) consumer credit plan
accessible by a hybrid prepaid-credit card may be linked to a prepaid
account as described above in the future, the prepaid account at the
time of issuance
[[Page 84231]]
would be a ``college student credit card'' for purposes of final Sec.
1026.57(a)(1) if the prepaid account is issued to a college student. As
a result, under the final rule, a card issuer that is a party to one or
more agreements between the card issuer and a college or university (or
an affiliated organization, such as an alumni club or a foundation)
must submit annual reports to the Bureau regarding those agreements if:
(1) An agreement provides for the issuance of prepaid accounts to full-
time or part-time students; and (2) a covered separate credit feature
that is a credit card account under an open-end (not home-secured)
consumer credit plan accessible by a hybrid prepaid-credit card may be
added in connection with the prepaid account.
The Bureau believes it is necessary and proper to exercise its
adjustment authority under TILA section 105(a), to apply section
127(r)'s requirements for college card agreements to prepaid cards
where covered separate credit features that are credit card accounts
under an open-end (not home-secured) consumer credit plan accessible by
hybrid prepaid-credit cards may subsequently be added, to further the
purposes of TILA. The provisions in TILA section 127(r) addressing
college credit cards reflect Congress's particular concern with
providing special protections for students to ensure that students can
make informed credit decisions, and the Bureau believes that including
such cards is consistent with such congressional concerns for college
students and credit card debt. Further, these concerns might be
heightened with respect to prepaid accounts to which covered separate
credit features that are credit card accounts under an open-end (not
home-secured) consumer credit plan accessible by hybrid prepaid-credit
cards may be linked because students might be prone to use such prepaid
accounts as their primary transaction account.
57(b) Public Disclosure of Agreements
TILA section 140(f)(1) provides that an institution of higher
education must publicly disclose any contract or other agreement made
with a card issuer or creditor for the purpose of marketing a credit
card.\680\ This TILA provision is implemented by existing Sec.
1026.57(b), which provides that an institution of higher education must
publicly disclose any contract or other agreement made with a card
issuer or creditor for the purpose of marketing a credit card.
---------------------------------------------------------------------------
\680\ 15 U.S.C. 1650(f)(1).
---------------------------------------------------------------------------
The Bureau proposed comment 57(b)-3 to explain that existing Sec.
1026.57(b) applies to any contract or other agreement that an
institution of higher education makes with a card issuer or creditor
for the purpose of marketing either (1) the addition of open-end (not
home-secured) consumer credit accounts to prepaid accounts previously
issued to full-time or part-time students, where that credit account
would be accessed by a prepaid card that is a credit card; or (2)
prepaid accounts where a credit account may be added in connection with
the prepaid account and that credit account may be accessed by a
prepaid card that is a credit card. Thus, under proposed Sec.
1026.57(b), an institution of higher education would have been required
to publicly disclose such agreements.
One consumer group commenter indicated that it is not enough to
require an institution of higher education to offer a disclosure on
marketing agreements with card issuers. This commenter believed that
the Bureau should specifically require that these disclosures be made
available on the institution's Web site. This commenter believed that
these disclosures should be available on the same screen as the
application for the card and would disclose the dollar amount received
by the institution and any terms associated with those fees. The
commenter believed that these terms should be listed in English and
Spanish.
The Bureau is adopting proposed comment 57(b)-3 as proposed with
technical revisions to clarify the intent of the comment and to be
consistent with new Sec. 1026.61.\681\ Under the final rule, new
comment 57(b)-3 provides that existing Sec. 1026.57(b) applies to any
contract or other agreement that an institution of higher education
makes with a card issuer or creditor for the purpose of marketing
either (1) the addition of a covered separate credit feature that is a
credit card account under an open-end (not home-secured) consumer
credit plan to prepaid accounts as defined in Sec. 1026.61 that were
previously issued to full-time or part-time students; or (2) new
prepaid accounts where a covered separate credit feature that is a
credit card account under an open-end (not home-secured) consumer
credit plan may in the future be added to the prepaid account. Thus,
under Sec. 1026.57(b), an institution of higher education must
publicly disclose such agreements.
---------------------------------------------------------------------------
\681\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. The proposal would have provided in comment 57(b)-3
that institutions of higher education must disclose marketing
agreements related to credit card accounts accessed by these account
numbers. For the reasons set forth in the section-by-section
analysis of Sec. 1026.2(a)(15)(i) above, the final rule does not
adopt the proposed changes to comment 57(b)-3 related to these
account numbers.
---------------------------------------------------------------------------
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
The Bureau believes it is necessary and proper to exercise its
adjustment authority under TILA section 105(a) to effectuate the
purposes of TILA by applying section 140(f)'s requirements for college
card agreements to prepaid cards where covered separate credit features
that are credit card accounts under an open-end (not home-secured)
consumer credit plan accessible by hybrid prepaid-credit cards may
subsequently be added. The provisions in TILA section 140(f) addressing
college card agreements reflect Congress's particular concern with
providing special protections for students to ensure that students can
make informed credit decisions, and the Bureau believes that including
such cards is consistent with such congressional concerns for college
students and credit card debt. The Bureau believes that the marketing
efforts related to a prepaid account, including the inducements given
by a card issuer to open a prepaid account, may have an impact on
whether consumers may request that a covered separate credit feature
that is a credit card account under an open-end (not home-secured)
consumer credit plan accessible by hybrid prepaid-credit card be linked
to the prepaid account, as discussed above, when such covered separate
credit features are offered to them. Thus, the Bureau believes that the
marketing related to a prepaid account where a covered separate credit
feature accessible by a hybrid prepaid-credit card may be added would
constitute marketing of a credit card. Thus, under the final rule, an
institution of higher education must publicly disclose agreements for
the marketing of prepaid accounts where a covered separate credit
feature that is a credit card account under an open-end (not home-
secured) consumer credit plan accessible by a hybrid prepaid-credit
[[Page 84232]]
card may be added in connection with the prepaid account.
As discussed above, one consumer group commenter indicated that it
is not enough to require an institution of higher education to offer a
disclosure related to marketing agreements with card issuers. This
commenter believed that the Bureau should specifically require that
these disclosures be made available on the institution's Web site. This
commenter believed that these disclosures should be available on the
same screen as the application for the card and disclose the dollar
amount received by the institution and any terms associated with those
fees. The commenter believed that these terms should be listed in
English and Spanish.
The final rule does not impose additional requirements on
institutions of higher education to disclose marketing agreements. The
Bureau believes such changes are outside the scope of the proposal and
does not make the change at this time. The Bureau notes that existing
comment 1026.57(b)-1 provides that institutions of higher education may
comply with the requirement in existing Sec. 1026.57(b) by publishing
any relevant credit card agreement on their Web site or by making such
agreements available free of charge upon request using reasonable
procedures and in a reasonable timeframe. In addition, the Bureau sent
a warning letter in December 2015 to several institutions of higher
education because their agreements were not posted on their Web sites
and could not be publicly obtained by the Bureau using reasonable
procedures and in a reasonable timeframe.\682\ In the letter, the
Bureau noted that publishing the agreement on the Web site is proving
to be the least burdensome and most straightforward means of complying
with Sec. 1026.57(b), and that any other approach may be less
effective and creates compliance risk.
---------------------------------------------------------------------------
\682\ See Press Release, CFPB, CFPB Warns Colleges About Secret
Campus Credit Card Contracts (Dec. 16, 2015), available at http://www.consumerfinance.gov/about-us/newsroom/cfpb-warns-colleges-about-secret-campus-credit-card-contracts/.
---------------------------------------------------------------------------
57(c) Prohibited Inducements
TILA section 140(f)(2) provides that no card issuer or creditor may
offer to a student at an institution of higher education any tangible
item to induce such student to apply for or participate in an open-end
consumer credit plan offered by such card issuer or creditor, if such
offer is made: (1) On the campus of an institution of higher education;
(2) near the campus of an institution of higher education, as
determined by rule of the Bureau; or (3) at an event sponsored by or
related to an institution of higher education.\683\ This TILA provision
is implemented in existing Sec. 1026.57(c), which provides that no
card issuer or creditor may offer a college student any tangible item
to induce such student to apply for or open an open-end consumer credit
plan offered by such card issuer or creditor, if such offer is made:
(1) On the campus of an institution of higher education; (2) near the
campus of an institution of higher education; or (3) at an event
sponsored by or related to an institution of higher education.
---------------------------------------------------------------------------
\683\ 15 U.S.C. 1650(f)(2).
---------------------------------------------------------------------------
The Bureau proposed to add comment 57(c)-7 to explain that existing
Sec. 1026.57(c) applies to (1) the application for or opening of a
credit card account that is being added to previously-issued prepaid
accounts that were issued to full-time or part-time students, where
that credit account would be accessed by a prepaid card that is a
credit card; or (2) the application for or opening of a prepaid account
where a credit account may be added in connection with the prepaid
account where that credit account may be accessed by a prepaid card
that is a credit card.
The Bureau did not receive comments on this aspect of the proposal.
The Bureau is adopting proposed comment 57(c)-7 with revisions to be
consistent with new Sec. 1026.61.\684\ New comment 57(c)-7 provides
that final Sec. 1026.57(c) applies to (1) the application for or
opening of a covered separate credit feature that is a credit card
account under an open-end (not home-secured) consumer credit plan
accessible by a hybrid prepaid-credit card as defined in Sec. 1026.61
that is being added to a prepaid account as defined as Sec. 1026.61
previously issued to a full-time or part-time student as well as (2)
the application for or opening of a prepaid account where a covered
separate credit feature that is a credit card account under an open-end
(not home-secured) consumer credit plan accessible by a hybrid prepaid-
credit card as defined in Sec. 1026.61 may be added in the future to
the prepaid account. As discussed in more detail in the section-by-
section analysis of Sec. 1026.61(a)(2) below, a covered separate
credit feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
---------------------------------------------------------------------------
\684\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. The proposal would have provided in comment 57(c)-7
guidance on how the prohibition in Sec. 1026.57(c) applies to
credit card accounts that are accessed by these account numbers. For
the reasons set forth in the section-by-section analysis of Sec.
1026.2(a)(15)(i) above, the final rule does not adopt the proposed
changes to comment 57(c)-7 related to these account numbers.
---------------------------------------------------------------------------
The Bureau believes that the marketing efforts related to a prepaid
account, including the inducements given by a card issuer to open a
prepaid account, may have an impact on whether consumers may request
that a covered separate credit feature that is a credit card account
under an open-end (not home-secured) consumer credit plan accessible by
a hybrid prepaid-credit card be linked to the prepaid account, as
discussed above, when such covered separate credit features are offered
to them. Thus, any tangible item given to induce college students to
apply for or open a prepaid account where a covered separate credit
feature that is a credit card account under an open-end (not home-
secured) consumer credit plan accessible by a hybrid prepaid-credit
card may be added in connection with the prepaid account would also be
interpreted as an inducement to encourage a college student to apply
for or open such a covered separate credit feature in connection with
the prepaid account. As a result, under final Sec. 1026.57(c), a card
issuer or creditor would be prohibited from offering a college student
any tangible item to induce the student to apply for or open a prepaid
account offered by the card issuer or creditor where a covered separate
credit feature that is a credit card account under an open-end (not
home-secured) consumer credit plan accessible by a hybrid prepaid-
credit card may be added in connection with the prepaid account, if the
offer is made: (1) On the campus of an institution of higher education;
(2) near the campus of an institution of higher education; or (3) at an
event sponsored by or related to an institution of higher education.
Section 1026.58 Internet Posting of Credit Card Agreements
TILA section 122(d), implemented by existing Sec. 1026.58,
generally requires card issuers to post their card agreements on the
internet and to provide those agreements to the Bureau. Separately, as
part of this final rule, the Bureau is adopting similar provisions
[[Page 84233]]
for prepaid accounts in final Regulation E Sec. 1005.19. Although the
Bureau is not revising Sec. 1026.58, it notes that the requirements of
Sec. 1026.58 and those of Regulation E Sec. 1005.19 are distinct and
independent of one another. In other words, issuers must comply with
both as appropriate. The Bureau notes, however, that it does not
believe it is likely that any agreement will constitute both a credit
card agreement and a prepaid account agreement and thus be required to
be submitted under both Sec. 1026.58 and Regulation E Sec. 1005.19.
Given the requirement in new Sec. 1026.61(b) that credit features
accessible by hybrid prepaid-credit cards generally must be structured
as separate subaccounts or accounts distinct from the prepaid asset
account, in conjunction with the account-opening disclosure
requirements in existing Sec. 1026.6 and the initial disclosure
requirements in existing Regulation E Sec. 1005.7(b) as well as final
Sec. 1005.18(f)(1), the Bureau believes it is unlikely that an issuer
would use a single agreement to provide all such disclosures for both a
prepaid account and for a covered separate credit feature.
The Bureau reminds credit card issuers that while final Regulation
E Sec. 1005.19(f) provides a delayed effective date of October 1, 2018
to submit prepaid account agreements to the Bureau, the requirement to
submit credit card agreements for covered separate credit features
accessible by hybrid prepaid-credit cards that are credit card accounts
under an open-end (not home-secured) consumer credit plan becomes
effective with the rest of this final rule on October 1, 2017.
Section 1026.60 Credit and Charge Card Applications and Solicitations
TILA section 127(c) generally requires card issuers to provide
certain cost disclosures on or with an application or solicitation to
open a credit or charge card account.\685\ This TILA provision is
implemented by Sec. 1026.60.
---------------------------------------------------------------------------
\685\ 15 U.S.C. 1637(c).
---------------------------------------------------------------------------
Existing comment 60-1 provides that Sec. 1026.60 generally
requires that credit disclosures be contained in application forms and
solicitations initiated by a card issuer to open a credit or charge
card account. The existing comment also cross-references Sec.
1026.60(a)(5) and (e)(2) for exceptions, Sec. 1026.60(a)(1) and
accompanying commentary for the definition of solicitation, and Sec.
1026.2(a)(15) and accompanying commentary for the definition of charge
card. The proposal would have amended existing comment 60-1 to cross-
reference proposed Sec. 1026.12(h) (renumbered as new Sec. 1026.61(c)
in the final rule) for restrictions on when credit or charge card
accounts can be added to previously issued prepaid accounts.
The Bureau did not receive any specific comments on the proposed
revisions to comment 60-1. Consistent with the proposal, the final rule
adopts final comment 60-1 with revisions to be consistent with new
Sec. 1026.61. The final rule revises comment 60-1 to provide a cross-
reference to new Sec. 1026.61(c) for restrictions on when credit or
charge card accounts can be added to previously issued prepaid
accounts. See the section-by-section analysis of Sec. 1026.61(c) below
for a discussion of these restrictions.
60(a) General Rules
60(a)(5) Exceptions
Existing Sec. 1026.60(a)(5) provides several exceptions to the
requirements in existing Sec. 1026.60 to provide cost disclosures on
or with credit or charge card applications or solicitations.
Specifically, existing Sec. 1026.60(a)(5) provides that existing Sec.
1026.60 does not apply to: (1) Home-equity plans accessible by a credit
or charge card that are subject to the requirements of existing Sec.
1026.40; (2) overdraft lines of credit tied to asset accounts accessed
by check-guarantee cards or by debit cards; (3) lines of credit
accessed by check-guarantee cards or by debit cards that can be used
only at ATMs; (4) lines of credit accessed solely by account numbers;
(5) additions of a credit or charge card to an existing open-end plan;
(6) general purpose applications, unless the application, or material
accompanying it, indicates that it can be used to open a credit or
charge card account; or (7) consumer-initiated requests for
applications. These exemptions are not specifically listed in TILA
section 127(c).
In 1989, to implement the disclosure provisions in TILA section
127(c) as amended by the Fair Credit and Charge Card Disclosure Act of
1988,\686\ the Board exempted the following credit card accounts from
the disclosure requirements set forth in its Sec. 226.5a (which are
contained in the Bureau's existing Regulation Z Sec. 1026.60): (1)
Home equity plans accessible by a credit or charge card that are
subject to the Home Equity Loan Consumer Protection Act of 1988, Public
Law 100-709; (2) overdraft lines of credit tied to asset accounts
accessed by check guarantee cards or by debit cards; or (3) lines of
credit accessed by check guarantee cards or by debit cards that can be
used only at ATMs.\687\ In the supplemental information to that
rulemaking, the Board indicated that a number of commenters raised
issues concerning coverage of the proposed rule given the broad
definition of the term ``credit card'' in the regulation.\688\ Among
other things, the Board reported that commenters argued that
congressional intent was to require disclosures only for
``traditional'' credit card accounts used primarily to purchase goods
and services, and not for other types of accounts that do not fall
within such a category or for which the use of a credit or charge card
as an access device is merely incidental to the product being
offered.\689\
---------------------------------------------------------------------------
\686\ Public Law 100-583, 102 Stat. 2960.
\687\ 54 FR 13855, 13857 (Apr. 6, 1989).
\688\ Id.
\689\ Id.
---------------------------------------------------------------------------
In 1990, the Board added commentary to its Regulation Z Sec.
226.5a (now existing Sec. 1026.60) to provide that the disclosures set
forth in its Regulation Z Sec. 226.5a also did not apply to: (1) Lines
of credit accessed solely by account numbers; (2) the addition of a
credit or charge card to an existing open-end plan; (3) general purpose
applications unless the application, or material accompanying it,
indicates that it can be used to open a credit or charge card account;
or (4) consumer-initiated requests for applications.\690\ In the
supplemental information to the 1990 rulemaking, the Board did not
explain why it was including these exemptions.
---------------------------------------------------------------------------
\690\ See 55 FR 13103, 13107 (Apr. 9, 1990).
---------------------------------------------------------------------------
As discussed above, existing Sec. 1026.60(a)(5)(iv) currently
provides that the disclosure requirements in existing Sec. 1026.60 do
not apply to lines of credit accessed solely by account numbers. The
proposal would have amended existing Sec. 1026.60(a)(5)(iv) to provide
that this exception does not apply where 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. Under
the proposal, these account numbers would have been credit cards. Thus,
under the proposal, a card issuer would have been required to provide
the disclosures required by existing Sec. 1026.60 on or with a
solicitation or application to open a credit or charge card account
that would have been 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 Bureau did not receive any comments on proposed
[[Page 84234]]
Sec. 1026.60(a)(5)(iv). As discussed in more detail in the section-by-
section analysis of Sec. 1026.2(a)(15)(i) above, the Bureau is not
adopting proposed Sec. 1026.2(a)(15)(vii) and proposed comment
2(a)(15)-2.i.G, which would have made these account numbers into credit
cards under Regulation Z.
Nonetheless, the Bureau is revising the proposed changes to Sec.
1026.60(a)(5)(iv) to refer to an account number that is a hybrid
prepaid-credit card, rather than an account number where extensions of
credit are permitted to be deposited directly only into particular
prepaid accounts specified by the creditor. Specifically, the Bureau is
revising the exemption in existing Sec. 1026.60(a)(5)(iv) that relates
to lines of credit accessed solely by account numbers so that this
exception would not apply to a covered separate credit feature solely
accessible by an account number that is a hybrid prepaid-credit card,
as defined in new Sec. 1026.61.
The Bureau noted in the proposal that a card issuer generally would
be required to provide the cost disclosures in existing Sec. 1026.60
on or with solicitations or applications to open a credit or charge
card account that is accessed by a prepaid card that is a credit card.
Consistent with the intent of the proposal, the Bureau is revising the
exemption in existing Sec. 1026.60(a)(5)(iv) to make clear that the
cost disclosures in existing Sec. 1026.60 must be provided on or with
solicitations or applications to open a covered separate credit feature
accessible by a hybrid prepaid-credit card even when that hybrid
prepaid-credit card is solely an account number.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(a)(2) below, a covered separate credit feature accessible
by a hybrid prepaid-credit card includes an overdraft credit feature
offered by a prepaid account issuer, its affiliate, or its business
partner that can be accessed by a prepaid card (except as provided in
new Sec. 1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit
card under new Sec. 1026.61 and a credit card under final Sec.
1026.2(a)(15)(i) with respect to the covered separate credit feature.
The Bureau does not believe that it is appropriate to except a
covered separate credit feature accessible by a hybrid prepaid-credit
card that is solely an account number from the disclosure requirements
set forth in TILA section 127(c). The Bureau believes that the cost
disclosures in final Sec. 1026.60 would be helpful to consumers in
deciding whether to open such a covered separate credit feature
accessible by a hybrid prepaid-credit card.
60(b) Required Disclosures
TILA section 127(c), implemented by existing Sec. 1026.60,
generally requires card issuers to provide certain cost disclosures on
or with an application or solicitation to open a credit or charge card
account.\691\ Under existing Sec. 1026.60, card issuers generally are
required to provide the following disclosures, among other cost
disclosures, on or with the applications or solicitations for credit
cards: (1) The APRs applicable to the account for purchases, cash
advances, and balance transfers; (2) any annual or other periodic fee,
expressed as an annualized amount, that is imposed for the issuance or
availability of a credit card, including any fee based on account
activity or inactivity; (3) any non-periodic fees related to opening
the account, such as one-time membership or participation fees; (4) any
minimum or fixed finance charge that could be imposed during a billing
cycle; (5) any transaction charge imposed on purchases, cash advances,
or balance transfers; (6) any late payment fees, over the limit fees,
or returned payment fees; (7) whether a grace period on purchases
applies; (8) the name of the balance computation method used to
determine the balance for purchases; (9) any fees for required
insurance, debt cancellation, or debt suspension coverage; (10) if the
fees imposed at account opening are 15 percent or more of the minimum
credit limit for the card, disclosures about the available credit that
will remain after those fees are imposed; and (11) a reference to the
Bureau's Web site where consumers may obtain information about shopping
for and using credit cards.
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\691\ 15 U.S.C. 1637(c).
---------------------------------------------------------------------------
Under existing Sec. 1026.60(b), charge card issuers generally are
required to provide the above disclosure on or with the applications or
solicitations for charge cards, except that a charge card issuer is not
required to disclose: (1) The APRs applicable to the account for
purchases, cash advances, and balance transfers; (2) any minimum or
fixed finance charge that could be imposed during a billing cycle; (3)
whether a grace period on purchases applies; (4) the name of the
balance computation method used to determine the balance for purchases;
(5) any fees for required insurance, debt cancellation, or debt
suspension coverage; and (6) if the fees imposed at account opening are
15 percent or more of the minimum credit limit for the card,
disclosures about the available credit that will remain after those
fees are imposed.
The Bureau did not propose any changes to existing Sec. 1026.60(b)
or its related commentary. One consumer group commenter indicated that
with respect to credit card accounts that will be accessed by a prepaid
card that is a charge card, the Bureau should require disclosure of the
following items in the table required to be provided on or with
applications or solicitations: (1) Any minimum or fixed finance charge
that could be imposed during a billing cycle; (2) any fees for required
insurance, debt cancellation, or debt suspension coverage; and (3) if
the fees imposed at account opening are 15 percent or more of the
minimum credit limit for the card, disclosures about the available
credit that will remain after those fees are imposed. This commenter
believed that unlike traditional charge cards, prepaid cards that are
charge cards have a significant possibility of imposing fixed finance
charges; offering credit insurance, debt cancellation, or debt
suspension; or having fees in excess of the 15 percent threshold for
the credit availability disclosure.
As discussed in more detail below, the Bureau is revising existing
Sec. 1026.60(b) to provide that with respect to a covered separate
credit feature that is a charge card account accessible by a hybrid
prepaid-credit card as defined in new Sec. 1026.61, a charge card
issuer must provide the above three disclosures.
In addition, as discussed in more detail below, new comment 60(b)-3
provides guidance on the application of the disclosure requirements in
existing Sec. 1026.60(b) to fees or charges imposed on a covered
separate credit feature or an asset feature that are both accessible by
a hybrid prepaid-credit card. The final rule also adds new comment
60(b)-4 to provide that the disclosures in final Sec. 1026.60(b) do
not apply to fees or charges imposed on the asset feature of the
prepaid account with respect to covered separate credit features
accessible by hybrid prepaid-credit cards when the fees or charges are
not ``charges imposed as part of the plan'' under new Sec.
1026.6(b)(3)(iii)(D) with respect to the covered separate credit
feature. New comment 60(b)-4 also provides that the disclosures in
final Sec. 1026.60(b) do not apply to fees or charges imposed on the
asset feature of a prepaid account with respect to a non-covered
separate credit feature. The Bureau believes this additional guidance
in new comments 60(b)-3 and -4 is needed given the changes in the final
rule to the definition of ``finance charge'' in final Sec. 1026.4, the
definition of ``charges imposed as part of the plan''
[[Page 84235]]
in final Sec. 1026.6(b)(3), and the addition of new Sec. 1026.61.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit
Cards That Are Charge Cards
As discussed above, one consumer group commenter indicated that
with respect to a credit card account that will be accessed by a
prepaid card that is a charge card, the Bureau should require
disclosure of the following items in the table required to be provided
on or with applications or solicitations: (1) Any minimum or fixed
finance charge that could be imposed during a billing cycle; (2) any
fees for required insurance, debt cancellation, or debt suspension
coverage; and (3) if the fees imposed at account opening are 15 percent
or more of the minimum credit limit for the card, disclosures about the
available credit that will remain after those fees are imposed. This
commenter believed that unlike traditional charge cards, prepaid cards
that are charge cards have a significant possibility of imposing fixed
finance charges; offering credit insurance, debt cancellation, or debt
suspension; or having fees in excess of the 15 percent threshold for
the credit availability disclosure.
In response to the comment, the Bureau is revising existing Sec.
1026.60(b) to provide that with respect to a covered separate credit
feature that is a charge card account accessible by a hybrid prepaid-
credit card as defined in new Sec. 1026.61, a charge card issuer also
must provide the above three disclosures. As discussed in more detail
in the section-by-section analysis of Sec. 1026.61(a)(2) below, a
covered separate credit feature accessible by a hybrid prepaid-credit
card includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in Sec. 1026.61(a)(4)). The prepaid
card is a hybrid prepaid-credit card under Sec. 1026.61 and a credit
card under Sec. 1026.2(a)(15)(i) with respect to the covered separate
credit feature.
TILA section 127(c)(5) states that the Bureau may, by regulation,
require the disclosure of information in addition to that otherwise
required by 127(c), and modify any disclosure of information required
by 127(c), in any application or solicitation to open a charge card
account for any person, if the Bureau determines that such action is
necessary to carry out the purposes of, or prevent evasions of, any
paragraph of this subsection. The Bureau believes that use of its
authority under TILA section 105(a) and 127(c)(5) to amend Sec.
1026.60(b) to require such charge card issuers to provide these three
disclosures is necessary and proper to effectuate the purposes of TILA
to help ensure the informed use of covered separate credit features
accessible by hybrid prepaid-credit cards that are charge cards.
Specifically, TILA section 102 provides that one of the main purposes
of TILA is to promote the informed use of credit by ensuring meaningful
disclosure of credit terms so that consumers will be able to compare
more readily the various credit terms available and avoid the
uninformed use of credit.\692\ In addition, the Bureau believes that
requiring these three disclosures for covered separate credit features
accessible by hybrid prepaid-credit cards that are charge cards will,
consistent with Dodd-Frank Act section 1032(a), ensure that the terms
of these charge card 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 charge card account.
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\692\ 15 U.S.C. 1601.
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The Bureau believes that these disclosures may be more helpful for
covered separate credit features accessible by hybrid prepaid-credit
cards that are charge cards than they would be for traditional charge
card accounts. Traditional charge card accounts typically require
charge cardholders to repay the charge card balance in full each month.
Thus, the required credit insurance, debt cancellation, or debt
suspension disclosures typically would not apply to these accounts
because the cardholders are not allowed to revolve charge card
balances. In addition, traditional charge card accounts are generally
targeted to more creditworthy individuals. Thus, these charge cards
typically have a higher credit limit and typically do not charge fees
for credit availability that exceed 15 percent of the initial credit
line. Traditional charge card issuers also typically do not impose
fixed finance charges.
Nonetheless, the Bureau believes that covered separate credit
features accessible by hybrid prepaid-credit cards that are charge
cards may more likely be targeted to consumers with lower credit scores
than credit card users overall and the card issuer may not require that
charge card balances be repaid in full each month. Thus, in these
cases, charge card issuers may be more likely to charge fixed finance
charges; require credit insurance, debt cancellation, or debt
suspension products; or charge fees for credit availability that might
exceed the 15 percent threshold. Thus, the Bureau believes that it is
appropriate to apply these disclosures when a covered separate credit
feature accessible by a hybrid prepaid-credit card that is a charge
card is opened.
Fee Imposed on the Asset Feature of the Prepaid Account
Covered separate credit features accessible by hybrid prepaid-
credit cards. As discussed in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner that can be accessed by a prepaid
card (except as provided in new Sec. 1026.61(a)(4)). The prepaid card
is a hybrid prepaid-credit card under new Sec. 1026.61 and a credit
card under final Sec. 1026.2(a)(15)(i) with respect to the covered
separate credit feature.
New Sec. 1026.61(b) generally requires that such credit features
be structured as separate subaccounts or accounts, distinct from the
prepaid asset account, to facilitate transparency and compliance with
various Regulation Z requirements. Nonetheless, the final rule
characterizes certain fees or charges that are imposed on the asset
feature of the prepaid account as finance charges in connection with a
covered separate credit feature where both the asset feature and the
credit feature are accessible by a hybrid prepaid-credit card. As
discussed in more detail in the section-by-section analysis of Sec.
1026.4(b)(11)(ii) above, new Sec. 1026.4(b)(11)(ii) provides that with
regard to a covered separate credit feature and an asset feature on a
prepaid account that are both accessible by a hybrid prepaid-credit
card as defined in new Sec. 1026.61, fees or charges imposed on the
asset feature of the prepaid account generally are finance charges only
to the extent that the amount of the fee or charge exceeds comparable
fees or charges imposed on prepaid accounts in the same prepaid account
program that do not have a covered separate credit feature accessible
by a hybrid prepaid-credit card. As discussed in more detail in the
section-by-section analysis of Sec. 1026.6 above, the final rule also
clarifies that with regard to a covered separate credit feature and an
asset feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card as defined in new Sec. 1026.61, fees or charges
imposed on the asset feature that are not finance charges also are not
``charges imposed as part of the plan'' with respect to the covered
separate credit feature.
[[Page 84236]]
Given this guidance in the final rule related to fees or charges
imposed on the asset feature of the prepaid account in connection with
a covered separate credit feature accessible by a hybrid prepaid-credit
card, new comment 60(b)-3 provides that with regard to a covered
separate credit feature and an asset feature on a prepaid account that
are both accessible by a hybrid prepaid-credit card as defined in Sec.
1026.61, a card issuer is required to disclose under final Sec.
1026.60(b) any fees or charges imposed on the asset feature of the
prepaid account that are charges imposed as part of the plan under
final Sec. 1026.6(b)(3) to the extent those fees or charges fall
within the categories of fees or charges required to be disclosed under
final Sec. 1026.60(b). For example, assume that a card issuer imposes
a $1.25 per transaction fee on the asset feature of a prepaid account
for purchases when a hybrid prepaid-credit card accesses a separate
credit feature in the course of authorizing, settling, or otherwise
completing purchase transactions conducted with the card, and the card
issuer charges $0.50 per transaction for purchases to access funds in
prepaid accounts in the same program without such a credit feature. In
this case, the $0.75 excess is a charge imposed as part of the plan
under final Sec. 1026.6(b)(3) and must be disclosed under final Sec.
1026.60(b)(4).
To facilitate compliance with the disclosure requirements in Sec.
1026.60, new comment 60(b)-4 provides that a card issuer is not
required under final Sec. 1026.60(b) to disclose any fee or charge
imposed on the asset feature of the prepaid account that is not a
charge imposed as part of the plan under new Sec. 1026.6(b)(3)(iii)(D)
with respect to the covered separate credit feature. As discussed in
more detail in the section-by-section analysis of Sec. 1026.6 above,
under new Sec. 1026.6(b)(3)(iii)(D) and new comment 6(b)(3)(iii)(D)-1,
a fee or charge imposed on the asset feature of the prepaid account is
not a ``charge imposed as part of the plan'' to the extent that the
amount of the fee or charge does not exceed comparable fees or charges
imposed on prepaid accounts in the same prepaid account program that do
not have a credit feature accessible by a hybrid prepaid-credit card.
As described in the section-by-section analysis of Sec.
1026.4(b)(11)(ii) above, these fees or charges imposed on the asset
feature of the prepaid account are not finance charges under new Sec.
1026.4(b)(11)(ii). The Bureau believes that the guidance in new comment
60(b)-3 aids compliance with final Sec. 1026.60 by providing
additional clarity to card issuers on how the disclosure requirements
in final Sec. 1026.60(b) apply to fees or charges imposed on the asset
feature of the prepaid account accessible by a hybrid prepaid-credit
card. As discussed in more detail in the section-by-section analyses of
Sec. Sec. 1026.4 and 1026.6 above, the Bureau believes that fees or
charges imposed on the asset feature of a prepaid account that are not
finance charges (and thus, not charges imposed as part of the plan
under new Sec. 1026.6(b)(3)(iii)(D)) with respect to the covered
separate credit feature are more appropriately regulated under
Regulation E, rather than regulated under Regulation Z, with respect to
the covered separate credit feature.
Non-covered separate credit features. As discussed in more detail
in the section-by-section analysis of Sec. 1026.61(a)(2) below, new
Sec. 1026.61(a)(2)(ii) provides that a prepaid card is not a hybrid
prepaid-credit card with respect to a ``non-covered separate credit
feature,'' which means that the separate credit feature either (1)
cannot be accessed in the course of a prepaid card transaction to
obtain goods or services, obtain cash, or conduct P2P transfers; or (2)
is offered by an unrelated third party that is not the prepaid account
issuer, its affiliate, or its business partner. A non-covered separate
credit feature is not subject to the rules applicable to hybrid
prepaid-credit cards; however, it typically will be subject to
Regulation Z depending on its own terms and conditions, independent of
the connection to the prepaid account. Thus, a non-covered separate
credit feature may be subject to the disclosure requirements in Sec.
1026.60 in its own right.
With respect to non-covered separate credit features that are
subject to Sec. 1026.60, new comment 60(b)-4 provides that the
disclosure requirements in final Sec. 1026.60 do not apply to any fee
or charge imposed on the asset feature of the prepaid account that is
not a charge imposed as part of the plan under new Sec.
1026.6(b)(3)(iii)(E) with respect to the non-covered separate credit
feature. Under new Sec. 1026.6(b)(3)(iii)(E) and new comment
60(b)(3)(iii)(E)-1, with respect to a non-covered separate credit
feature as defined in new Sec. 1026.61, none of the fees or charges
imposed on the asset feature of the prepaid account are ``charges
imposed as part of the plan'' under final Sec. 1026.6(b)(3) with
respect to the non-covered separate credit feature. New comment
6(b)(3)(iii)(E)-1 also cross-references comment 4(b)(11)-1.ii.B which
provides that none of the fees or charges imposed on the asset feature
of the prepaid account are finance charges under final Sec. 1026.4
with respect to the non-covered separate credit feature. Thus, a card
issuer of a non-covered separate credit feature would not be required
to disclose any fees or charges imposed on the asset feature of the
prepaid account under final Sec. 1026.60(b) with respect to the non-
covered separate credit feature. As discussed in more detail in the
section-by-section analyses of Sec. Sec. 1026.4 and 1026.6 above, the
Bureau believes that fees or charges imposed on the asset feature of a
prepaid account are more appropriately regulated under Regulation E,
rather than regulated under Regulation Z, with respect to the non-
covered separate credit feature.
60(b)(4) Transaction Charges
Existing Sec. 1026.60(b)(4), which implements TILA section
127(c)(1)(A)(ii)(III), generally requires that card issuers disclose on
or with solicitations or applications to open credit or charge card
accounts any transaction charge imposed on purchases.\693\ The proposal
would have added proposed comment 60(b)(4)-3 to provide guidance on
when fees would be considered transaction fees for purchases under
existing Sec. 1026.60(b)(4) for prepaid cards that are credit cards.
Specifically, proposed comment 60(b)(4)-3 would have provided that if a
card issuer assesses a fee (other than a periodic rate that may be used
to compute the finance charge on an outstanding balance) for credit
accessed by a credit card that is a prepaid card to make a purchase,
that fee is a transaction charge as described in existing Sec.
1026.60(b)(4). Proposed comment 60(b)(4)-3 also would have provided
that such fees must be disclosed as transaction charges under existing
Sec. 1026.6(b)(4) whether the fee is a flat per transaction fee to
make a purchase, a flat fee for each day (or other period) the consumer
has an outstanding balance of purchase transactions, or a one-time fee
for transferring funds from the consumer's credit account to the
consumer's prepaid account to cover the shortfall in the prepaid
account as a result of a purchase with the prepaid card.
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\693\ 15 U.S.C. 1637(c)(1)(A)(ii)(III).
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The Bureau did not receive specific comments on this aspect of the
proposal. The Bureau is adopting proposed comment 60(b)(4)-3 with
revisions to be consistent with Sec. Sec. 1026.8 and 1026.61. New
comment 60(b)(4)-3.i provides that with respect to a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined by
[[Page 84237]]
new Sec. 1026.61, if a card issuer assesses a fee (other than a
periodic rate that may be used to compute the finance charge on an
outstanding balance) to make a purchase where this fee is imposed as
part of the plan as described in final Sec. 1026.6(b)(3), that fee is
a transaction charge described in final Sec. 1026.60(b)(4). This is
true whether the fee is a per transaction fee to make a purchase or a
flat fee for each day (or other period) the consumer has an outstanding
balance of purchase transactions. As discussed in more detail in the
section-by-section analysis of Sec. 1026.61(a)(2) below, a covered
separate credit feature accessible by a hybrid prepaid-credit card
includes an overdraft credit feature offered by a prepaid account
issuer, its affiliate, or its business partner that can be accessed by
a prepaid card (except as provided in new Sec. 1026.61(a)(4)). The
prepaid card is a hybrid prepaid-credit card under new Sec. 1026.61
and a credit card under final Sec. 1026.2(a)(15)(i) with respect to
the covered separate credit feature.
With respect to a covered separate credit feature accessible by a
hybrid prepaid-credit card, new comment 60(b)(4)-3.ii provides guidance
on whether a fee must be disclosed as a fee for a purchase transaction
under final Sec. 1026.60(b)(4) or a cash advance transaction under
final Sec. 1026.60(b)(8). New comment 60(b)(4)-3.ii provides that a
fee for a transaction will be treated as a fee to make a purchase under
final Sec. 1026.60(b)(4) in cases where a consumer uses a hybrid
prepaid-credit card as defined in new Sec. 1026.61 to make a purchase
to obtain goods or services from a merchant, and credit is drawn
directly from a covered separate credit feature accessed by the hybrid
prepaid-credit card without transferring funds into the asset feature
of the prepaid account to cover the amount of the purchase. For
example, assume that the consumer has $10 of funds in the asset feature
of the prepaid account and initiates a transaction with a merchant to
obtain goods or services with the hybrid prepaid-credit card for $25.
In this case, $10 is debited from the asset feature and $15 of credit
is drawn directly from the covered separate credit feature accessed by
the hybrid prepaid-credit card without any transfer of funds into the
asset feature of the prepaid account to cover the amount of the
purchase. A per transaction fee imposed for the $15 credit transaction
must be disclosed under final Sec. 1026.60(b)(4).
As discussed in the section-by-section analysis of Sec. 1026.8(a)
above, this guidance in new comment 60(b)(4)-3.ii is consistent with
guidance for disclosing those credit transactions as ``sale credit'' on
Regulation Z periodic statements under final Sec. Sec. 1026.7(b)(2)
and 1026.8(a) with respect to covered separate credit features
accessible by hybrid prepaid-credit cards.
In contrast, new comment 60(b)(4)-3.iii provides that a fee for a
transaction will be treated as a cash advance fee under final Sec.
1026.60(b)(8) in cases where a consumer uses a hybrid prepaid-credit
card as defined in new Sec. 1026.61 to make a purchase to obtain goods
or services from a merchant, and credit is transferred from a covered
separate credit feature accessed by the hybrid prepaid-credit card into
the asset feature of the prepaid account to cover the amount of the
purchase. For example, assume the same facts as above, except that the
$15 will be transferred from the covered separate credit feature to the
asset feature, and a transaction of $25 is debited from the asset
feature of the prepaid account. In this case, a per transaction fee for
the $15 credit transaction must be disclosed under final Sec.
1026.60(b)(8).
As discussed in the section-by-section analysis of Sec. 1026.8(a)
above, this guidance in new comment 60(b)(4)-3.iii is consistent with
guidance for disclosing those credit transactions as ``nonsale credit''
on Regulation Z periodic statements under final Sec. Sec. 1026.7(b)(2)
and 1026.8(b) with respect to covered separate credit features
accessible by hybrid prepaid-credit cards.
60(b)(8) Cash Advance Fee
Existing Sec. 1026.60(b)(8), which implements TILA section
127(c)(1)(B)(i), generally requires that card issuers disclose on or
with solicitations or applications to open credit or charge card
accounts any fee imposed for an extension of credit in the form of cash
or its equivalent.\694\
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\694\ 15 U.S.C. 1637(c)(1)(B)(i).
---------------------------------------------------------------------------
The proposal would have added proposed comment 60(b)(8)-4 to
provide guidance on when fees would be considered cash advance fees
that must be disclosed under existing Sec. 1026.60(b)(8) for credit
card accounts that are accessed by prepaid cards. In addition, proposed
comment 60(b)(8)-4 would provide guidance on how cash advance fees must
be disclosed. Specifically, proposed comment 60(b)(8)-4 would have
provided that if a card issuer assesses a fee (other than a periodic
rate that may be used to compute the finance charge on an outstanding
balance) for a cash advance accessed by a credit card that is a prepaid
card, such as a cash withdrawal at an ATM, that fee is a cash advance
fee. Under proposed comment 60(b)(8)-4, if the cash advance fee is the
same dollar amount as the transaction charge for purchases described in
existing Sec. 1026.60(b)(4), the card issuer could have disclosed the
fee amount under a heading that indicates the fee applies to both
purchase transactions and cash advances. Proposed comment 60(b)(8)-4
would have provided the following three examples of how cash advance
fees must be disclosed.
Under proposed comment 60(b)(8)-4.i, the first example would have
provided that a card issuer assesses a $15 fee for credit accessed by a
credit card that is a prepaid card to purchase goods or services at the
point of sale when the consumer has insufficient or unavailable funds
in the prepaid account. Under this proposed example, the card issuer
assesses a $25 fee for credit accessed by a prepaid card for a cash
advance at an ATM when the consumer has insufficient or unavailable
funds in the prepaid account. In this instance, under the proposal, the
card issuer could have disclosed separately a purchase transaction
charge of $15 and a cash advance fee of $25.
Under proposed comment 60(b)(8)-4.ii, the second example would have
provided that a card issuer assesses a $15 fee for credit accessed by a
credit card that is a prepaid card to purchase goods or services at the
point of sale when the consumer has insufficient or unavailable funds
in the prepaid account. Under this proposed example, the card issuer
also assesses a $15 fee for credit accessed by a credit card that is a
prepaid card for providing cash at an ATM when the consumer has
insufficient or unavailable funds in the prepaid account. In this
instance, under the proposal, the card issuer could have disclosed the
$15 fee under a heading that indicates the fee applies to both purchase
transactions and ATM cash advances. Alternatively, under the proposal,
the card issuer could have disclosed the $15 fee on two separate rows,
with one row indicating that a $15 fee applies to purchase
transactions, and a second row indicating that a $15 fee applies to ATM
cash advances.
Under proposed comment 60(b)(8)-4.iii, the third example would have
provided that a card issuer assesses a $15 fee for credit accessed by a
credit card that is a prepaid card for providing cash at an ATM when
the consumer has insufficient or unavailable funds in the prepaid
account. The card issuer also assesses a fee of $1.50 for out-of-
network ATM cash withdrawals and $1.00 fee for in-network ATM cash
withdrawals. The card issuer must
[[Page 84238]]
disclose the cash advance fee as $16.50 for out-of-network ATM cash
withdrawals, indicating that $1.50 is for the out-of-network ATM
withdrawal fee, such as ``$16.50 (including a $1.50 out-of-network ATM
withdrawal fee).'' The card issuer also could have disclosed the cash
advance fee as $16.00 for in-network ATM cash withdrawals, indicating
that $1.00 is for the in-network ATM withdrawal fee, such as ``$16
(including a $1.00 in-network ATM cash withdrawal fee).''
The Bureau did not receive specific comments on this aspect of the
proposal. The Bureau is adopting proposed comment 60(b)(8)-4 as
proposed with technical revisions to clarify the intent of the comment
and to be consistent with final Sec. 1026.8 and new Sec.
1026.61.\695\ New comment 60(b)(8)-4.i provides that with respect to a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined by new Sec. 1026.61, if a card issuer assesses a fee
(other than a periodic rate that may be used to compute the finance
charge on an outstanding balance) for a cash advance, such as a cash
withdrawal at an ATM, where this fee is imposed as part of the plan as
described in Sec. 1026.6(b)(3), that fee is a cash advance fee. As
discussed in more detail in the section-by-section analysis of Sec.
1026.61(a)(2) below, a covered separate credit feature accessible by a
hybrid prepaid-credit card includes an overdraft credit feature offered
by a prepaid account issuer, its affiliate, or its business partner
that can be accessed by a prepaid card (except as provided in new Sec.
1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit card under
new Sec. 1026.61 and a credit card under final Sec. 1026.2(a)(15)(i)
with respect to the covered separate credit feature.
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\695\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. Proposed comment 60(b)(8)-5 would have provided
guidance on when fees will be considered cash advance fees under
Sec. 1026.60(b)(8) with respect to credit card accounts accessed by
such accounts numbers. For the reasons set forth in the section-by-
section analysis of Sec. 1026.2(a)(15)(i) above, the final rule
does not adopt proposed comment 60(b)(8)-5 related to these account
numbers.
---------------------------------------------------------------------------
For the reasons discussed in the section-by-section analyses of
Sec. Sec. 1026.8 and 1026.60(a)(4), new comment 60(b)(8)-4.i also
provides that a fee for a transaction will be treated as a cash advance
fee under final Sec. 1026.60(b)(8) in cases where a consumer uses a
hybrid prepaid-credit card as defined in new Sec. 1026.61 to make a
purchase to obtain goods or services from a merchant, and credit is
transferred from a covered separate credit feature accessed by the
hybrid prepaid-credit card into the asset feature of the prepaid
account to cover the amount of the purchase. See also new comment
60(b)(4)-3.iii. As discussed in the section-by-section analysis of
Sec. 1026.8(a) above, this guidance in new comment 60(b)(8)-4.i is
consistent with guidance for disclosing those credit transactions as
``nonsale credit'' on Regulation Z periodic statements under final
Sec. Sec. 1026.7(b)(2) and 1026.8(b) with respect to covered separate
credit features accessible by hybrid prepaid-credit cards.
New comment 60(b)(8)-4.ii also provides that if the cash advance
fee is the same dollar amount as the transaction charge for purchases
described in final Sec. 1026.60(b)(4), the card issuer may disclose
the fee amount under a heading that indicates the fee applies to both
purchase transactions and cash advances. Consistent with proposed
comment 60(a)(8)-4, new comment 60(a)(8)-4.ii provides examples of how
fees for purchase transactions described in final Sec. 1026.60(b)(4)
and fees for cash advances described in final Sec. 1026.60(b)(8) that
are charged on the covered separate credit feature must be disclosed.
Section 1026.61 Hybrid Prepaid-Credit Cards
The Bureau is adding new Sec. 1026.61 which defines when a prepaid
card is a credit card under Regulation Z (using the term ``hybrid
prepaid-credit card''). As discussed in the Overview of the Final
Rule's Amendments to Regulation Z section above and in more detail
below, the Bureau generally intends to cover under Regulation Z
overdraft credit features in connection with prepaid accounts where the
credit features are offered by the prepaid account issuer, its
affiliates, or its business partners. Section 1026.61(b) generally
requires that such credit features be structured as separate
subaccounts or accounts, distinct from the prepaid asset account, to
facilitate transparency and compliance with various Regulation Z
requirements. New Sec. 1026.61(a)(2)(i) provides that a prepaid card
is a ``hybrid prepaid-credit card'' with respect to a separate credit
feature if the card meets the following two conditions: (1) The card
can be used from time to time to access credit from the separate credit
feature in the course of authorizing, settling, or otherwise completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers; and (2) the separate credit
feature is offered by the prepaid account issuer, its affiliate, or its
business partner. New Sec. 1026.61(a)(2)(i) defines such a separate
credit feature accessible by a hybrid prepaid-credit card as a
``covered separate credit feature.'' Thus, the hybrid prepaid-credit
card can access both the covered separate credit feature and the asset
feature of the prepaid account, and the hybrid prepaid-credit card is a
credit card under Regulation Z with respect to the covered separate
credit feature.
New Sec. 1026.61(c) (moved from Sec. 1026.12(h) in the proposal)
provides that with respect to a covered separate credit feature that
could be accessible by a hybrid prepaid-credit card at any point, a
card issuer must not do any of the following until 30 days after the
prepaid account has been registered: (1) Open a covered separate credit
feature accessible by the hybrid prepaid-credit card; (2) make a
solicitation or provide an application to open a covered separate
credit feature accessible by the hybrid prepaid-credit card; or (3)
allow an existing credit feature that was opened prior to the consumer
obtaining the prepaid account to become a covered separate credit
feature accessible by the hybrid prepaid-credit card.
As discussed in the section-by-section analysis of Sec. 1026.61
below, the Bureau also has decided to exclude prepaid cards from being
covered as credit cards under Regulation Z when they access certain
specified types of credit. First, new Sec. 1026.61(a)(2)(ii) provides
that a prepaid card is not a hybrid prepaid-credit card with respect to
a separate credit feature that does not meet both of the conditions
above, for example, where the credit feature is offered by an unrelated
third party that is not the prepaid account issuer, its affiliate or
its business partner. Such credit features are defined as ``non-covered
separate credit features,'' as discussed in the section-by-section
analysis of Sec. 1026.61(a)(2) below. Second, under new Sec.
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card
when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. A prepaid
card is not a hybrid prepaid-credit card under new Sec. 1026.61 or a
credit card under final Sec. 1026.2(a)(15)(i) when it accesses credit
from these types of credit features. For more detailed explanations of
when prepaid cards are not credit cards under Regulation Z, see
[[Page 84239]]
the section-by-section analyses of Sec. 1026.61(a)(2) and (4) below.
New comment 61(a)-1 explains that in addition to the rules set
forth in new Sec. 1026.61, hybrid prepaid-credit cards and covered
separate credit features accessible by hybrid prepaid-credit cards are
also subject to other rules in Regulation Z, and some of those rules
and related commentary contain specific guidance related to hybrid
prepaid-credit cards and covered separate credit features accessible by
hybrid prepaid-credit cards. For example, as discussed in the section-
by-section analyses of Sec. Sec. 1026.2(a)(15)(i) and 1026.61(a), a
hybrid prepaid-credit card is a credit card for purposes of this
regulation with respect to a covered separate credit feature. A covered
separate credit feature accessible by a hybrid prepaid-credit card also
will be a credit card account under an open-end (not home-secured)
consumer credit plan, as defined in final Sec. 1026.2(a)(15)(ii), if
the covered separate credit feature is an open-end (not home-secured)
credit plan. Thus, the provisions of Regulation Z that apply to credit
cards and credit card accounts under an open-end (not home-secured)
consumer credit plan generally will apply to hybrid prepaid-credit
cards and covered separate credit features accessible by hybrid
prepaid-credit cards as applicable (see generally subparts B and G).
Some of those rules and related commentary contain specific guidance
with respect to hybrid prepaid-credit cards and covered separate credit
features accessible by hybrid prepaid-credit cards. See the section-by-
section analyses of subparts A, B and G in this final rule.
61(a) Hybrid Prepaid-Credit Card
TILA section 103(l) 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.\696\ Under Regulation Z, the term ``credit card'' is defined in
existing 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.''
---------------------------------------------------------------------------
\696\ 15 U.S.C. 1602(l).
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The Bureau's Proposal
The proposal would have provided 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 proposed Sec. 1026.2(a)(15)(vi) consistent with proposed
Regulation E; and (2) account numbers that are not prepaid cards 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 does 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
proposed Sec. 1026.2(a)(15)(vii).
Prepaid cards. The proposal would have covered a broad range of
credit plans as credit card accounts under Regulation Z when they were
accessed by a prepaid card. First, under the proposal, credit plans,
including overdraft services and overdraft lines of credit, directly
accessed by prepaid cards generally would have been credit card
accounts under Regulation Z. Under the proposal, this would have
applied where credit is ``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. In particular, proposed comment 2(a)(15)-2.i.F
would have provided that the term ``credit card'' generally includes a
prepaid card that is a single device that may be used from time to time
to access a credit plan.
The proposal intended broadly to capture a prepaid card as a credit
card when it directly accessed a credit plan, regardless of whether
that credit plan was structured as a separate credit plan or as
negative balance to the prepaid account. The Bureau recognized that
under the proposal, credit would have included: (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 would have been credit accessed by a prepaid
card that is a credit card under the proposal regardless of whether the
person established a separate credit account to extend the credit or
whether the credit was simply reflected as a negative balance on the
prepaid account.
The proposal would not have applied the credit card rules in
situations in which a prepaid card only assessed credit that is not
subject to any finance charge, as defined in Sec. 1026.4, or fee
described in Sec. 1026.4(c), and was not payable by written agreement
in more than four installments. Specifically, the proposal provided
that the prepaid card in such situations would not have been a credit
card. As discussed in the section-by-section analysis of Sec. 1026.4
above, the proposal also included revisions to the definition of
``finance charge'' in Sec. 1026.4(a) and (b)(2) and their related
commentary to delineate when a fee imposed in relation to credit
accessed by a prepaid card that is a credit card would have been a
finance charge under Sec. 1026.4. In general, the proposal would have
treated any transaction charges imposed on a cardholder by a card
issuer on a prepaid account in connection with credit accessed by a
prepaid card as a finance charge, regardless of how the amount of the
fees compared to fees the issuer charged on non-credit transactions or
accounts that did not involve credit access. The Bureau recognized
that, under the proposal, if a prepaid account issuer would have
imposed a per transaction fee on a prepaid account for any transactions
authorized or settled on the prepaid account, the prepaid account
issuer would have needed to waive that per transaction fee imposed on
the prepaid account when the transaction accessed credit in order to
take advantage of the proposed exception for when a prepaid card would
not be a credit card under the proposal.
Account numbers that are not prepaid cards. As discussed in more
detail in the section-by-section analysis of Sec. 1026.2(a)(15)(i)
above, proposed Sec. 1026.2(a)(15)(vii) would have included within the
definition of credit card ``an account number where extensions of
credit are permitted to be deposited directly only into particular
prepaid accounts specified by the creditor.'' As used in the proposal,
this term would have meant an account number that was not a prepaid
card that may be used from time to time to access a credit plan that
allowed deposits directly into particular prepaid accounts specified by
the creditor but did 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. Proposed comment
2(a)(15)-2.i.G would have provided that these account numbers were
credit cards under the proposal.
This proposal language would have covered credit plans that are not
accessed directly by prepaid cards but instead are structured as
``push'' accounts. Under such a credit plan, a person would provide
credit accessed by an account number where such extensions of credit
may only be deposited directly into particular prepaid accounts
specified by the person and cannot be deposited directly
[[Page 84240]]
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 that 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. In the proposal, the
Bureau expressed concern that these types of credit plans could act as
substitutes for credit plans directly accessed by a prepaid card. The
Bureau did not, however, propose to cover general purpose lines of
credit where a consumer has the freedom to choose where to deposit
directly the credit funds.
Comments Received on Prepaid Cards Accessing Credit From Separate
Credit Features
In response to the proposal, several commenters expressed concern
about the way the proposal would have applied the credit card rules to
credit products that were structured as standalone plans or products,
rather than as negative balances on the prepaid account. An issuing
credit union requested clarification that the proposal would have
applied the credit card rules to situations in which a prepaid card
could be used to initiate the load or transfer of credit to a prepaid
account, but this load or transfer could not occur in course of
processing transactions conducted with the card when there were
insufficient funds in the prepaid account to cover the amount of the
transaction. This commenter noted that consumers can consciously load
value to their prepaid account using their debit card or credit card,
where this load is not occurring as part of an overdraft feature in
connection with the prepaid account. When using the debit card, the
consumer may consciously load funds from an overdraft or line of credit
product that is linked to a traditional checking account. When using a
credit card, the consumer is loading credit from an available credit
card balance to fund the prepaid account. This commenter urged the
Bureau to clarify that such loads do not make the prepaid card into a
credit card under Regulation Z.
On the other hand, as discussed above, several consumer group
commenters suggested that the credit card rules should apply to a
credit account even if the credit account did not function as an
overdraft credit feature with respect to a prepaid account, so long as
credit from the credit account was deposited into the prepaid account.
These commenters urged the Bureau to apply the credit card rules to all
credit transferred to a prepaid account, even if there is another way
to access the credit.
Another consumer group commenter suggested that the Bureau should
apply the credit card rules to all open-end lines of credit where
credit is deposited or transferred to prepaid accounts if either (1)
the creditor is the same institution as or has a business relationship
with the prepaid issuer; or (2) the creditor reasonably anticipates
that a prepaid card will be used as an access device for the line of
credit. Nonetheless, this commenter said that the final rule should not
impact a completely unrelated credit account that has no connection to
prepaid issuers or consumers identified as prepaid card users, even
though the creditor allows credit to be transferred from the credit
account through the ACH system.
Two industry trade associations said the Bureau should not consider
a prepaid card to be a credit card with respect to a separate credit
feature when the credit feature is offered by an unrelated third party
rather than the prepaid account issuer or an associated company. These
commenters indicated that such unrelated third-party creditors are not
in a position to know that they have additional obligations under
Regulation Z at the point in time that a prepaid account issuer or a
consumer chooses to use a credit feature offered by the unrelated
third-party creditor as a form of overdraft credit feature in relation
to a prepaid account. Several other commenters, including an industry
trade association, a program manager, and several issuing banks,
requested clarification that a prepaid card would not be a credit card
under the proposal where it accesses credit deposited into the prepaid
account from a separate credit feature offered by an unrelated third-
party creditor. These commenters argued that prepaid account issuer may
not know that the deposited funds are credit.
On the other hand, several consumer groups supported the proposed
rule's approach in considering a third party that offers an open-end
credit feature accessed by a prepaid card to be an agent of the prepaid
account issuer and thus a credit card issuer with responsibilities
under Regulation Z. They believed the proposed rule would deter evasion
by third-party creditors that allow their credit features to be used as
an overdraft credit feature accessed by prepaid cards.
Comments Received on Prepaid Cards Accessing Credit Through a Negative
Balance on the Asset Feature of a Prepaid Account
The Bureau also received comments on the proposal regarding when a
prepaid card is a credit card when it accesses credit extended through
a negative balance on the asset feature of the prepaid account. As
discussed above, the proposal would have provided that a prepaid card
would not have been a credit card under existing 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.
Many industry commenters argued that the Bureau should not regulate
overdraft credit features in connection with prepaid accounts under
Regulation Z except where there is an agreement to extend credit,
consistent with how overdraft credit is treated currently with respect
to checking accounts. These commenters said that the Bureau should
instead subject overdraft credit programs where there is not an
agreement to the opt-in regime in Regulation E Sec. 1005.17, which
currently applies to overdraft services provided for ATM and one-time
debit card transactions. Several commenters, including industry trade
associations, a credit union service organization, a credit reporting
agency, and a program manager, also asserted that overdraft credit does
not meet the definition of ``credit'' under TILA because with respect
to overdraft credit, there is no right to defer payment and/or no right
to incur debt. These comments are discussed in more detail in the
Overview of the Final Rule's Amendments to Regulation Z section and in
the section-by-section analysis of Sec. 1026.2(a)(14) above.
In commenting on the specifics of the Regulation Z proposal, many
industry commenters were concerned that because of the breadth of the
fees that would be considered finance charges under the proposal, a
prepaid account issuer either could not charge general transactional
fees on the prepaid account or would have to waive certain fees on any
transaction that happened to have involved credit, as defined under the
proposal, in order to avoid triggering the credit card rules.
For example, one payment network indicated that a prepaid card
should not be a credit card when it accesses credit extended through a
negative balance on the asset balance of the prepaid account if the
only fees charged on the prepaid
[[Page 84241]]
account in connection with the extension of credit are the very same
fees that would apply to the same transaction on the prepaid card
without an extension of credit. Similarly, two industry trade
associations urged that a prepaid card should be a credit card when it
accesses credit extended through a negative balance on the asset
balance of the prepaid account only if the prepaid account issuer
charges fees directly correlated with the overdraft in question. These
commenters argued that a prepaid card should not be a credit card when
it accesses credit extended through a negative balance on the asset
balance of the prepaid account if the prepaid account issuer only
imposes on the prepaid account fees or charges that are wholly
unrelated to an overdraft, such as a fee to make a balance inquiry at
an ATM. These commenters also indicated that a prepaid card should not
be a credit card when the prepaid account issuer only imposes unrelated
fees or charges on the prepaid account, even when these unrelated fees
or charges are imposed when the prepaid account balance is negative.
Another industry trade association indicated that a monthly fee to
hold the prepaid account should not be a ``finance charge'' simply
because it may be imposed when the balance on the prepaid account is
negative or because negative balances can occur on the prepaid account.
A program manager indicated that the Bureau should clarify that a
prepaid card is not a credit card simply because the prepaid account
issuer charges reasonable debt collection costs (including attorney's
fees) related to collecting the overdraft credit from a consumer.
Many industry commenters were particularly concerned that under the
proposal, a prepaid account issuer would need to waive per transaction
fees in certain circumstances to avoid triggering the credit card
rules. The circumstances raised by industry commenters centered on: (1)
Force pay transactions; (2) payment cushions; and (3) transactions that
take the account negative when a load of funds from an asset account is
pending. These comments are discussed below and in further detail in
the section-by-section analysis of Sec. 1026.61(a)(4).
Force pay transactions. ``Force pay'' transactions occur where the
prepaid account issuer is required by card network rules to pay a
transaction even though there are insufficient or unavailable funds in
the asset feature of the prepaid account to cover the transaction at
settlement. This can occur, for example, where a transaction is either
not authorized in advance, or where there were sufficient or available
funds in the asset feature of the prepaid account at the time the
transaction is authorized, but there are insufficient or unavailable
funds in the asset feature at the time the transaction is settled, and
a negative balance results on the asset feature when the transaction is
paid. Because the proposal's definition of finance charge was broad, a
force pay transaction would have triggered application of the credit
card rules unless the prepaid account issuer would have waived
transaction fees. Industry commenters were nearly universally concerned
about this outcome, arguing that the credit card rules should not apply
so long as the same fee amount applies regardless of whether the
transaction is paid entirely from funds in the prepaid account or is
paid in whole or in part by credit. Industry commenters said requiring
prepaid account issuers to waive per transaction fees to avoid
triggering the credit card rules on all force pay transactions would be
complicated and thus would impose substantial compliance costs. These
commenters indicated that similar issues also may arise with other per
transaction fees, such as currency conversion fees when assessed on
force pay transactions.
One payment network predicted that if the proposal were finalized,
rather than create complex waiver rules, a prepaid account issuer might
instead impose much stricter authorization rules in order to prevent
inadvertent overdrafts. This commenter indicated that this could make
it more difficult for prepaid cardholders to use their cards at gas
pumps, restaurants, hotels, or other locations where these overdrafts
from force pay transactions are most likely to occur.
One program manager also indicated that while issuers of other
prepaid products could possibly avoid being subject to the credit rules
by changing their fee structure (e.g., charging a monthly fee to hold
the prepaid account instead of charging a per transaction fee), such an
option is not available in the payroll card context because State wage
and hour laws prohibit periodic fees on payroll card accounts.
With respect to force pay transactions, one consumer group
commenter supported requiring a prepaid account issuer to waive the per
transaction fee imposed on a credit transaction where credit is
extended through a negative balance on the asset feature of the prepaid
account in order to avoid triggering the credit card rules under the
proposal. Nonetheless, this commenter indicated that if the Bureau
decides to make any exceptions with respect to force pay transactions,
these exceptions should be limited to prepaid account issuers who do
everything possible to prevent overdrafts, have overdrafts in only very
rare and unpreventable situations, and do not charge penalty fees
related to declined transactions, overdrafts, or negative balances.
Another consumer group commenter similarly urged that if the Bureau
decides to provide an exception for force pay transactions, the
exception should only be allowed if the prepaid account issuer does not
charge a fee to account holders who have a negative balance, and the
exception should only be provided to those prepaid account issuers that
take reasonable steps to minimize unpreventable overdrafts. In this
case, the commenter said that the Bureau also should allow prepaid
account issuers to recoup no more than 5 percent of funds deposited
each month until all debts caused by unpreventable overdrafts are paid.
Payment cushions. One program manager also raised a concern about
its de minimis purchase cushion, whereby it will authorize transactions
for some consumers that result in a negative account balance so long as
the shortfall is less than $10. For prepaid accounts where a per
transaction fee is imposed on the prepaid account on all transactions
regardless of whether the transaction is paid entirely with funds from
the prepaid account or is paid with credit, a prepaid card would have
been a credit card under the proposal unless the prepaid account issuer
waived its per transaction fees on transactions that trigger the
purchase cushion. This commenter said that it may not continue to offer
its de minimis purchase cushion if it were required to waive these per
transaction fees.
One consumer group commenter supported not triggering the credit
card rules where a prepaid card can only access a de minimis amount of
credit, using $10 as a safe harbor, if such credit is not promoted or
disclosed.
Transactions that take the account negative when a load of funds
from an asset account is pending. One digital wallet provider raised
concerns that a prepaid card could be subjected to the credit card
rules under the proposal where credit could be extended through a
negative balance on the asset feature of the prepaid account for
transactions that occur after a consumer has requested a load
transaction from another asset account to pay for the transaction but
the load transaction has not yet settled. In this case, transactions on
the prepaid account may take the account balance negative until the
load
[[Page 84242]]
transaction from the asset account has settled. This can occur, for
example, when a consumer authorizes a remittance through a mobile
wallet which is linked to a checking account, the consumer requests
that funds be taken from the consumer's checking account to pay for the
remittance, and the remittance is sent before the incoming transfer of
funds from the checking account is complete. In this case, the prepaid
account issuer is extending credit through a negative balance on the
asset feature of the prepaid account until the incoming transfer of
funds from the checking account is complete.
The commenter indicated that in all its multi-currency
transactions, it charges a currency conversion fee for the transaction,
including on transactions where credit is extended as described above.
Nonetheless, this currency conversion fee for a credit transaction as
described above is the same amount as the fee charged for transactions
that are paid entirely with funds from the prepaid account. This
commenter indicated that under the proposal, it would need to waive
this currency conversion fee for transactions where credit is extended
to prevent the prepaid card from becoming a credit card under the
proposal, even though the currency conversion fee it charges for these
transactions is the same amount as the current conversion fee it
charges for transactions entirely paid from funds from the prepaid
account. This commenter said that if a prepaid card would be a credit
card in this scenario and it was required to waive these fees in order
to avoid triggering the credit card rules, it would likely stop
processing transactions that take the prepaid account negative (such as
remittances discussed above) before the incoming transfer of funds from
the checking account is complete.
Comments Received on Prepaid Cards That Access Credit When No Fees for
Credit Are Imposed
One consumer group commenter expressed concern that the proposal to
exclude prepaid cards from the definition of credit card if the prepaid
card only accesses credit that is not subject to a finance charge, as
defined in Sec. 1026.4, or a fee described Sec. 1026.4(c) would lead
to evasions. For example, this commenter was concerned that a prepaid
issuer could offer a ``deluxe'' prepaid card that comes with $100 in
``free'' overdraft protection, but the prepaid account issuer recovers
the costs for the credit through other fees charged on the credit
account that are not finance charges or fees described in Sec.
1026.4(c), such as higher fees for ``voluntary'' credit insurance that
is not a finance charge or fee described in Sec. 1026.4(c). This
commenter urged the Bureau to cover all prepaid cards as credit cards
when the prepaid card accesses credit, regardless of whether a finance
charge or a fee described under Sec. 1026.4(c) is imposed for the
credit. This commenter recognized, however, that exceptions for force
pay transactions and payment cushions as discussed above may be
necessary.
Comments Received on Account Numbers That Are Not Prepaid Cards
As discussed in more detail in the section-by-section analysis of
Sec. 1026.2(a)(15)(i) above, consumer group commenters indicated that
the proposal with respect to push accounts was too limited. Several
consumer group commenters suggested that the credit card rules should
apply to a credit account even if the credit account did not function
as an overdraft credit feature with respect to a prepaid account, so
long as credit from the credit account was deposited into the prepaid
account. These consumer group commenters indicated that the Bureau
should apply the credit card rules to all credit transferred to a
prepaid account, even if there is another way to access the credit.
Another consumer group commenter indicated that the Bureau should
apply the credit card rules to all open-end lines of credit where
credit may be deposited or transferred to prepaid accounts if either
(1) the creditor is the same institution as or has a business
relationship with the prepaid issuer; or (2) the creditor reasonably
anticipates that a prepaid card will be used as an access device for
the line of credit. Nonetheless, this commenter said that the final
rule should not impact a completely unrelated credit account that has
no connection to prepaid issuers or consumers identified as prepaid
card users, even though the creditor allows credit to be transferred
from the credit account through the ACH system.
One issuing bank and one law firm writing on behalf of a coalition
of prepaid issuers did not support subjecting push accounts to credit
card rules. One of these industry commenters indicated that attempting
to cover push accounts as credit card accounts under the proposal
created an overly complex regulatory regime to address the perceived
risk of circumvention or evasion of the rules for overdraft plans set
forth in the proposal.
One industry trade association commenter indicated that for
arrangements where the consumer has the choice of whether to use the
line of credit to cover specified overdrafts or to use the line of
credit funds for other purposes, this commenter believes it would be
inappropriate to treat the line of credit (or its associated account
number) as a credit card. This commenter believed that consumer choice
makes it clear that the line of credit is a general use line of credit
and not a substitute for an overdraft line of credit.
The Final Rule
Based on the comments received as discussed above, the Bureau is
making substantial changes from the proposal to narrow the
circumstances in which a prepaid card is a credit card (i.e., hybrid
prepaid-credit card) under Regulation Z. A summary of these changes are
discussed below. A more detailed description of the changes in the
final rule based on the above comments is contained in the section-by-
section analyses of Sec. 1026.61(a)(1), (2) and (4).
Under the final rule, new Sec. 1026.61(a) sets forth when a
prepaid card is a credit card under the regulation. New Sec.
1026.61(a)(1)(i) provides that credit offered in connection with a
prepaid account is subject to new Sec. 1026.61 and the regulation as
specified in that section. New Sec. 1026.61(a)(1)(ii) provides
generally that a prepaid card is a hybrid prepaid-credit card with
respect to a separate credit feature, as described in new Sec.
1026.61(a)(2)(i), or with respect to a credit feature structured as a
negative balance on the asset feature of the prepaid account as
described in new Sec. 1026.61(a)(3). New Sec. 1026.61(a)(1)(ii) also
provides that a hybrid prepaid-credit card is a credit card for
purposes of Regulation Z with respect to those respective credit
features. New Sec. 1026.61(a)(1)(iii) specifies that a prepaid card is
not a hybrid prepaid-credit card--and thus not a credit card for
purposes of Regulation Z--if the only credit offered in connection with
the prepaid account is incidental credit meeting the conditions set
forth in new Sec. 1026.61(a)(4).
Separate credit features. As discussed in more detail below in the
section-by-section analysis of Sec. 1026.61(a)(2), under new Sec.
1026.61(a)(2)(i), the term ``covered separate credit feature'' means a
separate credit feature that is accessible by a hybrid prepaid-credit
card. Under new Sec. 1026.61(a)(2)(i), a prepaid card is a ``hybrid
prepaid-credit card'' with respect to a separate credit feature (and
thus the separate credit feature is a covered separate credit feature)
if the card meets the following two conditions: (1) The card can be
used
[[Page 84243]]
from time to time to access credit from the credit feature in the
course of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the credit feature is offered by the
prepaid account issuer, its affiliate, or its business partner. The
hybrid prepaid-credit card can access both the covered credit feature
and the asset feature of the prepaid account, and is a credit card
under Regulation Z with respect to the covered separate credit feature.
New Sec. 1026.61(a)(2)(i) also provides that a separate credit
feature that meets the two conditions set forth above is a covered
separate credit feature accessible by a hybrid prepaid-credit card even
with respect to credit that is drawn or transferred, or authorized to
be drawn or transferred, from the credit feature outside the course of
a transaction conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers.
New Sec. 1026.61(a)(2)(i) would capture overdraft credit features
that are separate credit features offered by prepaid account issuers,
their affiliates, or their business partners in connection with a
prepaid account. For example, a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature offered by a
prepaid account issuer, its affiliate, or its business partner in cases
where transactions can be initiated using a prepaid card when there are
insufficient or unavailable funds in the asset feature in the prepaid
account at the time the transaction is initiated, and credit can be
drawn, transferred, or authorized to be drawn or transferred, from the
credit feature at the time the transaction is authorized to complete
the transaction. In addition, a prepaid card is a ``hybrid prepaid-
credit card'' with respect to such a credit feature in cases related to
settlement of transactions where credit can be automatically drawn,
transferred, or authorized to be drawn or transferred, from the credit
feature to settle transactions made with the card where there are
insufficient or unavailable funds in the asset feature of the prepaid
account at the time the transaction is settled.
New Sec. 1026.61(a)(2)(i) also captures situations where
transactions can be initiated using a prepaid card where the card is a
traditional ``dual purpose'' card. In this case, the card can be used
both to access the asset feature of a prepaid account and to draw on
the covered separate credit feature independent of whether there are
sufficient or available funds in the asset feature to complete the
transaction. For example, assume that a consumer has $50 in available
funds in her prepaid account. The consumer initiates a $25 transaction
with the card to purchase goods and services. If the consumer chooses
at the time the transaction is initiated to use the card to access the
asset feature of the prepaid account, the card will draw on the funds
in the asset feature of the prepaid account to complete the
transaction. If the consumer chooses at the time the transaction is
initiated to use the card to access the covered separate credit
feature, the card will draw on credit from the covered separate credit
feature to complete the transaction, regardless of the fact that there
were sufficient or available funds in the prepaid account to complete
the transaction.
As discussed in more detail below in the section-by-section
analysis of Sec. 1026.61(a)(2), new Sec. 1026.61(a)(2)(ii) defines
the term ``non-covered separate credit feature'' to mean a separate
credit feature that does not meet the two conditions set forth in new
Sec. 1026.61(a)(2)(i). A prepaid card is not a hybrid prepaid-credit
card with respect to a non-covered separate credit feature, even if the
prepaid card is a hybrid prepaid-credit card with respect to a covered
separate credit feature as described in new Sec. 1026.61(a)(2)(i). A
non-covered separate credit feature is not subject to the rules in
Regulation Z applicable to hybrid prepaid-credit cards; however, it
typically will be subject to Regulation Z depending on its own terms
and conditions, independent of the connection to the prepaid account.
First, a separate credit feature is a ``non-covered separate credit
feature'' when the separate credit feature is offered by an unrelated
third party that is not the prepaid account issuer, its affiliate, or
its business partner. This is true even if the separate credit feature
functions as an overdraft credit feature with respect to the prepaid
account. For example, if a consumer links her prepaid account to a
credit card issued by a card issuer, where the card issuer is not the
prepaid account issuer, its affiliate, or its business partner, and
credit is drawn automatically into the prepaid account in the course of
authorizing, settling, or otherwise completing transactions conducted
with the prepaid card for which there are insufficient funds in the
prepaid account, the prepaid card is not a hybrid prepaid-credit card
with respect to the separate credit feature offered by the unrelated
third party.
Second, a separate credit feature is a ``non-covered separate
credit feature'' if a prepaid card cannot access the separate credit
feature during the course of authorizing, settling, or otherwise
completing transactions to obtain goods or services, obtain cash, or
conduct P2P transfers. This is true even if the separate credit feature
is offered by the prepaid account issuer, its affiliate, or its
business partner. For example, assume that a consumer can only conduct
a draw or transfer of credit, or authorization of either, from a
separate credit feature to a prepaid account at the prepaid account
issuer's Web site, and these draws, transfers, or authorizations cannot
occur in the course of authorizing, settling, or otherwise completing a
transaction at the Web site to obtain goods or services, obtain cash,
or conduct P2P transfers.
For this type of ``non-covered separate credit feature,'' the
credit feature would not be functioning as an overdraft credit feature
with respect to the prepaid account. In addition, the prepaid card also
is not functioning as a traditional ``dual purpose'' card where the
card can be used both to access the asset feature of a prepaid account
and to draw on a credit feature in the course of authorizing, settling,
or otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct P2P transfers independent of
whether there are sufficient or available funds in the asset feature to
complete the transaction. Instead, the prepaid card can only be used to
draw or transfer credit from a separate credit feature outside the
course of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers.
As described above, under new Sec. 1026.61(a)(1)(i) and final
Sec. 1026.2(a)(15)(i), a prepaid card is a credit card (i.e., a hybrid
prepaid-credit card) for purposes of this regulation with respect to a
covered separate credit feature. The Bureau is using its interpretive
authority under TILA section 105(a) to define such prepaid cards as
credit cards under TILA section 103(l). The Bureau believes that
defining such prepaid cards as credit cards under Sec.
1026.2(a)(15)(i) is consistent with the definition of ``credit card''
in TILA section 103(l). TILA section 103(l) 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.\697\ The Bureau believes that such a prepaid card
meets this TILA definition of
[[Page 84244]]
``credit card'' because it can be used from time to time to obtain
credit from the separate credit feature in the course of completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers.
---------------------------------------------------------------------------
\697\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------
For the reasons set forth in the Overview of the Final Rule's
Amendments to Regulation Z section, the Bureau believes that most
overdraft credit features offered in connection with prepaid accounts
should be treated as credit card accounts under Regulation Z, except in
limited circumstances as discussed below and in the section-by-section
analysis of Sec. 1026.61(a)(4). As discussed further below, however,
the Bureau is concerned about covering prepaid cards as credit cards
when the cards can access separate credit features offered by unrelated
third parties that have no affiliation or business arrangement with the
prepaid account issuer, even if the separate credit feature functions
as an overdraft credit feature in relation to the prepaid account. In
this case, the unrelated third party may not be aware when its credit
feature is used as an overdraft credit feature with respect to a
prepaid account. If unrelated third parties were subject to the
provisions applicable to hybrid prepaid-credit cards, these third
parties would face additional compliance risk in connection with the
prepaid card becoming a new access device for the credit account. The
Bureau is concerned that such third parties might take steps to try to
mitigate these kinds of risks, which would make prepaid accounts less
widely usable by consumers. Thus, as discussed above and in more detail
in the section-by-section analysis of Sec. 1026.61(a)(2) below, the
final rule does not cover a prepaid card as a credit card under
Regulation Z when it accesses separate credit features offered by these
unrelated third parties. In order to facilitate compliance with TILA,
the Bureau believes it is necessary and proper to exercise its
exception authority under TILA section 105(a) to exclude such prepaid
cards from the definition of ``credit card'' under TILA section 103(l)
and final Regulation Z Sec. 1026.2(a)(15)(i). The exception would
facilitate compliance by allowing an unrelated third party to comply
with the rules in Regulation Z that already apply to the separate
credit feature without having to comply with additional Regulation Z
provisions that would apply if the prepaid card were covered as a
credit card with respect to the credit feature. Under this exception,
third parties would not face additional compliance risk in connection
with the prepaid card becoming a new access device for the credit
account, where the prepaid card may be linked to the separate credit
feature without the knowledge of the unrelated third party.
As discussed above and in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, the Bureau also is clarifying
that a prepaid card is not a credit card when the prepaid card accesses
a separate credit feature that is not functioning as an overdraft
credit feature, and the card is not a traditional ``dual purpose'' card
as discussed above. In this case, the prepaid card only can access the
separate credit feature outside the course of authorizing, settling, or
otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct P2P transfers. Pursuant to
its interpretive authority under TILA section 105(a), the Bureau is
defining ``credit card'' in current TILA section 103(l) and final Sec.
1026.2(a)(15)(i) to exclude a prepaid card from being covered as a
credit card with respect to a separate credit feature when it only can
access credit from the separate credit feature outside the course of
completing transactions conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers. The Bureau does not
interpret TILA section 103(l) to encompass an account number for a
prepaid account to be a ``credit card'' under TILA section 103(l) when
the prepaid account number can only be used as a destination for the
transfer of money from a separate credit account, and cannot be used to
obtain credit within the course of a transaction to obtain goods or
service, obtain cash, or conduct P2P transfers. The Bureau believes
that when credit is accessed outside of the course of a transaction on
a prepaid account, it is somewhat less risky for consumers because
consumers would be required to make a deliberate decision to access the
credit outside the course of a transaction, and thus can separately
evaluate the tradeoffs involved. In addition, as discussed further
below, this approach is consistent with regard to how lines of credit
that can be accessed by debit cards are treated under the credit card
rules in Regulation Z. Thus, consistent with this current definition of
``credit card,'' the Bureau is clarifying that a prepaid card is not a
credit card with respect to a separate credit feature when it can only
access the separate credit feature outside the course of authorizing,
settling, or otherwise completing transactions conducted with the card
to obtain goods or services, obtain cash, or conduct P2P transfers. The
Bureau also believes that this clarification is consistent with the
proposal's general focus on covering overdraft credit features offered
in connection with prepaid accounts as credit card accounts under
Regulation Z.
Credit extended through a negative balance on the asset feature of
the prepaid account. As discussed in more detail in the section-by-
section analysis of Sec. 1026.61(a)(3) below, under new Sec.
1026.61(a)(3), a prepaid card that can access credit extended through a
negative balance on the asset balance of the prepaid card is a hybrid
prepaid-credit card unless the card can only access incidental credit
as described in new Sec. 1026.61(a)(4). This provision is intended to
trigger coverage under the credit card rules with respect to such
overdraft credit features. Thus, for purposes of coverage, a person
offering such an overdraft credit feature is a ``card issuer'' under
final Sec. 1026.2(a)(7) that is subject to Regulation Z, including
Sec. 1026.61(b).
In terms of triggering coverage under Regulation Z, under new Sec.
1026.61(a)(1)(i) and (3)(i) and final Sec. 1026.2(a)(15)(i), a prepaid
card is a credit card (i.e., hybrid prepaid-credit card) for purposes
of this regulation when it is a single device that can be used from
time to time to access credit extended through a negative balance on
the asset feature of the prepaid account, unless the card can only
access incidental credit as described in new Sec. 1026.61(a)(4). The
Bureau is using its interpretive authority under TILA section 105(a) to
define such prepaid cards as credit cards under TILA section 103(l).
The Bureau believes that classifying such prepaid cards as credit cards
under Sec. 1026.2(a)(15)(i) is consistent with the definition of
``credit card'' in TILA section 103(l). TILA section 103(l) 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.\698\ The Bureau believes that such a
prepaid card meets this TILA definition of ``credit card'' because it
can be used from time to time to access credit that is extended as a
negative balance on the prepaid account in the course of completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers.
---------------------------------------------------------------------------
\698\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------
However, as discussed further below, new Sec. 1026.61(b) prohibits
a card issuer from structuring an overdraft credit feature as a
negative balance on the
[[Page 84245]]
asset feature of the prepaid account, unless the program is structured
to involve only incidental credit as provided in new Sec.
1026.61(a)(4). The Bureau believes that this rule is necessary to
promote transparency and compliance with the credit card requirements.
Thus, under new Sec. 1026.61(b), a card issuer must structure an
overdraft credit feature in connection with a prepaid account as a
separate credit feature, such as a credit account or credit subaccount
to the prepaid account that is separate from the asset feature of the
prepaid account, except for overdraft credit features described in new
Sec. 1026.61(a)(4). This separate credit feature is a ``covered
separate credit feature'' under new Sec. 1026.61(a)(2)(i).
As described in the section-by-section analysis of Sec.
1026.61(a)(4) below, new Sec. 1026.61(a)(4) provides that an overdraft
credit feature structured as a negative balance on the asset feature of
a prepaid account is not accessible by a hybrid prepaid-credit card
where: (1) The prepaid card cannot access a covered separate credit
feature as defined in new Sec. 1026.61(a)(2)(i); (2) with respect to
the prepaid account accessible by the prepaid card, the prepaid account
issuer generally has a policy and practice of declining to authorize
transactions made with the card when there are insufficient or
unavailable funds in the asset feature of the prepaid account to cover
the amount of the transactions, or the prepaid account issuer only
authorizes those transactions in circumstances related to certain
payment cushions and delayed load cushions; and (3) with respect to the
prepaid account that is accessible by the prepaid card, the prepaid
account issuer does not charge credit-related fees for any credit
extended on the asset feature of the prepaid account, except for fees
or charges for the actual costs of collecting the credit extended if
otherwise permitted by law.
Under this exception, a prepaid account issuer may extend credit
through a negative balance on the asset feature of the prepaid account
in certain situations, such as force pay transactions, without having
to waive general transaction fees, as would have been required under
the proposal to avoid triggering the credit card rules. As discussed
above, force pay transactions occur where the prepaid account issuer is
required by card network rules to pay a transaction even though there
are insufficient or unavailable funds in the asset feature of the
prepaid account to cover the transaction at settlement. This can occur,
for example, where a transaction is either not authorized in advance,
or where there were sufficient or available funds in the asset feature
of the prepaid account at the time the transaction is authorized, but
there are insufficient or unavailable funds in the asset feature at the
time the transaction is settled, and a negative balance results on the
asset feature when the transaction is paid.
The exception in new Sec. 1026.61(a)(4) also would allow a prepaid
account issuer to adopt a payment cushion where the issuer could
authorize transactions that would take the account balance negative by
no more than $10 at the time the transaction is authorized. In
addition, the exception would allow a prepaid account issuer to adopt a
delayed load cushion. Specifically, in cases where the prepaid account
issuer has received an instruction or confirmation for an incoming EFT
originated from a separate asset account to load funds to the prepaid
account or where the prepaid account issuer has received a request from
the consumer to load funds to the prepaid account from a separate asset
account but in either case the funds from the separate asset account
have not yet settled, the final rule allows a prepaid account issuer to
authorize transactions that take the prepaid account negative, so long
as the transactions will not cause the account balance to become
negative at the time of the authorization by more than the incoming or
requested load amount, as applicable.
Thus, the Bureau is intending to exempt overdraft credit features
that are structured as a negative balance on the asset feature of the
prepaid account under Regulation Z where the prepaid account issuer
generally is not authorizing transactions that will take the asset
feature of the prepaid account negative and the prepaid account issuer
generally does not charge credit-related fees on credit extended on the
asset feature of the prepaid account. As discussed in more detail
below, the Bureau believes that this exception will address a
substantial number of the concerns expressed by industry commenters
about situations in which the proposal would have required them to
waive general transaction fees on incidental credit to avoid triggering
the credit card rules. In light of the very limited nature of the
incidental credit at issue, the Bureau believes that it is appropriate
to exclude this incidental credit from coverage under Regulation Z.
Thus, to facilitate compliance with TILA, the Bureau believes it is
necessary and proper to exercise its exception authority under TILA
section 105(a), to exclude such prepaid cards that qualify for the
exception under new Sec. 1026.61(a)(4) from the definition of ``credit
card'' under TILA section 103(l) and final Regulation Z Sec.
1026.2(a)(15)(i).\699\ The exception in new Sec. 1026.61(a)(4) would
facilitate compliance by allowing a prepaid account issuer to comply
only with Regulation E with respect to the prepaid account and this
incidental credit, instead of also complying with Regulation Z with
respect to the incidental credit.
---------------------------------------------------------------------------
\699\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------
Given that a prepaid account issuer can only extend credit through
a negative balance on the asset feature of the prepaid account in
limited circumstances under the exception in new Sec. 1026.61(a)(4),
and credit-related fees generally may not be imposed for the credit
extended, the Bureau anticipates that the credit extended through a
negative balance on the asset feature of a prepaid account that
qualifies for the exception would be limited. The Bureau believes that
certain harms to consumers, such as becoming overextended in using this
credit, would be limited. Thus, to facilitate compliance, the Bureau
believes that this type of credit 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 Sec. 1005.12(a) above, Regulation E's provisions in
final Sec. Sec. 1005.11 and 1005.18(e) regarding error resolution
would apply to extensions of this credit. In addition, such credit
extensions would be disclosed on Regulation E periodic statements under
existing Sec. 1005.9(b) or, if the financial institution follows the
periodic statement alternative in final Sec. 1005.18(c)(1), on the
electronic and written histories of the consumer's prepaid account
transactions.
Also, as discussed in more detail in the section-by-section
analysis of Regulation E Sec. 1005.17 above, although this incidental
credit generally is governed by Regulation E, the Bureau is exempting
this incidental credit from the opt-in rule in final Sec. 1005.17.
Existing Sec. 1005.17 sets forth requirements that financial
institutions must follow in order to provide ``overdraft services'' to
consumers related to consumers' accounts. Under existing 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
[[Page 84246]]
consumer's account for paying such overdrafts. For the reasons
discussed in more detail in the section-by-section analysis of
Regulation E Sec. 1005.17 above, the Bureau is adding new Sec.
1005.17(a)(4) to provide that credit accessed from an overdraft credit
feature that is exempt from Regulation Z under Sec. 1026.61(a)(4) is
not an overdraft service under final Sec. 1005.17(a) and thus would
not be subject to the opt-in requirements in final Sec. 1005.17. This
is true even though the prepaid account issuer may be charging per
transaction fees that are permitted under new Sec.
1026.61(a)(4)(ii)(B) with respect to credit accessed from the overdraft
credit feature. The Bureau does not believe that the opt-in
requirements in final Sec. 1005.17 are appropriate for these types of
overdraft credit features given that these overdraft credit features
may not charge higher per transaction fees for credit extended through
a negative balance on the asset feature of the prepaid account than the
per transaction fees charged when the transaction only accesses funds
in the asset feature of the prepaid account.
Account numbers that are not prepaid cards. As discussed in more
detail in the section-by-section analysis of Sec. 1026.2(a)(15)(i)
above, upon review of the comments and its own analysis, the Bureau has
decided not to adopt the proposal to provide that an account number for
a credit account would be a credit card where extensions of credit are
permitted to be deposited directly only into particular prepaid
accounts specified by the creditor. In proposing these provisions, the
Bureau was concerned that a prepaid account issuer and a creditor could
design arrangements to circumvent the proposed rules in Regulation Z
applicable to prepaid cards that are credit cards. In this case, a
third-party creditor could have an arrangement with the prepaid account
issuer such that credit from the credit account is pushed from the
credit account to the prepaid account during the course of a particular
prepaid account transaction to prevent the transaction from taking the
prepaid account balance negative. These provisions related to account
numbers of the credit account were designed to prevent this type of
evasion of the rules applicable to prepaid cards that are credit cards.
The Bureau is addressing this type of evasion by generally covering
a prepaid card as a credit card (i.e., ``hybrid prepaid-credit card'')
when the card can access a separate credit feature that is functioning
as an overdraft credit feature and is offered by a prepaid account
issuer, its affiliate, or its business partner.\700\ Specifically, new
Sec. 1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid
prepaid-credit card'' with respect to a separate credit feature if the
card meets the following two conditions: (1) The card can be used from
time to time to access credit from the separate credit feature in the
course of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
New Sec. 1026.61(a)(2)(i) defines such a separate credit feature
accessible by a hybrid prepaid-credit card as a ``covered separate
credit feature.'' Thus, the hybrid prepaid-credit card can access both
the covered separate credit feature and the asset feature of the
prepaid account, and the hybrid prepaid-credit card is a credit card
under Regulation Z with respect to the covered separate credit feature.
In this case, as discussed in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, the final rule provides that a
prepaid card is a hybrid prepaid-credit card with respect to the
covered separate credit feature regardless of whether (1) the credit is
pushed from the covered separate credit feature to the asset feature of
the prepaid account in the course of authorizing, settling, or
otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct P2P transfers; or (2) the
credit is pulled from the covered separate credit feature to the asset
feature of the prepaid account in the course of authorizing, settling,
or otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct P2P transfers.
---------------------------------------------------------------------------
\700\ One consumer group commenter urged the Bureau to include
an anti-evasion provision in the final rule. This commenter believed
that the Bureau should be able to rely on an anti-evasion rule to
prohibit conduct that clearly is against the spirt of the rules,
even if the final rule does not specifically prohibit that activity.
The Bureau is not adopting such an anti-evasion rule at this time.
The Bureau in various ways has crafted the final rule to address
potential areas of evasion that could arise with respect to the
application of the rules in Regulation Z to overdraft credit
features offered by prepaid account issuers, their affiliates, or
their business partners in connection with prepaid accounts. See,
e.g., the section-by-section analyses of Sec. Sec. 1026.2(a)(7) and
(a)(15)(i) and 1026.4(b)(11)(ii) above, and 1026.61(a)(4) and
(a)(5)(iii) below.
---------------------------------------------------------------------------
In addition, the final rule also provides that a prepaid card is a
hybrid prepaid-credit card with respect to a covered separate credit
feature regardless of whether the covered separate credit feature can
only be used as an overdraft credit feature accessible by the hybrid
prepaid-credit card, or whether it is a general line of credit that can
be accessed in other ways than through the hybrid prepaid-credit card.
For the reasons set forth in the Overview of the Final Rule's
Amendments to Regulation Z section, the Bureau believes that consumers
will benefit from the application of the credit card rules generally to
a credit account that functions as an overdraft credit feature in
connection with a prepaid account when that overdraft feature is
offered by a prepaid account issuer, its affiliate, or its business
partner, regardless of whether the credit account can only be used as
an overdraft credit feature. In addition, the Bureau is concerned about
potential evasion if the provisions set forth in the final rule
applicable to overdraft credit features described above could be
avoided simply by providing other uses for the credit account.
The Bureau believes that the provisions in the final rule described
above with respect to a covered separate credit feature adequately
capture situations where a separate credit feature offered by a prepaid
account issuer, its affiliate, or its business partner functions as an
overdraft credit feature in relation to a prepaid account. Thus, the
Bureau believes that it is no longer necessary to treat an account
number of the credit account as a credit card to capture situations
when the credit account may function as an overdraft credit feature in
relation to the prepaid account.
As discussed above and in more detail in the section-by-section
analysis of Sec. 1026.61(a)(2) below, the Bureau generally intends to
cover under Regulation Z overdraft credit features in connection with
prepaid accounts where the credit features are offered by the prepaid
account issuer, its affiliates, or its business partners. As discussed
above and in more detail in the section-by-section analyses of Sec.
1026.61(a)(2) and (4) below, the Bureau also has decided to exclude
prepaid cards from being covered as credit cards under Regulation Z
when they access certain specified types of credit. First, under new
Sec. 1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit
card with respect to a ``non-covered separate credit feature,'' which
means that the separate credit feature either (1) cannot be accessed in
the course of a prepaid card transaction to obtain goods or services,
obtain cash, or conduct P2P transfers, or (2) is offered by an
unrelated third party that is not the prepaid account issuer, its
affiliate, or its business partner. Second, under new Sec.
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card
when
[[Page 84247]]
the prepaid card accesses incidental credit in the form of a negative
balance on the asset account where the prepaid account issuer generally
does not charge credit-related fees for the credit. A prepaid card is
not a hybrid prepaid-credit card under new Sec. 1026.61 or a credit
card under final Sec. 1026.2(a)(15)(i) when it accesses credit from
these types of credit features. For more detailed explanations of when
prepaid cards are not credit cards under Regulation Z, see the section-
by-section analyses of Sec. 1026.61(a)(2) and (4) below.
61(a)(1) In General
New Sec. 1026.61(a)(1)(i) provides that credit offered in
connection with a prepaid account is subject to new Sec. 1026.61, as
specified in that section. New Sec. 1026.61(a)(1)(ii) provides
generally that a prepaid card is a hybrid prepaid-credit card with
respect to a separate credit feature as described in new Sec.
1026.61(a)(2)(i), or with respect to a credit feature structured as a
negative balance on the asset feature of the prepaid account, as
described in new Sec. 1026.61(a)(3). New Sec. 1026.61(a)(1)(ii) also
provides that a hybrid prepaid-credit card is a credit card for
purposes of Regulation Z with respect to those respective credit
features. New Sec. 1026.61(a)(1)(iii) specifies that a prepaid card is
not a hybrid prepaid-credit card--and thus not a credit card for
purposes of Regulation Z--if the only credit offered in connection with
the prepaid account is incidental credit meeting the conditions set
forth in new Sec. 1026.61(a)(4).
As described below, the commentary to new Sec. 1026.61(a)(1)
contains general guidance on the circumstances in which a prepaid card
is a hybrid prepaid-credit card under Sec. 1026.61(a).
Credit Accessible by a Hybrid Prepaid-Credit Card
New comment 61(a)(1)-1 makes clear that a prepaid card is a hybrid
prepaid-credit card if the prepaid card can access credit from a
covered separate credit feature described in new Sec.
1026.61(a)(2)(i), or if the prepaid card can access credit through a
negative balance on the asset feature of a prepaid account described in
new Sec. 1026.61(a)(3) (except as provided in new Sec.
1026.61(a)(4)), even if, for example: (1) The person that can extend
the credit does not agree in writing to extend the credit; (2) the
person retains discretion not to extend the credit; or (3) the person
does not extend the credit once the consumer has exceeded a certain
amount of credit. For the reasons discussed in the Overview of the
Final Rule's Amendments to Regulation Z section, the Bureau does not
believe that whether a prepaid card is a credit card under Regulation Z
should turn on whether the person has agreed in writing to extend the
credit or retains the discretion not to extend credit in certain
circumstances.
Prepaid Card That Is Solely an Account Number
Proposed comment 2(a)(15)-2.i.F would have provided 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.
Thus, under the proposal, a prepaid card that is solely an account
number would have been a credit card under Sec. 1026.2(a)(15)(i) if it
met this standard.
For reasons discussed in more detail in the section-by-section
analyses of Sec. 1026.61(a)(2) and (4) below, the Bureau is revising
from the proposal the circumstances in which a prepaid card is a credit
card (i.e., hybrid prepaid-credit card). Nonetheless, consistent with
the proposal, new comment 61(a)(1)-2 provides that a prepaid card that
is solely an account number is a hybrid prepaid-credit card (and thus
is a credit card under Regulation Z) if it meets the conditions for
being a hybrid prepaid-credit card set forth in new Sec. 1026.61(a).
Usable From Time to Time
Current comment 2(a)(15)-1 provides that a credit card under
Regulation Z must be usable from time to time. Because 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. The proposal would have revised this
comment to provide 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
is obtained using the prepaid account number and not the check. The
proposal also would have revised this comment to cross-reference
proposed comment 2(a)(15)-2.i.F for a discussion of when a prepaid
account number is a credit card.
The Bureau did not receive specific comment on this aspect of the
proposal. The final rule moves the proposed guidance in proposed
comment 2(a)(15)-1 related to prepaid accounts to new comment 61(a)(1)-
3 and revises it to be consistent with new Sec. 1026.61. Consistent
with current comment 2(a)(15)-1, new comment 61(a)(1)-3 provides that
in order for a prepaid card to be a hybrid prepaid-credit card under
new Sec. 1026.61(a), the prepaid card must be capable of being used
from time to time to access credit as described in new Sec.
1026.61(a). Because 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 hybrid prepaid-credit
cards. Consistent with the proposal, new comment 61(a)(1)-3 also
provides that with respect to a preauthorized check that is issued on a
prepaid account for which credit is extended through a negative balance
on the asset feature of the prepaid account, or credit is drawn,
transferred or authorized to be drawn or transferred from a separate
credit feature, the credit is obtained using the prepaid account number
and not the check at the time of preauthorization using the prepaid
account number. The comment states that a prepaid account number is a
hybrid prepaid-credit card if the account number meets the conditions
set forth in new Sec. 1026.61(a), as discussed above.
Prepaid Account That Is a Digital Wallet
One digital wallet provider indicated that the Bureau should
clarify that the proposal's restrictions do not apply to a digital
wallet's stored payment credentials. This commenter indicated that
stored credentials do not present the same risks of consumer harm as
overdraft protection for prepaid cards. New comment 61(a)(1)-4 provides
guidance on the circumstances in which prepaid account number for a
digital wallet that is a prepaid account is a hybrid prepaid-credit
card under new Sec. 1026.61(a).
Specifically, new comment 61(a)(1)-4 states that a digital wallet
that is capable of being loaded with funds is a prepaid account under
final Regulation E Sec. 1005.2(b)(3). See final Regulation E Sec.
1005.2(b)(3) and comment 2(b)(3)(i)-6. The comment explains that a
prepaid account number that can access such a digital wallet is a
hybrid prepaid-credit card if it meets the conditions set forth in new
Sec. 1026.61(a).
New comments 61(a)(1)-4.i.A and B provide illustrations of this
rule. First, the comments explain that a prepaid account number that
can access such a digital wallet is a hybrid prepaid-credit card under
new Sec. 1026.61(a)(2)(i) where it can be used from time to time to:
(1) Access a covered separate credit feature
[[Page 84248]]
offered by the prepaid account issuer, its affiliate, or its business
partner in the course of authorizing, settling, or otherwise completing
a transaction conducted with the prepaid account number to obtain goods
or services, obtain cash, or conduct P2P transfers as described in new
Sec. 1026.61(a)(2)(i); or (2) access the stored credentials for a
covered separate credit feature offered by the prepaid account issuer,
its affiliate, or its business partner in the course of authorizing,
settling, or otherwise completing a transaction conducted with the
prepaid account number to obtain goods or services, obtain cash, or
conduct P2P transfers as described in new Sec. 1026.61(a)(2)(i).
Second, new comments 61(a)(1)-4.i.C and D state that a prepaid
account number that can access such a digital wallet is not a hybrid
prepaid-credit card with respect to: (1) Credentials stored in the
prepaid account that access a non-covered separate credit feature as
described in new Sec. 1026.61(a)(2)(ii) that is not offered by the
prepaid account issuer, its affiliate, or its business partner, even if
the prepaid account number can access those credentials in the course
of authorizing, settling, or otherwise completing a transaction
conducted with the prepaid account number to obtain goods or services,
obtain cash, or conduct P2P transfers; or (2) credentials stored in the
prepaid account that access a non-covered separate credit feature as
described in new Sec. 1026.61(a)(2)(ii), where the prepaid account
number cannot access those credential in the course of authorizing,
settling, or otherwise completing a transaction conducted with the
prepaid account number to obtain goods or services, obtain cash, or
conduct P2P transfers, even if such credit feature is offered by the
prepaid account issuer, its affiliate, or its business partner.
Third, comment 61(a)(1)-4.ii states that a digital wallet is not a
prepaid account under final Regulation E Sec. 1005.2(b)(3) if the
digital wallet can never be loaded with funds, such as a digital wallet
that only stores payment credentials for other accounts. See final
Regulation E Sec. 1005.2(b)(3) and comment 2(b)(3)(i)-6. The comment
explains that an account number that can access such a digital wallet
would not be a hybrid prepaid-credit card under new Sec. 1026.61(a),
even if the wallet stores a credential for a separate credit feature
that is offered by the digital wallet provider, its affiliate, or its
business partner and can be used in the course of a transaction
involving the digital wallet.
Prepaid Account That Can Be Used for Bill Payment Services
To help ensure compliance with the final rule, the Bureau also is
including guidance in the final rule on when a prepaid card that can be
used for an online bill payment service offered by the prepaid account
issuer is a hybrid prepaid-credit card under Sec. 1026.61(a). New
comment 61(a)(1)-5 provides that where a prepaid account can be used
for online bill payment services offered by the prepaid account issuer,
the prepaid card (including a prepaid account number) that can access
that prepaid account is a hybrid prepaid-credit card if it meets the
requirements set forth in Sec. 1026.61(a). For example, if a prepaid
account number can be used from time to time to initiate a transaction
using the online bill payment service offered by the prepaid account
issuer to pay a bill, and credit can be drawn, transferred, or
authorized to be drawn or transferred to the prepaid account from a
covered separate credit feature offered by the prepaid account issuer,
its affiliate, or its business partner in the course of authorizing,
settling, or otherwise completing that transaction as described in
Sec. 1026.61(a)(2)(i), the prepaid account number would be a hybrid
prepaid-credit card under Sec. 1026.61(a). In this case, the prepaid
account number can be used to draw or transfer credit, or authorize the
draw or transfer of credit, from a covered separate credit feature
offered by the prepaid account issuer, its affiliate, or its business
partner in the course of completing a transaction to pay for goods or
services through the online bill payment service.
Real-Time Notification or Opt-In for Overdrafts
In the proposal, the Bureau discussed the possibility of requiring
additional real-time notifications of transactions triggering an
overdraft or requiring real-time opt-in by consumers to approve each
overdraft in addition to applying the credit card rules in Regulation Z
to overdraft credit features in connection with prepaid accounts. The
Bureau understood 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 was unsure at the time whether
such a procedure could be implemented given that notifications and/or
opt-in might require multiple communications among financial
institutions, card networks, and merchants. Accordingly, the Bureau did
not propose any requirements related to real-time notification or opt-
in, but it solicited comment on possible options and suggestions for
what it might require in this regard for prepaid accounts.
Several commenters, including industry trade associations and an
issuing bank, indicated that real-time notification and opt-in is not
feasible with current technology. Two of these commenters were
concerned that such notices are not feasible given existing technology
and that such notices could thus never be reliable and therefore would
be more likely to lead to consumer confusion. These commenters stated
that current processing systems will not necessarily have real-time
balances and cannot be depended upon for providing real-time notices
with any reliability. Further, these commenters stated that current
terminals are not capable of displaying the required messaging. Thus,
these commenters stated that it is not clear that the requisite
technology is in place to comply with the potential notification and
opt-in requirements discussed above, and thus there is a likelihood
that such a requirement could lead to consumer confusion. Moreover,
even if the card issuer clearly discloses that real-time notifications
will not always be provided, the fact that they could be provided for
the majority of transactions will lead consumers over time to believe
that the notices are more reliable than in fact they are.
One program manager that offers an overdraft feature in connection
with some of its prepaid accounts indicated that consumers who use the
overdraft feature consent to receive notifications electronically, and
the program manager sends electronic messages notifying consumers when
they have overdrafted. The program manager indicated that most of these
consumers with the overdraft feature also choose to receive alert
messages that provide balance information periodically and after every
transaction. This program manager indicated that a point-of-sale opt-in
may present challenges, but it may be feasible to create a program
where the overdraft feature could be turned on for a time-period during
which the consumer intends to use the feature.
One consumer group said that the Bureau should mandate clear and
deliberate opt-in processes so the consumer knows exactly the moment
when they can begin incurring overdraft charges. Another consumer group
commenter stated that current technology exists that can notify a
person that the account has insufficient funds, via text or email.
After receiving this notification, consumers could
[[Page 84249]]
transfer funds if they wish to avoid credit. This commenter noted that
its research has found that many people overdraft without knowing it
and most would prefer to have transactions declined rather than paying
a fee for overdrawing their accounts.
Based on these comments, the Bureau is not adopting real-time
notification and opt-in requirements at this time. The Bureau will
continue to monitor developments with respect to real-time notification
and opt-in.
61(a)(2) Prepaid Card Can Access Credit From a Covered Separate Credit
Feature
In General
As discussed above, the Bureau received industry comments stating
that a prepaid card should not be a credit card with respect to a
separate credit feature when the credit feature is offered by an
unrelated third party. On the other hand, as discussed above, several
consumer groups supported the proposed rule to consider a third party
that offers an open-end credit feature accessed by a prepaid card to be
an agent of the prepaid account issuer and thus a credit card issuer
with responsibilities under Regulation Z.
In addition, the Bureau received an industry comment that the
Bureau should clarify that a prepaid card should not be a credit card
when the prepaid card could be used to initiate the load or transfer of
credit to the prepaid account, but this load or transfer could not
occur in order to process transactions conducted with the card when
there were insufficient funds in the prepaid account to cover the
amount of the transaction. On the other hand, as discussed above,
several consumer group commenters suggested that the credit card rules
should apply to a credit account even if the credit account did not
function as an overdraft credit feature with respect to a prepaid
account, so long as credit from the credit account was deposited into
the prepaid account. These consumer group commenters indicated that the
Bureau should apply the credit card rules to all credit transferred to
a prepaid account, even if there is another way to access the credit.
Another consumer group commenter indicated that the Bureau should
apply the credit card rules to all open-end lines of credit where
credit may be deposited or transferred to prepaid accounts if either
(1) the creditor is the same institution as or has a business
relationship with the prepaid issuer; or (2) the creditor reasonably
anticipates that a prepaid card will be used as an access device for
the line of credit. Nonetheless, this commenter said that the final
rule should not impact a completely unrelated credit account that has
no connection to prepaid issuers or consumers identified as prepaid
card users, even though the creditor allows credit to be transferred
from the credit account through the ACH system.
As discussed in more detail below, under the final rule, new Sec.
1026.61(a)(2)(i)(A) defines a separate credit feature accessible by a
hybrid prepaid-credit card as described in new Sec. 1026.61(a)(2)(i)
as a covered separate credit feature. Under new Sec.
1026.61(a)(2)(i)(A), a prepaid card is a hybrid prepaid-credit card
with respect to a separate credit feature (and the separate credit
feature is a covered separate credit feature) when it is a single
device that can be used from time to time to access the separate credit
feature where the following two conditions are both satisfied: (1) The
card can draw, transfer, or authorize the draw or transfer of credit
from the separate credit feature in the course of authorizing,
settling, or otherwise completing transactions conducted with the card
to obtain goods or services, obtain cash, or conduct P2P transfers; and
(2) the separate credit feature is offered by the prepaid account
issuer, its affiliate, or its business partner. As discussed in more
detail below, new Sec. 1026.61(a)(2)(i)(B) provides that a separate
credit feature that meets the two conditions set forth above is a
covered separate credit feature accessible by a hybrid prepaid-credit
card even with respect to credit that is drawn or transferred, or
authorized to be drawn or transferred, from the credit feature outside
the course of a transaction conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers.
As discussed in more detail below, consistent with the proposal,
under new Sec. 1026.61(a)(2)(i), a prepaid card is a credit card under
Regulation Z (i.e., hybrid prepaid-credit card) with respect to a
separate credit feature when the credit feature functions as an
overdraft credit feature with respect to the prepaid account, and the
credit feature is offered by the prepaid account issuer, its affiliate,
or its business partner. Consistent with the proposal, new Sec.
1026.61(a)(2)(i) also captures situations where transactions can be
initiated using a prepaid card where the card is a traditional ``dual
purpose'' card. In this case, the card can be used both to access the
asset feature of a prepaid account and to draw on the covered separate
credit feature independent of whether there are sufficient or available
funds in the asset feature to complete the transaction.
Under the final rule, a prepaid card is a hybrid prepaid-credit
card when it can access credit from a covered separate credit feature
as described in new Sec. 1026.61(a)(2)(i), even if finance charges are
not charged in relation to this credit. As discussed above, under the
proposal, a prepaid card would not have been 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. One consumer group commenter expressed
concern that the exclusion of prepaid cards from the definition of
credit card if the prepaid card only accesses credit that is not
subject to a finance charge, as defined in Sec. 1026.4, or a fee
described Sec. 1026.4(c) would lead to evasions. For example, this
commenter was concerned that a prepaid issuer could offer a ``deluxe''
prepaid card that comes with $100 in ``free'' overdraft protection but
recover the costs for the credit through other fees charged on the
credit account that are not finance charges or fees described in Sec.
1026.4(c), such as higher fees for purportedly ``voluntary'' credit
insurance that is not a finance charge or fee described in Sec.
1026.4(c). This commenter urged the Bureau to cover all prepaid cards
as a credit card when the prepaid card accesses credit, regardless of
whether a finance charge or a fee described under Sec. 1026.4(c) is
imposed for the credit. This commenter recognized, however, that
exceptions for force pay transactions and payment cushions may be
necessary.
To address these concerns, the Bureau provides that a prepaid card
is a hybrid prepaid-credit card with respect to a covered separate
credit feature when it meets the two conditions set forth in Sec.
1026.61(a)(2)(i), regardless of whether finance charges are imposed in
connection with the credit from the covered separate credit feature.
The Bureau believes that the final rule is consistent with the intent
of the proposal and the definition of ``credit card'' under Regulation
Z, which applies to ``charge cards'' and other credit products meeting
the regulatory definitions even if they do not involve finance
charges.\701\ In proposing not to
[[Page 84250]]
apply the credit card rules in situations in which a 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, the Bureau
intended to provide this exception only with respect to credit extended
through a negative balance on the asset feature of the prepaid account.
In the proposal, the Bureau stated its belief that this type of credit,
where no credit-related fees are imposed, is more properly regulated
under Regulation E as credit incidental to the prepaid card
transaction. See the section-by-section analysis of Sec. 1026.61(a)(4)
below for a description of the exception that is contained in the final
rule.
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\701\ Specifically, 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). In addition, under Regulation Z, a card issuer (or
its agent) offering credit is a ``creditor'' under Sec.
1026.2(a)(17)(iii) for purposes of the provisions in subpart B of
the regulation, regardless of whether a finance charge is imposed
for the credit.
---------------------------------------------------------------------------
With regard to covered separate credit features, however, the same
logic does not apply. Not all credit extensions accessing separate
credit features via a prepaid card would be subject to Regulation E
protections if Regulation Z did not apply. Rather, Regulation E would
apply to credit extensions that are deposited in a prepaid account by
use of an EFT, but it would not apply to extensions of credit where the
transaction does not involve an EFT to or from the prepaid account. The
final rule also is consistent with the definition of ``credit card''
under Regulation Z, which does not require that finance charges be
charged for the credit in order for a device to meet the definition of
``credit card.''
The Bureau also believes that considering a prepaid card to be a
hybrid prepaid-credit card with respect to a covered separate credit
feature when it meets the two conditions set forth in Sec.
1026.61(a)(2)(i), regardless of whether finance charges are imposed in
connection with the credit from the covered separate credit feature,
also would help prevent card issuers from structuring their fees to
recover the cost of credit through fees that are not finance charges to
avoid triggering the credit card rules. The Bureau believes that this
will help promote transparency and consumers understanding of the costs
of credit.
Thus, the final rule provides that a prepaid card is a hybrid
prepaid-credit card with respect to a covered separate credit feature,
as defined in Sec. 1026.61(a)(2)(i), regardless of whether finance
charges are imposed for the credit from the covered separate credit
feature.
Covered Separate Credit Features
New Sec. 1026.61(a)(2)(i)(A) provides that a prepaid card is a
hybrid prepaid-credit card with respect to a separate credit feature
when it is a single device that can be used from time to time to access
the separate credit feature and the following two conditions are both
satisfied: (1) The card can be used to draw, transfer, or authorize the
draw or transfer of credit from the separate credit feature in the
course of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
Under new Sec. 1026.61(a)(2)(i)(A), a separate credit feature that is
accessible by a hybrid prepaid-credit card is a covered separate credit
feature.
New Sec. 1026.61(a)(2)(i)(B) provides that a separate credit
feature that meets the conditions set forth above is a covered separate
credit feature accessible by a hybrid prepaid-credit card even with
respect to credit that is drawn or transferred, or authorized to be
drawn or transferred, from the credit feature outside the course of a
transaction conducted with the card to obtain goods or services, obtain
cash, or conduct P2P transfers. In developing these rules, the Bureau
was conscious that there were two distinct types of credit extensions
that could occur with respect to a covered separate credit feature. The
first type of credit extension is where the hybrid prepaid-credit card
accesses credit in the course of authorizing, settling, or otherwise
completing a transaction conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers. The second type of
credit extension is where a consumer makes a standalone draw or
transfer of credit from the covered separate credit feature, outside
the course of any transactions conducted with the card to obtain goods
or services, obtain cash, or conduct P2P transfers. For example, a
consumer may use the prepaid card at the prepaid account issuer's Web
site to load funds from the covered separate credit feature outside the
course of a transaction conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers. The Bureau believes
that if the prepaid card is capable of accessing the separate credit
feature in the two conditions set forth in Sec. 1026.61(a)(2)(i), the
covered separate credit feature is a credit card account under
Regulation Z, even with respect to draws or transfers of credit from
the covered separate credit feature that occur outside the course of
any transactions conducted with the card to obtain goods or service,
obtain cash, or conduct P2P transfers. This is consistent with other
provisions in Regulation Z that apply the credit card rules to the
credit card account generally, even with respect to transactions that
are not conducted with the credit card, such as convenience check
transactions. See, e.g., Sec. Sec. 1026.52(a) and (b) and 1026.55 and
related commentary, and Sec. 1026.12(d)(1) and comment 12(d)(1)-3.
Under new Sec. 1026.61(a)(2)(i), a hybrid prepaid-credit card that
can access a covered separate credit feature, as defined in new Sec.
1026.61(a)(2)(i), is a credit card under Regulation Z with respect to
that covered separate credit feature. In this case, the hybrid prepaid-
credit card can access both the covered separate credit feature and the
asset feature of the prepaid account. New comment 61(a)(2)-1.i provides
that for a prepaid card to be a hybrid prepaid-credit card under new
Sec. 1026.61(a)(2)(i) with respect to a separate credit feature, the
prepaid account must be structured such that the draw or transfer of
credit, or authorizations of either, from a separate credit feature
offered by the prepaid account issuer, its affiliate, or its business
partner is capable of occurring in the course of authorizing, settling,
or otherwise completing transactions conducted with the prepaid card to
obtain goods or services, obtain cash, or conduct a P2P transfer. In
this case, the separate credit feature is a covered separate credit
feature accessible by a hybrid prepaid-credit card under new Sec.
1026.61(a)(2)(i).
New comment 61(a)(2)-1.ii makes clear a prepaid card is a hybrid
prepaid-credit card with respect to a covered separate credit feature
regardless of whether (1) the credit is pushed from the covered
separate credit feature to the asset feature of the prepaid account in
the course of authorizing, settling, or otherwise completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers; or (2) the credit is pulled from
the covered separate credit feature to the asset feature of the prepaid
account in the course of authorizing, settling, or otherwise completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers. This provision prevents a
prepaid account issuer from evading the credit card provisions of
Regulation Z by structuring the transactions as a push of credit funds
to the prepaid account (as opposed to a pull of credit funds from the
separate credit feature) during the course of a particular prepaid
[[Page 84251]]
account transaction to prevent the transaction from taking the prepaid
account balance negative.
New comment 61(a)(2)-1.iii makes clear that a prepaid card is a
hybrid prepaid-credit card with respect to a covered separate credit
feature regardless of whether the covered separate credit feature can
only be used as an overdraft credit feature, solely accessible by the
hybrid prepaid-credit card, or whether it is a general line of credit
that can be accessed in other ways.
New comment 61(a)(2)-2 provides guidance on when a draw, transfer,
or authorization of a draw or transfer occurs within the course of
authorizing, settling, or otherwise completing a transaction conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers, as described in new Sec. 1026.61(a)(2)(i). Specifically,
new comment 61(a)(2)-2.i provides that a draw, transfer, or
authorization from a separate credit feature is deemed to be in the
``course of authorizing, settling, or otherwise completing'' a
transaction if it occurs during the authorization phase of the
transaction or in later periods up to the settlement of the
transaction. This comment makes clear that a covered separate credit
feature accessible by a hybrid prepaid-credit card includes an
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner in connection with a prepaid
account.
New comment 61(a)(2)-2.ii focuses on situations in which the credit
is drawn, transferred, or authorized to be drawn or transferred in the
course of authorizing a transaction. New comment 61(a)(2)-2.ii makes
clear that under new Sec. 1026.61(a)(2)(i), a prepaid card is a
``hybrid prepaid-credit card'' with respect to a separate credit
feature offered by a prepaid account issuer, its affiliate, or its
business partner in cases, for example, where (1) transactions can be
initiated using a prepaid card when there are insufficient or
unavailable funds in the asset feature of the prepaid account at the
time the transaction is initiated, and credit is transferred from the
credit feature to the asset feature at the time the transaction is
authorized to complete the transaction; and (2) transactions can be
initiated using a prepaid card when there are insufficient or
unavailable funds in the asset feature of the prepaid account at the
time the transaction is initiated and credit is directly drawn from the
credit feature to complete the transaction, without transferring funds
into the prepaid account.
New comment 61(a)(2)-2.iii provides illustrations of transactions
in which credit is drawn, transferred, or authorized to be drawn or
transferred in the course of settling a transaction. For example, under
new Sec. 1026.61(a)(2)(i), a prepaid card is a ``hybrid prepaid-credit
card'' with respect to such a separate credit feature in cases where
credit can be automatically drawn, transferred, or authorized to be
drawn or transferred from the separate credit feature at the time of
settlement where there are insufficient or unavailable funds in the
asset feature of the prepaid account to cover the original transaction
with the card.
New comment 61(a)(2)-3 clarifies that in addition to overdraft
credit features, new Sec. 1026.61(a)(2)(i) also covers a prepaid card
as a hybrid prepaid-credit card (and thus a credit card under
Regulation Z) where the card is a traditional ``dual purpose'' card. In
this case, a prepaid card can be used from time to time both to access
the asset feature of a prepaid account and to draw on the covered
separate credit feature in the course of a transaction independent of
whether there are sufficient or available funds in the asset feature to
complete the transaction. For example, assume that a consumer has $50
in funds in her prepaid account. The consumer initiates a $25
transaction with the card to purchase goods and services. If the
consumer chooses at the time the transaction is initiated to use the
card to access the prepaid account, the card will draw on the funds in
the asset feature of the prepaid account to complete the transaction.
If the consumer chooses at the time the transaction is initiated to use
the card to access the covered separate credit feature, the card will
draw on credit from the credit feature to complete the transaction,
regardless of the fact that there were sufficient or available funds
the prepaid account to complete the transaction.
New comment 61(a)(2)-4.i clarifies that new Sec. 1026.61 and other
provisions in Regulation Z related to hybrid prepaid-credit cards use
the terms ``covered separate credit feature'' or ``covered separate
credit feature accessible by a hybrid prepaid-credit card'' to refer to
a separate credit feature that meets the conditions of new Sec.
1026.61(a)(2)(i). See, e.g., final Sec. Sec. 1026.4(c)(4),
1026.7(b)(11)(ii)(A), 1026.12(d)(3)(ii), 1026.60(a)(5)(iv), and
1026.60(b). In addition, new comment 61(a)(2)-4.i also states that
several provisions in Regulation Z also describe this arrangement as
one where a covered separate credit feature and an asset feature on a
prepaid account are both accessible by a hybrid prepaid-credit card, as
defined in new Sec. 1026.61. See, e.g., final Sec. Sec.
1026.4(b)(11), 1026.6(b)(3)(iii)(D), and 1026.13(i)(2).
New comment 61(a)(2)-4.ii provides guidance on new Sec.
1026.61(a)(2)(i)(B), which provides that a separate credit feature that
meets the two conditions set forth in new Sec. 1026.61(a)(2)(i)(A) is
a covered separate credit feature accessible by a hybrid prepaid-credit
card even with respect to credit that is drawn or transferred, or
authorized to be drawn or transferred, from the credit feature outside
the course of a transaction conducted with the card to obtain goods or
service, obtain cash, or conduct P2P transfers. New comment 61(a)(2)-
4.ii clarifies that if a prepaid card is capable of drawing or
transferring credit, or authorizing either, from a separate credit
feature offered by the prepaid account issuer, its affiliate, or its
business partner in the course of authorizing, settling, or otherwise
completing transactions conducted with the prepaid card to obtain goods
or services, obtain cash, or conduct a P2P transfer, the credit feature
is a covered separate credit feature accessible by a hybrid prepaid-
credit card, even with respect to credit that is drawn or transferred,
or authorized to be drawn or transferred, from the credit feature
outside the course of a transaction conducted with the card to obtain
goods or services, obtain cash, or conduct P2P transfers. For example,
with respect to a covered separate credit feature, a consumer may use
the prepaid card at the prepaid account issuer's Web site to load funds
from the covered separate credit feature outside the course of a
transaction conducted with the card to obtain goods or services, obtain
cash, or conduct P2P transfers. This credit transaction is considered a
credit transaction on a covered separate credit feature accessible by a
hybrid prepaid-credit card, even though the load or transfer of funds
occurred outside the course of a transaction conducted with the card to
obtain goods or services, obtain cash, or conduct P2P transfers. As
discussed above, the Bureau believes that if the prepaid card is
capable of accessing the separate credit feature in the two conditions
set forth in Sec. 1026.61(a)(2)(i), the covered separate credit
feature is a credit card account under Regulation Z, even with respect
to draws or transfers of credit from the covered separate credit
feature that occur outside the course of any transactions conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers.
Non-Covered Separate Credit Features
As discussed above, in order for a separate credit feature to be a
``covered
[[Page 84252]]
separate credit feature'' accessible by a hybrid prepaid-credit card,
the separate credit feature must meet the following two conditions set
forth in new Sec. 1026.61(a)(2)(i): (1) The card can be used from time
to time to access credit from the separate credit feature in the course
of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
New Sec. 1026.61(a)(2)(ii) defines the term ``non-covered separate
credit feature'' to mean a separate credit feature that does not meet
these two conditions. Under Sec. 1026.61(a)(2)(ii), a prepaid card
that accesses credit from a non-covered separate credit feature is not
a hybrid prepaid-credit card with respect to this non-covered separate
credit feature, even if the prepaid card is a hybrid prepaid-credit
card with respect to a covered separate credit feature as described
above. A non-covered separate credit feature is not subject to the
rules applicable to hybrid prepaid-credit cards; however, it typically
will be subject to Regulation Z depending on its own terms and
conditions, independent of the connection to the prepaid account.
New comment 61(a)(2)-5.i clarifies that a separate credit feature
is a ``non-covered separate credit feature'' when the separate credit
feature is offered by an unrelated third party that is not the prepaid
account issuer, its affiliate, or its business partner. This is true
even if the separate credit feature functions as an overdraft credit
feature with respect to the prepaid account. For example, assume a
consumer links her prepaid account to a credit card issued by a card
issuer that is not the prepaid account issuer, its affiliate, or its
business partner so that credit is drawn automatically into the asset
feature of the prepaid account in the course of authorizing, settling,
or otherwise completing transactions conducted with the prepaid card
for which there are insufficient funds in the asset feature. In this
case, the separate credit feature is a non-covered separate credit
feature under Sec. 1026.61(a)(2)(ii). In this situation, the prepaid
card is not a hybrid prepaid-credit card with respect to the separate
credit feature offered by the unrelated third-party card issuer.
New comment 61(a)(2)-5.ii clarifies that a separate credit feature
is a ``non-covered separate credit feature'' if a prepaid card cannot
access the separate credit feature during the course of authorizing,
settling, or otherwise completing transactions to obtain goods or
services, obtain cash, or conduct P2P transfers. This is true even if
the separate credit feature is offered by the prepaid account issuer,
its affiliate, or its business partner. For example, assume that a
consumer can only conduct a draw or transfer of credit, or
authorization of either, from a separate credit feature to a prepaid
account at the prepaid account issuer's Web site, and these draws,
transfers, or authorizations of either, cannot occur in the course of
authorizing, settling, or otherwise completing transactions at the Web
site to obtain goods or services, obtain cash, or conduct P2P
transfers. In this case, the separate credit feature is a non-covered
separate credit feature under Sec. 1026.61(a)(2)(ii). In this
situation, the prepaid card is not a hybrid prepaid-credit card under
Sec. 1026.61(a)(2) with respect to this non-covered separate credit
feature.
New comment 61(a)(2)-5.iii explains that a person offering a non-
covered separate credit feature does not become a card issuer under
final Sec. 1026.2(a)(7), and thus does not become a creditor under
final Sec. 1026.2(a)(17)(iii) or (iv), because the prepaid card can be
used to access credit from the non-covered separate credit feature. The
person offering the non-covered separate credit feature, however, may
already have obligations under Regulation Z with respect to that
separate credit feature. For example, if the non-covered separate
credit feature is an open-end credit card account offered by an
unrelated third-party creditor that is not an affiliate or business
partner of the prepaid account issuer, the person already will be a
card issuer under final Sec. 1026.2(a)(7) and thus a creditor under
final Sec. 1026.2(a)(17)(iii). Nonetheless, in that case, the person
does not need to comply with the provisions in Regulation Z applicable
to hybrid prepaid-credit cards even though the prepaid card can access
credit from the non-covered separate credit feature. The obligations
under Regulation Z that apply to a non-covered separate credit feature
are not affected by the fact that the prepaid card can access credit
from the non-covered separate credit feature.
Each of the two types of non-covered separate credit features is
discussed in more detail below.
Non-covered separate credit feature where a prepaid card can access
a separate credit feature that is not offered by the prepaid account
issuer, its affiliate, or its business partner. As discussed above, the
Bureau received comments from industry stating that a prepaid card
should not be a credit card with respect to a separate credit feature
when the credit feature is offered by an unrelated third-party. These
commenters were concerned that an unrelated third party may not be
aware when its credit feature is used as an overdraft credit feature
with respect to a prepaid account. If unrelated third parties that
offer separate credit features were subject to the provisions
applicable to hybrid prepaid-credit cards, these third parties would
face additional compliance risk in connection with the prepaid card
becoming a new access device for the credit account. This would have
been true even if the third parties were already subject to the credit
card rules in their own right because the proposal contained a number
of provisions that would have applied only to prepaid cards that are
credit cards and would not have applied to credit card accounts
generally.
In contrast, several consumer groups supported the proposed rule to
consider a third party that offers an open-end credit feature accessed
by a prepaid card to be an agent of the prepaid account issuer and thus
a credit card issuer with responsibilities under Regulation Z.
Based on the comments, the Bureau believes it is appropriate not to
trigger status as a hybrid prepaid-credit card where a credit feature
is not offered by the prepaid account issuer, its affiliate, or its
business partner, even if an individual consumer decides to link the
two accounts such that a draw or transfer of credit, or authorization
of either, occurs during the course of authorizing, settling, or
otherwise completing transactions to obtain goods or services, obtain
cash, or conduct P2P transfers.
With respect to a third party offering a separate credit feature
that is neither an affiliate nor a business partner of the prepaid
account issuer, the Bureau recognizes that this unrelated third party
may not be aware when its credit feature is used as an overdraft credit
feature with respect to a prepaid account. If unrelated third parties
were subject to the provisions applicable to hybrid prepaid-credit
cards, such third parties would face additional compliance risk in
connection with the prepaid card becoming a new access device for the
credit account. This can occur when the prepaid account issuer uses the
ACH network to execute an authorization from a consumer to pull credit
for a consumer from a separate credit account offered by an unrelated
third party. Financial institutions participating in the ACH network
may have difficulty specifically identifying and blocking pulls of
credit by a prepaid account (and, unlike with credit/debit
[[Page 84253]]
cards, the prepaid account issuer likely would have no way of knowing
if the account and routing number a consumer provides for ACH purposes
accesses a deposit account or a credit account). Moreover, because an
ACH debit pull may be used to access credit from accounts that are not
subject to the current credit card rules in their own right, the Bureau
is concerned that unrelated third parties offering separate credit
features would face even more challenges if the pull (or the ability to
initiate pulls) triggered credit card compliance obligations.
The Bureau also is concerned that unrelated third parties that are
already subject to the credit card rules in their own right also may be
unwilling to assume that compliance risk due to the prepaid account
issuer's actions in linking a separate credit feature offered by an
unrelated third party to a prepaid account to be used as an overdraft
credit feature. As a result, the Bureau is concerned that credit card
networks could prevent prepaid account issuers from being merchants in
the network for all purposes because credit card issuers would not want
to be subject to the enhanced obligations in Regulation Z that would
apply if a prepaid card were deemed to be a credit card with respect to
a credit card account offered by an unrelated third party. The Bureau
believes that this rule will reduce the risk that unrelated third
parties offering separate credit features would take the steps
described above, which could harm consumers by making prepaid accounts
less widely usable by consumers.
Thus, the final rule does not consider a prepaid card to be a
credit card under the regulation in relation to a separate credit
feature where an unrelated third party that is not an affiliate or
business partner of the prepaid account issuer offers the credit
feature.
In contrast, the Bureau does believe that it is appropriate to
consider a prepaid card to be a credit card when it can access an
overdraft credit feature that is offered by a third party where the
third party is the prepaid account issuer's affiliate or its business
partner. As discussed further below in the section-by-section analysis
of Sec. 1026.61(a)(5), new Sec. 1026.61(a)(5)(i) defines the term
``affiliate'' for purposes of Sec. 1026.61 and other provisions in
Regulation Z related to hybrid prepaid-credit cards to mean any company
that controls, is controlled by, or is under common control with
another company, as set forth in the Bank Holding Company Act of 1956
(12 U.S.C. 1841 et seq.).
As discussed further below in the section-by-section analysis of
Sec. 1026.61(a)(5), new Sec. 1026.61(a)(5)(iii) defines the term
``business partner'' for purposes of Sec. 1026.61 and other provisions
in Regulation Z related to hybrid prepaid-credit cards generally to
mean a person (other than the prepaid account issuer or its affiliates)
that can extend credit through a separate credit feature where either
(1) the person that can extend credit or its affiliate has an agreement
with the prepaid account issuer or its affiliate that the prepaid card
can access the separate credit feature in the course of a transaction;
or (2) the person that can extend credit or its affiliate has a cross-
marketing agreement or other similar arrangement with the prepaid
account issuer or its affiliate and where, whether or not by agreement,
the prepaid card can access the separate credit feature in the course
of a transaction.
The Bureau believes that it is appropriate to consider such an
unaffiliated third party that can extend credit to be the prepaid
account issuer's business partner in the above circumstances because in
those cases, there is a sufficient connection between the parties such
that the unaffiliated third party should know that its credit feature
is accessible by a prepaid card as a credit feature for the prepaid
account. Also, the Bureau believes that these types of links between
the prepaid account issuer and the unaffiliated third party are likely
to involve revenue sharing or payments between the two companies and
the pricing structure of the two accounts may be related. Thus, the
Bureau believes that it is appropriate to consider these entities to be
business partners in this context.
The Bureau believes that the approach described above of not
covering a prepaid card as a credit card with respect to a separate
credit feature when it is offered by a third party that is not an
affiliate or business partner of the prepaid account issuer addresses
the concerns discussed above about unintended consequences for
consumers and third parties alike, while appropriately guarding against
the risk that third parties offering separate credit features or their
affiliates would cooperate with prepaid account issuers or their
affiliates to attempt to evade the intended scope of the rules
regarding overdraft credit features.
Non-covered separate credit feature where prepaid card can access
separate credit feature only outside the course of a transaction. One
issuing credit union expressed concerned that the proposal would have
triggered the credit card rules in situations in which a prepaid card
could be used only to complete standalone loads or transfers of credit
from a separate credit feature to the prepaid account, but not to
access credit in the course of a transaction conducted with the prepaid
card. This commenter noted that consumers can consciously load value to
their prepaid account using their debit card or credit card, where the
load is not part of an overdraft feature offered in connection with the
prepaid account. When using the debit card, the consumer may
consciously load funds from an overdraft or line of credit product that
is linked to a traditional checking account. When using a credit card,
the consumer is loading from an available credit card balance to fund
the prepaid account. This commenter urged the Bureau to clarify that
such loads do not make the prepaid card into a credit card under
Regulation Z.
Several consumer group commenters suggested that the credit card
rules should apply to a credit account even if the credit account did
not function as an overdraft credit feature with respect to a prepaid
account, so long as credit from the credit account was deposited into
the prepaid account. These consumer group commenters indicated that the
Bureau should apply the credit card rules to all credit transferred to
a prepaid account, even if there is another way to access the credit.
Another consumer group commenter indicated that the Bureau should
apply the credit card rules to all open-end lines of credit where
credit may be deposited or transferred to prepaid accounts if either
(1) the creditor is the same institution as or has a business
relationship with the prepaid issuer; or (2) the creditor reasonably
anticipates that a prepaid card will be used as an access device for
the line of credit. Nonetheless, this commenter said that the final
rule should not impact a completely unrelated credit account that has
no connection to prepaid issuers or consumers identified as prepaid
card users, even though the creditor allows credit to be transferred
from the credit account through the ACH system.
In the final rule, the Bureau is clarifying the circumstances in
which a prepaid card is a credit card from the proposal to address
circumstances in which credit can only be loaded or transferred from a
separate credit feature to the prepaid account outside the course of
completing a transaction conducted with the prepaid card. Under new
Sec. 1026.61(a)(2)(ii), even if a separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner,
a prepaid card is not a hybrid prepaid-credit card under
[[Page 84254]]
new Sec. 1026.61(a)(2) with respect to that separate credit feature if
the feature cannot be accessed within the course of authorizing,
settling, or otherwise completing transactions to obtain goods or
services, obtain cash, or conduct P2P transfers. For example, assume
that a consumer can only conduct a draw or transfer of credit, or
authorization of either, from a separate credit feature to a prepaid
account at the prepaid account issuer's Web site, and these draws,
transfers, or authorizations of either, cannot occur in the course of
authorizing, settling, or otherwise completing transactions at the Web
site to obtain goods or services, obtain cash, or conduct P2P
transfers. In this case, the separate credit feature is a non-covered
separate credit feature under new Sec. 1026.61(a)(2)(ii), and the
prepaid card is not a hybrid prepaid-credit card under new Sec.
1026.61(a)(2) with respect to this non-covered separate credit feature.
With respect to this type of non-covered separate credit feature,
the separate credit feature cannot function as an overdraft credit
feature with respect to the prepaid account. In addition, the prepaid
card also cannot function as a traditional ``dual purpose'' card where
the card can be used both to access the asset feature of a prepaid
account and to draw on the separate credit feature in the course of
authorizing, settling, or otherwise completing transactions conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers independent of whether there are sufficient or available
funds in the asset feature to complete the transaction. Instead, the
prepaid card can only be used to draw or transfer credit from the
separate credit feature on an occasional and intentional basis, outside
the course of authorizing, settling, or otherwise completing
transactions conducted with the card to obtain goods or services,
obtain cash, or conduct P2P transfers. The Bureau believes that this
situation is somewhat less risky for consumers because consumers would
be required to make a deliberate decision to access the credit outside
the course of a transaction, and thus can separately evaluate the
tradeoffs involved. The Bureau also believes that this clarification is
consistent with the proposal's general focus on covering overdraft
credit features offered in connection with prepaid accounts as credit
card accounts under Regulation Z.
In addition, in adopting this approach, the Bureau is drawing on
the same logic and maintaining consistency with the existing credit
card rules' treatment of overdraft lines of credit that can be accessed
by debit cards. Under the existing rules as set forth in existing
comments 2(a)(15)-2.i.B and 2(a)(15)-2.ii.A., debit cards are generally
treated as credit cards under existing Sec. 1026.2(a)(15)(i) when they
access overdraft lines of credit (where there is an agreement to extend
credit). In addition, the term ``credit card'' also includes a deposit
account number even when there is no physical debit card device when
the account number can be used to access an open-end line of credit to
purchase goods or services. Nonetheless, under the current definition
of credit card as set forth in existing comment 2(a)(15)(i)-2.ii.C, a
deposit account number is not a credit card if the account number can
only be used as a destination for the transfer of money from a separate
credit account.
Prepaid Card Can Access Multiple Separate Credit Features
The Bureau recognizes that a prepaid card may access multiple
separate credit features in a variety of circumstances. New Sec.
1026.61(a)(2)(ii) and new comment 61(a)(2)-6 clarify coverage under new
Sec. 1026.61(a)(2) when a prepaid card can access multiple separate
credit features. New Sec. 1026.61(a)(2)(ii) and new comment 61(a)(2)-6
provide that even if a prepaid card is a hybrid prepaid-credit card
with respect to a covered separate credit feature, it is not a hybrid
prepaid-credit card with respect to any non-covered separate credit
features. New comment 61(a)(2)-6 provides the following example to
illustrate: Assume that a prepaid card can access ``Separate Credit
Feature A'' where the card can be used from time to time to access
credit from a separate credit feature that is offered by the prepaid
account issuer, its affiliate, or its business partner in the course of
authorizing, settling, or otherwise completing transactions conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers. In addition, assume that the prepaid card also can access
``Separate Credit Feature B,'' but that credit feature is offered by an
unrelated third-party creditor that is not the prepaid account issuer,
its affiliate, or its business partner. The prepaid card is a hybrid
prepaid-credit card with respect to ``Separate Credit Feature A''
because it is a covered separate credit feature under new Sec.
1026.61(a)(2)(i). The prepaid card, however, is not a hybrid prepaid-
credit card with respect to ``Separate Credit Feature B'' because it is
a non-covered separate credit feature under new Sec.
1026.61(a)(2)(ii).
61(a)(3) Prepaid Card Can Access Credit Extended Through a Negative
Balance On the Asset Feature of the Prepaid Account
Many industry commenters argued that the Bureau should not regulate
overdraft credit features under Regulation Z except where there is an
agreement to extend credit, consistent with how overdraft credit is
treated with respect to checking accounts. These commenters said that
the Bureau should instead subject overdraft credit programs where there
is not an agreement to the opt-in regime in Regulation E Sec. 1005.17,
which currently applies to overdraft services provided for ATM and one-
time debit card transactions. For the reasons discussed in the Overview
of the Final Rule's Amendments to Regulation Z section, the Bureau
continues to believe that it is appropriate generally to cover
overdraft credit features offered by prepaid account issuers that are
structured as a negative balance on the prepaid account as credit card
accounts under Regulation Z, except as provided in new Sec.
1026.61(a)(4).
Accordingly, new Sec. 1026.61(a)(3)(i) provides that a prepaid
card that can access credit extended through a negative balance on the
asset balance of the prepaid card is a hybrid prepaid-credit card
unless the card can only access incidental credit as described in new
Sec. 1026.61(a)(4). Nonetheless, as discussed in more detail below,
new Sec. 1026.61(a)(3) is intended to trigger coverage under the
credit card rules with respect to such overdraft credit features. For
purposes of coverage, a person offering such an overdraft credit
feature is a ``card issuer'' under final Sec. 1026.2(a)(7) that is
subject to Regulation Z, including new Sec. 1026.61(b). However, as
discussed in more detail in the section-by-section analysis of Sec.
1026.61(b) below, new Sec. 1026.61(b) prohibits card issuers from
structuring an overdraft credit feature as a negative balance on the
asset feature of the prepaid account, unless the program is structured
to involve only incidental credit as provided in new Sec.
1026.61(a)(4). The Bureau believes that this rule is necessary to
promote transparency and compliance with the credit card requirements.
Thus, under new Sec. 1026.61(b), a card issuer must structure an
overdraft credit feature in connection with a prepaid account as a
separate credit feature, such as a credit account or credit subaccount
to the prepaid account that is separate from the asset feature of the
prepaid account, except for overdraft credit features described in new
Sec. 1026.61(a)(4). This
[[Page 84255]]
separate credit feature is a ``covered separate credit feature'' under
new Sec. 1026.61(a)(2)(i). Thus, new Sec. 1026.61(a)(3)(ii) provides
that notwithstanding that Sec. 1026.61(c)(3)(i) triggers coverage
under Regulation Z, structuring a hybrid prepaid-credit card to access
credit through a negative balance on the asset feature violates new
Sec. 1026.61(b). A prepaid account issuer can use a negative asset
balance structure to extend credit on an asset feature of a prepaid
account only if the prepaid card is not a hybrid prepaid-credit card as
described in new Sec. 1026.61(a)(4).
In terms of providing guidance on the situations that trigger
coverage under Sec. 1026.61(a)(3)(i), new comment 61(a)(3)(i)-1.i
provides a cross-reference to new comment 2(a)(14)-3 for examples of
when transactions authorized or paid on the asset feature of a prepaid
account meet the definition of credit under final Sec. 1026.2(a)(14).
New comment 61(a)(3)(i)-1.ii provides that except as provided in Sec.
1026.61(a)(4), a prepaid card would trigger coverage as a hybrid
prepaid-credit card if it is a single device that can be used from time
to time to access credit that can be extended through a negative
balance on the asset feature of the prepaid account. This comment
clarifies, however, that unless the only credit offered meets the
requirements of Sec. 1026.61(a)(4), such a product structure would
violate the rules under Sec. 1026.61(b).
New comment 61(a)(3)(i)-1.ii also explains that a credit extension
through a negative balance on the asset feature of a prepaid account
can occur during the authorization phase of the transaction or in later
periods up to the settlement of the transaction. New comment
61(a)(3)(i)-1.iii provides that, for example, credit is extended
through a negative balance on the asset feature of a prepaid account
where a transaction is initiated using a prepaid card when there are
insufficient or unavailable funds in the asset feature of the prepaid
account at the time the transaction is initiated, and credit is
extended on the asset feature of the prepaid account when the
transaction is authorized. New comment 61(a)(3)(i)-1.iv also provides,
for example, that credit is extended through a negative balance on the
asset feature of a prepaid account where a transaction occurs when
there are sufficient or available funds in the asset feature of the
prepaid account at the time of authorization to cover the amount of the
transaction but where the consumer does not have sufficient or
available funds in the asset feature to cover the transaction at the
time of settlement. In this case, credit is extended on the asset
feature at settlement to pay those transactions. Also, credit is
extended through a negative balance on the asset feature of a prepaid
account where a transaction settles even though it was not authorized
in advance, and credit is extended through a negative balance on the
asset feature at settlement to pay that transaction.
As discussed above, new Sec. 1026.61(a)(3) is intended to trigger
coverage under the credit card rules with respect to such overdraft
credit features. New comment 61(a)(3)(ii)-1 explains that new Sec.
1026.61(a)(3)(i) determines whether a prepaid card triggers coverage as
a hybrid prepaid-credit card under new Sec. 1026.61(a), and thus,
whether a prepaid account issuer is a card issuer under final Sec.
1026.2(a)(7) subject to this regulation, including new Sec.
1026.61(b). However, new Sec. 1026.61(b) requires that any credit
feature accessible by a hybrid prepaid-credit card must be structured
as a separate credit feature using either a credit subaccount of the
prepaid account or a separate credit account. In that case, a card
issuer would violate new Sec. 1026.61(b) if it structures the credit
feature as a negative balance on the asset feature of the prepaid
account, unless the only credit offered in connection with the prepaid
account satisfies new Sec. 1026.61(a)(4). A prepaid account issuer can
use a negative asset balance structure to extend credit on a prepaid
account if the prepaid card is not a hybrid prepaid-credit card as
described in new Sec. 1026.61(a)(4).
61(a)(4) Exception
As discussed above, many industry commenters raised concerns
regarding the breadth of fees that would be considered finance charges
under the proposal. Many industry commenters were concerned that even
though they were not intending to offer credit in connection with the
prepaid account, credit could result in certain circumstances, such as
forced pay-transactions as discussed in the section-by-section analysis
of Sec. 1026.61(a) above. Because this credit could be extended, many
commenters were concerned that fees that generally applied to the
prepaid account, but were not specific to the overdraft credit, could
be finance charges under the proposal and thus would subject the
prepaid account issuer to the credit card rules under Regulation Z.
These commenters were concerned that they could not charge certain fees
on the prepaid account, or would have to waive certain fees, for the
prepaid card not to be a credit card under the proposal.
For example, one payment network indicated that a prepaid card
should not be a credit card when it accesses credit extended through a
negative balance on the asset balance of the prepaid account if the
only fees charged on the prepaid account in connection with the
extension of credit are the very same fees that would apply to the same
transaction on the prepaid card without an extension of credit.
Similarly, two industry trade associations urged that a prepaid card
should be a credit card when it accesses credit extended through a
negative balance on the asset balance of the prepaid account only if
the prepaid account issuer charges fees directly correlated with the
overdraft in question. These commenters argued that a prepaid card
should not be a credit card when it accesses credit extended through a
negative balance on the asset balance of the prepaid account if the
prepaid account issuer only imposes on the prepaid account fees or
charges that are wholly unrelated to an overdraft, such as a fee to
make a balance inquiry at an ATM. These commenters also indicated that
a prepaid card should not be a credit card when the prepaid account
issuer only imposes unrelated fees or charges on the prepaid account,
even when these unrelated fees or charges are imposed when the prepaid
account balance is negative.
Another industry trade association indicated that a monthly fee to
hold the prepaid account should not cause a prepaid card to be a credit
card simply because the fee may be imposed when the balance on the
prepaid account is negative or because negative balances can occur on
the prepaid account.
A program manager indicated that the Bureau should clarify that a
prepaid card is not a credit card simply because the prepaid account
issuer charges reasonable debt collection costs (including attorney's
fees) related to collecting the overdraft credit from a consumer.
As discussed above, many industry commenters were particularly
concerned that under the proposal, a prepaid account issuer would need
to waive per transaction fees in certain circumstances to avoid
triggering the credit card rules. The circumstances raised by industry
commenters centered on (1) force pay transactions; (2) payment
cushions; and (3) transactions that take the account negative when a
load of funds from an asset account is pending, as discussed in more
detail below and in the section-by-section analysis of Sec.
1026.61(a).
[[Page 84256]]
One consumer group commenter urged the Bureau to cover all prepaid
cards as credit cards when the prepaid card accesses credit, regardless
of whether a finance charge, as defined in Sec. 1026.4, or a fee
described under Sec. 1026.4(c) is imposed for the credit. This
commenter recognized, however, that exceptions for force pay
transactions and payment cushions may be necessary. With respect to
payment cushions, this commenter supported not triggering the credit
card rules where a prepaid card can only access a de minimis amount of
credit, using $10 as a safe harbor, if such credit is not promoted or
disclosed. With respect to force pay transactions, this commenter
supported requiring a prepaid account issuer to waive the per
transaction fee that is imposed on a credit transaction where credit is
extended through a negative balance on the asset feature of the prepaid
account in order to avoid triggering the credit card rules under the
proposal. Nonetheless, this commenter indicated that if the Bureau
decides to make any exceptions with respect to force pay transactions,
these exceptions should be limited to prepaid account issuers who do
everything possible to prevent overdrafts, have overdrafts in only very
rare and unpreventable situations, and do not charge penalty fees
related to declined transactions, overdrafts, or negative balances.
As discussed above, new Sec. 1026.61(a)(4) creates an exception to
the general rule that credit structured as a negative balance feature
on an prepaid asset account is subject to the credit card rules, in
order to provide flexibility for the kinds of incidental credit that
commenters raised concerns about. Specifically as described in new
Sec. 1026.61(a)(4), an overdraft credit feature where credit is
extended through a negative balance on the asset feature of the prepaid
account is not accessible by a hybrid prepaid-credit card where: (1)
The prepaid card cannot access a covered separate credit feature as
defined in new Sec. 1026.61(a)(2)(i); (2) with respect to the prepaid
account accessible by the prepaid card, the prepaid account issuer
generally has a policy and practice of declining to authorize
transactions made with the card when there are insufficient or
unavailable funds in the asset feature of the prepaid account to cover
the amount of the transactions, or the prepaid account issuer only
authorizes those transactions in circumstances related to payment
cushions and delayed load cushions discussed below; and (3) with
respect to the prepaid account accessible by the prepaid card, the
prepaid account issuer does not charge credit-related fees for any
credit extended on the asset feature of the prepaid account, except for
fees or charges for the actual costs of collecting the credit extended
if otherwise permitted by law.\702\ Each of the three prongs of the
limited exception is discussed in more detail below.
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\702\ An industry trade association and an issuing bank were
concerned that all prepaid cards (and associated account numbers)
could be credit cards or otherwise subject to Regulation Z solely
due to the fact that the cardholder can incur an overdraft that he
or she is contractually obligated to repay. These commenters asked
the Bureau to clarify that ``credit'' under Regulation Z would not
include the amount of an overdraft if the consumer is not
contractually obligated to reimburse the card issuer for that
overdraft (i.e., the consumer would not be incurring debt or
deferring the payment of debt) and to clarify disclosure obligations
if the consumer is not contractually obligated to repay the
overdraft credit. The Bureau believes that it has addressed these
concerns by providing the exception in Sec. 1026.61(a)(4) for how
prepaid account issuers may provide incidental credit as a negative
balance on the prepaid account without being subject to Regulation
Z, even if the consumer is contractually obligated to pay these
overdrafts.
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The Bureau believes that the exception in new Sec. 1026.61(a)(4)
addresses many of the concerns raised by industry commenters and
consumer group commenters. To address evasion risks and other concerns
raised by consumer group commenters discussed above, the Bureau has
carefully calibrated new Sec. 1026.61(a)(4). Specifically, under the
final rule, a prepaid card is not a credit card under the regulation
when it accesses credit through a negative balance on the asset feature
of the prepaid account only in circumstances where, with respect to a
prepaid account accessible by the prepaid card: (1) The prepaid account
issuer generally declines to authorize transactions on the prepaid
account that will create negative balances on the asset feature of the
prepaid account (or allows those authorizations in limited
circumstances related to payment cushions and delayed load cushions);
and (2) the prepaid account issuer generally does not charge credit-
related fees for the credit extended on the asset feature of the
prepaid account. Thus, for example, a prepaid card is a credit card
under Regulation Z (i.e., a hybrid prepaid-credit card) when credit is
extended through a negative balance on the asset feature of a prepaid
account where, with respect to the prepaid account accessible by the
prepaid card: (1) The prepaid account issuer has a policy and practice
of authorizing transactions (outside of the payment cushion and delayed
load circumstances described above) where there are insufficient or
unavailable funds in the prepaid account to cover the amount of the
transaction at authorization; or (2) a prepaid account issuer charges
credit-related fees for credit extended through a negative balance on
the asset feature of the prepaid account beyond fees or charges for the
actual costs of collecting the credit extended if otherwise permitted
by law.
Thus, where new Sec. 1026.61(a)(4) has not been satisfied, the
final rule prohibits a prepaid account issuer from offering an
overdraft credit feature as a negative balance to the asset feature of
the prepaid account and requires the prepaid account issuer to offer
the overdraft credit feature as a ``covered separate credit feature''
under new Sec. 1026.61(a)(2)(i). Specifically, under new Sec.
1026.61(a)(3), a prepaid card that can access credit extended through a
negative balance on the asset feature of the prepaid card is a hybrid
prepaid-credit card for purposes of coverage under the credit card
rules unless the card can only access credit described in new Sec.
1026.61(a)(4). A person offering such an overdraft credit feature is a
``card issuer'' under final Sec. 1026.2(a)(7) and is subject to
Regulation Z, including new Sec. 1026.61(b). However, to facilitate
transparency and compliance with Regulation Z, the Bureau is
prohibiting card issuers under new Sec. 1026.61(b) from structuring an
overdraft credit feature as a negative balance on the asset feature of
the prepaid account, except as provided in new Sec. 1026.61(a)(4).
Instead, under new Sec. 1026.61(b), a card issuer must structure an
overdraft credit feature in connection with a prepaid account as a
separate credit feature, such as a credit account or credit subaccount
to the prepaid account that is separate from the asset feature of the
prepaid account, except for overdraft credit features described in new
Sec. 1026.61(a)(4). This separate credit feature is a ``covered
separate credit feature'' under new Sec. 1026.61(a)(2)(i).
The Bureau believes that new Sec. 1026.61(a)(4) will allow prepaid
account issuers who do not intend to offer substantive credit programs
to provide incidental credit in circumstances that will benefit
consumers, without opening the door to widespread evasion of the rule.
First, with respect to force pay transactions, payment cushions, and
delayed load cushions, under this exception, the final rule provides
that credit card rules will not be triggered so long as the prepaid
account issuer generally does not charge credit-related fees for the
credit extended and has met the other requirements. Second, the final
rule provides that a prepaid account issuer is not required under this
exception to
[[Page 84257]]
waive per transaction fees imposed on the asset feature of the prepaid
account if the amount of the per transaction fee imposed for
transactions involving credit is not higher than the amount of the fee
that is imposed for transactions that only access funds in the asset
feature of the prepaid account. Rather, the final rule provides that
under this exception, if a fee is not a credit-related fee as
enumerated in new Sec. 1026.61(a)(4)(ii)(B), the prepaid account
issuer may still debit these fees or charges from the asset feature
when there are insufficient or unavailable funds in the asset feature
to cover those fees or charges at the time they are imposed. Third, the
final rule provides that under this exception, a prepaid account issuer
may charge a fee to hold the prepaid account, so long as the amount of
the fee or charge to hold the prepaid account imposed on the asset
feature is not higher based on whether credit might be offered or has
been accepted, whether or how much credit the consumer has accessed, or
the amount of credit available. Fourth, the final rule provides that a
prepaid account issuer may still qualify for the exception in new Sec.
1026.61(a)(4) even if it charges fees or charges for the actual costs
of collecting the credit extended if otherwise permitted by law, so
long as the other conditions of the exception have been met.
To the extent that a prepaid account issuer meets the conditions as
described in new Sec. 1026.61(a)(4) with respect to a prepaid card,
the prepaid card is not a hybrid prepaid-credit card and thus is not a
credit card under the regulation. As discussed in more detail below,
the final rule provides that in the case where a prepaid card is not a
hybrid prepaid-credit card because the only credit it can access meets
the conditions set forth in new Sec. 1026.61(a)(4), the prepaid
account issuer is not a card issuer under final Sec. 1026.2(a)(7) with
respect to the prepaid card. The prepaid account issuer also is not a
creditor under final Sec. 1026.17(a)(iii) or (iv) because it is not a
card issuer under final Sec. 1026.2(a)(7) with respect to the prepaid
card. The prepaid account issuer also is not a creditor under final
Sec. 1026.2(a)(17)(i) as a result of imposing fees on the prepaid
account because those fees are not finance charges as described in new
comment 4(b)(11)-1.iii. As discussed in the section-by-section analysis
of Sec. 1026.61(a), in light of the very limited nature of the
incidental credit, the Bureau believes that it is appropriate to
exclude this incidental credit from coverage under Regulation Z.
Prepaid card cannot access a covered separate credit feature under
Sec. 1026.61(a)(2)(i). To qualify for the exception in new Sec.
1026.61(a)(4), new Sec. 1026.61(a)(4)(i) provides that the prepaid
card cannot access credit from a covered separate credit feature, as
defined in new Sec. 1026.61(a)(2)(i). The Bureau believes that
allowing a prepaid account issuer to take advantage of the exception in
new Sec. 1026.61(a)(4) even though the card can access a covered
separate credit feature, described in new Sec. 1026.61(a)(2)(i), would
allow the prepaid account issuer to circumvent the rules in new Sec.
1026.61(a)(2)(i).
New comment 61(a)(4)-1.i and ii explain that Sec. 1026.61(a)(4)(i)
is designed to limit the exception for when a prepaid card is not a
credit card to circumstances in which (1) the card can only access
credit extended through a negative balance on the asset feature of the
prepaid account in accordance with both the conditions set forth in new
Sec. 1026.61(a)(4)(ii)(A) and (B); and (2) the card can access credit
from a non-covered separate credit feature, as defined in new Sec.
1026.62(a)(2)(ii), but cannot access credit for a covered separate
credit feature, as defined in new Sec. 1026.62(a)(2)(i).
New comment 61(a)(4)-1.iii makes clear that a prepaid account
issuer does not qualify for the exception in new Sec. 1026.61(a)(4) if
the prepaid account issuer structures the arrangement such that when
there are insufficient or unavailable funds in the asset feature of the
prepaid account at the time a transaction is initiated, the card can
draw, transfer, or authorize the draw or transfer of credit from a
covered separate credit feature offered by the prepaid account issuer,
its affiliate, or its business partner during the authorization phase
to complete the transaction so that credit is not extended on the asset
feature of the prepaid account.
New comment 61(a)(4)-1.iv provides guidance on how the regulation
applies in cases where the prepaid card is not a hybrid prepaid-credit
card. Specifically, new comment 61(a)(4)-1.iv provides that in the case
where a prepaid card is not a hybrid prepaid-credit card because the
only credit it can access meets the conditions set forth in new Sec.
1026.61(a)(4), the prepaid account issuer is not a card issuer under
final Sec. 1026.2(a)(7) with respect to the prepaid card. The prepaid
account issuer also is not a creditor under final Sec. 1026.17(a)(iii)
or (iv) because it is not a card issuer under final Sec. 1026.2(a)(7)
with respect to the prepaid card. The prepaid account issuer also is
not a creditor under final Sec. 1026.2(a)(17)(i) as a result of
imposing fees on the prepaid account because those fees are not finance
charges, as described in new comment 4(b)(11)-1.iii.
General policy and practice of declining transactions that will
create a negative balance. To qualify for the exception in new Sec.
1026.61(a)(4), new Sec. 1026.61(a)(4)(ii)(A) provides that with
respect to any prepaid account that is accessible by the prepaid card,
a prepaid account issuer also must have established a policy and
practice of either declining to authorize any transaction for which it
reasonably believes the consumer has insufficient or unavailable funds
in the asset feature of the prepaid account at the time the transaction
is authorized, or declining to authorize any such transactions except
in two circumstances related to payment cushions and delayed load
cushions as discussed below.
This prong is designed to limit the exception under new Sec.
1026.61(a)(4) to situations where the prepaid account issuer generally
is not authorizing transactions that will take the asset feature of the
prepaid account negative. The Bureau believes that this prong will help
ensure that consumers do not develop a substantial negative balance on
their prepaid asset accounts that most do not intend to use as a credit
account, which could pose risks to consumers by compromising their
ability to manage and control their finances. This prong is intended to
address concerns raised by industry commenters that the proposed
circumstances in which a prepaid card would be a credit card captured
(1) ``force pay'' transactions, (2) payment cushions; and (3) delayed
load cushions, while also balancing consumer group concerns that any
such limited exceptions be cabined in a way that does not undermine the
broader rule. Thus, the final rule does not cover overdraft credit
features under Regulation Z where these three types of credit are
extended through a negative balance on the asset feature of the prepaid
account, so long as the prepaid account issuer generally does not
charge credit-related fees for the credit.
As discussed above, ``force pay'' transactions occur where the
prepaid account issuer is required by card network rules to pay a
transaction even though there are insufficient or unavailable funds in
the asset feature of the prepaid account to cover the transaction at
settlement. This can occur, for example, when a transaction is either
not authorized in advance, or there were sufficient or available funds
in the asset feature of the prepaid account at the time the transaction
is
[[Page 84258]]
authorized, but there are insufficient or unavailable funds in the
asset feature at the time the transaction is settled, and a negative
balance results on the asset feature when the transaction is paid.
New comment 61(a)(4)(ii)(A)-1 makes clear that a prepaid account
issuer is not required to receive an authorization request for each
transaction to comply with this requirement. Nonetheless, the prepaid
account issuer generally must establish an authorization policy as
described above and have reasonable practices in place to comply with
its established policy with respect to the authorization requests it
receives. In that case, a prepaid account issuer is deemed to satisfy
the requirement set forth in new Sec. 1026.61(a)(4)(ii)(A) even if a
negative balance results on the prepaid account when a transaction is
settled.
New comment 61(a)(4)(ii)(A)-2 also makes clear that a prepaid
account issuer may still satisfy the requirements set forth in Sec.
1026.61(a)(4)(ii)(A) even if a negative balance results on the asset
feature of the prepaid account because the prepaid account issuer
debits the amount of any provisional credit that was previously granted
on the prepaid account, as specified in final Regulation E Sec.
1005.11, so long as the prepaid account issuer otherwise complies with
the conditions set forth in new Sec. 1026.61(a)(4). For example, under
new Sec. 1026.61(a)(4), a prepaid account issuer may not impose a fee
or charge enumerated under new Sec. 1026.61(a)(4)(ii)(B) with respect
to such a negative balance.
This exception also allows a prepaid account issuer to adopt a
payment cushion where the issuer would authorize transactions that
would take the account balance negative by no more than $10 at the time
the transaction is authorized. The Bureau believes that this $10
payment cushion will benefit consumers without allowing consumers to
develop a substantial negative balance on their prepaid asset accounts,
which could pose risks for consumers.
As discussed above, one consumer group commenter suggested that
prepaid account issuer should be prevented from advertising or
disclosing this payment cushion in order to take advantage of any
exception of this credit from coverage under Regulation Z. The final
rule does not prevent a prepaid account issuer from advertising or
disclosing this payment cushion to consumers in order to take advantage
of the exception in new Sec. 1026.61(a)(4). The Bureau does not
believe that it is necessary to restrict prepaid account issuers from
advertising or disclosing this payment cushion to consumers, given the
de minimis amount of credit ($10) that they may offer through the
payment cushion. The Bureau believes that such a restriction may
discourage prepaid account issuers from offering such a payment
cushion, which could harm consumers.
In addition, the exception allows a prepaid account issuer to adopt
a delayed load cushion. Specifically, in cases where the prepaid
account issuer has received an instruction or confirmation for an
incoming EFT originated from a separate asset account to load funds to
the prepaid account or where the prepaid account issuer has received a
request from the consumer to load funds to the prepaid account from a
separate asset account but in either case the funds from the separate
asset account have not yet settled, a prepaid account issuer may still
qualify for the exception in new Sec. 1026.61(a)(4) if the prepaid
account authorizes transactions that take the prepaid account negative,
so long as the transactions will not cause the account balance to
become negative at the time of the authorization by more than the
incoming or requested load amount, as applicable.
The Bureau recognizes that, in some cases, a prepaid account issuer
may receive instructions or confirmation with respect to incoming EFTs
from a separate asset account to load funds to the prepaid account,
such as in cases involving direct deposits of salaries or government
benefits. In such cases, prepaid account issuers may provide access to
these funds to prepaid cardholders based on the instructions or
confirmations even though the prepaid account issuer's transfer of
funds has not yet settled, and therefore the prepaid account issuer
does not have the funds.
In addition, the Bureau also recognizes that, in some cases,
prepaid account issuers may receive a request from the consumer to load
funds to the prepaid account from a separate asset account, including
where the consumer, in the course of a transaction, requests a load
from a deposit account or uses a debit card to cover the amount of the
transaction. This can occur, for example, when a consumer authorizes a
remittance through a mobile wallet which is linked to a checking
account, the consumer requests that funds be taken from the consumer's
checking account to pay for the remittance, and the remittance is sent
before the incoming transfer of funds from the checking account is
complete. In this case, the prepaid account issuer is extending credit
through a negative balance on the asset feature of the prepaid account
until the incoming transfer of funds from the checking account is
complete.
In these two situations, the Bureau believes that it would benefit
consumers to receive access to the funds prior to settlement, so long
as the consumer generally is not charged credit-related fees. The
Bureau does not believe these situations raise the same concerns as
overdraft credit features offered by prepaid account issuers in
connection with prepaid accounts.
To facilitate compliance, new comment 61(a)(4)(ii)(A)-3.i provides
examples of cases where the prepaid account issuer may receive an
instruction or confirmation for an incoming EFT originating from a
separate asset account to load funds to the prepaid account. This
comment describes that such instructions or confirmations may occur in
relation to a direct deposit of salary from an employer and a direct
deposit of government benefits. New comment 61(a)(4)(ii)(A)-3.ii also
provides an example of a case where the prepaid account issuer may
receive a request from the consumer to load funds to the prepaid
account from a separate asset account. This comment describes an
example where the consumer, in the course of a transaction, requests a
load from a deposit account or uses a debit card to cover the amount of
the transaction if there are insufficient funds in the asset feature of
the prepaid account to pay for the transaction.
New comment 61(a)(4)(ii)(A)-4 also makes clear that the two
circumstances described above in which a prepaid account issuer can
authorize transactions that create a negative balance on the asset
feature of the prepaid account, namely payment cushions and delayed
load cushions, are not mutually exclusive. For example, assume a
prepaid account issuer has adopted the $10 payment cushion and the
delayed load cushion. Also, assume the prepaid account issuer has
received an instruction or confirmation for an incoming EFT originating
from a separate asset account to load funds to the prepaid account, but
the prepaid account issuer has not received the funds from the separate
asset account. In this case, a prepaid account issuer satisfies this
requirement if the amount of a transaction at authorization will not
cause the prepaid account balance to become negative at the time of the
authorization by more than the requested load amount plus the $10
payment cushion.
No credit-related fees except for fees or charges for the actual
costs of the collecting the credit if otherwise permitted by law. To
qualify for the
[[Page 84259]]
exception in new Sec. 1026.61(a)(4), new Sec. 1026.61(a)(4)(ii)(B)
provides that with respect to prepaid accounts that are accessible by
the prepaid card, the prepaid account issuer may generally not charge
credit-related fees on the asset feature of the prepaid account.
Specifically, the exception would only apply where the prepaid account
issuer does not charge the following fees: (1) Any fees or charges for
opening, issuing, or holding a negative balance on the asset feature,
or for the availability of credit, whether imposed on a one-time or
periodic basis. These fees do not include fees or charges to open,
issue, or hold the prepaid account where the amount of the fee or
charge imposed on the asset feature is not higher based on whether
credit might be offered or has been accepted, whether or how much
credit the consumer has accessed, or the amount of credit available;
(2) any fees or charges that will be imposed only when credit is
extended on the asset feature or when there is a negative balance on
the asset feature, except that a prepaid account issuer may impose fees
or charges for the actual costs of collecting the credit extended if
otherwise permitted by law; or (3) any fees or charges where the amount
of the fee or charge is higher when credit is extended on the asset
feature or when there is a negative balance on the asset feature.
Thus, this prong prevents a prepaid account issuer from charging
credit-related fees for the credit extended through a negative balance
on the prepaid account, except for fees or charges for the actual costs
of collecting the credit extended if otherwise permitted by law.
Because the credit extended through the exception in new Sec.
1026.61(a)(4) is intended to be limited to inadvertent or de minimis
credit, the Bureau believes that it is appropriate to limit the
exception to instances in which the prepaid account issuer does not
charge credit-related fees for the credit, except for fees or charges
for the actual costs of collecting the credit extended if otherwise
permitted by law. In addition, the Bureau believes that preventing
prepaid account issuers from generally charging credit-related fees to
take advantage of this exception will provide greater incentive to
prepaid account issuers to limit the circumstances resulting in
``forced pay'' transactions extended through this exception. For the
reasons discussed in the Overview of the Final Rule's Amendments to
Regulation Z section, the Bureau believes that it is appropriate to
generally cover overdraft credit features offered by prepaid account
issuers where, with respect to the prepaid account accessible by the
prepaid card: (1) The prepaid account issuer has a policy and practice
of authorizing transactions (outside of the payment cushion and delayed
load circumstances described above) where there are insufficient or
unavailable funds in the prepaid account to cover the amount of the
transaction at authorization; or (2) a prepaid account issuer charges
credit-related fees for credit extended through a negative balance on
the asset feature of the prepaid account beyond fees or charges for the
actual costs of collecting the credit extended if otherwise permitted
by law.
To facilitate compliance, new comment 61(a)(4)(ii)(B)-1 clarifies
that new Sec. 1026.61(a)(4)(ii)(B) does not prohibit a prepaid account
issuer from charging different terms on different prepaid account
programs. For example, the terms may differ between a prepaid account
program where a covered separate credit feature accessible by a hybrid
prepaid-credit card is not offered in connection with any prepaid
accounts within the prepaid account program and a prepaid account
program where a covered separate credit feature accessible by a hybrid
prepaid-credit card may be offered to some consumers in connection with
their prepaid accounts. The Bureau recognizes that prepaid account
issuer may offer prepaid programs for different purposes and offer
different services on those prepaid account programs. Those service
differences may impact the pricing on the prepaid programs. The Bureau
believes that requiring prepaid account issuers to charge the same fees
on all of its prepaid account programs to take advantage of this
exception would make the exception generally unavailable for most
prepaid account issuers.
New Sec. 1026.61(a)(4)(ii)(B)(1) provides that to qualify for the
exception in new Sec. 1026.61(a)(4), a prepaid account issuer may not
charge on the prepaid account any fees or charges for opening, issuing,
or holding a negative balance on the asset feature, or for the
availability of credit, whether imposed on a one-time or periodic
basis. These fees do not include fees or charges to open, issue, or
hold the prepaid account where the amount of the fee or charge imposed
on the asset feature is not higher based on whether credit might be
offered or has been accepted, whether or how much credit the consumer
has accessed, or the amount of credit available. New comment
61(a)(4)(ii)(B)(1)-1 clarifies the types of fees or charges that are
included and not included under new Sec. 1026.61(a)(4)(ii)(B)(1). New
comment 61(a)(4)(ii)(B)(1)-1.i.A clarifies that the types of fees or
charges described in new Sec. 1026.61(a)(4)(ii)(B)(1) include daily,
weekly, monthly, or other periodic fees assessed each period that a
prepaid account has a negative balance or is in ``overdraft'' status.
New comment 61(a)(4)(ii)(B)(1)-1.i.B also clarifies that the types
of fees or charges described in new Sec. 1026.61(a)(4)(ii)(B)(1)
include daily, weekly, monthly, or other periodic fees where the amount
of the fee that applies each period is higher if the consumer is
enrolled in a purchase cushion as described in new Sec.
1026.61(a)(4)(ii)(A)(1) or a delayed load cushion as described in new
Sec. 1026.61(a)(4)(ii)(A)(2) during that period. For example, assume
that a consumer will pay a fee of $10 to hold the prepaid account if
the consumer is not enrolled in a purchase cushion or a delayed load
cushion during that month, or alternatively, the consumer will pay a
fee of $15 to hold the prepaid account if the consumer is enrolled in a
purchase cushion or delayed load cushion during that period. The $15
charge is a charge described in new Sec. 1026.61(a)(4)(ii)(B)(1)
because the amount of the fee to hold the prepaid account is higher
based on whether the consumer is participating in the payment cushion
or delayed load cushion during that period.
New comment 61(a)(4)(ii)(B)(1)-1.ii clarifies that new Sec.
1026.61(a)(4)(ii)(B)(1) does not prohibit a daily, weekly, monthly, or
other periodic fee to hold the prepaid account so long as the amount of
the fee is not higher based on whether the consumer is enrolled in a
purchase cushion or a delayed load cushion during that period, whether
or how much credit has been extended during that period, or the amount
of credit that is available during that period.
New Sec. 1026.61(a)(4)(ii)(B)(2) provides that to qualify for the
exception in new Sec. 1026.61(a)(4), the prepaid account issuer may
not impose any fees or charges on the asset feature of the prepaid
account that will be imposed only when credit is extended on the asset
feature or when there is a negative balance on the asset feature. New
comment 61(a)(4)(ii)(B)(2)-1 provides examples of fees that are and are
not fees or charges that will be imposed only when credit is extended
on the asset feature or when there is a negative balance on the asset
feature. New comment 61(a)(4)(ii)(B)(2)-1.i provides that fees or
charges that will be imposed only when credit is extended on the asset
feature or when there is a negative
[[Page 84260]]
balance on the asset feature include: (1) A fee imposed because the
balance on the prepaid account becomes negative; (2) interest charges
attributable to a periodic rate that applies to the negative balance;
(3) any fees for delinquency, default, or a similar occurrences that
result from the prepaid account having a negative balance or being in
``overdraft'' status, except that the actual costs to collect the
credit may be imposed if otherwise permitted by law; and (4) late
payment fees.
Consistent with the proposal, a prepaid card is a credit card under
the final rule if the prepaid account issuer charges a late fee with
respect to the credit.\703\ With regard to late payment fees in
particular, the Bureau is concerned that such fees could be structured
to take the place of a per transaction fee for a credit extension on
the prepaid account. For example, if a late fee were not included as a
enumerated fee under new Sec. 1026.61(a)(4)(ii)(B), a prepaid account
issuer could provide that payment of the overdraft is due immediately
and charge a late fee each day that the overdraft balance remains
outstanding. The Bureau believes such a late fee would function as a
fee for a negative balance that is not permitted to be imposed on the
prepaid account if the prepaid account issuer intends to qualify for
the exception in new Sec. 1026.61(a)(4). Thus, the final rule provides
that a late fee may not be imposed on the asset feature of a prepaid
account if the prepaid account issuer intends to qualify for the
exception in new Sec. 1026.61(a)(4). Nonetheless, new Sec.
1026.61(a)(4)(ii)(B)(2) and new comment 61(a)(4)(ii)(B)(2)-1.ii.A
provide that a prepaid account issuer may impose fees on the asset
feature of the prepaid account for actual collection costs, including
attorney's fees, and still qualify for the exception in new Sec.
1026.61(a)(4) if those fees are otherwise permitted by law. The Bureau
does not believe that allowing a prepaid account issuer to qualify for
the exception in new Sec. 1026.61(a)(4), even if the prepaid account
issuer imposes actual collection costs to collect the credit, poses the
same evasion risks discussed above in regard to late fees because these
costs must be the actual costs incurred by the prepaid account issuer
to collect the credit, and those fees must be otherwise permitted by
law.
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\703\ Under the proposal, a prepaid card would have been a
credit card if it 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 late fee is a fee described in Sec. 1026.4(c)(2) and thus under
the proposal, a prepaid card would have been a credit card if a late
fee was charged for the credit.
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New Sec. 1026.61(a)(4)(ii)(B)(3) provides that to qualify for the
exception in new Sec. 1026.61(a)(4)(ii)(B), the prepaid account issuer
may not impose any fees or charges on the asset feature of the prepaid
account that are higher when credit is extended on the asset feature or
when there is a negative balance on the asset feature. New comment
61(a)(4)(ii)(B)(3)-1 provides examples of fees that are and are not
fees or charges where the amount of the fee or charge is higher when
credit is extended on the asset feature or when there is a negative
balance on the asset feature.
New comment 61(a)(4)(ii)(B)(3)-1.i.A provides that new Sec.
1026.61(a)(4)(ii)(B)(3) includes transaction fees where the amount of
the fee is higher based on whether the transaction accesses only asset
funds in the asset feature or accesses credit. For example, a $15
transaction charge is imposed on the asset feature each time a
transaction is authorized or paid when there are insufficient or
unavailable funds in the asset feature at the time of the authorization
or settlement. A $1.50 fee is imposed each time a transaction is paid
entirely from funds in the asset feature. The $15 charge is a charge
where the amount of the fee or charge is higher when credit is extended
on the asset feature or when there is a negative balance on the asset
feature because the transaction fee is higher when the transaction
accesses credit than when the transaction accesses only asset funds in
the asset feature.
New comment 61(a)(4)(ii)(B)(3)-1.i.B provides that new Sec.
1026.61(a)(4)(ii)(B)(3) includes a fee for a service on the prepaid
account where the amount of the fee is higher based on whether the
service is requested when the asset feature has a negative balance. For
example, if a prepaid account issuer charges a higher fee for an ATM
balance inquiry requested on the prepaid account if the balance inquiry
is requested when there is a negative balance on the asset feature than
the amount of fee imposed when there is a positive balance on the asset
feature, the balance inquiry fee is a fee described in new Sec.
1026.61(a)(4)(ii)(B)(3) because the amount of the fee is higher based
on whether it is imposed when there is a negative balance on the asset
feature.
Nonetheless, new comment 61(a)(4)(ii)(B)(3)-1.ii.A provides that
new Sec. 1026.61(a)(4)(ii)(B)(3) does not include transaction fees on
the prepaid account where the amount of the fee imposed when the
transaction accesses credit does not exceed the amount of the fee
imposed when the transaction only accesses asset funds in the prepaid
account. For example, assume a $1.50 transaction charge is imposed on
the prepaid account for each paid transaction that is made with the
prepaid card, including transactions that only access asset funds,
transactions that take the account balance negative, and transactions
that occur when the account balance is already negative. The $1.50
transaction charge imposed on the prepaid account is not prohibited
under new Sec. 1026.61(a)(4)(ii)(B) because the fee or charge is not
higher when credit is extended on the asset feature or when there is a
negative balance on the asset feature. Thus, under the final rule, a
prepaid account issuer would not need to waive per transaction fees for
credit extensions where the per transaction fee is not higher when
credit is extended on the asset feature or when there is a negative
balance on the asset feature.
New comment 61(a)(4)(ii)(B)(3)-1.ii.B provides that new Sec.
1026.61(a)(4)(ii)(B)(3) does not include a fee for a service on the
prepaid account where the amount of the fee is not higher based on
whether the service is requested when the asset feature has a negative
balance. For example, if a prepaid account issuer charges the same
amount of fee for an ATM balance inquiry regardless of whether there is
a positive or negative balance on the asset feature, the balance
inquiry fee is not a fee described in new Sec. 1026.61(a)(4)(ii)(B).
New Sec. 1026.61(a)(4)(ii)(C) also makes clear that a prepaid
account issuer may still satisfy the exception in new Sec.
1026.61(a)(4) even if it debits fees or charges from the asset feature
when there are insufficient or unavailable funds in the asset feature
to cover those fees or charges at the time they are imposed, so long as
those fees or charges are not the type of fees or charges enumerated in
new Sec. 1026.61(a)(4)(ii)(B), as discussed above. New comment
61(a)(4)(ii)(C)-1 explains that a fee or charge not otherwise covered
by new Sec. 1026.61(a)(4)(ii))(B) does not become covered by that
provision simply because there are insufficient or unavailable funds in
the asset feature of the prepaid account to pay the fee when it is
imposed. For example, assume that a prepaid account issuer imposes a
fee for an ATM balance inquiry and the amount of the fee is not higher
based on whether credit is extended or whether there is a negative
balance on the prepaid account. Also assume that when
[[Page 84261]]
the fee is imposed, there are insufficient or unavailable funds in the
asset feature of the prepaid account to pay the fee. The ATM balance
inquiry fee does not become a fee covered by new Sec.
1026.61(a)(4)(ii)(B) because the fee is debited from the prepaid
account balance when there are insufficient or unavailable funds in the
asset feature of the prepaid account to cover the fee at the time it is
imposed.
61(a)(5) Definitions
New Sec. 1026.61(a)(5) sets forth definitions of the following
terms that are used in new Sec. 1026.61 and throughout the regulation
in relation to hybrid prepaid-credit cards: (1) Prepaid account; (2)
prepaid card; (3) prepaid account issuer; (4) affiliate; (5) business
partner; (6) asset feature; (7) credit feature; and (8) separate credit
feature. Each of these definitions is discussed in more detail below.
Prepaid Account and Prepaid Card
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.
Specifically, existing 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, existing 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.
Under the proposal, different rules generally would have applied in
Regulation Z depending on whether credit is accessed by a card or
device that accesses a prepaid account or a card or device that
accesses another type of asset account. To assist compliance with the
regulation, the proposal would have defined ``debit card'' for purposes
of Regulation Z in proposed 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 have specified that it does not
include a prepaid card. Proposed Sec. 1026.2(a)(15)(v) would have
defined ``prepaid card'' to mean ``any card, code, or other device that
can be used to access a prepaid account.'' The proposal would have
defined ``prepaid account'' in proposed Sec. 1026.2(a)(15)(vi) to mean
a prepaid account as defined in proposed Regulation E Sec.
1005.2(b)(3). Proposed comment 2(a)(15)-6 would have provided that the
term ``prepaid card'' in proposed 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. That
proposed comment also would have provided 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
Sec. 1005.2(b)(3) would not have included 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 been credit cards unless they were subject to an agreement to
extend credit.
Nonetheless, the Bureau solicited 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 been
considered prepaid accounts for purposes of error resolution,
disclosure, and other purposes under Regulation E. The Bureau solicited
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 solicited comment on any implications of treating these
products as prepaid accounts under Regulation Z but not Regulation E.
Several industry commenters, including programs managers and a
payment network, indicated that these products should not be covered by
Regulation Z if they are not prepaid accounts under Regulation E. One
consumer group commenter indicated that these accounts should be
covered by Regulation Z if they offer overdraft credit even if they are
not prepaid accounts under Regulation E. This commenter indicated that
while those types of accounts would rarely, if ever, have a credit or
overdraft feature, the Bureau should to include prepaid cards in the
Regulation Z definition of credit card if they access credit or
overdraft features in connection with such accounts.
One program manager also indicated that the Bureau should exempt
student cards and payroll cards from the overdraft provisions in the
proposal under Regulation Z even if these cards access prepaid accounts
as defined in Regulation E.
As discussed in the Overview of the Final Rule's Amendments to
Regulation Z section, consistent with the proposal, the final rule
generally applies different rules in Regulation Z depending on whether
credit is accessible by a hybrid prepaid-credit card that can access
both a covered separate credit feature and the asset feature of a
prepaid account as defined in new Sec. 1026.61(a), or credit is
accessed by a card or device that accesses another type of asset
account.
Consistent with the proposal, as discussed in more detail in the
section-by-section analysis of Sec. 1026.2(a)(15)(iv) above, the term
``debit card'' is defined in new 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, as defined in
new Sec. 1026.61. Under the final rule, the term ``debit card'' does
not include a prepaid card, as defined in Sec. 1026.61.
The final rule moves the definition of ``prepaid card'' from
proposed Sec. 1026.2(a)(15)(v) to new Sec. 1026.61(a)(5)(vii) and
adopts this definition as proposed. New Sec. 1026.61(a)(5)(vii)
defines ``prepaid card'' to mean any card, code, or other device that
can be used to access a prepaid account. The final rule moves proposed
comment 2(a)(15)-6 to new comment 61(a)(5)(vii)-1 and revises it.
Consistent with proposed comment 2(a)(15)-6, new comment 61(a)(5)(vii)-
1 clarifies that the term ``prepaid card'' in new Sec.
1026.61(a)(5)(vii) includes any card, code, or other device that can be
used to access a prepaid account, including a prepaid account number or
other code. Proposed comment 2(a)(15)-6 also would have provided 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 Bureau has not adopted this part of
proposed comment 2(a)(15)-6 because the final rule does not use the
term ``credit accessed by a prepaid card.'' Instead, the final rule
uses the term ``hybrid prepaid-credit card'' as defined in Sec.
1026.61(a).
The Bureau is not exempting categorically student cards and payroll
cards from the provisions in the final rule under Regulation Z even if
these cards access prepaid accounts as defined in Regulation E and meet
the definition of ``hybrid prepaid-credit card'' under new Sec.
1026.61(a). These cards would be ``prepaid cards'' under new Sec.
1026.61(a)(15)(vii) to the extent
[[Page 84262]]
that they are cards, codes, or other devices that can be used to access
a prepaid account, including a prepaid account number or other code. In
addition, these cards would be hybrid prepaid-credit cards to the
extent they meet the definition in new Sec. 1026.61(a). The Bureau
does not believe that it is appropriate to categorically exclude these
cards from the provisions in the final rule under Regulation Z to the
extent these cards are ``hybrid prepaid-credit cards'' as defined in
new Sec. 1026.61(a). The Bureau believes that consumers holding
student prepaid cards and payroll cards would benefit from the
protections provided by Regulation Z if those prepaid cards meet the
definition of ``hybrid prepaid-credit cards'' under new Sec.
1026.61(a). In addition, the Bureau believes that it is appropriate to
maintain consistency between the definitions of ``prepaid account'' in
Regulation E Sec. 1005.2(b)(3) and Regulation Z Sec.
1026.61(a)(5)(v).
The final rule moves the definition of ``prepaid account'' from
proposed Sec. 1026.2(a)(15)(vi) to new Sec. 1026.61(a)(5)(v) and
adopts this definition as proposed. As discussed in the section-by-
section analysis of Regulation E Sec. 1005.2(b)(3)(ii) above, the term
``prepaid account,'' as defined in final Regulation E Sec.
1005.2(b)(3)(ii), does not include, among other things, products such
as gift cards, accounts established for distributing certain needs-
tested government benefits that are excluded under Regulation E Sec.
1005.15(a)(2), and certain types of health care and employee benefit
accounts. The provisions in the final rule that apply to covered
separate credit features accessible by hybrid prepaid-credit cards do
not apply to cards or access devices that access these types of
accounts because they are not ``prepaid accounts'' under final
Regulation E Sec. 1005.2(b)(3) or new Regulation Z Sec.
1026.61(a)(5)(v). At this time, the Bureau does not believe that it is
appropriate to include these accounts in the definition of ``prepaid
account'' for purposes of new Sec. 1026.61(a)(5)(v), when these
accounts are not ``prepaid accounts'' for purposes of final Sec.
1005.2(b)(3). The Bureau is unaware of any credit features currently
associated with cards that access these types of accounts. At this
time, the Bureau believes that it is appropriate to maintain
consistency between the definitions of ``prepaid account'' in
Regulation E Sec. 1005.2(b)(3) and Regulation Z Sec.
1026.61(a)(5)(v).
Prepaid Account Issuer, Affiliate, and Business Partner
The proposal did not define the terms ``prepaid account issuer,''
``affiliate,'' or ``business partner.'' For the reasons discussed in
the section-by-section analysis of Sec. 1026.61, the Bureau is
revising the circumstances from the proposal for when a prepaid card is
a credit card (i.e., hybrid prepaid-credit card) under Regulation Z.
Under the final rule, new Sec. 1026.62(a)(2)(i) provides that a
prepaid card is a hybrid prepaid-credit card with respect to a separate
credit feature when it is a single device that can be used from time to
time to access the separate credit feature where the following two
conditions are satisfied: (1) The card can draw, transfer, or authorize
the draw or transfer of credit from the separate credit feature in the
course of authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct P2P transfers; and (2) the separate credit feature is offered
by the prepaid account issuer, its affiliate, or its business partner.
Definition of ``prepaid account issuer.'' New Sec.
1026.61(a)(5)(vi) defines ``prepaid account issuer'' to mean a
financial institution as defined in Regulation E Sec. 1005.2(i) with
respect to a prepaid account.
Definition of ``affiliate.'' New Sec. 1026.61(a)(5)(i) defines
``affiliate'' to mean any company that controls, is controlled by, or
is under common control with another company, as set forth in the Bank
Holding Company Act of 1956.\704\ This definition is consistent with
how affiliate is used in other provisions in Regulation Z.\705\
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\704\ 12 U.S.C. 1841 et seq.
\705\ See, e.g., existing Sec. 1026.32(b)(5).
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Definition of ``business partner.'' New Sec. 1026.61(a)(5)(iii)
defines the term ``business partner'' for purposes of new Sec. 1026.61
and other provisions in Regulation Z related to hybrid prepaid-credit
cards to mean a person (other than the prepaid account issuer or its
affiliates) that can extend credit through a separate credit feature
where the person or its affiliate has ``an arrangement'' with a prepaid
account issuer or its affiliate. As explained in new comment
61(a)(5)(iii)-1, a person that can extend credit or its affiliate has
an arrangement with a prepaid account issuer or its affiliate for
purposes of new Sec. 1026.61(a)(5)(iii) if the circumstances in either
comment 61(a)(5)(iii)-1.i or comment 61(a)(5)(iii)-1.ii are met. First,
new comment 61(a)(5)(iii)-1.i provides that an unaffiliated person that
can extend credit is a business partner of the prepaid account issuer
if the person that can extend credit or its affiliate has an agreement
with the prepaid account issuer or its affiliate that allows a prepaid
card from time to time to draw, transfer, or authorize a draw or
transfer of credit from the separate credit feature in the course of
authorizing, settling, or otherwise completing transactions conducted
with the card to obtain goods or services, obtain cash, or conduct P2P
transfers. New comment 61(a)(5)(iii)-1.i provides, however, that the
parties are not considered to have such an agreement merely because the
parties participate in a card network or payment network together.
Second, new comment 61(a)(5)(iii)-1.ii provides that an
unaffiliated person that can extend credit is a business partner of the
prepaid account issuer if the person or its affiliate has a business,
marketing, promotional agreement, or other arrangement with the prepaid
account issuer or its affiliate where the agreement or arrangement
provides that prepaid accounts offered by the prepaid account issuer
will be marketed to the customers of the person that can extend credit;
or the credit feature will be marketed to the holders of prepaid
accounts offered by the prepaid account issuer (including any marketing
to customers to link the separate credit feature to the prepaid account
to be used as an overdraft credit feature); and (2) at the time of the
marketing agreement or arrangement, or at any time afterwards, the
prepaid card from time to time can draw, transfer, or authorize the
draw or transfer of credit from the separate credit feature in the
course of transactions conducted with the card to obtain goods or
services, obtain cash, or conduct P2P transfers. In this case, this
requirement is satisfied even if there is no specific agreement between
the parties that the card can access the separate credit feature, as
described above under new comment 61(a)(5)(iii)-1.i. For example, this
requirement is satisfied even if the draw, transfer, or authorization
of the draw or transfer, from the separate credit feature is
effectuated through a card network or payment network.
New comment 61(a)(5)(iii)-2 provides that a person (other than a
prepaid account issuer or its affiliates) that can extend credit
through a separate credit feature will be deemed to have an arrangement
with the prepaid account issuer if the person that can extend credit,
its service provider, or the person's affiliate has an arrangement with
the prepaid account issuer, its service provider such as a program
manager, or the issuer's affiliates. In that
[[Page 84263]]
case, the person that can extend credit will be a business partner of
the prepaid account issuer. For example, if the affiliate of the person
that can extend credit has an arrangement with the prepaid account
issuer's affiliate, the person that can extend credit will be the
business partner of the prepaid account issuer.
To prevent evasion of the protections provided in the final rule
related to hybrid prepaid-credit cards, the Bureau believes that it is
important to include an unaffiliated third party that can extend credit
through a separate credit feature as a ``business partner'' of the
prepaid account issuer where the person that can extend credit, or its
affiliate, has a marketing agreement or arrangement with the prepaid
account issuer, or its affiliate, and where, whether or not by
agreement, the prepaid card can access the separate credit feature in
the course of a transaction. Otherwise, the Bureau is concerned that
without including such arrangements, prepaid account issuers or their
affiliates could structure an arrangement with an unaffiliated third
party that can extend credit, or its affiliate, to avoid forming an
``agreement,'' as discussed in new comment 61(a)(5)(iii)-1.i, that the
card may be used to access the third party's credit feature as an
overdraft credit feature when all the parties understand that this type
of connection is occurring. Such a result could frustrate the operation
of certain consumer protections provided in the final rule. The Bureau
believes that when there is a marketing agreement or arrangement
between the parties as described in new comment 61(a)(5)(iii)-1.ii.A,
the parties have a sufficient connection such that the unaffiliated
third party that can extend credit should understand when its credit
feature is used as an overdraft credit feature with respect to a
prepaid account, even if there is no specific agreement between the
parties to that effect under new comment 61(a)(5)(iii)-1.i. Also, the
Bureau believes that these types of links between the prepaid account
issuer and the unaffiliated third party that can extend credit are
likely to involve revenue sharing or payments between the two
companies, and the pricing structure of the two accounts may be tied
together. Thus, the Bureau believes that it is appropriate to consider
these entities to be business partners in this context.
Asset Feature, Credit Feature, and Separate Credit Feature
As discussed in more detail in the section-by-section analysis of
Sec. 1026.61(b) below, the final rule requires that credit features
that are accessible by a hybrid prepaid-credit card be structured as a
separate credit feature--either a separate sub-account or account--
rather than as a negative balance on the asset feature of a prepaid
account. While a negative balance structure would be permissible where
an issuer only offers incidental credit pursuant to new Sec.
1026.61(a)(4),\706\ an issuer that offers more extensive credit or
charges credit-related fees using a negative balance structure would be
subject to the credit card rules pursuant to new Sec. 1026.61(a)(3),
and would be in violation of the rule on account structure specified in
new Sec. 1026.61(b). Instead, under the final rule, a card issuer must
structure the credit feature as a separate credit feature, either as a
separate credit account or as a credit subaccount of a prepaid account
that is separate from the asset feature of the prepaid account. The
separate credit feature is a covered separate credit feature accessible
by a hybrid prepaid-credit card under new Sec. 1026.61(a)(2)(i).
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\706\ If a prepaid account issuer complies with the exception in
Sec. 1026.61(a)(4) with respect to a prepaid account that is
accessed by a prepaid card, the prepaid card is not a hybrid
prepaid-credit card under Regulation Z, and thus is not a credit
card under Regulation Z. The prepaid account issuer is not a card
issuer under Sec. 1026.2(a)(7) and thus Sec. 1026.61(b) does not
apply to the overdraft credit feature accessed by the prepaid card.
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The Bureau defines the terms ``asset feature,'' ``credit feature,''
and ``separate credit feature'' to effectuate the provisions set forth
in new Sec. 1026.61(b), as well as other provisions set forth in new
Sec. 1026.61 and in Regulation Z generally that relate to hybrid
prepaid-credit cards. These defined terms are discussed in more detail
below.
Definition of ``asset feature.'' Under the final rule, the term
``asset feature'' in new Sec. 1026.61(a)(5)(vii) is defined to mean an
asset account that is a prepaid account, or an asset subaccount of a
prepaid account. As described above and in more detail below in the
section-by-section analysis of Sec. 1026.61(b), a card issuer cannot
structure a credit feature as a negative balance on the asset feature
of a prepaid account, unless the conditions in new Sec. 1026.61(a)(4)
are met.
Definition of ``credit feature.'' The term ``credit feature'' is
defined in new Sec. 1026.61(a)(5)(iv) to mean either: (1) A separate
credit account or a credit subaccount of a prepaid account through
which credit can be extended in connection with a prepaid card, or (2)
a negative balance on an asset feature of a prepaid account through
which credit can be extended in connection with a prepaid card. As
discussed above, under new Sec. 1026.61(b), a card issuer may not
structure a credit feature as a negative balance on the asset feature
of the prepaid account, except as permitted under new Sec.
1026.61(a)(4).
New comment 61(a)(5)(iv)-1 provides that the definition of ``credit
feature'' set forth in new Sec. 1026.61(a)(5)(iv) only defines that
term for purposes of Regulation Z in relation to credit offered in
connection with a prepaid account or prepaid card. This comment
explains that this definition does not impact when an account,
subaccount or negative balance is a credit feature under Regulation Z
with respect to credit in relation to a checking account or other
transaction account that is not a prepaid account, or a debit card.
See, e.g., existing comment 2(a)(15)-2.ii.A and existing comment
4(b)(2)-1 where the term credit feature is used in relation to a debit
card or asset account other than a prepaid account.
One issuing credit union indicated that the Bureau should clarify
that where a prepaid account is loaded with funds using a deposit
account where an overdraft protection program or overdraft line of
credit is activated, the prepaid card does not become a credit card
under the proposal because the overdraft protection program or
overdraft line of credit was activated. New comment 61(a)(5)(iv)-2
provides that a ``credit feature'' for purposes of Sec.
1026.61(a)(5)(iv) does not include an asset account other than a
prepaid account that has an attached overdraft feature. For example,
assume that funds are loaded or transferred to a prepaid account from
an asset account (other than a prepaid account) on which an overdraft
feature is attached. The asset account is not a credit feature under
new Sec. 1026.61(a)(5)(iv) even if the load or transfer of funds to
the prepaid account triggers the overdraft feature that is attached to
the asset account.
Definition of ``separate credit feature.'' New Sec.
1026.61(a)(5)(viii) defines ``separate credit feature'' to mean a
credit account or a credit subaccount of a prepaid account through
which credit can be extended in connection with a prepaid card that is
separate from the asset feature of the prepaid account. This term does
not include a negative balance on an asset feature of a prepaid
account. As discussed above, under new Sec. 1026.61(b), a card issuer
must structure an overdraft credit feature in connection with a prepaid
account as a separate credit feature, such as a credit account or
credit subaccount to the prepaid account that is separate from the
asset feature of the prepaid account, except for overdraft credit
features
[[Page 84264]]
described in new Sec. 1026.61(a)(4). This separate credit feature is a
``covered separate credit feature'' under new Sec. 1026.61(a)(2)(i).
61(b) Structure of Credit Features Accessible by Hybrid Prepaid-Credit
Cards
The Bureau's Proposal
Under the proposal, credit plans, including overdraft services and
overdraft lines of credit, that are directly accessed by certain
prepaid cards would have been subject to the rules for credit cards
under Regulation Z. In particular, proposed comment 2(a)(15)-2.i.F
would have provided 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.
The proposal made clear that the Bureau intended that the credit
card rules apply broadly to a range of product structures. In the
proposal, for instance, the Bureau specifically stated that the
proposal was intended to cover: (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
would have been credit accessed by a prepaid card that is a credit card
under the proposal, regardless of whether the person established a
separate credit account to extend the credit or whether the credit was
simply reflected as a negative balance on the prepaid account.
In addition to proposing a broad scope of coverage, the Bureau
sought to explore practical considerations regarding product structure
and operations for credit that would be subject to the credit card
rules. Specifically, in the proposal, the Bureau stated its belief that
creditors would tend to establish separate credit accounts to extend
credit accessed by the prepaid card that is a credit card, instead of
having the credit balance be reflected as a negative balance on the
prepaid account, because creditors generally would find that separate
credit accounts aid compliance with the periodic statement requirements
in proposed Sec. Sec. 1026.5(b)(2)(ii) and 1026.7(b)(11) and the
offset provisions in proposed Sec. 1026.12(d)(3) that would apply to
credit card accounts accessed by prepaid cards. The Bureau solicited
comment on whether creditors would likely establish separate credit
accounts, instead of reflecting the credit balance as a negative
balance on the prepaid account. The Bureau also solicited 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.
Comments Received
The commenters that responded to the Bureau's questions on this
issue universally supported separate account structures. Specifically,
one industry trade association stated that it believed a credit feature
that is accessed by a prepaid card that is a credit card under the
proposal should not be structured as a negative prepaid account
balance. This commenter pointed out that, if an account is a ``dual''
account, the overdraft line of credit would only be accessed if a
transaction amount were more than the amount in the prepaid account,
and such a transaction would create two distinct balances. Similarly,
one consumer group commenter stated with respect to credit accessed by
a prepaid card that is a credit card, the Bureau should require the
credit feature to be structured as a separate account, rather than
reflected as a negative balance on the prepaid account. This commenter
indicated that allowing credit to be reflected solely as a negative
balance on the prepaid account would be confusing to consumers and
would undercut the message that the consumer is being given credit, and
being charged for credit.
The Final Rule
After consideration of these comments and additional internal
analysis regarding transparency and compliance concerns, in the final
rule, the Bureau requires that credit features that are accessible by a
hybrid prepaid-credit card be structured as a separate credit feature--
either a separate sub-account or account--rather than as a negative
balance on the asset feature of a prepaid account. While a negative
balance structure would be permissible where an issuer only offers
incidental credit pursuant to new Sec. 1026.61(a)(4),\707\ an issuer
that offers more extensive credit or charges credit-related fees using
a negative balance structure would be subject to the credit card rules,
pursuant to new Sec. 1026.61(a)(3), and would be in violation of the
rule on account structure specified in new Sec. 1026.61(b). Instead,
under the final rule, a card issuer must structure the credit feature
as a separate credit feature, either as a separate credit account, or
as a credit subaccount of a prepaid account that is separate from the
asset feature of the prepaid account. The separate credit feature is a
covered separate credit feature accessible by a hybrid prepaid-credit
card under new Sec. 1026.61(a)(2)(i).
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\707\ If a prepaid account issuer complies with the exception in
Sec. 1026.61(a)(4) with respect to a prepaid account that is
accessed by a prepaid card, the prepaid card is not a hybrid
prepaid-credit card under Regulation Z, and thus is not a credit
card under Regulation Z. The prepaid account issuer is not a card
issuer under Sec. 1026.2(a)(7) and thus, Sec. 1026.61(b) does not
apply to the overdraft credit feature accessed by the prepaid card.
---------------------------------------------------------------------------
The Bureau believes that this structural requirement will make it
substantially easier for creditors and consumers alike to implement and
understand credit accessible via a hybrid prepaid-credit card under a
credit card regime. Regulation Z's open-end rules are generally drafted
with the assumption that the product in question is a pure credit
product, without substantial positive funds. For example, existing
Sec. 1026.11(a) generally provides that creditors must refund any
positive balances on the credit account to the consumer within six
months. And, as discussed in more detail in the section-by-section
analysis of Sec. 1026.4(a) above, the rules for defining finance
charges in the credit card context generally treat all transaction
charges as finance charges, which makes sense when all transactions are
generally assumed to involve use of credit.
But because hybrid prepaid-credit cards by their nature involve
consumer assets as well as use of credit, bifurcating the asset feature
from the credit feature makes application of the credit card rules more
intuitive in a number of respects. For example, as discussed in more
detail in the section-by-section analysis of Sec. 1026.4(b)(11)(ii)
above, it provides a structure by which general transaction fees that
are imposed in the same amount for any transaction conducted on the
prepaid account--regardless of whether there are sufficient positive
funds in the account--to be excluded from the finance charge. This both
makes the program easier for the prepaid account issuer to operate and
easier for the
[[Page 84265]]
consumer to understand, so that the finance charge reflects the costs
associated with the use of credit. As discussed above, this
implementation is also more generally consistent with comments received
in response to the proposed rule that urged the Bureau to include only
differentiated and unique fees imposed when credit is extended in the
definition of finance charge, rather than also including fees that are
the same for purely positive balance transactions.
Bifurcating the two features also will make it easier to apply
standard credit card requirements, such as periodic statements
requirements and no-offset rules in the prepaid context. Specifically,
the periodic statement requirements in Sec. 1026.7(b)(1) and (10)
(which implement TILA section 127(b)(1) and (8) respectively) require
card issuers to disclose for each billing cycle both the outstanding
balance in the account at the beginning of statement period and the
outstanding balance in the account at the end of the period.\708\ In
addition, because of the offset restrictions in final Sec. 1026.12(d)
(which implements TILA section 169) \709\ and the due date and 21-day
timing requirements for periodic statements in final Sec.
1026.7(b)(11)and in final Sec. 1026.5(b)(2)(ii)(A) (which implement
TILA sections 127(b)(12) and (o) and TILA section 163
respectively),\710\ incoming deposits to the asset feature of the
prepaid account could not be applied automatically to repay the
negative balance on the asset balance of the prepaid account when those
incoming deposits are received. Instead, with respect to a covered
separate credit feature accessible by hybrid prepaid-credit card, a
card issuer (1) is required to adopt reasonable procedures designed to
ensure that periodic statements for the covered separate credit
features 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
(2) can move funds automatically from the asset account held by the
card issuer to the covered separate credit feature held by the card
issuer to pay some or all of the credit card debt on the covered
separate credit feature 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). Even if card issuers were able to
identify methods of satisfying those requirements that were technically
compliant with the credit card rules using a negative balance account
structure, the Bureau believes that consumers would have a harder time
understanding the operation of their accounts and their rights under
such a system.
---------------------------------------------------------------------------
\708\ 15 U.S.C. 1637(b)(1) and (8).
\709\ 15 U.S.C. 1666h(a).
\710\ 15 U.S.C. 1637(b)(12), and (o) and 1666b.
---------------------------------------------------------------------------
Accordingly, the Bureau believes that use of its authority under
TILA section 105(a) to add the provisions in new Sec. 1026.61(b) is
necessary and proper to effectuate the purposes of TILA to help ensure
the informed use of the credit or charge card account. Specifically,
TILA section 102 provides that one of the main purposes of TILA is to
promote the informed use of credit by ensuring meaningful disclosure of
credit terms so that consumers will be able to compare more readily the
various credit terms available and avoid the uninformed use of
credit.\711\ The Bureau believes that requiring credit features
accessible by hybrid prepaid-credit cards to be structured as separate
credit features will promote the purposes of TILA by ensuring that
Regulation Z's periodic statement disclosures are clear to consumers
and that card issuers are complying with the offset restrictions and
due date requirements in TILA in a manner that is transparent to
consumers.
---------------------------------------------------------------------------
\711\ 15 U.S.C. 1601.
---------------------------------------------------------------------------
The Bureau recognizes under this requirement, card issuers will be
required after the final rule becomes effective to structure any
overdraft credit feature offered by a prepaid account issuer, its
affiliate, or its business partner as a separate credit feature, except
to the extent that overdraft credit feature meets the conditions set
forth in new Sec. 1026.61(a)(4). To the extent a prepaid account
issuer has been offering overdraft credit as a negative balance on
prepaid accounts prior to these rules becoming effective, the prepaid
account issuer will need to restructure its overdraft credit feature as
a separate credit feature if the overdraft credit feature does not meet
the conditions set forth in new Sec. 1026.61(a)(4). Nonetheless, as
discussed above, the Bureau believes that bifurcating the two accounts
is likely to make it easier for card issuers to comply with the
Regulation Z requirements, such as the periodic statement and offset
provisions discussed above, that will apply to the overdraft credit
feature once the final rule becomes effective and facilitate consumers'
understanding of the operation of their accounts and their rights with
respect to each account.
To provide additional clarity on the provisions in new Sec.
1026.61(b), new comment 61(b)-1 provides that if a credit feature that
is accessible by a hybrid prepaid-credit card is structured as a
subaccount of the prepaid account, the credit feature must be set up as
a separate balance on the prepaid account such that there are at least
two balances on the prepaid account--the asset account balance and the
credit account balance.
New comment 61(b)-2 provides guidance on how a card issuer may
comply with the requirement in new Sec. 1026.61(b). New comment 61(b)-
2.i provides that if at the time a prepaid card transaction is
initiated there are insufficient or unavailable funds in the asset
feature of the prepaid account to complete the transaction, credit must
be drawn, transferred, or authorized to be drawn or transferred from
the covered separate credit feature at the time the transaction is
authorized. The card issuer may not allow the asset feature on the
prepaid account to become negative and draw or transfer the credit from
the covered separate credit feature at a later time, such as at the end
of the day. The card issuer must comply with the applicable provisions
of this regulation with respect to the credit extension from the time
the prepaid card transaction is authorized. Because of the offset
prohibition set forth in final Sec. 1026.12(d) and the due date and
21-day timing requirements for periodic statements in final Sec.
1026.7(b)(11) and in final Sec. 1026.5(b)(2)(ii)(A) respectively,
incoming deposits to the asset feature of the prepaid account could not
be applied automatically to repay the negative balance on the asset
balance of the prepaid account when those incoming deposits are
received. Thus, new comment 61(b)-2.i makes clear that a card issuer
may not allow the asset feature on the prepaid account to become
negative and draw or transfer the credit from the covered separate
credit feature at a later time, such as at the end of the day, to
ensure that the card issuer is complying with these Regulation Z
provisions in a manner that is clear to consumers.
New comment 61(b)-2.ii provides that for transactions where there
are insufficient or unavailable funds in the asset feature of the
prepaid account to cover the transaction at the time it settles, and
the prepaid transaction either was not authorized in advance or the
transaction was authorized and there were sufficient or available funds
in the prepaid account at the time of authorization to cover the
transaction, credit must be drawn from the covered separate credit
feature to settle these
[[Page 84266]]
transactions. The card issuer may not allow the asset feature on the
prepaid account to become negative. The card issuer must comply with
the applicable provisions of this regulation from the time the
transaction is settled.
New comment 61(b)-2.iii provides that if a negative balance would
result on the asset feature in circumstances other than those described
in new comment 61(b)-2.i and ii, credit must be drawn from the covered
separate credit feature to avoid the negative balance. The card issuer
may not allow the asset feature on the prepaid account to become
negative. The card issuer must comply with the applicable provisions in
this regulation from the time credit is drawn from the covered separate
credit feature. For example, assume that a fee for an ATM balance
inquiry is imposed on the prepaid account when there are insufficient
or unavailable funds to cover the amount of the fee when it is imposed.
Credit must be drawn from the covered separate credit feature to avoid
a negative balance. The Bureau expects that the card issuer will make
it clear to consumers in the credit arrangement that credit will be
drawn from the covered separate credit feature to avoid a negative
balance on the asset feature of the prepaid account, including if
applicable for fees imposed on the prepaid account where there are
insufficient or unavailable funds to cover the amount of the fee when
it is imposed.
61(c) Timing Requirement for Credit Card Solicitation or Application
With Respect to Hybrid Prepaid-Credit Cards
As discussed in more detail in the section-by-section analysis of
Sec. 1026.12(a) above, credit cards generally may not be issued on an
unsolicited basis. Thus, TILA section 132 and existing Sec. 1026.12(a)
prevent a card issuer from issuing on an unsolicited basis a prepaid
card that also is a credit card at the time of issuance. For example,
prepaid cards that are sold in retail locations could not access
automatically an overdraft credit feature that would make the prepaid
card into a credit card at the time the prepaid card is sold. Under
TILA section 132 and existing Sec. 1026.12(a), a card issuer could add
a credit card feature to a prepaid card only in response to a
consumer's explicit request or application.
The Bureau's Proposal
The Bureau proposed to use its authority in TILA section 105(a) and
Dodd-Frank Act section 1032(a) to add new proposed Sec. 1026.12(h)(1)
that would have required card issuers to wait at least 30 days after a
prepaid account is registered before the card issuer may make a
solicitation or provide an application to the holder of the prepaid
account to open a credit or charge card account that would be accessed
by a prepaid card. In addition, card issuers would have been required
to wait until at least 30 days after registration to open a credit card
account for the holder of a prepaid account that would be accessed by
the prepaid card. Moreover, if a card issuer has established an
existing credit or charge card account with a holder of a prepaid
account that is accessed by a prepaid, the card issuer would have been
prevented from allowing an additional prepaid card obtained by the
consumer from the card issuer to access the credit or charge card
account, until at least 30 days after the consumer has registered the
additional prepaid account.
Proposed Sec. 1026.12(h)(2) would have defined ``solicitation''
for purposes of Sec. 1026.12(h)(1) to mean an offer by the card issuer
to open a credit or charge card account that does not require the
consumer to complete an application. This proposed definition of
``solicitation'' would have been the same as one used with respect to
credit card disclosures set forth in existing Sec. 1026.60(a)(1) that
must be provided on or with credit card applications and solicitations.
See the section-by-section analysis of Sec. 1026.60 above. Consistent
with existing Sec. 1026.60, proposed Sec. 1026.12(h)(2) also would
have specified that a ``firm offer of credit,'' as defined in section
603(l) of the Fair Credit Reporting Act \712\ for a credit or charge
card, would be a solicitation for purposes of proposed Sec.
1026.12(h).
---------------------------------------------------------------------------
\712\ 15 U.S.C. 1681a(l).
---------------------------------------------------------------------------
Proposed comment 12(h)-1 would have explained that a prepaid card
or prepaid account is registered, such that the 30-day timing
requirement required by proposed Sec. 1026.12(h) begins, when the
issuer of the prepaid card or prepaid account successfully completes
its collection of consumer identifying information and identity
verification in accordance with the requirements of applicable Federal
and State law. The beginning of the required 30-day timing requirement
would have been triggered by successful completion of collection of
consumer identifying information and identity verification, not by the
consumer's mere purchase or obtaining of the card.
Proposed comment 12(h)-2 would have provided a cross-reference to
existing Sec. 1026.12(a)(1) and proposed comment 12(a)(1)-7 for
additional rules that would apply to the addition of a credit or charge
card account to a previously-issued prepaid account. As discussed in
the section-by-section analysis of Sec. 1026.12(a)(1) above, proposed
comment 12(a)(1)-7 would have provided that 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 comment 12(h)-2 also would have cross-referenced Sec. 1026.60
and related commentary for disclosures that generally must be provided
on or with applications or solicitations to open a credit or charge
card account.
Comments Received
Several consumer group commenters urged the Bureau to extend the
30-day waiting period to 90 days. They noted that in 30 days, the
consumer will only have completed one monthly cycle and will not have
time to explore all the card's features. They believed that more time
would help the consumer see whether she can manage her finances without
resorting to credit at the end of the month. They also believed that a
90 day waiting period would help creditors to determine whether the
consumer has the ability to repay credit.
Several commenters, including industry trade associations, an
issuing bank, and a payment network, indicated that the Bureau should
not adopt a waiting period. For example, one payment network said that
this approach may create burdens and frustration for consumers who are
explicitly seeking a prepaid account that has credit features. This
commenter believed that the risks identified by the Bureau are more
appropriately mitigated by requiring an affirmative consumer opt-in for
any prepaid card to be linked with a credit feature, and that this opt-
in can be given only after disclosures about the credit have been
provided.
One digital wallet provider suggested that the Bureau clarify that
this restriction does not apply to a digital wallet's funding sources.
This commenter was concerned that applying the 30-day waiting period to
digital wallets would effectively ban new consumers from linking a
credit card as a funding source for their digital wallet.
The Final Rule
After consideration of the comments, the Bureau is adopting the 30-
day waiting period largely as proposed. Specifically, the Bureau is
moving proposed Sec. 1026.12(h) to new Sec. 1026.61(c) and is
revising it to clarify the intent of the provision and to be
[[Page 84267]]
consistent with new Sec. 1026.61(a).\713\ Specifically, new Sec.
1026.61(c)(1) provides that with respect to a covered separate credit
feature that could be accessible by a hybrid prepaid-credit card at any
point, a card issuer must not do any of the following until 30 days
after the prepaid account has been registered: (1) Open a covered
separate credit feature that could be accessible by the hybrid prepaid-
credit card; (2) make a solicitation or provide an application to open
a covered separate credit feature that could be accessible by the
hybrid prepaid-credit card; or (3) allow an existing credit feature
that was opened prior to the consumer obtaining the prepaid account to
become a covered separate credit feature accessible by the hybrid
prepaid-credit card.
---------------------------------------------------------------------------
\713\ The proposal would have provided 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 a credit plan that allows
deposits directly only into particular prepaid accounts specified by
the creditor. The proposal also would have applied the provisions in
proposed Sec. 1026.12(h) to credit card accounts accessed by such
accounts numbers. For the reasons set forth in the section-by-
section analysis of Sec. 1026.2(a)(15)(i) above, the final rule
does not adopt the provisions in proposed Sec. 1026.12(h)
(renumbered as new Sec. 1026.61(c)) related to these account
numbers.
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New Sec. 1026.61(c)(2) provides that for purposes of new Sec.
1026.61(c), the term ``solicitation'' has the same meaning set forth in
Sec. 1026.60(a)(1). The term ``solicitation'' in existing Sec.
1026.60(a)(1) means an offer by the card issuer to open a credit or
charge card account that does not require the consumer to complete an
application. In addition, existing Sec. 1026.60(a)(1) provides that a
``firm offer of credit'' as defined in section 603(l) of the Fair
Credit Reporting Act \714\ for a credit or charge card is a
solicitation for purposes of existing Sec. 1026.60(a)(1). The
definition of ``solicitation'' in new Sec. 1026.61(c)(2) is the same
as the proposed definition of ``solicitation'' in proposed Sec.
1026.12(h). The final rule cross-references the definition of
``solicitation'' in existing Sec. 1026.60(a)(1) rather than repeating
the same definition in new Sec. 1026.61(c).
---------------------------------------------------------------------------
\714\ 15 U.S.C. 1681a(l).
---------------------------------------------------------------------------
The Bureau is moving proposed comment 12(h)-1 to comment 61(c)-1
and is revising it to provide additional clarification. Consistent with
the proposal, new comment 61(c)-1 provides that a prepaid card or
prepaid account is registered, such that the 30-day timing requirement
required by new Sec. 1026.61(c) begins, when the issuer of the prepaid
card or prepaid account successfully completes its collection of
consumer identifying information and identity verification in
accordance with the requirements of applicable Federal and State law.
The beginning of the required 30-day timing requirement is triggered by
successful completion of collection of consumer identifying information
and identity verification, not by the consumer's mere purchase or
obtaining of the card. New comment 61(c)-1 is revised from the proposal
to provide guidance on situations where customer identification and
verification are completed on a prepaid account before the account is
opened. In that case, new comment 61(c)(1)-1 provides that the 30-day
timing requirement begins on the day the prepaid account is opened.
The Bureau is moving proposed comment 12(h)-2 to new comment 61(c)-
2 and is adopting it as proposed. The Bureau also is adding new comment
61(c)-3 to address situations where a hybrid prepaid-credit card is
replaced or substituted for another hybrid prepaid-credit card.
Specifically, new comment 61(c)-3 provides that a card issuer is not
required to comply with new Sec. 1026.61(c) when a hybrid prepaid-
credit card is permitted to be replaced, or substituted, for another
hybrid prepaid-credit card without a request or application under final
Sec. 1026.12(a)(2) and related commentary. For example, new Sec.
1026.61(c) does not apply to situations where a prepaid account or
credit feature that is accessible by a hybrid prepaid-credit card is
replaced because of security concerns, and a new hybrid prepaid-credit
card is issued to access the new prepaid account or credit feature
without a request or application under final Sec. 1026.12(a)(2).
With regard to comments urging the Bureau to clarify that the 30-
day restriction does not apply to a digital wallet's funding sources,
the Bureau is adding new comment 61(a)(1)-4 to provide guidance on the
circumstances in which a prepaid account number for a digital wallet
that is a prepaid account is a hybrid prepaid-credit card under new
Sec. 1026.61(a).
Specifically, new comment 61(a)(1)-4.i states that a digital wallet
that is capable of being loaded with funds is a prepaid account under
final Regulation E Sec. 1005.2(b)(3). See final Regulation E Sec.
1005.2(b)(3) and comment 2(b)(3)(i)-6. The comment explains that a
prepaid account number that can access such a digital wallet is a
hybrid prepaid-credit card if it meets the conditions set forth in new
Sec. 1026.61(a). See new comment 61(a)(1)-4 for illustrations of this
rule.
Thus, new Sec. 1026.61(c) applies to a digital wallet that is
capable of being loaded with funds (and thus is a prepaid account under
final Regulation E Sec. 1005.2(b)(3)), where the prepaid account
number that can access such a digital wallet is a hybrid prepaid-credit
card as defined in new Sec. 1026.61(a). The Bureau believes that this
additional guidance will help relieve any concerns that the 30-day
period would effectively ban new consumers from linking a credit card
as a funding source for their digital wallet, except where the linked
credit feature is a covered separate credit feature as defined in new
Sec. 1026.61(a)(2)(i).
With regard to the two conflicting sets of comments urging the
Bureau to drop the 30-day waiting period entirely and conversely to
expand it to 90 days, the Bureau has concluded based on additional
consideration to adopt the 30-day waiting period as proposed. The
Bureau continues to believe the 30-day waiting period would benefit
consumers by separating the decisions to obtain and register the
prepaid account from the decision to obtain a covered separate credit
feature accessible by the hybrid prepaid-credit card. Nonetheless, the
Bureau believes that extending the waiting period to 90 days seems
unnecessary to ensure that a consumer can make an informed decision
regarding whether to link the account to a covered separate credit
feature. The Bureau believes that a longer waiting period may restrict
consumers who are seeking prepaid accounts with covered separate credit
features accessible by hybrid prepaid-credit cards.
The Bureau notes that if the prepaid account issuer offers the
covered separate credit feature accessible by the hybrid prepaid-credit
card, the prepaid account issuer is the ``card issuer'' for purposes of
Regulation Z, including new Sec. 1026.61(c). This is because the
hybrid prepaid-credit card accessing the covered separate credit
feature is a credit card, and existing Sec. 1026.2(a)(7) defines
``card issuer'' as a person that issues a credit card or that person's
agent with respect to the card. If the prepaid account issuer's
affiliate or business partner offers the covered separate credit
feature accessible by a hybrid prepaid-credit card, both the person
offering the covered separate credit feature and the prepaid account
issuer are card issuers for purposes of new Sec. 1026.61(c). In this
case, under new comment 2(a)(7)-1.ii, the person offering the covered
separate credit feature would be an agent of the prepaid account
issuer.
The Bureau believes that use of its authority under TILA section
105(a) to add the provisions in new Sec. 1026.61(c) is necessary and
proper to effectuate the purposes of TILA to help ensure the informed
use of the credit or charge card
[[Page 84268]]
account when it is opened. Specifically, TILA section 102 provides that
one of the main purposes of TILA is to promote the informed use of
credit by ensuring meaningful disclosure of credit terms so that
consumers will be able to compare more readily the various credit terms
available and avoid the uninformed use of credit.\715\ Furthermore,
TILA section 132 requires that no credit card shall be issued except in
response to a request or application therefor.\716\ In addition, the
Bureau believes that the waiting period will, consistent with Dodd-
Frank Act section 1032(a), ensure that the features of the covered
separate credit feature offered in connection with the prepaid account
are fully, accurately, and effectively disclosed to consumers in a
manner that permits the consumers to understand the costs, benefits,
and risks associated with the credit feature.
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\715\ 15 U.S.C. 1601.
\716\ 15 U.S.C. 1642.
---------------------------------------------------------------------------
The Bureau believes that the requirement in new Sec. 1026.61(c) of
a 30-day waiting period for a prepaid card to access a covered separate
credit feature will promote the informed and voluntary use of credit.
Under new Sec. 1026.12(c)(1), a card issuer must not do any of the
following until 30 days after the prepaid account has been registered:
(1) Open a covered separate credit feature that could be accessible by
the hybrid prepaid-credit card; (2) make a solicitation or provide an
application to open a covered separate credit feature that could be
accessible by the hybrid prepaid-credit card; or (3) allow an existing
credit feature that was opened prior to the consumer obtaining the
prepaid account to become a covered separate credit feature accessible
by the hybrid prepaid-credit card. The Bureau believes that it would
promote the informed use of the credit to separate the decision to
purchase and register a prepaid account from the decision to accept an
offer to add a covered separate credit feature accessible by a hybrid
prepaid-credit card. The Bureau believes that consumers may be able to
focus more effectively on the credit terms of the covered separate
credit feature, and make a more informed decision whether to request
such a credit feature, if the decision to accept the credit feature
occurs apart from the process to register the card. Without these
protections, card issuers may attempt to market the covered separate
credit feature to prepaid cardholders at the time they purchase the
prepaid card or at registration. The Bureau believes that without this
provision, prepaid account issuers would be likely to provide
solicitations or applications to the prepaid cardholder to open a
covered separate credit feature accessible by a hybrid prepaid-credit
card, or suggest that the prepaid cardholder allow an existing credit
feature held by the prepaid cardholder to become a covered separate
credit feature accessible by a hybrid prepaid-credit card, at the time
the prepaid accounts are registered because prepaid account issuers
will already be collecting information from the cardholders in order to
register the prepaid accounts.
Without the waiting period, consumers may feel pressured to decide
whether to add the covered separate credit feature without having the
opportunity to fully consider the terms of the credit feature and the
consequences of obtaining the credit feature. Therefore, the Bureau
believes that a consumer's decision to add a covered separate credit
feature accessible by a hybrid prepaid-credit card to the prepaid
account should be distinct from the decision to obtain or register the
prepaid card.
In addition, the Bureau believes that separating these decisions
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. This is consistent with EFTA section 905(a), which requires
financial institutions to disclose the terms and conditions of EFTs
involving a consumer's account. The Bureau also believes that requiring
at least 30 days to elapse between the registration of a prepaid
account and any offer of a covered separate credit feature accessible
by a hybrid prepaid-credit card would enhance consumer understanding of
the terms of the prepaid account and would help consumers to make more
informed decisions regarding linking a covered separate credit feature
accessible by a hybrid prepaid-credit card to the prepaid account.
As discussed in the section-by-section analysis of Regulation E
Sec. 1005.18(e)(3) above, existing customer identification
requirements limit the functionality of most prepaid accounts prior to
registration. In addition, the registration process is critical for
application of full Regulation E protections under this final rule. For
example, Regulation E Sec. 1005.18(e)(3) provides that for all prepaid
accounts, other than payroll card accounts and government benefit
accounts, with respect to which the financial institution has not
completed its identification and verification process (or for which the
financial institution has no process), the financial institution is not
required to provisionally credit the consumer's account in the event
the financial institution takes longer than 10 or 20 business days, as
applicable, to investigate and determine whether an error
occurred.\717\ If a card issuer were allowed to market covered separate
credit features to consumers at the time of prepaid account
registration, the Bureau is concerned that that consumers could believe
that they are required to request that the covered separate credit
feature accessible by a hybrid prepaid-credit card be linked to the
prepaid account in order to register or access the prepaid account.
This could cause some consumers to not register their prepaid accounts
and lose important protections under Regulation E.
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\717\ See also new Regulation E Sec. 1005.18(c)(2), which
provides a modified version of the periodic statement alternative
for prepaid accounts that cannot be or have not been verified by the
financial institution.
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VI. Effective Date
The Bureau is generally establishing that this rule take effect on
October 1, 2017, which is approximately 12 months from the issuance of
this final rule. However, the Bureau is adopting several specific
accommodations related to the effective date as set forth in Sec.
1005.18(h), and a delayed effective date for the requirement to submit
prepaid account agreements to the Bureau as described in Sec.
1005.19(f).
As discussed in the section-by-section analysis of Sec. 1005.18(h)
above, the 12-month implementation period is a change from the
proposal, which would have required that the rule generally take effect
nine months following the publication of the rule in the Federal
Register, with three months' additional leeway for certain disclosure-
related requirements. The Bureau received many comments from industry,
including trade associations, issuing banks, credit unions, program
managers, payment networks, a payment processor, and a law firm writing
on behalf of a coalition of prepaid issuers, arguing that the proposed
nine- and 12-month compliance periods would be insufficient to
implement the changes that would be required under the proposal. Upon
consideration of the comments received, the Bureau believes that it is
appropriate to provide a longer implementation period and to make a
number of modifications and accommodations in the final rule to address
particular concerns raised by commenters.
[[Page 84269]]
For instance, final Sec. 1005.18(h)(2)(i) sets forth an exception
to the October 1, 2017 effective date that states that the disclosure
requirements of Regulation E subpart A as modified by final Sec.
1005.18 shall not apply to any disclosures that are provided, or that
would otherwise be required to be provided, on prepaid account access
devices, or on, in, or with prepaid account access devices and
packaging materials that were manufactured, printed, or otherwise
produced in the normal course of business prior to October 1, 2017.
Accordingly, unlike the proposed rule, the final rule does not require
that financial institutions pull and replace existing access devices
and packaging material after the rule takes effect. In return, final
Sec. 1005.18(h)(2)(ii) requires that financial institutions provide
notices of certain changes and updated initial disclosures to consumers
who acquire prepaid accounts on or after October 1, 2017 via non-
compliant packaging materials printed prior to the effective date.
Final Sec. 1005.18(h)(2)(iii) clarifies the requirements for providing
notice of changes to consumers who acquired prepaid accounts before
October 1, 2017. Final Sec. 1005.18(h)(2)(iv) facilitates the delivery
of notices of certain changes and updated initial disclosures for
prepaid accounts governed by Sec. 1005.18(h)(2)(ii) or (iii). Final
Sec. 1005.18(h)(3) provides an accommodation to financial institutions
that do not have sufficient data in a readily accessible form in order
to comply fully with the requirements for providing electronic and
written account transaction history pursuant to final Sec.
1005.18(c)(1)(ii) and (iii), respectively, and the summary totals of
fees pursuant to final Sec. 1005.18(c)(5) by October 1, 2017.
As discussed in the section-by-section analysis of Sec. 1005.19(f)
above, final Sec. 1005.19(f)(2) sets forth a delayed effective date of
October 1, 2018 for the requirement to submit prepaid account
agreements to the Bureau on a rolling basis pursuant to final Sec.
1005.19(b). The Bureau believes that the effective dates discussed
herein strike the appropriate balance between providing consumers with
necessary protections while giving financial institutions adequate time
to comply with all aspects of this final rule.
VII. Section 1022(b)(2)(A) of the Dodd-Frank Act
A. Overview
In developing the final rule, the Bureau has considered the
potential benefits, costs, and impacts required by section 1022(b)(2)
of the Dodd-Frank Act. Specifically, section 1022(b)(2) calls for the
Bureau to consider the potential benefits and costs of a regulation to
consumers and covered persons (which in this case would be the
providers subject to the proposed rule), including the potential
reduction of access by consumers to consumer financial products or
services, the impact on depository institutions and credit unions with
$10 billion or less in total assets as described in section 1026 of the
Dodd-Frank Act, and the impact on consumers in rural areas. In
addition, 12 U.S.C. 5512(b)(2)(B) directs the Bureau to consult, before
and during the rulemaking, with appropriate prudential regulators or
other Federal agencies, regarding consistency with objectives those
agencies administer. The Bureau has consulted, or offered to consult
with, the prudential regulators, the Department of the Treasury, the
Securities and Exchange Commission, and the Federal Trade Commission
regarding consistency with any prudential, market, or systemic
objectives administered by these agencies.
As discussed above, the final rule amends both Regulation E, which
implements EFTA, and Regulation Z, which implements TILA, as well as
the official interpretation to those regulations. The final rule
creates comprehensive consumer protections for prepaid financial
products. It expressly brings such products within the ambit of
Regulation E as prepaid accounts and creates new provisions specific to
such accounts. It also modifies certain Regulation E provisions as they
apply to prepaid accounts, including provisions that currently apply to
government benefit accounts and payroll card accounts.\718\
Additionally, the final rule contains amendments to Regulations E and Z
to regulate covered separate credit features accessible by a hybrid
prepaid-credit card.
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\718\ The definition of prepaid account in Sec. 1005.2(b)(3)
includes government benefit accounts and payroll card accounts.
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In applying the consumer protections in Regulation E to a broader
set of consumer accounts, the Bureau furthers the statutory purposes of
EFTA, which include providing a basic framework establishing the
rights, liabilities, and responsibilities of participants in EFT
systems and providing individual consumer rights. In addition, the
Bureau believes that applying the consumer protections articulated in
Regulation Z to covered separate credit features accessible by a hybrid
prepaid-credit card conforms to TILA's statutory purposes, which
include assuring a meaningful disclosure of credit terms, avoiding the
uninformed use of credit, and protecting consumers against inaccurate
and unfair billing and credit card practices.
B. Major Provisions Discussed
Below, the Bureau considers the benefits, costs, and impacts of the
following major provisions of the final rule:
1. The establishment of certain disclosures that financial
institutions are required to provide to consumers (or, in certain
circumstances, provide consumers access to) prior to the acquisition of
a prepaid account and modifications of initial disclosures that are
provided at account acquisition;
2. The application of Regulation E's periodic statement requirement
to prepaid accounts and the establishment of an alternative that
requires financial institutions to provide consumers access to certain
types of account information;
3. The extension of Regulation E's limited liability and error
resolution regime to all prepaid accounts, including provisional credit
requirements in most circumstances;
4. The requirement that all issuers of prepaid accounts submit
their prepaid account agreements to the Bureau on an ongoing basis,
post publicly available prepaid account agreements on their own Web
sites, and in limited circumstances, respond to consumers' requests for
written copies of their account agreements; and
5. The modification and application of particular Regulation E and
Regulation Z provisions to covered separate credit features accessible
by a hybrid prepaid-credit card.
With respect to each major provision of the final rule, the Bureau
considers the benefits, costs, and impacts to consumers and covered
persons. In addition, the Bureau discusses certain alternative
provisions that it considered, in addition to the major provisions
ultimately adopted, and addresses comments received in response to the
proposed rule's section 1022(b)(2)(A) treatment of these topics. Where
comments discuss the benefits or costs of a provision of the proposed
rule in the context of commenting on the merits of that provision, the
Bureau has addressed those comments above in the relevant section-by-
section analysis. In this respect, the Bureau's section 1022(b)(2)(A)
discussion is not limited to the discussion in this part of the final
rule.
In considering the relevant potential benefits, costs, and impacts,
the Bureau
[[Page 84270]]
has consulted the available data discussed in this preamble and has
applied its knowledge and expertise concerning consumer financial
markets. Where available, the Bureau has used the economic analyses
that it regards as most reliable and helpful to consider the relevant
potential benefits, costs, and impacts of the final rule. However, the
Bureau notes that, in some instances, there are limited data available
to inform the quantification of the potential benefits, costs, and
impacts. For example, financial institutions that currently apply
Regulation E's limited liability and error resolution provisions,
including provisional credit, do not generally publicize information
regarding the incremental costs associated with these activities.
Moreover, some potential benefits are difficult to quantify.
General economic principles, coupled with available quantitative
information, provide insight into the potential benefits, costs, and
impacts arising from the final rule. Where possible, the Bureau makes
quantitative estimates based on these principles as well as available
data. However, where data are limited, the Bureau generally provides a
qualitative discussion of the final rule's benefits, costs, and
impacts.
C. Baseline for Consideration of Benefits and Costs
The baseline for this discussion is the current market for prepaid
accounts.\719\ This baseline considers both the existing regulatory
structure as well as the economic attributes of the relevant
market.\720\ Although the Bureau describes the current market in detail
above, this section also describes certain features of the current
market where particularly relevant. When informative, the Bureau also
evaluates potential future impacts relative to how the market might
have evolved absent the final rule. To ascertain the current state of
the market, the Bureau performed industry outreach and conducted its
Study of Prepaid Account Agreements in connection with the proposed
rule. The Bureau also performed consumer testing to inform the proposed
rule and conducted additional consumer testing in connection with the
final rule.
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\719\ The Bureau has discretion in future rulemakings to choose
the relevant provisions to discuss and the most appropriate baseline
for that particular rulemaking.
\720\ As discussed above, several Federal regulatory regimes
apply to some or all types of prepaid accounts or to transactions
involving these accounts, including: Requirements set forth in
current Regulation E; requirements regarding receipt of Federal
payments onto prepaid cards and interchange fees; and requirements
to prevent financial crimes such as money laundering and terrorist
financing. Prudential regulators also have issued guidance
pertaining to the application of their rules to prepaid cards,
program managers, and issuing financial institutions. The benefits,
costs, and impacts that arise from the final rule are attenuated if
certain provisions are already required under State law.
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The final rule both extends Regulation E to cover additional
accounts and amends Regulation E to include new provisions for those
accounts, such as the final rule's requirements relating to pre-
acquisition disclosures. With respect to the provisions addressing
consumer access to account information, limited liability, and error
resolution protections, the Bureau generally extends existing
provisions of Regulation E, as they apply to payroll card accounts, to
all prepaid accounts. For some prepaid accounts, such as GPR cards that
do not receive Federal payments, these protections are newly required.
However, certain other prepaid accounts, such as payroll card accounts
and GPR cards that receive Federal payments, are currently subject to
Regulation E's requirements (as they apply to payroll card accounts)
directly or indirectly.\721\ Regulation E also contains provisions that
currently apply to government benefit accounts, which the final rule
amends to conform more closely to requirements for other types of
prepaid accounts.\722\
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\721\ As discussed above, the FMS Rule extends Regulation E's
payroll card account protections to prepaid accounts that receive
Federal payments.
\722\ Current provisions governing consumer access to government
benefit account information differ somewhat from those applicable to
payroll card accounts. Specifically, the alternative to the periodic
statement requirement, described in existing Sec. 1005.15(c), does
not require that a financial institution make available an
electronic history of account transactions to the consumer.
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Current industry practice is consistent with the final rule's
requirements in some cases. In such cases, the benefits, costs, and
impacts of the final rule on both financial institutions and consumers
are more modest than those that would result if industry practice
deviated from the final rule's requirements. As discussed above, the
Bureau's Study of Prepaid Account Agreements, performed in connection
with the proposed rule, suggested that many financial institutions
subject to the final rule already implement many of the final rule's
requirements pertaining to consumer access to account information,
limited liability, and error resolution. In addition to existing
Federal regulatory requirements, the need for issuing financial
institutions to comply with payment card associations' network rules
may explain why some financial institutions currently fully or
partially implement the final rule's requirements with respect to
limited liability and error resolution.\723\
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\723\ In certain circumstances, payment card associations'
network rules provide some form of zero liability protections for
prepaid cardholders. See, e.g., Visa Inc., Zero Liability, available
at https://www.visa.com/chip//security/zero-liability.jsp (last
visited Oct. 1, 2016); MasterCard Inc., Zero Liability Protection,
available at http://www.mastercard.us/zero-liability.html (last
visited Oct. 1, 2016).
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The final rule also includes protections for consumers using
prepaid cards to access covered separate credit features offered by
prepaid account issuers, their affiliates, or their business partners
(except as provided in new Sec. 1026.61(a)(4)). The Bureau understands
that few providers currently offer prepaid accounts with overdraft
services.\724\ However, one of the largest prepaid account program
managers offers an overdraft service in connection with some of its
prepaid account products (which include both GPR cards and payroll card
accounts), so the number of prepaid accounts eligible for overdraft
services is not negligible.\725\
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\724\ As discussed in more detail below, the Bureau sometimes
uses the generic term ``provider'' in this discussion to describe
covered entities responsible for compliance with the final rule's
provisions.
\725\ NetSpend is a significant provider of prepaid accounts.
See Total Sys. Serv., Inc., Annual Report (Form 10-K), at 2,
available at http://www.sec.gov/Archives/edgar/data/721683/000119312516476239/d240097d10k.htm (for the year ended Dec. 31,
2015) (``Through our NetSpend business, we believe that we are the
largest prepaid program manager in the United States based on gross
dollar volume.''). A news article reported that 6 percent of
NetSpend's customers regularly use overdraft services. Suzanne
Kapner, Prepaid Plastic is Creeping into Credit, Wall St. J. (Sept.
5, 2012), available at http://online.wsj.com/news/articles/SB100008723963904436860045776334 (2012 NetSpend WSJ Article). In
addition, a larger percentage of accounts would potentially be
eligible for their overdraft program. A recent financial filing
suggested that NetSpend had 3.6 million active cards as of Sept. 30,
2015, and 49 percent of those active cards had direct deposit. Total
Sys. Serv., Inc., Quarterly Report (Form 10-Q), at 27, available at
https://www.sec.gov/Archives/edgar/data/721683/000119312515367677/d10q.htm (for the quarterly period ended Sept. 30, 2015).2'>
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The Bureau believes that those few prepaid account providers
offering overdraft services do not presently comply with requirements
set forth in the final rule's credit provisions. The Bureau understands
that those prepaid account providers offering overdraft services
condition consumer eligibility on receipt of a regularly occurring
direct deposit and require consumers to opt-in to the service.\726\
When funds are deposited into an overdraft-enabled prepaid account, the
Bureau understands that these funds generally are applied automatically
to any outstanding negative balance before the
[[Page 84271]]
consumer may access them.\727\ The Bureau understands that providers
currently offering such services have adopted program rules designed to
aid the population using these features, such as discouraging
persistent use of the overdraft service by capping the number of fees
that a consumer may incur in a specified period.\728\ However, there is
currently no Federal regulatory requirement that providers offer such
protections for all prepaid account products.
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\726\ See, e.g., 2012 FRB Kansas City Study at 9.
\727\ The Treasury FMS rule, described above, prohibits prepaid
cards from having an attached line of credit if the credit agreement
allows for the automatic repayment of the loan from a card account
triggered by the delivery of the Federal payment into the account.
31 CFR 210(b)(5)(i)(C). Certain State laws subject some government
benefit accounts to similar provisions. See, e.g., CA AB 1280; CA AB
2252.
\728\ See, e.g., 2012 NetSpend WSJ Article; see also NetSpend
Corp., Amended Terms for Your Cardholder Agreement, available at
http://www.netspend.com/account/overdraftTerms.m (last visited Oct.
1, 2016) (overdraft terms and conditions).
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The Bureau believes that additional prepaid account providers may
be considering offering products that would be covered separate credit
features accessible by a hybrid prepaid-credit card, suggesting the
potential for increased consumer access to these products in the
future.\729\ The final rule provides clarity regarding the terms on
which a prepaid account issuer, its affiliate, or its business partner
may offer covered separate credit features accessible by a hybrid
prepaid-credit card to consumers. The final rule's credit provisions
help ensure that prepaid account issuers, their affiliates, and their
business partners offer covered separate credit features accessible by
a hybrid prepaid-credit card to prepaid account consumers in a
transparent manner and that consumers using these features receive
certain important protections.
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\729\ The Bureau understands from industry comments regarding
the proposed rule that other financial institutions offering prepaid
accounts would consider offering overdraft services in connection
with their prepaid account products if the Bureau were to adopt a
Regulation E opt-in regime, described in greater detail above.
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D. Coverage of the Final Rule
The final rule applies to any prepaid product that meets the
definition of prepaid account set forth in Sec. 1005.2(b)(3). With
respect to the Regulation E provisions, covered persons include
financial institutions that issue prepaid accounts. Financial
institutions may work with program managers or other industry
participants in marketing, establishing, or maintaining prepaid
accounts.\730\ Given the variety of organizational forms used to offer
prepaid programs, the Bureau does not allocate burdens among issuers,
program managers, and other participants in this discussion of the
benefits, costs, and impacts arising from the final rule. In addition
to financial institutions, card issuers and creditors offering covered
separate credit features accessible by a hybrid prepaid-credit card are
also subject to the final rule's credit provisions. Depending on the
facts and circumstances, these persons may or may not be the prepaid
account issuer or program manager. For clarity, the Bureau sometimes
uses the generic term ``provider'' in this discussion to describe
covered entities responsible for compliance with the final rule's
provisions and does not allocate burdens arising from these provisions
among market participants.
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\730\ Some financial institutions acting as prepaid account
issuers choose to perform all of the functions required to manage a
prepaid program, including marketing prepaid accounts directly to
consumers. More commonly, however, prepaid account issuers leave
program management to others. The scope of such roles may vary.
However, the issuer typically enters into a contract with the
program manager to provide the association bank identification
number for the program and to monitor regulatory compliance in
exchange for fee income and indemnification from risk. 2012 FRB
Philadelphia Study at 10.
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E. Potential Benefits and Costs to Consumers and Covered Persons
In applying the consumer protections in Regulations E and Z to a
broader class of accounts, the Bureau intends to reduce consumer and
industry uncertainty regarding responsibilities and liabilities among
market participants. With the possible exception of the final rule's
credit provisions, which apply to covered separate credit features
accessible by a hybrid prepaid-credit card, the Bureau does not believe
that the final rule will meaningfully reduce consumer access to
consumer financial products and services. This is because, with the
exception of the credit provisions, most financial institutions are
already partially complying with many of the final rule's requirements
(due to preexisting regulatory requirements or payment card association
network rules), and the additional requirements of the final rule will
result in relatively modest ongoing burden for these institutions.
By adopting the final rule, the Bureau aims to lessen consumer risk
associated with using those prepaid account products that currently do
not offer the protections required by the final rule. In addition, the
final rule lessens the potential risk incurred by consumers who would
use prepaid account products in the future that, absent the final
rule's requirements, would lack these protections. In particular, the
Bureau is concerned that some prepaid account consumers may be unaware
that certain prepaid account products currently on the market offer
fewer protections than comparable products currently subject to
Regulation E, and consumers may be unaware of the diversity of
protections currently offered in connection with prepaid account
products. In addition, because both prepaid cards and debit cards
linked to checking accounts enable consumers to access their own funds
and have similar functionalities and appearances, prepaid
accountholders may believe that the accounts associated with these
cards offer similar consumer protections. By bringing prepaid accounts
within the ambit of Regulation E, the final rule ensures that prepaid
accountholders receive consistent protections, regardless of the
prepaid account held, and have the opportunity to enjoy the protections
afforded to consumers of similar products.
The final rule's disclosure requirements ensure that consumers
generally have access to comparable, transparent, key, and
comprehensive information prior to acquiring a prepaid account.
Motivated by private incentives, financial institutions may choose to
disclose a socially suboptimal amount of information to consumers.\731\
For example, firms may engage in strategies to frustrate consumer
efforts to compare products.\732\ Consumers generally incur costs, in
terms of time, money, or both, to determine the price and quality of a
particular product before purchasing it. Consumers searching for a
prepaid account have less incentive to compare various products when
performing these comparisons is costly. When consumers are unwilling to
incur these search costs, financial institutions may exercise market
power. As a result, a sufficiently inexpensive reduction in these costs
can benefit consumers and enhance
[[Page 84272]]
efficiency.\733\ By standardizing the information that consumers
receive, the final rule's short form disclosure requirements reduce the
search costs associated with finding, understanding, and comparing
critical information. Further, because all consumers of the product
potentially benefit when prices decrease due to search by some
consumers, the benefits of lower search costs extend beyond those
consumers who actually engage in comparison shopping before making a
purchasing decision.
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\731\ The socially optimal amount of information about a prepaid
account depends on the cost to financial institutions (or third
parties) of acquiring and providing product information and the
benefit to consumers from improved understanding and choice. In
general, at the social optimum, the benefit to consumers from
additional or more transparent information would exactly equal the
additional cost to financial institutions (or third parties) of
providing that information.
\732\ See, e.g., Glenn Ellison & Sara Fisher Ellison, Search,
Obfuscation, and Price Elasticities on the Internet, 77
Econometrica, 427 (2009).
\733\ See, e.g., Dale O. Stahl II, Oligopolistic Pricing with
Sequential Consumer Search, 79 a.m. Econ. Rev. 700 (1989). A
commenter from a university regulatory studies center stated that
this paper provides a poor model of the market for prepaid accounts
because it assumes that consumers search for the best price for a
homogeneous good while prepaid products vary in terms of both price
and product features. The commenter recommended instead a paper by
Bakos that similarly concludes that ``reducing the cost of price and
product information typically will improve market efficiency but
will reduce seller profits.'' J. Yannis Bakos, Reducing Buyer Search
Costs: Implications for Electronic Marketplaces, 43 Mgmt. Sci. 1676,
1677 (1997). See also Simon P. Anderson & Regis Renault, Pricing,
Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond
Model, 30 Rand J. Econ. 719 (1999) (showing that product diversity
does not change the conclusion in Stahl that lower search costs lead
to lower equilibrium prices). These authors note that some (but not
all) features of the market for credit cards can be explained by
their framework. Id. at 731. This commenter also stated that the
Bureau should consider ways to protect consumers who do not search.
The Bureau notes that the final rule's general requirements with
respect to limited liability and error resolution protect consumers
regardless of whether they search.
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In addition to reducing search costs by making information more
comparable and transparent, the final rule's disclosure requirements
ensure that consumers have access to comprehensive information
regarding prepaid accounts. Financial institutions have strong
incentives to make consumers aware of generally attractive product
features, such as functionality offered without an additional fee.
However, financial institutions have less incentive to identify and
make transparent unattractive product features, such as high fees that
may be associated with certain types of activities. In some cases,
prepaid accountholders may utilize high-cost features frequently, and
these consumers may have selected a different product were the fee
information transparent when they acquired the account.\734\
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\734\ Research covering prepaid programs that represented
approximately 90 percent of the GPR card market (in terms of number
of cards) shows that the majority of the market sampled (70 percent)
provides explicit tips regarding how to avoid fees and minimize the
costs associated with using the card. However, the authors identify
marketing and communication to promote positive consumer use as an
area for improvement. 2014 CFSI Scorecard at 11.
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One commenter suggested that the Bureau analyze more recent data
describing prepaid card consumer spending and behavior but did not
point to particular spending or behavior studies that it deemed more
informative than those discussed in the proposal. Commenters noted that
various third-party sources aggregate information regarding prepaid
cards and offer consumers evaluations of prepaid card fees and terms,
including tailored recommendations in some cases. However, not all
consumers rely on these evaluations in their search. Consumers may not
access these evaluations due to lack of awareness, difficulty in
accessing the evaluations, or skepticism regarding their objectivity.
The Bureau believes that the final rule's content and formatting
requirements increase transparency by ensuring that financial
institutions disclose certain terms to consumers before they acquire
prepaid accounts.
In addition to depending on financial institutions to disclose
information about account features to aid purchasing decisions,
consumers rely on financial institutions to provide information
regarding their account status, as well as other services such as error
resolution, on an ongoing basis. Although the account terms and
conditions may articulate the financial institution's commitments with
respect to these features, many consumers may not review these
documents or be able to anticipate their needs accurately before
acquiring an account. Moreover, a financial institution's strength in
performing these functions may be difficult to ascertain or impossible
to observe in advance. While a financial institution's reputation would
suffer if it consistently provided poor service, such long-term
consequences may not protect all consumers sufficiently from the
financial institution's incentives for short-term gain.\735\ The
switching costs incurred by a consumer in changing prepaid accounts may
serve as an additional friction that decreases a financial
institution's incentive to provide high quality services on an ongoing
basis.
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\735\ The relationship between reputation and quality is highly
complex, even under competition. See, e.g., Rachel Kranton,
Competition and the Incentive to Produce High Quality, 70 Economica
385 (2003). For a general survey of reputation and quality, see
Heski Bar-Isaac & Steve Tadelis, Seller Reputation, 4 Founds. and
Trends Microeconomics 273 (2008).
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Although most prepaid account programs reviewed in the Bureau's
Study of Prepaid Account Agreements offered many of the limited
liability and error resolution protections set forth in the final rule,
the Bureau is concerned that the total number of consumers at risk of
an unexpected loss could increase in the future as more consumers adopt
and use prepaid accounts. Prepaid accounts, which leverage the same
large payment network rails as credit cards, are widely accepted by
merchants and increasingly used by consumers. A survey conducted by the
Board in 2013 (and published in 2014) found that 15 percent of
respondents reported using a general purpose prepaid card in the past
12 months.\736\ Among respondents to that survey who reported having a
general purpose prepaid card or a payroll card, 38 percent reported
that it was reloadable, and about half of those respondents who
reported that they had a GPR or payroll card reported that they or
someone else added money to their card in the past month.\737\ Another
survey conducted in May 2014 found that 16 percent of respondents had
used a ``prepaid card'' that was not a gift card in the last 12
months.\738\ The 2013 FDIC Survey found that 12 percent of households
had ever used prepaid cards, 7.9 percent had used prepaid cards in the
last 12 months, and 3.9 percent had used prepaid cards in the last 30
days; moreover, this survey found that prepaid card use was more
[[Page 84273]]
common among households that were unbanked or underbanked.\739\ Another
survey found that 5 percent of adults had used prepaid cards at least
once a month.\740\
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\736\ Bd. of Governors of the Fed. Reserve Sys., Consumers and
Mobile Financial Services 2014, at 8 (Mar. 2014), available at
http://www.federalreserve.gov/econresdata/mobile-devices/files/consumers-and-mobile-financial-services-report-201403.pdf (2014 FRB
Consumers and Mobile Financial Services Survey). General purpose
prepaid cards are one type of product subsumed within the final
rule's definition of prepaid account. As described above, payroll
card accounts are already required to comply with Regulation E's
limited liability and error resolution requirements. The subsequent
wave of the survey found that 19.8 percent of respondents reported
using a prepaid debit card in the past 12 months, suggesting that
product use is proliferating. 2015 FRB Consumers and Mobile
Financial Services Survey at 53 tbl.C.3.
\737\ 2014 FRB Consumers and Mobile Financial Services Survey at
48 tbls.C.9 & C.10. This implies that roughly 3 percent of
respondents had a general purpose prepaid card or payroll card that
they or someone else had (re)loaded in the past month. The
subsequent survey wave did not include these questions. 2015 FRB
Consumers and Mobile Financial Services Survey. The most recent wave
of the survey found that 16.2 percent of respondents used a GPR card
in the past 12 months, but the survey did not inquire regarding how
frequently respondents reloaded the cards. 2016 FRB Consumers and
Mobile Financial Services Survey at 61 tbl.C.3.
\738\ GFK, GfK Prepaid Omnibus Research Findings, at 6 (2014),
available at http://www.nbpca.org/~/media/
2519B8BADB1B4388BA5F11C511B3ACAE.ashx. The definition of prepaid
card in this survey appears to have included products that are not
included in the final rule's definition of prepaid account. Id. at
7.
\739\ 2013 FDIC Survey at 29-30.
\740\ 2014 Pew Survey at 1. Survey respondents were told not to
include gift cards, rebate cards, credit cards, or phone cards. Id.
at 24.
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Although consumers have different motivations for acquiring prepaid
accounts, some financial institutions design and market these accounts
to consumers as an alternative to traditional checking accounts.
According to one survey, of the 5 percent of adults who reported using
a prepaid card at least once a month, 41 percent did not simultaneously
maintain a checking account.\741\ This implies that roughly 2 percent
of the adult population uses a prepaid card monthly and does not have a
checking account.\742\ According to a survey conducted by the Board in
2012 (and published in 2013), 1.6 percent of respondents reported that
either they or their partner had a reloadable prepaid card and did not
have a checking, savings, or money market account.\743\ Prepaid
accounts offer individuals who do not have access to traditional debit
or credit card accounts a means to perform EFTs. These accounts also
enable consumers, who may not otherwise have access to another
electronic payment method, to make purchases from online merchants and
others who do not accept cash. Additionally, prepaid accounts provide
individuals lacking access to traditional checking accounts a means of
storing funds that can be more secure than holding cash. Prepaid
accounts also offer consumers the ability to accept payments of wages
and benefits via direct deposit. For unbanked consumers, loading funds
into a prepaid account may serve as an alternative to relying on a
check-cashing provider.
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\741\ 2014 Pew Survey at 1, 7.
\742\ See id.
\743\ Bd. of Governors of the Fed. Reserve Sys., Consumers and
Mobile Financial Services 2013, at 5 (Mar. 2013), available at
http://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201303.pdf. The following information was
used to derive this statistic: ``In 2012, the share of unbanked
consumers [meaning those who reported that neither they nor their
spouse or partner had a checking, savings, or money market account]
declined to 9.5 percent of the adult population. Adopting a more
expansive definition of being banked that includes use of a
reloadable prepaid card, the share of consumers who are unbanked
declined . . . to 7.9 percent in 2012.'' The 2014 FRB Consumers and
Mobile Financial Services Survey, which reported findings from a
survey conducted in 2013, did not include information that enabled
the Bureau to calculate a revised statistic.
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Although consumers may hold funds in certain types of prepaid
accounts that are currently subject to Regulation E, some consumers
regularly deposit funds into prepaid accounts that are not currently
subject to Regulation E's requirements.\744\ Consumers may hold their
prepaid accounts for extended periods and load significant portions of
their available funds into such accounts. Consumers who store funds in
prepaid accounts without liability limitations and error resolution
protections (including provisional credit) may be at risk of an
unexpected loss of or a delay in access to funds in the event of an
error or unauthorized transfer. The final rule reduces the risk borne
by these consumers by requiring that financial institutions limit
liability for unauthorized transfers and offer error resolution
protections for all prepaid accounts, including provisional credit on
accounts that have completed the customer identification and
verification processes.
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\744\ As discussed above, payroll card accounts and government
benefit accounts are currently subject to Regulation E. The FMS Rule
ensures that the protections that apply to payroll card accounts
under Regulation E also apply to prepaid cards that receive Federal
payments. Consistent with the Bureau's findings in its Study of
Prepaid Account Agreements, one industry commenter stated that the
FMS Rule has essentially forced any product accepting ACH credits to
implement the protections that apply to payroll card accounts under
Regulation E.
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In addition, the final rule helps consumers assess the risks and
costs associated with using prepaid accounts by requiring more
comprehensive disclosure of account transaction history than currently
required. These new requirements may help consumers to understand the
financial costs associated with using prepaid accounts, to recognize
errors, and to exercise error resolution rights. As discussed below,
many financial institutions currently implement several of the final
rule's provisions relating to communication of account information to
accountholders, including providing consumers with electronic access to
their transaction history.
The final rule also modifies Regulations E and Z to impose new
requirements in relation to covered separate credit features accessible
by a hybrid prepaid-credit card. As described in greater detail above,
in the final rule, the Bureau generally intends to cover under
Regulation Z overdraft credit features offered in connection with
prepaid accounts where the credit features are offered by the prepaid
account issuer, its affiliate, or its business partner (except as
described in new Sec. 1026.61(a)(4)). New Sec. 1026.61(b) generally
requires that such overdraft credit features be structured as separate
sub-accounts or accounts, distinct from the prepaid asset account, to
facilitate transparency and compliance with various Regulation Z
requirements. New Sec. 1026.61 refers to these overdraft credit
features as ``covered separate credit features.'' In addition, under
the final rule, a prepaid card that can access a covered separate
credit feature is a ``credit card'' under Regulation Z with respect to
that credit feature. The final rule defines such a prepaid card that is
a credit card as a ``hybrid prepaid-credit card'' in new Sec. 1026.61.
The Bureau anticipates that most covered separate credit features
will meet the definition of ``open-end credit.'' Persons offering
covered separate credit features accessible by a hybrid prepaid-credit
card that are open-end (not home-secured) credit generally are required
to comply with the disclosure provisions and credit card provisions in
subparts B and G of Regulation Z, including certain fee and payment
restrictions. Additionally, the final rule provides that card issuers
must adhere to timing requirements regarding solicitation and
application that generally prevent card issuers from doing any of the
following within 30 days of prepaid account registration: (1) Opening a
covered separate credit feature accessible by a hybrid prepaid-credit
card; (2) making a solicitation or providing an application for such a
feature; or (3) allowing an existing credit feature to become such a
covered separate credit feature accessible by a hybrid prepaid-credit
card. Moreover, for those prepaid account programs where consumers may
be offered a covered separate credit feature accessible by a hybrid
prepaid-credit card, the final rule requires that a financial
institution generally provide to any prepaid account without an
associated covered separate credit feature accessible by a hybrid
prepaid-credit card the same account terms, conditions, and features
that it provides on prepaid accounts in the same prepaid account
program that have such a credit feature.\745\
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\745\ The final rule permits a financial institution to charge
the same or higher fees on the asset feature of a prepaid account
with a covered separate credit feature accessible by a hybrid
prepaid-credit card relative to the amount of a comparable fee it
charges on prepaid accounts in the same prepaid account program
without such a credit feature. However, a financial institution
cannot charge a lower fee on the asset feature of a prepaid account
with a covered separate credit feature accessible by a hybrid
prepaid-credit card relative to the amount of a comparable fee it
charges on prepaid accounts in the same prepaid account program
without such a credit feature.
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[[Page 84274]]
Although few providers currently offer overdraft services in
connection with prepaid accounts, the Bureau believes that such
offerings could become more prevalent in the future. Therefore, the
Bureau believes that it is important to ensure that consumers using
prepaid cards that access covered separate credit features receive
appropriate protections. By adopting the requirements at this time, the
Bureau hopes to mitigate harm to consumers arising from the absence of
these protections and to lessen disruption that industry could
experience if regulatory uncertainty were resolved after such products
had become widespread.
To assess the potential impacts of the final rule on consumers and
covered persons, the Bureau separately discusses the benefits and costs
associated with each major provision. For clarity, costs arising from
compliance burdens that are imposed on financial institutions, card
issuers, and creditors are discussed under the subheading ``Benefits
and Costs to Covered Persons'' for each major provision. The final
rule's provisions may impose one-time implementation costs and may
affect ongoing operational costs, both of which may be fixed or
variable.\746\ Economic theory predicts that providers will absorb
fixed cost increases. However, such increases may restrict consumer
choice if they cause current providers to exit the market or deter
potential providers from entering the market. In some situations, a
decrease in the number of market participants could facilitate the
exercise of market power by remaining providers. This could result in
higher prices for consumers, decreased product quality, or some
combination thereof.
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\746\ Fixed costs are those costs that do not depend on the
number of prepaid accounts supplied by the financial institution or
the number of credit card accounts supplied by the card issuer or
creditor.
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Providers' ability to recoup variable cost increases by raising
prices depends on both the relative elasticities of supply and demand
for the product and the extent of market competition.\747\ Both
providers and consumers ultimately will bear these burdens, and the
party that is less responsive to a price change will bear a larger
share.
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\747\ The relative elasticities of supply and demand for a
product measure how responsive the quantity supplied by providers is
to a price change relative to how responsive the quantity demanded
by consumers is to a price change. The relative elasticities of
supply and demand can vary across covered products. The availability
of information, which affects the perceived availability of
substitute products, as well as the presence of substitute products
may influence these relative elasticities.
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1. Pre-Acquisition Disclosures and Initial Disclosures
The final rule requires new pre-acquisition disclosures for prepaid
accounts, extends existing Regulation E disclosure requirements to
prepaid accounts, and requires new disclosures to be made on prepaid
account access devices. Under the final rule, newly printed disclosures
will need to be compliant beginning October 1, 2017. The final rule
also modifies the initial disclosures of fees required by Regulation E.
The final rule extends Sec. 1005.7 to prepaid accounts; and, in Sec.
1005.18(f)(1), adds the requirement that the financial institution must
disclose all fees imposed by the financial institution in connection
with a prepaid account, not just fees related to EFTs. In addition,
section Sec. 1005.18(f)(3) requires that financial institutions
disclose on prepaid account access devices the financial institution's
name, and both the URL of a Web site and a telephone number that a
consumer can use to contact the financial institution about the prepaid
account.
Section 1005.18(b)(1) generally requires that a financial
institution provide a short form disclosure and a long form disclosure
before a consumer acquires a prepaid account.\748\ Sections
1005.18(b)(2) through (5) establish the content of these disclosures.
The long form disclosure includes all of the information required to be
disclosed on the short form, with the exception of information related
to fees or the availability of the long form. In addition, among other
information, the long form sets forth all fees imposed in connection
with a prepaid account and their qualifying conditions; contact
information of the Consumer Financial Protection Bureau; and contact
information for the financial institution.
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\748\ For concision, in this section, the disclosure
requirements of Sec. 1005.18(b)(5) are considered as part of the
short form disclosure requirements.
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The short form disclosure includes a ``static'' portion, an
``additional fee types'' portion, and a portion for additional
information. The static portion includes the seven fees or fee types
that the Bureau believes to be the most important to consumers when
shopping for a prepaid account. The ``additional fee types'' portion
states the total number of fees that the prepaid account charges (not
including finance charges, purchase price, or activation fees) \749\
but which are not disclosed in the static portion of the form, followed
by a second statement explaining that what follows are examples of some
of those additional fee types, followed by the two of these fee types
that generated the most revenue for the prepaid product during the
prior 24-month period. The final rule also introduces a 5 percent de
minimis revenue threshold, whereby if a fee type resulted in less than
5 percent of total fee revenue from consumers for that 24-month period
then that fee type would not be required to be disclosed. The short
form includes additional disclosures regarding FDIC deposit or NCUA
share insurance and other account protections; the Web site of the
Consumer Financial Protection Bureau; a statement directing the
consumer to the location of the long form disclosure; and a statement
regarding whether the product offers overdraft credit features. In
addition to the information required on the short form disclosure,
financial institutions must disclose outside of, but in close proximity
to, the short form disclosure, the name of the financial institution;
the name of the prepaid program; the purchase price for the prepaid
account, if any; and the fee for activating the prepaid account, if
any.
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\749\ For concision, in this section, the number of additional
fee types disclosure is considered without further discussion of the
fact that finance charges, purchase price, and activation fees are
excluded from its determination.
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The final rule restricts the information that may be disclosed on,
or with, the short form and long form disclosures. Section
1005.18(b)(7) requires that when a short form or long form disclosure
is presented in writing or electronically, it must be segregated from
other information and contain only the information required or
permitted by the final rule. Section 1005.18(b)(3) requires that if the
amount of a fee associated with a fee type listed in the short form
disclosure could vary, a financial institution must disclose the
highest fee associated with the fee type, along with a symbol, such as
an asterisk, linked to a statement that explains the fee could be lower
depending on how and where the prepaid account is used. With the
exception of a periodic fee, a financial institution must use the same
symbol and explanatory statement for all fees that could be lower. In
addition, Sec. 1005.18(b)(3) establishes, with the exception of cash
reload fees, that short form disclosures must not include any third-
party fees; and it allows financial institutions to disclose any of the
two-tiered disclosures required under Sec. 1005.18(b)(2) as a single
fee disclosure, if the amount is the same for both fees.
The final rule establishes certain aspects of the timing, form, and
formatting of the short form and long form disclosures. Section
1005.18(b)(6) requires financial institutions provide certain portions
of these disclosures in
[[Page 84275]]
a tabular format, excepting disclosures that are provided orally. In
addition, Sec. 1005.18(b)(7) provides specific formatting requirements
on grouping, prominence, and size. It requires that all information
must be presented in a single, easy-to-read typeface, in a single color
against a contrasting background; specifies which information must be
emphasized with bold typeface; and specifies minimum and relative type
sizes. It establishes how fees and other information on the short form
should be grouped, including a ``top-line'' component which presents
the first four fee types at the top of the form in a relatively large,
bold font. On the long form disclosure, it requires that fee
information must generally be grouped together by the categories of
function.
The final rule also sets forth requirements for how and when the
short form and long form disclosures must be provided to consumers.
Section 1005.18(b)(1) requires financial institutions to provide
consumers with the short form disclosure prior to acquisition of the
prepaid account. It similarly requires that the long form disclosure be
provided prior to acquisition of a prepaid account; however, it also
provides exceptions if the account is acquired in a retail location or
orally by telephone, as discussed below. Section 1005.18(b)(6) requires
that the disclosures must be in writing, sets forth special rules that
apply if they are provided in electronic form or orally, and provides
that these disclosures must be in a retainable form (excepting
disclosures that are provided orally).
The final rule creates exceptions to the pre-acquisition disclosure
regime if the prepaid account is acquired in a retail location or
orally by telephone. In a retail location, financial institutions may
provide the long form disclosure after the consumer acquires a prepaid
account as long as the prepaid account access device is contained
inside the product's packaging material, the short form disclosure is
visible to consumers, and the short form includes information about how
to access the long form disclosure by telephone and via a Web site,
among other requirements.
Before a consumer acquires a prepaid account orally by telephone, a
financial institution must orally disclose the information required in
the short form disclosure. However, the final rule allows a financial
institution to provide the long form disclosure after the consumer
acquires the prepaid account, provided that certain conditions are met
before the consumer acquires the prepaid account, including that the
financial institution informs the consumer orally that the information
required to be disclosed on the long form disclosure is available both
by telephone and on a Web site.
Pursuant to Sec. 1005.18(b)(9), financial institutions must
provide the short form and long form disclosures in a foreign language,
if the financial institution uses that same foreign language in
connection with the acquisition of a prepaid account in the following
circumstances: (1) The financial institution principally uses a foreign
language on prepaid account packaging material; (2) the financial
institution principally uses a foreign language to advertise, solicit,
or market a prepaid account and provides a means in the advertisement,
solicitation, or marketing material that the consumer uses to acquire
the prepaid account by telephone or electronically; or (3) the
financial institution provides a means for the consumer to acquire a
prepaid account by telephone or electronically principally in a foreign
language. The financial institution must also provide the long form
disclosure in English upon the consumer's request and on its Web site
wherever it provides the long form disclosure in a foreign language.
A short form disclosure for a payroll card account or government
benefit account must also contain a statement that consumers do not
have to accept such an account and which directs the consumer to ask
about other ways to receive wages, salary, or benefits; or a statement
that the consumer has several options to receive wages, salary, or
benefits, followed by a list of options available to the consumer, and
which directs the consumer to choose one.
The final rule sets forth disclosure requirements when a financial
institution offers multiple service plans within a particular prepaid
account program. The financial institution may provide the standard
short form disclosure (as described above) for the service plan in
which the consumer is enrolled by default upon acquisition.
Alternatively, the financial institution may simultaneously disclose
the required information for all of its service plans in a short from
substantially similar to Model Form A-10(e). The long form disclosure
for a prepaid account program with multiple service plans must present
the required information for all service plans in the form of a table.
Finally, Sec. 1005.18(h)(1) provides that, except in certain
circumstances, the requirements of subpart A of Regulation E, as
modified by final Sec. 1005.18, apply to prepaid accounts, including
government benefit accounts subject to Sec. 1005.15, beginning October
1, 2017. If a financial institution has changed a prepaid account's
terms and conditions as a result of Sec. 1005.18(h)(1) taking effect
such that a change-in-terms notice would have been required under Sec.
1005.8(a) or Sec. 1005.18(f)(2) for existing customers, the financial
institution must provide certain disclosures to the consumer. Section
1005.18(h)(2)(iii) requires that financial institutions notify
consumers with accounts acquired before the effective date of any
change to the prepaid account's terms and conditions as a result of
Sec. 1005.18(h)(1) taking effect such that a change-in-terms notice
would have been required under Sec. 1005.8(a) or Sec. 1005.18(f)(2)
for existing customers, at least 21 days in advance of the change
becoming effective.\750\ If a consumer acquires a prepaid account on or
after the effective date, Sec. 1005.18(h)(2)(ii)(A) requires that
financial institutions notify that consumer of any change to the
prepaid account's terms and conditions as a result of Sec.
1005.18(h)(1) taking effect such that a change-in-terms notice would
have been required under Sec. 1005.8(a) or Sec. 1005.18(f)(2) for
existing customers, within 30 days of acquiring the consumer's contact
information. In addition, for accounts acquired after the effective
date, Sec. 1005.18(h)(2)(ii)(B) requires that financial institutions
mail or deliver to the con initial disclosures pursuant to Sec. 1005.7
and Sec. 1005.18(f)(1) that have been updated as a result of Sec.
1005.18(h)(1) taking effect, within 30 days of obtaining the consumer's
contact information. Section 1005.18(h)(2)(iv) specifies the methods
financial institutions may use to notify consumers of these changes and
send updated initial disclosures.
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\750\ If a financial institution obtains a consumer's contact
information fewer than 30 days in advance of that change becoming
effective or after it has become effective, the financial
institution is permitted to provide notice of the change in
accordance with the timing requirements set forth in Sec.
1005.18(h)(2)(ii)(A).
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a. Benefits and Costs to Consumers
The benefits and costs to consumers arising from the disclosure
requirements for prepaid accounts are addressed in four parts: (i) A
general discussion of the benefits to consumers of information; (ii) a
discussion of the anticipated benefits of the disclosure requirements;
(iii) a discussion of consumer engagement with disclosure; and (iv) a
discussion of potential costs to consumers of the disclosure
requirements.
i. Benefits of Information in General
According to standard models of consumer choice, when consumers
face
[[Page 84276]]
a choice among products in a given market, they consider the options
available to them as well as the information they have about each of
those options. In order for a consumer to make the best choice for her
situation, her information must be accurate and descriptive of all
available options.\751\ In reality, however, consumers may not be
perfectly informed. As discussed above, among other reasons, this could
transpire because firms perceive an advantage to withholding
information, or because consumers perceive gathering information as
overly burdensome.
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\751\ Here, ``make the best choice'' is intended to be
descriptive of the consumer's process of choice; to consciously
optimize over her choice set and, through that process, select the
best option. This is distinct from the possible interpretation of
obtaining the best outcome, which could be achieved without
optimizing; through random selection among known options, for
example.
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Information provision (e.g., mandated disclosure) can therefore
facilitate consumer decision-making in at least three ways. First,
information provision can inform consumers about the choices that are
available to them. This provides a direct benefit of improving the
likelihood that consumers find products that fit their
preferences.\752\ In addition, as discussed above, informing consumers
about their choices (or facilitating information gathering by
consumers) may increase competition in the product market, which in
turn could cause firms to offer consumers better terms. Second,
information provision can inform consumers about the attributes of the
products that are available to them. This provides the direct benefit
of enabling consumers to consider the relative merits of each product
and to select the best product from among their choices. In addition,
revealing or highlighting certain attributes of a product type could
induce firms to compete on those attributes, raising benefits to
consumers or lowering costs. Third, information provision can inform
consumers about the attributes of the products they have already
chosen. This can both increase the benefits a consumer receives from a
chosen product and reduce the costs associated with its use.
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\752\ Increasing knowledge of the consumer's choice set may be
particularly beneficial when products within a market are highly
differentiated or in which consumers within a market have diverse
tastes.
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ii. Benefits
The Bureau believes that disclosures required by the final rule
provide consumers with the additional information necessary to make
informed choices regarding the prepaid account products available to
them. The short form discloses key fees, key fee types, and other
important information. So that the fees may be quickly located and
compared, the fees and fee types that the Bureau believes are most
important to consumers in shopping for prepaid accounts are listed at
the top of the short form disclosure.\753\ Consumers seeking
information not found on the short form disclosure can use the long
form disclosure, which also is required to be made available to
consumers before consumers acquire a prepaid account.\754\ As discussed
in detail above, the long form disclosure lists all fees for a
particular prepaid account program and the conditions, if any, under
which they may be imposed, waived, or reduced. These disclosures will
help consumers become more informed about the details of each prepaid
account and could therefore improve consumer choice among available
products.
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\753\ The Bureau's beliefs about the fees most important to
consumers were based on the results of consumer testing. See ICF
Report II. In addition, examining payroll account usage data,
Wilshusen el al. find that these same fees also constitute a large
majority of the fees charged to consumers, both by incidence and
total value. 2012 FRB Philadelphia Study at 59.
\754\ In addition, Sec. 1005.18(f)(1) requires that a prepaid
account's account agreement include all of the information required
to be provided in the long form disclosure.
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The Bureau designed the short form disclosure in part to help
consumers who are shopping for prepaid accounts to find the most
important information. The Bureau limited the information that is
displayed in order to make the information that is presented more
salient and easier to locate.\755\ As noted above, the fees that
participants in the Bureau's testing identified as being most important
to them are listed at the top of the short form disclosure, which the
Bureau believes is a likely point for consumers' first engagement.\756\
This effect is reinforced by the display of top-line information, which
is presented in a relatively large, bold font printed on a background
that provides clear contrast. Other disclosed fees and additional
information are presented in clear, concise language and printed on a
background that provides clear contrast for ease of reading.
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\755\ Reducing the size of the choice set for choices made under
time pressure has been shown to increase both the percentage of the
remaining items seen as well as the time of fixation on those items.
See Elena Reutskaja et al., Search Dynamics in Consumer Choice under
Time Pressure: An Eye-Tracking Study, 101 Am. Econ. Rev. 900 (2011).
\756\ Andrew Caplin et al., Search and Satisficing, 101 a.m.
Econ. Rev. 2899 (2011).
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One potential outcome of the Bureau's emphasis on a limited amount
of information on the short form disclosure is that consumers could
begin to rely on this information to guide their purchase decisions
more heavily than they do currently. If so, then financial institutions
may in turn increase their competitive efforts on disclosed fees and
information, which could result in a benefit for consumers, for
example, in the form of a reduction in disclosed fees. The requirement
that financial institutions disclose only the highest possible fee for
each required fee disclosure on the short form could encourage
financial institutions with varying fees to simplify their fee
structure. Such a reduction in complexity could improve consumers'
comprehension of the products they are considering prior to
acquisition.
Another benefit of the final rule will be to standardize prepaid
account product disclosures. Currently, while providers generally
disclose certain fees and information to consumers pre-acquisition,
there is significant variation in the content and formatting of the
disclosures offered to consumers before they acquire a prepaid
account.\757\ The form of these disclosures varies significantly across
products, variously utilizing bulleted lists, tables, plain text, and
combinations of these methods. In some cases, fee inclusion, fee
descriptions, and fee prominence are seemingly selected to highlight
the relative strengths or to diminish the relative weaknesses of the
particular product. As described above, the Bureau believes that
standardization will reduce the cost to consumers associated with
finding and understanding critical information about prepaid accounts
and therefore increase consumers' knowledge of their available choices
and facilitate comparison shopping among prepaid account products. The
short form disclosure will standardize the summary disclosure of key
fees and other important information. Similarly,
[[Page 84277]]
the long form disclosure will standardize the grouping of fees and make
standard the disclosure of fees' qualifying conditions, making fees
easier for consumers to locate and compare across products.
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\757\ This variation is pronounced in both retail and non-retail
channels. For example, Pew documented wide disparity in disclosures
available on prepaid card Web sites. See The Pew Charitable Trusts,
Loaded with Uncertainty: Are Prepaid Cards a Smart Alternative to
Checking Accounts? (Sept. 2012), available at http://www.pewtrusts.org/en/and-analysis/reports/2012/09/06/loaded-with-uncertainty; see also 2014 Pew Study. Relatedly, CFSI and Pew cited
the lack of current standards, among other things, as motivation for
developing their own model forms. See Ctr. for Fin. Serv.
Innovation, Thinking Inside the Box: Improving Consumer Outcomes
Through Better Fee Disclosure for Prepaid Cards (Mar. 2012),
available at http://policylinkcontent.s3.amazonaws.com/ThinkingInside_CFSI_0.pdf; see also The Pew Charitable Trusts, The
Need for Improved Disclosures for General Purpose Reloadable Prepaid
Cards (Feb. 2014), available at http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2014/02/26/the-need-for-improved-disclosures-for-general-purpose-reloadable-prepaid-cards.
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Consumers will also benefit from disclosed fees, terms, and
conditions that are accurate pre-acquisition. Under the final rule,
prepaid accounts are being brought within the ambit of Regulation E,
which, among other things, requires that financial institutions provide
consumers with written notice at least 21 days before implementing,
generally, a change that would result in increased fees or liability
for the consumer, or fewer types of EFTs or stricter limitations on
EFTs. Therefore consumers can have confidence that the fees and
features of the products that they purchase are accurately disclosed,
and that certain changes to those products are properly disclosed to
the consumer with advance notice.
As discussed in detail above, under the final rule, financial
institutions may offer consumers multiple service plans within a single
prepaid account program. This provides consumers with the benefit of
additional options from which to choose, which may therefore improve
the quality of consumers' purchasing decisions or product use. However,
multiple service plans may also present challenges to consumers. In
particular, because financial institutions that disclose multiple plans
on the short form will utilize a unique disclosure format, these
disclosures may be relatively difficult to compare to other prepaid
products. This could decrease the overall quality of consumers'
purchasing decision. In addition, the multiple service plan option will
result in a larger amount of information for consumers to process,
somewhat lessening the above-discussed benefits of limited information
on the short form disclosure.
Also as discussed above, in certain situations, if a financial
institution principally uses a foreign language on retail packaging, to
market a prepaid account, or to communicate with a consumer during
account acquisition, then the short form and long form must be provided
in that same foreign language. A financial institution must also
provide the long form disclosure 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. The Bureau believes that if a
consumer relies on a foreign language in the acquisition of a prepaid
account, then it is likely that that foreign language is the consumer's
language of greatest proficiency. Furthermore, the Bureau believes that
the ability to obtain the long form disclosure information in English
will be beneficial to consumers in various situations, such as when a
family member who only reads English is assisting a non-English
speaking consumer to manage his prepaid account.
The proposed rule would have required that if a financial
institution primarily used a foreign language in-person with a consumer
who was acquiring a prepaid account, then the financial institution
would have to provide pre-acquisition disclosures in that foreign
language. Two trade associations and one law firm commenting on behalf
of a coalition of credit unions commented that the requirement that
financial institutions provide disclosures in the foreign language that
they use to converse to consumers in-person, as specified in the
proposed rule, would be overly burdensome, create a potential
compliance trap, and could result in a reduction in access to foreign
language speakers. In response to these comments, the Bureau has
removed this requirement for in-person interactions in this final rule.
The Bureau has maintained the requirement that financial institutions
provide disclosures in the foreign language if a financial institution
principally uses a foreign language to market a prepaid account and
provides a means there for a consumer to acquire the account by
telephone or through a Web site; or provides a means for a consumer to
acquire a prepaid account by telephone or through a Web site
principally in a foreign language; or primarily uses a foreign language
on packaging material. The Bureau believes that this approach ensures
that the majority of consumers who acquire a prepaid account using a
foreign language have the ability to receive disclosures in that
language while not limiting the ability of financial institutions to
interact with their customers in the language that the customer is most
comfortable.
The final rule also requires disclosure on the short form of
whether the prepaid account might offer the consumer an overdraft
credit feature at some time in the future.\758\ If an overdraft credit
feature might be offered, then the financial institution must also
disclose the time period after which it might be offered and that fees
would apply. Because both the existence of, and the absence of,
possible overdraft credit features are required to be similarly
disclosed, consumers will be able to easily compare prepaid account
products along this dimension. The Bureau's pre-proposal consumer
testing, in addition to external studies,\759\ suggests that many
consumers choose prepaid products specifically to avoid overdraft
services. Requiring financial institutions to disclose when a prepaid
account program does or does not offer overdraft credit features will
therefore help those consumers make informed purchasing decisions if
they want to avoid such features. Conversely, consumers who are seeking
a prepaid account with the possibility of accessing an overdraft credit
feature will be able to more easily identify products that offer such a
feature.
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\758\ See Sec. 1005.18(b)(2)(x).
\759\ See, e.g., 2014 Pew Survey at 13.
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Additionally, as discussed above, the final rule requires the short
form disclosure for payroll card accounts and government benefit
accounts to contain either a statement that the consumer does not have
to accept the account and which directs the consumer to ask about other
ways to receive wages, salary, or benefits; or a statement that the
consumer has several options to receive wages, salary, or benefits,
followed by a list of options available to the consumer, and which
directs the consumer to choose one of the available options. The Bureau
believes that these disclosures may prompt consumers to ask questions
about alternative ways of receiving their wages or benefits and thereby
facilitate consumer choice.
Section 1005.18(b)(2)(viii) requires disclosure of the total number
of fee types charged by the financial institution other than those
disclosed on the short form disclosure. In the Bureau's consumer
testing, this number became a focal point for participants. If this
number becomes a focal point for consumers, then financial institutions
may choose to compete on this metric, which could potentially reduce
the number of fee types imposed in connection with prepaid accounts. As
a result, consumers may benefit from fewer fees and simpler products,
generally.
Section 1005.18(b)(2)(ix) requires disclosure of up to two fee
types, other than those disclosed on the static portion of the short
form disclosure, that generated the highest total revenue from
consumers of the prepaid account program over the prior 24-month
period.\760\ The disclosure of these fees will serve at least two
purposes. First,
[[Page 84278]]
it will help to alert consumers to account features for which they may
end up incurring a significant cost. Second, it will help ensure that
the disclosure regime set forth in the final rule adapts to new and
varied products as services that each firm offers or introduces that
generate sufficient revenue will appear in the additional fee types
portion of the disclosure.
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\760\ If a fee type resulted in less than 5 percent of total
revenue from consumers for that 24-month period, then that fee type
would not be required to be disclosed.
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As discussed in greater detail in the section-by-section analyses
of Sec. 1005.18(b)(2) and (b)(2)(ix) above, the Bureau proposed to
require financial institutions to disclose up to three incidence-based
fees on the short form. Incidence-based fees would have been fees that
were incurred most frequently in the prior 12-month period by consumers
of a particular prepaid account product. A number of industry
commenters, including trade associations, issuing banks, program
managers, payment network providers, and a law firm commenting on
behalf of a coalition of prepaid issuers, suggested that the incidence-
based fee disclosures should be eliminated because they would confuse
consumers and restrict the ability of consumers to comparison
shop.\761\
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\761\ Due in part to public comments to the proposed rule, the
Bureau shifted from additional fee types based on fee incidence in
the proposed rule to additional fee types based on fee revenue in
the final rule. As a result, there is an inconsistency between the
public comments, which address fee incidence, and the disclosure
requirements of the final rule, which address fee revenue.
Nonetheless, the two approaches are similar, and therefore, unless
stated otherwise, the Bureau addresses comments related to
incidence-based fees as if those comments were about the final
rule's revenue-based fees.
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While the Bureau's pre-proposal and post-proposal consumer testing
indicates that many individuals will understand the additional fee
types portion of the short form disclosure, it is possible that some
consumers will incorrectly interpret it. In Bureau's pre-proposal and
post-proposal consumer testing, participants did not comprehend
statements that were intended to explain what are now additional fee
types in the final rule.\762\ In addition, some participants
incorrectly concluded that the absence of a fee type implied the
absence of the service related to that fee type. In order make the
connection for consumers that the additional fee types disclosed
pursuant to final Sec. 1005.18(b)(2)(ix) are a subset of the number of
additional fee types disclosed pursuant to final Sec.
1005.18(b)(2)(viii)(A), and that absence of any feature on the short
form does not necessarily mean the prepaid account program does not
offer that feature, the Bureau has added a new explanatory statement to
precede the additional fee types that introduces the concept of
additional fee types in a simple, succinct manner.
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\762\ Pre-proposal testing of a statement intended to inform
consumers that the fees listed were those that generated significant
revenue for the financial institution resulted in minimal
participant comprehension or notice. See ICF Report I at 35.
(Certain prototype short form disclosures tested included the
statement: ``The fees below generate significant revenue for this
company.''). Post-proposal testing of a similar disclosure that, in
addition to including an explanation of the criteria for disclosing
such fees (i.e., that the two fees listed were the most commonly
charged), also directed consumers where to find detail about all
fees, similarly did not increase participant comprehension. See ICF
Report II at 22-23. (Certain prototype short form disclosures tested
included the statement: ``We charge [x] additional fees. Details on
fees inside the package, at 800-234-5678 or at bit.ly/XYZprepaids.
These are our most common:''.)
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iii. Consumer Engagement With Disclosure
According to the standard social science models of consumer
decision-making presented above, consumers must have relevant and
accurate information in order to make good choices. However, recent
research in social science, law, and design suggests that even if
consumers were provided an unlimited amount of information, many
consumers would not comprehend or utilize all of that information.\763\
This result highlights the importance of an initial step:
``engagement,'' \764\ the immediate analysis of any new information
encountered by a consumer in which the consumer assesses the costs and
benefits of consumption of that information.\765\ If this calculation
yields a high enough net expected benefit, then the consumer engages,
and begins to further consume the information. This calculation
incorporates the consumer's automatic emotional response to the design
as well as the consumer's expected reward from engagement. Without an
affirmative decision at this first step, neither utilization nor
comprehension can occur.\766\
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\763\ 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
Am. Econ. Rev. 516 (2010); see also Kleimann Commc'n Group, Know
Before You Owe: Evolution of the Integrated TILA RESPA Disclosures
(July 2012), available at http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf; Eric Johnson et al., Can
Consumers Make Affordable Care Affordable? The Value of Choice
Architecture, PLOS One (Dec. 2013), at 1, 2.
\764\ Id. Throughout, this treatment describes the first moment
of information consumption as ``engaging'' with the information
provision. ``Engaging,'' as it is used here, is therefore distinct
from ``reading'' or ``comprehending,'' both of which could imply
sustained information consumption.
\765\ A related decision-making framework is developed with
accompanying case studies by Stephen Wendel. See Stephen Wendel,
Designing for Behavior Change: Applying Psychology and Behavioral
Economics (Mary Treseler ed., 2013).
\766\ See, e.g., Ian Ayres & Alan Schwartz, The No-Reading
Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014).
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The Bureau designed the model short form disclosure not only to
provide relevant information to consumers, but also to increase
consumer engagement. To appeal to consumers' emotional response, the
Bureau designed the short form disclosure to be visually appealing. In
addition, to reduce the perceived difficulty of learning about a
prepaid product, the short form disclosure assigns terms a clear
hierarchy through positioning, type-size, contrasting background, and
bold-faced type; includes concise descriptions of fees and conditions;
and limits the use of symbols and fine-print. Finally, as the perceived
cost to a consumer of using a disclosure increases with the amount of
information provided, the short form disclosure presents consumers with
a reduced, manageable set of information about the product.\767\
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\767\ The idea that consumers may decrease their engagement with
information when more information is provided is somewhat supported
by research on ``choice overload.'' This work demonstrates that when
choice sets are large, some people opt to make no choice at all.
See, e.g., Sheena Iyengar et al., How Much Choice is Too Much?
Contributions to 401(k) Retirement Plans, in Pension Design and
Structure: New Lessons from Behavioral Finance 83 (Oxford: Oxford
University Press 2004).
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A number of industry commenters, including a trade association and
an issuing credit union, stated that consumers generally do not read
disclosures or comparison shop. One issuing credit union asserted that
only one in 30,000 consumers actually read the provided disclosures.
The Bureau disagrees with the claim that a minute number of consumers
read disclosures for prepaid products. A recent survey of prepaid
consumers reported that approximately one in three prepaid consumers
comparison shopped before purchase, and, of those that did not, nearly
one third stated that they would be more likely to comparison shop if
disclosures were standardized across prepaid products.\768\ The
disclosure regime designed by the Bureau is intended, in part, to
engage consumers who may not otherwise read a disclosure of fees or
comparison shop. Therefore the segment of consumers who are not
currently reading prepaid disclosures is an opportunity for the Bureau
to improve consumer engagement and promote a more active, competitive
market in general. Further, if comparison shoppers drive the market
[[Page 84279]]
towards products with consumer-friendly features and costs, non-
shoppers could benefit from a better selection of available products as
well.
---------------------------------------------------------------------------
\768\ 2015 Pew Survey at 8.
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One academic institution questioned whether consumers would be able
to make use of the disclosures because financial literacy is low in
general and particularly low for the consumers whom the Bureau is
attempting to assist. However, the fact that the majority of consumers
who use prepaid products do so to avoid fees such as overdraft and
check-cashing fees \769\ suggests that many prepaid consumers have a
strong understanding of the potential benefits of prepaid accounts and
the features that are important to them. Even if it were true that
prepaid users have low financial literacy on average the Bureau does
not believe that this would rationalize abandoning standardized
disclosures. For the reasons stated above, the Bureau believes it is to
consumers' benefit that they be informed about the products they
purchase. A well-designed disclosure regime can engage consumers, help
to educate consumers, and simplify the process of product comparison.
Therefore the Bureau believes that the short form and long form
disclosures will act as a corrective to confusion caused by a lack of
financial literacy, if it exists.
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\769\ See 2014 Pew Survey at 13.
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iv. Costs to Consumers
The Bureau's effort to simplify pre-acquisition disclosures may
generate costs as well as benefits for consumers. As discussed above,
the Bureau's emphasis of a limited number of fees in the short form
disclosure could result in a reduction in the amounts of those
particular fees through competitive pressure. However, to the extent
they exist, fees that would be relatively de-emphasized by the short
form disclosure could, as a result, experience an easing of competitive
pressure and thereby increases in the amounts charged. Such costs
should be mitigated to some extent by the additional fee types portion
of the short form disclosure. Likewise, the number of fees that could
be added to a product due to a lack of emphasis by the disclosure
regime should be mitigated to some extent by the requirement for
financial institutions to disclose the number of additional fees not
disclosed explicitly on the short form disclosure.
Section 1005.18(b)(3)(i), which generally requires a financial
institution to disclose the highest amount for any fee or fee type
listed on the short form disclosure, may also generate costs for
consumers. As discussed above, the Bureau believes that there is a
clear benefit to consumers of providing a simple and concise short form
disclosure, and the Bureau believes that this is achieved, in part, by
limiting footnotes and fine print. However, in acquisition channels in
which the short form disclosure is not necessarily provided with the
long form disclosure, this provision could result in a consumer having
less information about a particular prepaid product than they would
have had in the current marketplace. In such circumstances, although
the long form disclosure must always be made available (e.g., through a
telephone number or a Web site), some consumers may consider the search
cost too high to justify seeking out the long form. Therefore, Sec.
1005.18(b)(3)(i) may create a distinct new cost to consumers if it
results in them not having all the information they want or need to
make their purchasing decision.
One consumer advocacy group and a number of industry commenters,
including trade associations, prepaid program managers, issuing banks,
a law firm commenting on behalf of a coalition of prepaid issuers, and
a payment network provider cautioned that requiring the disclosure of
the highest potential fee could be misleading. One consumer advocacy
group and a number of trade associations further cautioned that the
disclosure of the highest potential fee could result in the elimination
of useful fee waivers, such as a program that allows a number of free
customer service calls per month before a fee is charged. Several
industry commenters, including an issuing bank and a trade association
specifically recommended permitting inclusion in the short form
disclosure of the conditions under which the monthly fee could be
waived, citing the importance of this fee and the prevalence of
discounts and waivers applicable to this fee as crucial to consumer
decisions in choosing a prepaid card. A consumer group said its
research showed that 14 of 66 prepaid cards disclose that the monthly
fee can be waived entirely if the consumer takes certain actions.
The Bureau is requiring disclosure of the highest possible fee both
because doing so significantly reduces the complexity of the short form
disclosure, and because doing so significantly reduces the chances that
a consumer will be caught off guard by an unexpected fee or an
unexpectedly large fee. Financial institutions can bring the existence
of potentially lower fees to consumers' attention through the use of an
asterisk, and these beneficial fee waivers can be marketed to consumers
elsewhere on the retail packaging, the firm's Web site, or over the
phone. In addition, based on the prevalence of monthly fee waivers and
recommendations from both industry and consumer group comments, the
Bureau has included in the final rule a provision enabling financial
institutions to disclose details regarding waivers to the periodic fee
using a second symbol, such as a dagger. The final rule also permits
inclusion in the short form disclosure for payroll card accounts and
government benefits accounts of a statement directing the consumers to
a location outside the short form for information on ways to access
funds and balance information for free or for a reduced fee.
One State government agency, and a number of industry commenters,
including trade associations, prepaid program managers, issuing banks,
a law firm commenting on behalf of a coalition of prepaid issuers, and
a credit union service organization, questioned the benefit of
requiring both short form and long form disclosures. These commenters
essentially suggested that the Bureau is requiring redundant
information and placing unnecessary burden on industry participants.
Commenters further argued that multiple disclosures will add to
consumer confusion. The Bureau used results from its consumer testing
to design a tiered disclosure regime in order to provide consumers with
a manageable amount of information when first engaging with a product,
while not limiting consumers' ability to obtain additional information
if they choose to do so. The information provided on the short form
disclosure aligns with what the Bureau believes consumers value most in
their shopping and decision-making processes. The long form disclosure
guarantees that any consumer who wishes to search for additional fee
information can do so easily. The combination of the short form and
long form disclosures allows for an accurate depiction of a prepaid
account's fee structure, enabling consumers to quickly comparison shop
on key fees and terms, while ensuring that comprehensive information is
available to them should they decide to use it.
A trade association and several industry commenters, including
prepaid program managers and an issuing bank, noted that in order to
compete on the number of additional fee types metric, financial
institutions may reduce the number of optional features that are
beneficial to consumers but which carry a fee, such as the option to
purchase
[[Page 84280]]
cashier's checks. The Bureau agrees that financial institutions will
have to weigh the benefits of providing fee-based services with the
potential costs of disclosing the existence of additional fees on the
short form disclosure. However, the Bureau anticipates that the
services that consumers care most about will remain marketable and
therefore financially viable; and these services are therefore likely
to remain available to consumers.
This final rule also differs from the proposed rule in that it
requires that the number of fee types is disclosed as opposed the
number of to individual fees. This change allows for fee variation
within fee types, such that different fees for a similar service, such
as standard and expedited delivery of a replacement card, are
considered a single fee type. This enables financial institutions to
maintain the flexibility to offer useful services to consumers without
it reflecting negatively on their products.
b. Benefits and Costs to Covered Persons
This section primarily considers the benefits and costs to a
covered person from developing, maintaining, and delivering the new
pre-acquisition disclosures. Some of the content and the method of
delivery (e.g., web, phone, or retail) depend on how the consumer
acquires the prepaid account, and some of the disclosures are also
generally available outside of account acquisition (e.g., on the web or
by phone). To fully consider the costs of these disclosures, we address
the costs that arise in four cases: (i) The development and maintenance
of pre-acquisition disclosures, (ii) delivery of pre-acquisition
disclosures outside of account acquisition; (iii) delivery of pre-
acquisition disclosures for accounts acquired outside the retail
channel; \770\ and (iv) delivery of pre-acquisition disclosures for
accounts acquired within the retail channel. We also consider (v) the
benefits of these disclosures.
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\770\ This treatment considers five significant acquisition
channels for prepaid accounts: The retail channel (i.e., in-person,
in a retail location); in-person, in a non-retail location, such as
a bank or place of employment; orally, over the telephone;
electronically, via a Web site or mobile application; and via direct
mail.
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Regarding the modified initial disclosure requirements, Sec.
1005.7(b) currently requires financial institutions to provide certain
initial disclosures for accounts subject to Regulation E, and this
final rule extends this provision to prepaid accounts. Generally, the
Bureau believes that financial institutions already disclose full terms
and conditions for prepaid accounts in their account agreements, which
include most or all of what is required by Sec. 1005.7(b). The
disclosure requirements of Sec. 1005.7(b) (not considering the
modifications in Sec. 1005.18(f)(1), which are considered below) will
therefore entail very small cost to covered persons.
The Bureau also recognizes that certain financial benefits to
consumers from the disclosures may have an associated financial cost to
covered persons. Covered persons generate revenue through consumers'
use of their products. Therefore, when a consumer experiences a
financial benefit, a financial institution may experience a financial
cost of the same magnitude. Such costs could stem from each of the
primary consumer benefit channels identified above: Bolstered consumer
knowledge of alternative products; improved acquisition choices from
among available products; lower-cost, higher-benefit usage of acquired
products; and increased competitive pressures.
i. The Development and Maintenance of Pre-Acquisition Disclosures
Sections 1005.18(b)(2) through (9) set forth the content and form
requirements for the short form and long form disclosures. To satisfy
these requirements, financial institutions will incur one-time costs of
designing compliant disclosures. Based on pre-proposal industry
outreach, the Bureau understands that the design process will require
as many as 100 labor hours per prepaid account program, including time
for design work and legal and financial institution review. However,
the design costs should be offset somewhat by the Bureau's provision of
model forms for the short form disclosure and a sample form for the
long form disclosure.\771\ The Bureau is also providing native design
files for print and source code for web-based disclosures for all of
the model and sample disclosures forms included in the final rule to
aid in their development.\772\
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\771\ One trade association representing credit unions commented
that the design costs would be $300 per form.
\772\ These files are available at www.consumerfinance.gov/prepaid-disclosure-files.
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Financial institutions will incur ongoing costs of maintaining the
short form and long form disclosures pursuant to Sec. 1005.18(b)(2)
through (7). The magnitude of these costs will vary by financial
institution and will depend on current practices and the acquisition
channels used to sell prepaid accounts. Under the final rule, the long
form and the static portion of the short form disclosure will require
updating at most as often as a prepaid product's account agreement is
updated; and based on industry outreach, the Bureau believes that
financial institutions rarely change the prepaid account agreements of
their prepaid products in a way that would require changes to the pre-
acquisition disclosures. When a change to the disclosures is required,
financial institutions that sell prepaid accounts online and over the
phone will incur small costs to update their Web sites and interactive
voice response (IVR) systems. Financial institutions that sell prepaid
accounts in a branch setting will incur small costs to update and print
new disclosures.\773\ Financial institutions that sell prepaid accounts
in retail stores may incur costs to update packaging. These acquisition
channel-specific costs are discussed in detail in the sections below.
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\773\ Financial institutions that sell another financial
institution's prepaid accounts in pre-printed packages are covered
under the retail location exception and will incur costs similar to
that of a typical retail store.
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Financial institutions will incur one-time and ongoing costs to
comply with the short form disclosure's required statement regarding
the number of additional fee types charged pursuant to Sec.
1005.18(b)(2)(viii)(A) and disclosure of additional fee types pursuant
to Sec. 1005.18(b)(2)(ix). As discussed in greater detail above, the
additional fee types portion of the short form requires disclosure of
the two fee types that generated the most revenue from consumers over
the prior 24-month period for that particular prepaid account program
that are (1) not already disclosed in the static portion of the short
form disclosure and (2) not less than 5 percent of total revenue from
consumers for that 24-month period. These fee types could vary over
time for a given account program due to changes in how consumers use
the card or due to changes in the program itself. In either case,
financial institutions are responsible for updating the disclosure of
additional fee types portion of their short form disclosures. The
reassessment must occur at a minimum frequency of every 24 months and
financial institutions will have 90 days from the end of the 24 month
period to reassess and update the disclosure of additional fee types on
their short form.
Financial institutions are also required to reassess the statement
regarding the number of additional fee types disclosure and the
disclosure of additional fee types whenever a program's fee schedule is
revised. In situations where a financial institution does not have data
to calculate fee
[[Page 84281]]
revenue, such as the addition of a new fee or at the start of a new
prepaid program, the financial institution must reasonably anticipate
the fees that generate the most revenue over the next 24 months and
determine if any fees must be disclosed in the additional fee types
portion of the short form. Newly printed card stock must be accurate at
the time the fee schedule change goes into effect.\774\
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\774\ In rare cases where a fee schedule change is necessary to
maintain or restore the security of an account or an EFT system as
described in Sec. 1005.8(a)(2), the financial institution must
complete its reassessment and update its disclosures, if applicable,
within three months of the date it makes the fee schedule change
permanent.
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Regarding one-time costs, financial institutions may need to update
their accounting systems or practices to evaluate fee revenue from all
sources on a 24-month basis. Based on comments received from industry
participants, and for reasons explained in the Alternatives section
below, the Bureau believes that most financial institutions are already
capable of tabulating fees in this manner, and thus it expects this
cost to be small.
Regarding ongoing costs, for a given prepaid account program, the
burden of updating short form disclosures due to changes in the
additional fee types portion will depend on the frequency with which
the top two additional fee types change for that product and the
channel through which that product is distributed. Similarly, if a
financial institution changed its product, then it will be required to
populate the additional fee types portion with a reasonable estimate of
the fees that would match the additional fee types portion's criteria.
The Bureau believes the costs of updating the additional fee types
portion are very small for acquisition channels where disclosures are
not printed on packaging material. As explained above, financial
institutions would have 90 days to reassess and update the additional
fee types portion on their short form disclosures.
A number of industry commenters, including trade associations, an
issuing bank, an issuing credit union, program managers, and payment
network providers, suggested that the ongoing cost of updating the
proposed incidence-based portion of the short form disclosure would
have been overly burdensome. Some commenters, including a trade
association, a law firm commenting behalf of a coalition of prepaid
issuers, and a payment network provider, suggested that the annual
reassessment would have resulted in changes from year to year of the
most commonly-charged fees and therefore create costs to update
disclosures, despite the fact that the prepaid product itself had not
changed. However, the Bureau learned in comments from industry
participants that the fee types that generate the highest revenue from
consumers, which replaces the proposal's requirement of disclosing fees
with the highest incidence, do not change regularly on an annual basis.
In addition, the final rule created a 5 percent de minimis revenue
threshold, below which an additional fee types would not need to be
disclosed.\775\ This threshold eliminates the need to disclose low-
revenue fee types and therefore may reduce the frequency with which
short form disclosures will need to be updated.\776\ In addition, final
Sec. 1005.18(b)(2)(ix)(A) allows financial institution to consolidate
the calculation of additional fee types across all prepaid account
programs that share the same fee schedule, potentially limiting burden
for issuers with many programs. The final rule also increases the
amount of time between reassessments from 12 months to 24 months, which
should lessen the probability of disclosed additional fee types
differing from period to period while also lessening the amount of time
that must be spent on reassessment. The Bureau believes that while
there may be costs to financial institutions to update systems in order
to track revenue and how different fee types contribute to revenue,
once those systems are updated the burden on financial institutions due
to the reassessment of fee types that generate the highest revenue from
consumers will be small.
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\775\ If a financial institution is required to disclose fewer
than two additional fee types, it may still choose to disclose up to
two fees in the space reserved for additional fee types. A financial
institution could use this option to disclose fees that it believes
may be required as additional fee types in future years due to
fluctuations in consumers' use patterns. This would further reduce
expected costs incurred due to updating the additional fee types
portion of the short form disclosure.
\776\ Some commenters claimed that while fees may not vary much
in an absolute sense, very low incidence fees may be volatile
relative to each other, and that the ranking of fees might therefore
change relatively often. This provision ensures that low revenue
fees are not considered for the additional fee types portion of the
short form, and therefore, that this type of volatility will not
create additional costs for financial institutions.
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ii. Delivery of Disclosures Outside of Account Acquisition
A number of the provisions detailed above require financial
institutions to provide or make available pre-acquisition disclosures
orally via a telephone. The Bureau expects that compliance with these
provisions may require implementation costs of updating an IVR system,
training live customer service agents, or both. To the extent that the
provisions increase usage of financial institutions' telephone systems,
financial institutions may incur additional ongoing costs of utilizing
or operating these systems. Financial institutions will also bear small
ongoing costs of monitoring and updating their telephone systems to
ensure that they provide accurate information.
The Bureau learned in its pre-proposal industry outreach that
utilizing an IVR system costs up to $0.12 per minute, while live agent
customer service costs up to $0.90 per minute. The total burden of
these costs for any single financial institution will depend on the
financial institution's potential customers' demand for obtaining
disclosures orally over the telephone, and may depend on the financial
institution's negotiated rates for IVR, live agent customer service, or
both. Based on a review of current prepaid account fee schedules and
the long form disclosure requirements, the Bureau estimates that a long
form disclosure could be provided orally, on average, in approximately
4.5 minutes. Therefore, if a consumer calls for more information and
listens to the entire long form disclosure, via an IVR system, then
this would cost the financial institution approximately $0.54 per
call.\777\ This estimate could increase if financial institutions offer
consumers the option to speak to a live agent before or after the long
form is disclosed by an IVR system. Based on pre-proposal outreach, the
Bureau estimates that approximately 4.2 percent of callers to an IVR
system with a live agent option get forwarded to a live agent, and the
average service time for a live agent is approximately 5.1 minutes.
Therefore, if all financial institutions offer a live agent option,
then the cost to the industry would increase, on average, by $0.19 per
call to approximately $0.73 per call.\778\ However, financial
institutions have an incentive to get consumers the information they
value most in the shortest amount of time to minimize costs. Financial
institutions also have the flexibility to order the information in the
long form disclosure while maintaining the grouping of fees by
[[Page 84282]]
categories of function. This will allow financial institutions to order
the information presented orally in the long form disclosure by
relative importance to consumers. Those consumers who call searching
for a single piece, or small set, of information could shorten the
length of time that they spend on the phone because they will acquire
the information they need to make their decision before the entire long
form is disclosed. Therefore the average call length of consumers in
retail settings will likely be less than the Bureau's 4.5 minute
estimate.\779\
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\777\ The Bureau believes that financial institutions will use
IVR systems to respond to customers who call for information that is
on the long form. This belief is based on the cost of live agents
relative to IVR systems and the repetition involved in disclosing
the long form to customers.
\778\ Here, $0.19 = 4.2% * 5.1 minutes * $0.90/minute; and $0.73
= $0.54 + $0.19.
\779\ If, for example, the average call length were instead half
of the 4.5 minute estimate, then each call would cost, on average,
approximately $0.27. If a financial institution includes the option
to speak to a live agent, then each call would cost, on average,
approximately $0.46.
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A number of the provisions detailed above require financial
institutions to provide, or may result in financial institutions
providing, pre-acquisition disclosures electronically via a Web site.
The Bureau believes that all current prepaid account providers already
maintain a Web site, and therefore that implementation costs of
complying with these provisions would not include the costs of
obtaining and initializing a Web site. To the extent that the
provisions increase usage of financial institutions' Web sites,
financial institutions may bear additional ongoing costs of bandwidth
usage. In addition, financial institutions will be required to design
an electronic version of the relevant disclosures, and therefore will
bear a one-time web-design cost. The Bureau believes this cost will be
relatively small and also mitigated by the Bureau's provision of model
forms, sample forms, and native design files for print and source code
for web-based disclosures for all of the model and sample forms
included in the final rule. The total burden of these costs for any
single financial institution will depend on the financial institution's
customers' demand for obtaining disclosures electronically, via a Web
site, and may depend on the financial institution's negotiated web-
hosting rates. Finally, financial institutions will bear small ongoing
costs of monitoring and updating their Web sites to ensure that they
provide accurate information.
In addition to providing pre-acquisition disclosures to consumers
on an ongoing basis, financial institutions are required to provide
notices of changes to consumers when certain changes are made to their
accounts. Specifically, Sec. 1005.18(f)(2) provides that the change-
in-terms notice provisions in Sec. 1005.8(a) apply to any change in a
term or condition that is required to be disclosed under Sec. 1005.7
or Sec. 1005.18(f)(1). The Bureau does not believe that these
requirements introduce a significant cost. Based on pre-proposal
industry outreach, the Bureau believes that financial institutions
rarely alter their fee structures, and when such a change does occur,
financial institutions are generally already providing these notices to
consumers due to the FMS Rule, State laws, or as a best practice.
If a financial institution changes a prepaid account's terms and
conditions as a result of Sec. 1005.18(h)(1) taking effect such that a
change-in-terms notice would have been required under Sec. 1005.8(a)
or Sec. 1005.18(f)(2) for existing customers, a financial institution
must notify consumers with accounts acquired before October 1, 2017 at
least 21 days in advance of the change becoming effective, provided the
financial institution has the consumer's contact information. If the
financial institution obtains the consumer's contact information fewer
than 30 days in advance of the change becoming effective or after it
has become effective, the financial institution is permitted instead to
provide notice of the change within 30 days of obtaining the consumer's
contact information.
For prepaid accounts governed by Sec. 1005.18(h)(2)(ii) or (iii),
if a financial institution has not obtained a consumer's consent to
provide disclosures in electronic form pursuant to the E-Sign Act, or
will not be mailing or delivering written account-related
communications to the consumer within the time periods specified in
Sec. 1005.18(h)(2)(ii) or (iii), then the financial institution will
be able to provide to the consumer a notice of a change in terms and
conditions or required or voluntary updated initial disclosures as a
result of this final rule taking effect in electronic form without
regard to the consumer notice and consent requirements of section
101(c) of the E-Sign Act.
Financial institutions with prepaid accounts that offer overdraft
credit features are likely to trigger this requirement. For any
consumer who has not consented to electronic communications and who
will be receiving other physical mailings from the financial
institution in the specified time period, that financial institution
will incur a cost of printing the notice, which can be included in the
envelope or package which was already scheduled to be delivered. It is
unlikely that the financial institution will incur additional mailing
costs to send these notices. The remaining notices of change may be
sent to consumers electronically. Therefore, the Bureau believes that
the cost associated with providing these notices is minimal.
iii. Delivery of Pre-Acquisition Disclosures for Accounts Acquired
Outside the Retail Channel
In-person (non-retail locations) and direct mail acquisitions will
require the short form and long form disclosures to be provided on
paper. The long form disclosure must be provided pre-acquisition, and
all the fees and information required on the long form must also be
included as part of the prepaid account agreement. For each prepaid
account sold, this will entail additional costs of materials (e.g.,
printing, paper) and personnel training (e.g., training personnel to
provide both forms in these settings).
Acquisitions that do not occur in person, such as those that occur
over the telephone, via direct mail, or electronically, may result in
financial institutions sending consumers an account access device via
the mail. Section 1005.18(f)(1) requires financial institutions to
include all of the information required to be disclosed in the long
form as part of the initial disclosures given pursuant to Sec. 1005.7.
Accordingly, financial institutions that offer these methods of account
acquisition may incur new ongoing costs in the form of increased
shipping costs and increased materials costs. However, financial
institutions typically include the prepaid account agreement with the
access device they send to consumers. Therefore, the cost to include
the long form disclosure in the mail will be minimal, likely at a cost
of printing an additional sheet of paper.
As discussed above, Sec. 1005.18(b)(1)(iii) requires a financial
institution to orally disclose the short form disclosure before a
consumer acquires a prepaid account orally by telephone. Financial
institutions will be able to choose between disclosing the information
required by the long form disclosure orally prior to acquisition, and
communicating prior to acquisition that the information required by the
long form is available both orally by telephone and electronically via
a Web site. Both the costs of providing disclosures orally over the
telephone and the costs of providing disclosures electronically via a
Web site were considered in generality above. Because the labor and
capital necessary to conduct business over the telephone may also be
used to disclose the fees and other information required in the short
form and long form disclosures, the Bureau believes that the costs of
providing disclosures orally over the
[[Page 84283]]
telephone will be substantially mitigated for financial institutions
that already transact over the telephone. The Bureau estimates that the
short form disclosure can be disclosed orally, on average, in
approximately one minute. This requirement will add a cost of
approximately $0.12 per call if the financial institution uses an
automated system to disclose the short form disclosure, plus an
additional $0.54 if the consumer asks to hear the long form disclosure.
If the disclosure regime prompts the consumer to ask questions, the
financial institution would also incur costs for additional live agent
time. The Bureau estimates that the cost to the prepaid industry to
disclose the required information during sales calls is approximately
$324,300 to $346,300 per year.\780\
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\780\ See the discussion in the previous section for per call
cost estimates. The Bureau estimates, using load amount and issuance
forecasts from Mercator Advisory Group reports, that approximately
102 million prepaid cards will be acquired in 2016. Mercator
Advisory Group, Tenth Annual U.S. Prepaid Cards Market Forecasts,
2013-2016, at 16-17 (Oct. 2013), and Mercator 12th Annual Market
Forecasts. The Bureau estimates, using a share of 1 percent (2014
Pew Survey at 5) that approximately 1 million of the 102 million
prepaid cards will be acquired by telephone. If approximately 1 to 5
percent of consumers ask to hear the long form disclosure when
acquiring an account via telephone, then the cost to the prepaid
industry to disclose the required information during sales calls is
approximately $324,300 to $346,300 per year.
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Pursuant to Sec. 1005.18(b)(6), prepaid account acquisitions
conducted electronically (for example, via a Web site or a mobile
application) will necessitate electronic disclosure of both the short
form and long form disclosure prior to acquisition. Financial
institutions may choose the manner of electronic disclosure. However,
electronic disclosures must be provided in a manner which is reasonably
expected to be accessible to the consumer given how the consumer is
acquiring the prepaid account. The cost of this provision will depend
on the manner in which the financial institution complies; however,
given that the financial institution can generally provide disclosures
in the same format in which the acquisition occurs, the Bureau expects
that this provision will result in very little additional cost. For
example, the costs of providing disclosures electronically, via a Web
site, were considered above; however, because financial institutions
that transact via a Web site must successfully operate a Web site, they
also already bear most costs associated with disclosing information via
a Web site, such as the cost of updating and maintaining a Web site.
Similarly, because financial institutions that transact via a mobile
application must successfully operate a mobile application, they also
already bear most costs associated with disclosing information via a
mobile application. Moreover, the Bureau believes that such financial
institutions generally already disclose fees and account agreements
electronically, further reducing the marginal burden of this provision.
One industry commenter asserted that requiring the short form and
long form disclosures during electronic acquisition will confuse
consumers and increase the number of potential customers who abandon
the sign-up process. The Bureau conducted multiple rounds of consumer
testing to ensure that the disclosures that it designed were
straightforward and provided consumers with useful information for
their purchasing decisions. While the Bureau did not specifically test
the disclosure regime in an electronic setting, the Bureau believes
that a consumer who is shopping for a prepaid card online or through an
app is likely familiar with electronic disclosures. Further,
information and formatting requirements that the final rule imposes for
disclosures provided electronically will ensure that those disclosures
are comparable to the disclosures provided in the retail setting.
Therefore, the Bureau disagrees with the assertion that electronic
disclosure of the short form and long form will confuse consumers. If,
instead, a consumer chooses not to purchase a prepaid product
electronically because the disclosures make the consumer more informed,
then there will be a cost to the financial institution but also a
benefit to the consumer.
Financial institutions that offer payroll card accounts or
government benefit accounts could potentially incur additional costs to
disclose in the short form the statement required by Sec.
1005.18(b)(2)(xiv)(A) or Sec. 1005.15(c)(2)(i), as applicable,
regarding alternate forms of accepting wages, salary, and benefits.
Additional costs could accrue, for example, if the additional
disclosure caused the short form disclosure to exceed the space
constraints of current payroll card account packaging materials or
government benefit account packaging materials. However, the Bureau
believes that in these contexts, prepaid accounts are not usually
distributed within space-constrained packaging, and that the short form
disclosure requirements could be easily met if, for example, the
financial institution provides the short form disclosure on an 8\1/2\
inch by 11 inch sheet of paper.\781\ If it is the case that the
statements regarding a consumer's payment options both informs
consumers and motivates them to consider other payment options, then
the costs to some financial institutions could increase. In particular,
a financial institution could experience a cost if consumers decline to
acquire its prepaid account as a result of this disclosure. However,
EFTA and current Regulation E already prohibit financial institutions
and other persons, including employers, from requiring a consumer to
establish an account with a particular institution as a condition of
employment or receipt of a government benefit,\782\ and therefore it is
possible that the cost of these provisions will be mitigated since some
consumers may have already been informed that they had other options.
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\781\ The Bureau's industry outreach revealed that in some cases
payroll card accounts and government benefit accounts are
distributed in envelopes that also contain fee disclosures, the
account agreement, and marketing materials. The model short form
that includes this payroll card account notice easily fits within
these constraints. See Model Form A-10(b).
\782\ Sec. 1005.10(e)(2).
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One member of Congress, several State government agencies, one
county government agency, and a number of industry commenters,
including trade associations, program managers, issuing banks, payment
network providers, and employers, stated that the proposed notice
regarding payment options would be seen as a warning and would dissuade
consumers from accepting a payroll card account or government benefit
account. The member of Congress and State government agencies further
suggested that the proposed statement would impel consumers to ask to
receive their government benefits through paper checks, which are more
costly to government agencies than prepaid accounts. The member of
Congress requested that the Bureau quantify the impact on taxpayers of
requiring government agencies disclose the statement of payment
options.
As discussed in greater detail above in the section-by-section
analysis of Sec. 1005.18(b)(2)(xiv)(A), the Bureau made changes to the
statement of payment options in the final rule in response to comments
that the proposed language would drive consumers away from prepaid
accounts. Most participants in the Bureau's post-proposal consumer
testing expressed essentially neutral feelings about both versions of
the statement and appeared to be drawing on past experiences, rather
than the language in the statement, to decide whether or not they would
want to use the payroll card account or the
[[Page 84284]]
government benefit account.\783\ Under the final rule, financial
institutions have the option to display a generic statement that
consumers have options available to them to receive their payments, or
to list the specific options that are available to the consumer. As
discussed above, the Bureau believes that the required disclosure will
impose a small impact on financial institutions that might experience a
cost if a consumer declines to acquire a prepaid account. Further, for
reasons discussed in the paragraphs that follow, the Bureau believes
that the disclosure will impose a small impact on government agencies
that might experience a cost if a consumer instead chooses to accept
paper checks.
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\783\ ICF Report II at 16-17 and 27.
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In the Board's annual report to Congress on government-administered
prepaid cards, it reported that of the $148 billion in government
benefits disbursed through prepaid cards in 2015, five program types
accounted for 97 percent of disbursed funds.\784\ The remaining program
types each account for less than 1 percent of total funds disbursed.
Two of the top five program types, SNAP and cash assistance programs,
are needs-tested, State-administered programs and will therefore not be
impacted by the final rule because they are excluded from coverage
under EFTA and Regulation E. The remaining three program types, Social
Security benefits, unemployment insurance payments, and child support
payments, are subject to the disclosure requirements of the final rule
and account for approximately 44 percent of all benefits disbursed
through prepaid cards.
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\784\ 2015 FRB Government Prepaid Cards Report at 1 and 6.
---------------------------------------------------------------------------
In 2010 the Treasury finalized a rule that requires that all
recipients of Federal nontax benefits receive payment by EFT by May 1,
2013.\785\ Only those born prior to May 1, 1921 who are already
receiving paper checks may continue to receive paper checks without a
waiver. Waivers can be issued for consumers for whom the EFT
requirement creates a hardship due to a mental impairment, or due to a
recipient living in a remote area without sufficient banking
infrastructure. Social security payments are Federal nontax benefits
and are therefore subject to this Treasury rule. The vast majority of
Social Security recipients are therefore required to receive EFT
payments and will not be given the option to receive paper checks.
Therefore, this final rule will have virtually no impact on the cost to
the Federal government of disbursing benefits.
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\785\ 75 FR 80315 (Dec. 22, 2010).
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The remaining two large government disbursement programs,
unemployment insurance payments and child support payments, are State-
administered. State laws determine the methods by which benefits
recipients can receive payments.\786\ If every benefits recipient under
these two programs who is currently receiving payments to a prepaid
card were instead to receive payments by paper check, the cost to
States would be considerable. The Bureau estimates that each benefits
recipient that chooses to receive paper checks instead of payments into
a prepaid account or other electronic payment option would result in a
cost to States of $11.10 to $24.05 per year.\787\ However, a number of
State agencies no longer offer recipients the option to receive paper
checks,\788\ and therefore, the number of consumers who would have the
option to receive paper checks in lieu of payments to a prepaid card is
a fraction of the total number of government benefit account
recipients.
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\786\ State laws must not be inconsistent with Federal
Regulation E requirements, including the requirement that consumers
are given a choice among electronic methods of delivery.
\787\ The increased cost for payments via paper check is
determined by the difference in cost to the Treasury of a payment by
paper check ($1.03) and an electronic payment ($0.105), for a cost
increase of $0.925 per payment. Per payment cost increase is then
multiplied by the expected number of payments per year based on the
benefits program (assumed monthly for child support payments and
biweekly for unemployment payments). See the Bureau of the Fiscal
Service Web site, available at https://www.fiscal.treasury.gov/fsservices/gov/pmt/eft/eft_home.htm.
\788\ Paper checks do not appear as an option for consumers to
receive unemployment insurance on the Web sites of the five most
populous States. This is also the case for child support recipient
payments in in two of the five most populous States.
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The Bureau believes that this final rule will not impose a
significant cost on States that disburse benefits to prepaid accounts.
The rule will have virtually no impact in States that restrict payment
methods to EFT because consumers will not have the option to receive
paper checks. In addition, the Bureau believes, based on the neutral
reaction of consumers to the statement of payment options during the
Bureau's post-proposal consumer testing, that it is unlikely that a
large proportion of consumers will not opt to receive benefits to a
prepaid account due to a negative reaction to the statement of payment
options, and therefore, any impact in States that still allow for paper
checks will be small. Moreover, the statement of payment options is
provided to consumers pre-acquisition. Therefore, current government
benefits recipients that hold prepaid accounts should be unaffected,
and any change to the number of payments made using prepaid accounts
will only come due to the choices of new recipients. Accordingly, any
impact the disclosures do have will take place gradually. If, for
example, the disclosure requirements prompt consumers to ask about
their options and 1 percent of consumers who would have accepted a
prepaid account now ask for paper checks, then the rule will result in
costs to the States of approximately $555,000 annually.\789\
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\789\ The Bureau estimates that the cost of all prepaid benefits
recipients switching to paper checks would total approximately $60
million per year. Therefore a 1 percent change from EFT options to
paper checks would result in a cost of $555,000 nationwide. This
estimate is based on the total number of parents receiving child
support in 2013 (5,697,000), assumed to be paid monthly, and the
total number of weeks of unemployment compensated in 2015
(100,692,869), assumed to be paid biweekly, resulting in 68,364,000
total child support payments and 50,346,435 total unemployment
payments. The total number of payments to prepaid cards is
determined by the percent of disbursements to prepaid accounts as a
percentage of total disbursements for child support in 2013 (39.2
percent) and unemployment in 2014 (66 percent). The cost of
switching to paper checks is determined by multiplying the total
number of payments to prepaid cards by the cost increase of $0.925
per payment (see footnote 787).
See U.S. Census Bureau, Custodial Mothers and Fathers and Their
Child Support: 2013, at 2 tbl.1 (April 2014), available at http://www.census.gov/people/childsupport/data/files/chldsu13.pdf, for
parents due child support; U.S. Dept. of Labor, Unemployment
Insurance Data Summary, available at http://www.workforcesecurity.doleta.gov//content/data.asp, 2015 Quarterly
Reports Summary Benefits Data, for weeks of unemployment
compensated; Bd. of Governors of the Fed. Reserve Sys., Report to
the Congress on Government-Administered General-Use Prepaid Cards,
at 6 (July 2014), available at http://www.federalreserve.gov/publications/other-reports/files/government-prepaid-report-201407.pdf, for child support prepaid disbursement share; and the
2015 FRB Government Prepaid Cards Report for unemployment prepaid
disbursement share.
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Under Sec. 1005.18(b)(9), a financial institution must provide the
short form and long form disclosures in a foreign language, if the
financial institution uses that same foreign language in connection
with the acquisition of a prepaid account in the following
circumstances: (1) It principally uses a foreign language on prepaid
account packaging material, (2) it principally uses a foreign language
to advertise, solicit, or market a prepaid account and provides a means
in the advertisement, solicitation, or marketing material that the
consumer uses to acquire the prepaid account by telephone or
electronically, or (3) it provides a means for the consumer to acquire
a prepaid account by telephone or electronically principally in a
foreign language. In addition, the financial institution is also
required to provide the information required to be disclosed on the
long
[[Page 84285]]
form in English upon a consumer's request and on any part of the Web
site where it discloses this information in a foreign language. If a
financial institution does not already maintain the practice of
disclosing its fee schedules in both languages, then this requirement
may entail a small fixed cost to have its disclosures translated, as
well as additional ongoing translation costs whenever the financial
institution introduces a new fee or changes the wording of any part of
its prepaid account agreement. Because, in such cases, the long form
disclosure will be required to be provided in two languages, this
requirement could also result in additional ongoing material costs and
increased shipping costs. The total burden of costs related to this
requirement will depend on the amount that these requirements diverge
from current practices and the number of languages that financial
institutions use to market prepaid accounts. Based on industry
outreach, the Bureau believes that most financial institutions that
transact in foreign languages also provide disclosures in those foreign
languages, and therefore this requirement is unlikely to generate
significant additional costs.
Final Sec. 1005.18(b)(2)(x) requires disclosure on the short form
of whether the prepaid account might offer the consumer an overdraft
credit feature at some time in the future. If an overdraft credit
feature might be offered, then the financial institution must also
disclose the time period after which it might be offered and that fees
would apply. If consumers choose prepaid products in order to avoid
overdraft credit features (see discussion in the Benefits and Costs to
Consumers section above), then this requirement will generate direct
costs for financial institutions that offer such features. However,
based on its Study of Prepaid Account Agreements of existing prepaid
account products, the Bureau believes that very few financial
institutions currently offer such features.
iv. Delivery of Pre-Acquisition Disclosures for Accounts Acquired
Within the Retail Channel
Through industry outreach, the Bureau understands that the final
rule could generate many costs unique to the retail acquisition
channel. For this reason, the retail acquisition channel is considered
separately here. Nonetheless, costs borne by financial institutions
transacting in the retail acquisition channel are largely the same as
those borne by the financial institutions described above. This
treatment therefore takes the above treatment as a starting point and
describes costs to covered persons only as they deviate from that
treatment.
In a retail location, the final rule requires a financial
institution to provide the short form disclosure before a consumer
acquires a prepaid account. Through pre-proposal discussions with
industry participants, the Bureau learned that some financial
institutions would not have been able to accommodate the short form
disclosure on the exterior of their current packaging materials without
making significant changes, such as redesigning of packages. As
discussed above, the one-time costs associated with a package redesign
are relatively small. However, some financial institutions currently
use the exterior of their prepaid account packaging materials to
facilitate retail transactions or to incorporate fraud prevention
mechanisms (i.e., by providing bar codes or other information). In
these cases, the Bureau has learned from pre-proposal discussions with
industry participants that complying with the short form disclosure
requirements in Sec. 1005.18(b) as proposed, while maintaining their
programs' previous levels of functionality and fraud prevention, could
as much as double the per unit cost of printing packaging
materials.\790\
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\790\ In pre-proposal discussions, the Bureau learned from
industry participants that the per-package printing cost, including
the card access device and the packaging materials, ranges from
$0.75 to $2.00.
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As discussed in greater detail above, in a retail location, the
financial institution is able to choose between two methods of
providing the long form disclosure. As it is required to do in other
acquisition channels, the financial institution could provide the long
form disclosure before a consumer acquires a prepaid account.
Alternatively, the financial institution could provide the long form
disclosure after the consumer acquires a prepaid account, provided
that, among other things, the short form disclosure includes both a
telephone number and a URL of a Web site that the consumer could use to
directly access the long form disclosure. Financial institutions that
provide the long form disclosure prior to acquisition could potentially
bear additional costs to train personnel to provide it in retail
locations, as well as shipping and materials costs to provide physical
copies of the long form to consumers. Financial institutions choosing
to provide the long form after the consumer acquires a prepaid account
may bear additional costs of shipping and materials. However, because
the long form disclosure may be included with the product's terms and
conditions in the prepaid account agreement, which is generally
included in the prepaid account packaging, the Bureau believes these
costs will be very small. These financial institutions will also bear
the costs of making the long form available electronically via a Web
site and orally over the telephone. These costs were considered in
generality above. The Bureau estimates that if 1 percent to 5 percent
of retail consumers call to access the long form then the cost to the
prepaid industry of disclosing the long form disclosure orally by
telephone would be approximately $148,600 to $1,532,700 per year.\791\
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\791\ The cost per call was considered above. The Bureau
estimates that approximately 55 million to 66 million prepaid
accounts will be acquired in retail locations in 2016. This estimate
was derived by applying retail market shares of 54 percent (2014 Pew
Survey at 5) and 65 percent (2013 Aite Group Report) to the estimate
of total prepaid card acquisitions in 2016 (see footnote 780). The
lower bound estimate is obtained by assuming the lower bound of
retail acquisitions (55 million), the lower bound of consumers
calling for additional information (1 percent), and the lower bound
of the average cost per call ($0.27). The upper bound estimate is
obtained by assuming the upper bound of retail acquisitions (66
million), the upper bound of consumers calling for additional
information (5 percent), and the upper bound of the average cost per
call ($0.46).
For 2013 Aite Group report, see Aite Group LLC, Prepaid Debit
Card Realities: Cardholder Demographics and Revenue Models, at 22
(Nov. 2013).
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Financial institutions are tasked with maintaining accurate
disclosures and account agreements. If a financial institution makes
changes to a prepaid account's fees or other terms, then that financial
institution will make changes to the account agreements and
disclosures, as appropriate, for newly printed cards and packaging.
However, the financial institution may continue to sell stock that has
already been printed as long as the financial institution honors the
disclosed fees and terms, or, in some circumstances, follows Regulation
E's system for notifying consumers of changes in terms to existing
accounts, set forth in Sec. 1005.8(a).
It is the current practice of some financial institutions, when
changing the terms or conditions of a prepaid account agreement, to
sell old card stock at retail and inform consumers who purchase old
stock that the terms of their account have changed when they register
their prepaid account. This final rule subjects prepaid accounts to the
protections of Regulation E, which, among other things, requires that a
financial institution provide written notice to the consumer, at least
21 days before the effective date, of any change
[[Page 84286]]
in term or condition that would result in increased fees for the
consumer, increased liability for the consumer, fewer types of
available EFTs, or stricter limitations on the frequency or dollar
amount of transfers. Moreover, as discussed in detail above, the final
rule also requires pre-acquisition disclosures. Together, these two
provisions implicitly prohibit the practice of making any change to
disclosed terms, including changes made at the time of account
registration, that would require prior notice to the consumer under
Sec. 1005.8(a) or Sec. 1005.18(f)(2), without giving at least 21 days
prior notice of the change.
The Bureau understands financial institutions do not change the fee
schedules for most prepaid accounts often, especially for prepaid
products distributed in person, such as GPR cards and similar products
sold at retail. When financial institutions do decide to make changes
to their accounts sold at retail,\792\ they will generally have two
options available to them: Remove old card stock from retail shelves
and replace it with new card stock with accurate disclosures (commonly
referred to as a ``pull and replace''); or honor the original terms for
at least 21 days after providing written notice to consumers of the
change in terms, as required under Regulation E, as amended. The Bureau
believes that sending change-in-terms notices to consumers after they
register their cards is generally more cost effective than conducting a
pull and replace.\793\ However, financial institutions must also
consider compliance with legal requirements under operative State
consumer protection and contract laws, difficulties that may arise in
attempting to provide notice of changed terms to consumers, as well as
financial institutions' concerns about being accused of deceptive
advertising practices by selling products with inaccurate disclosures.
Therefore, the method which financial institutions choose to maintain
accurate pre-acquisition disclosures and the associated costs will vary
greatly by program size, system capabilities, proportion of cards sold
at retail, the frequency and type of changes to terms and conditions,
and how financial institutions judge the risks associated with each
option.\794\
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\792\ This discussion refers, specifically, to changes in terms
or conditions that are required to be disclosed under Sec. Sec.
1005.7 or 1005.18(f)(1).
\793\ The Bureau estimates that pulling and replacing card stock
will result in costs of $0.65 to $2.35 per card in retail. The
Bureau estimates that sending change-in-terms notices will result in
minimal costs for cardholders who can be contacted electronically
and up to $0.50 per cardholder who cannot be contacted
electronically and must receive a physical change-in-terms notice in
the mail, plus the loss of any revenue which is lost while the
financial institution must honor the original terms, and plus the
cost of any system updates which must take place in order to track
individual accounts in order to honor the original terms.
\794\ If a financial institution chooses to remove a service
from its accounts then it is possible that pulling and replacing
product will be the only feasible way to comply with the disclosure
requirements of the final rule. The Bureau believes that financial
institutions removing services from accounts outside of the
immediate situation described in existing Sec. 1005.8(a)(2) occurs
rarely, if ever. If this were to occur, financial institutions would
incur costs to send change-in-terms notices to existing customers,
print new card stock, and reset stock on store shelves.
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Section 1005.18(h)(2)(ii) requires that financial institutions
notify any consumer, who acquires a prepaid account on or after the
effective date via packaging materials that were manufactured, printed,
or otherwise produced prior to the effective date, of any changes to
the prepaid account's terms and conditions as a result of Sec.
1005.18(h)(1) taking effect such that a change-in-terms notice would
have been required under Sec. 1005.8(a) or Sec. 1005.18(f)(2) for
existing customers within 30 days of obtaining the customer's contact
information. In addition, financial institutions must also mail or
deliver updated initial disclosures pursuant to Sec. 1005.7 and Sec.
1005.18(f)(1) within 30 days of obtaining the consumer's contact
information. Those financial institutions that are affected should not
incur significant costs to notify consumers and provide updated initial
disclosures. Consumers who have consented to electronic communication
may receive the notices and updated disclosures electronically, at a
minimal cost to financial institutions. Those consumers who cannot be
contacted electronically may receive the notices and updated initial
disclosures with another scheduled mailing within the 30 day time
period. Financial institutions will incur small costs to print these
notices and disclosures, but it is unlikely that financial institutions
will incur additional mailing costs. Any remaining consumers who are
not scheduled to receive mailings may be notified without regard to the
consumer notice and consent requirements of section 101(c) of the E-
Sign Act.
The Bureau believes that the cost of monitoring and updating the
additional fee types portion of the short form disclosure in the retail
channel will be almost fully mitigated by two factors: First, because
financial institutions will be able to phase out and replace old stock
at the pace that it is sold (a strategy commonly referred to as ``sell-
through'') there should be no costs of product destruction or
resetting; and second, because financial institutions could choose
their reassessment dates to coincide with their natural product refresh
cycle, there will be few additional costs to printing or shipping new
prepaid cards.\795\
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\795\ One prepaid issuer noted that the lead time required
before a new production run can range between two and four months
(not including the time taken by the production firm itself), and
that the lead time grows as deviations from the previous production
run increase (changing the packaging dimensions was given as an
example of a change that might result in a longer lead time). The
Bureau anticipates that changes in retail packaging due to changes
in an account's additional fee types alone will constitute minor
changes in the account's packaging, and therefore result in lead
times at the lower end of this estimate. Given that financial
institutions will experience short lead times and flexibility in the
timing of additional fee types reassessment, it is likely that
reassessments and updates can be scheduled to coincide with natural
printing cycles.
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Industry commenters, including one trade association and one
issuing credit union, asserted that the potential adjustments to the
proposed incidence-based portion of the short form disclosure would
prevent financial institutions from purchasing card stock in bulk,
which helps to keep the per unit cost low. However, in the final rule,
the Bureau is only requiring that updates to the disclosure of
additional fee types portion of the packaging material be made when new
stock is printed. Moreover, as discussed above, financial institutions
can sell stock printed prior to the reassessment date indefinitely.
Accordingly, if smaller institutions purchase in bulk to minimize
costs, those institutions would still be able to sell that stock until
it is gone. Therefore, complying with the disclosure of additional fee
types will not force institutions to alter their ongoing purchasing
practices.
Lastly, the final rule requires that prepaid account packaging
printed on or after the effective date of October 1, 2017 must be
accurate. However, it will allow financial institutions to sell-through
prepaid account packaging or other preprinted materials that are
prepared in the ordinary course of business prior to the effective date
but which do not comply with the final rule's disclosure requirements.
This approach to stock manufactured before the effective date in the
ordinary course of business will minimize the costs to financial
institutions that sell products in the retail setting, and is discussed
further in the Alternatives section below.
v. Benefits
Finally, the Bureau recognizes that when a consumer chooses one
prepaid
[[Page 84287]]
product over another, one covered person incurs a cost but another
receives a benefit. Because consumers use prepaid products in a variety
of ways, it is currently unclear if the final rule will yield more such
benefits for some financial institutions than for others. However, in
line with the discussion of benefit to consumers above, the Bureau
believes that the final rule may benefit financial institutions that
offer products with low fees generally, low top-line fees (and other
fees in the static portion of the short form disclosure) specifically,
and fewer types of fees overall, the most.
c. Alternatives Considered
The Bureau considered a number of alternatives to key provisions in
the development of the final rule. Industry outreach, consumer testing,
and public comments from industry, consumer groups, and others,
influenced the evolution of the rule from its proposed form to its
current, final form. Modifications to the disclosure requirements for
the final rule from those that were included in the proposed rule are
discussed in this section as alternatives.
One such alternative would have been the exclusion of third-party
fees from the short form, including the requirement to disclose the
cash reload fee. This alternative would have required that financial
institutions disclose the highest potential cash reload fee that a
consumer could incur but without including any fee charged by a third
party, such as by the retail location where funds are added. However,
through industry comments, the Bureau learned that there is
considerable variety in how financial institutions impose cash reload
fees. Some firms charge cash reload fees to consumers directly, others
do not charge consumers but allow third parties to charge consumers,
and others implement some combination of the two methods. Therefore,
this alternative could have resulted in poorer purchasing decisions by
consumers because it would not have ensured that the cash reload fee
disclosure is comparable across products. Moreover, if this alternative
were adopted, consumers who purchase products that charge third-party
fees might not fully understand that there is considerable variety in
how financial institutions impose cash reload fees at the time of
acquisition and thereby could have incurred unexpected, additional
costs of use. Therefore, this alternative would have undermined the
Bureau's stated goal of creating a disclosure regime that provides
consumers with complete information so that they can make informed
decisions.
The final rule requires that the short form and long form
disclosures include a statement regarding account registration and FDIC
deposit insurance or NCUA share insurance, as applicable, regardless of
whether or not such insurance coverage is available for a prepaid
account. An alternative, as would have been required under the proposed
rule, is to only require a statement when FDIC deposit insurance or
NCUA share insurance is not available. This proposed statement was
meant to inform consumers, who may assume otherwise, that their prepaid
account is not insured. However, the Bureau found through its post-
proposal consumer testing that, while consumers understood there was
insurance coverage when the disclosure included a statement to that
effect, consumers were unsure about whether the prepaid account offered
FDIC deposit insurance or NCUA share insurance when presented with
disclosures where no statement was included.\796\ The final rule
requires a statement regarding eligibility for FDIC deposit insurance
and NCUA share insurance as well as instructions to register the
prepaid account for other protections in programs where registration
takes place after the account is opened. This has the benefit of
informing consumers about what protections they may have in all
circumstances. Since this requires only a concise statement added to
the short form and long form disclosures, the burden on financial
institutions is negligible. In cases where FDIC deposit insurance or
NCUA share insurance is available, the statement could potentially
benefit financial institutions by signaling to consumers that their
product is safer than non-insured alternatives.
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\796\ ICF Report II at 15.
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The proposed rule would have required that any prepaid account
program which could offer an overdraft credit feature accessed by a
prepaid card that would have been a credit card under the proposal must
include in its long form disclosure certain fees related to the credit
account. One issuing bank recommended that credit features and fees not
be included on the long form disclosure because of the proposed 30-day
waiting period that prevents financial institutions from offering
credit features at or soon after acquisition. The commenter stated that
certain charges, such as APR, could vary depending on the creditor or
could otherwise change in the 30 day waiting period, and could
therefore be inaccurate by the time a consumer consults them. The
Bureau has modified the long form disclosure's content requirement
regarding the disclosure of credit or other overdraft features in the
final rule. Financial institutions will not be required to include all
fees applicable to a covered separate credit feature accessible by a
hybrid prepaid-credit card on the long form disclosure. This
information must still be disclosed to the consumer when credit is
offered after the 30-day waiting period (further discussion of the
final rule's Regulation Z requirements that are extended to prepaid
accounts can be found in the Requirements Applicable to Covered
Separate Credit Features section below). Instead, financial
institution's contact information must be provided so that a consumer
that is interested in overdraft credit features has the ability to
search for more information. Only credit-related fees that may be
assessed against the prepaid account itself must be disclosed. This
modification will allow consumers to acquire more information about
credit products tied to their prepaid card without requiring that
financial institutions disclose information related to credit products
before they are ever offered, lessening the burden on covered entities
who might offer overdraft credit features. This will create added
search costs for consumers who would have otherwise had access to
potential credit-related fees and features in the long form disclosure.
However, given that the information needed to assess a credit product
could vary by consumer or change between the time of acquisition and
the time that credit is offered, requiring that financial institutions
provide all applicable information to consumers only when an offer of
credit is made results in a more accurate disclosure regime overall.
As discussed above, the final rule provides a retail location
exception to the requirement to provide the long form disclosure pre-
acquisition. The proposed commentary would have stated that a retail
store that offers one financial institution's prepaid account products
exclusively would have been considered an agent of the financial
institution and would therefore have been required to provide both the
short form and long form disclosures pre-acquisition. In other words,
such a retail store would not have been able to rely on the retail
location exception. Several industry commenters, including trade
associations, program managers, and an issuing bank, suggested that the
proposed definition of agent would have made it difficult for retailers
with
[[Page 84288]]
limited retail space, such as gas stations, to sell prepaid products,
because they may only have space for a single product or line of
products, and would therefore not be covered under the long form retail
exception. This would have unnecessarily burdened small retailers that
may be selling a single product due to space constraints and not due to
an arrangement with a financial institution. Accordingly, in the
commentary to the final rule, the Bureau has expanded the range of
entities that would be considered retail locations, including retailers
that sell one financial institution's prepaid account products
exclusively.
The proposed rule would have required that financial institutions
disclose on the short form disclosures, the three fees, not including
those already disclosed in the static portion of the short form
disclosures, that are incurred most often. As discussed above, the
final rule replaces these incidence-based fee disclosures with the
requirement that financial institutions disclose the two additional fee
types that generate the highest revenue from consumers. The Bureau
received comments from a number of industry participants, including
trade associations, financial institutions, and program managers that
cautioned that financial institutions would incur significant costs to
update systems to calculate fee incidence. Industry commenters,
including trade associations, an issuing bank, an issuing credit union,
and a program manager stated that the data needed to calculate fee
incidence is often housed with a third-party data processor, and
therefore any calculation would require a transfer of data from the
third party to the financial institution. Alternatively, the data
processor could create a report for the financial institution (or its
program manager, if any), but since the financial institution is
ultimately responsible for the accuracy of its disclosures, any report
or data provided would still need to be reviewed by the financial
institution for accuracy. The commenters warned that these changes
would increase costs for data processors and financial institutions,
which would ultimately increase the cost of prepaid accounts for
consumers.
The Bureau also received comments from consumer groups that
suggested that basing additional fee disclosures on revenue was
superior to basing additional disclosures on how frequently fees are
incurred because a fee's revenue is a direct measure of the impact of
that fee on consumers. Incidence-based fee disclosures would have
guaranteed that the most commonly charged fees are disclosed, but could
result in high impact fees being left off of the short form disclosure
if their costs are high but the frequency with which they are incurred
is low. Further, a disclosure based on incidence could incent financial
institutions to alter their fee structure such that the disclosed
incidence-based fees are purposefully low while the undisclosed fees
are exceedingly high.
The Bureau believes that while many financial institutions would
have incurred costs to calculate fee incidence, most financial
institutions already maintain the ability to calculate fee revenue. The
Bureau recognizes that some financial institutions will incur a one-
time cost to update their agreements with program managers or with
third-party data processors in order to obtain the information
necessary to tabulate fee revenue by fee type. However, analytics and
reporting tools are features that financial institutions value and on
which data processors compete; \797\ data processors are therefore
likely to develop tools to fill this need and then compete to offer the
best value to financial institutions, their customers. Moreover, since
the requirement to calculate fee revenue is imposed industry-wide,
costs passed through from data processors will be spread among all
financial institutions, diminishing the cost of this requirement per
financial institution. Therefore, while the Bureau recognizes that this
requirement may generate new costs, the Bureau does not anticipate that
the costs will be significantly burdensome over the long run, and the
costs will be less burdensome than the costs would have been under the
proposed rule's incidence-based disclosure requirement.
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\797\ Javelin Strategy & Research, Choosing a Prepaid Processor
in an Evolving Market: A Study on Issuer and Program Manager Needs,
at 12 (Nov. 2008), available at https://visadps.com/download/Visa-DPS-prepaid-processing.pdf.
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Lastly, the proposed rule would have required that all disclosures
of prepaid accounts sold in retail locations comply with the rule's
pre-acquisition disclosure requirements within 12 months of the rule's
effective date. If a financial institution had not sold all of its
prepaid account products in packaging printed prior to the end of the
12-month period, the proposed rule may have resulted in financial
institutions destroying and replacing such stock (commonly referred to
as a ``pull and replace''). The costs associated with a pull and
replace includes the costs of creating new stock, removing and
destroying old stock, confirming that no old stock remains in
retailers' possession and/or is offered for sale, and replenishing
retail inventory. Through pre-proposal industry outreach, post-proposal
industry outreach during and after the comment period, and reviewing
comments submitted by industry commenters, the Bureau has learned that
the cost to a financial institution of conducting a pull and replace is
high. In addition, coordinating with retailers adds a layer of
complexity due to issues of timing with retailer product reset
schedules, requirements of some retailers to source merchandising to
third-party vendors, and general negotiations that must take place.
Further, the cost of a pull and replace may have disproportionately
affected small entities that might purchase card stock in bulk to keep
the per-unit cost of printing low. As discussed in the proposal, based
on pre-proposal industry outreach, the Bureau estimates that after 12
months, 40 percent of total prepaid account stock will remain in
distribution. Thus, the cost to the prepaid industry to conduct a
large-scale pull and replace might have been significant.
As discussed above, the final rule requires that newly printed
retail prepaid account packaging materials must be accurate if printed
on or after October 1, 2017, but allows financial institutions to sell
through prepaid account packaging or other preprinted materials
prepared in the ordinary course of business prior to October 1, 2017
that do not comply with the final rule's disclosure requirements. This
will enable financial institutions to phase out and replace old stock
at the pace that it is sold. A sell-through strategy should prove to be
significantly less expensive than a pull and replace for many financial
instructions. This modification will come at a cost to consumers who
may not fully realize the benefits of the prepaid disclosure regime
immediately at retail locations because old packaging remains in
commerce. For example, a consumer who is contemplating the purchase of
a prepaid account in the retail setting may be provided with old
disclosures that do not incorporate important fee information required
by the final rule during a transition period. For this limited period
of time, a consumer may have difficulty comparing multiple products
with older disclosures, and to compare multiple products with a mix of
older disclosures and updated disclosures. Over time, however, the
eventual replacement of old stock will result in consumers having the
full benefits of a thoughtfully designed and tested disclosure regime.
[[Page 84289]]
2. Applying Regulation E's Periodic Statement Requirement With
Modification and Providing an Alternative Means of Compliance With the
Requirement
While expressly defining prepaid accounts as accounts subject to
Regulation E, the final rule also provides an alternative means of
compliance with Regulation E's periodic statement requirement. The
alternative means of compliance is a modified version of the
alternative means of compliance offered to payroll card account
providers under current Sec. 1005.18(b)(1). Section 1005.15(d) of the
final rule also modifies the alternative means of compliance with
Regulation E's periodic statement requirement for government benefit
accounts so that it is consistent with the alternative means of
compliance for prepaid accounts.
Under current Sec. 1005.18(b), a financial institution offering
payroll card accounts need not furnish periodic statements if the
financial institution makes available to the consumer his or her
account balance through a readily available telephone line, an
electronic history of the consumer's account transactions that covers
at least 60 days preceding the date that the consumer electronically
accesses the account, and, upon oral or written request, a written
transaction history that covers at least 60 days. Similarly, under
current Sec. 1005.15(c), government agencies offering government
benefit accounts need not comply with the periodic statement
requirement if they make available to the consumer the account balance,
through a readily available telephone line and at a terminal, and
promptly provide at least 60 days of written history of the consumer's
account transactions in response to an oral or written request.
The final rule requires that financial institutions wishing to
avail themselves of this alternative means of complying with the
Regulation E periodic statement requirement make available to the
consumer at no charge his or her account balance through a readily
available telephone line, provide the consumer with access to at least
12 months of transaction history electronically, and, if requested by
the consumer, provide at least 24 months of transaction history in
writing. For those payroll card account providers and providers of
prepaid accounts that receive Federal payments that are currently
required to comply with the Regulation E periodic statement requirement
and are meeting their compliance obligations by relying on the
alternative means of compliance, this provision extends the present
requirement to provide 60 days of transaction history to 12 months when
provided electronically and 24 months when provided in writing. For
government agencies that are currently required to comply with the
Regulation E periodic statement requirement, this provision
additionally requires electronic access to government benefit account
history information as part of the alternative means of compliance,
which current Regulation E does not require.
Regardless of how a financial institution chooses to comply, the
final rule also requires that the financial institution disclose to the
consumer a summary total of the amount of all fees assessed against the
consumer's prepaid account for both the prior month as well as the
calendar year to date. This information must be disclosed on any
periodic statement and any electronic or written history of account
transactions provided.\798\ Finally, for financial institutions
following the alternative means of complying with the periodic
statement requirement, the final rule extends to prepaid accounts
modified requirements for initial disclosures regarding access to
account information and error resolution, as well as annual error
resolution notices.\799\
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\798\ For periodic statements, the monthly summary may be for
the statement period or for the prior calendar month; for other
transaction histories, it must be for the prior calendar month.
\799\ Current Sec. 1005.18(c)(1) and (2) for payroll card
accounts, Sec. 1005.18(d) for prepaid accounts, and current Sec.
1005.15(d)(1) and (2) for government benefit accounts, revised as
Sec. 1005.15(d)(1) and (2).
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a. Benefits and Costs to Consumers
Extending Regulation E's periodic statement requirement to all
prepaid accounts will help to ensure that consumers receive the
benefits associated with increased information regarding their prepaid
accounts. These benefits include having the ability to monitor account
transactions for both budgeting and the identification of errors.
The final rule requires that financial institutions disclose to the
consumer summary totals of the amount of all fees assessed against the
consumer's prepaid account on any periodic statement, any written
history of account transactions, and any electronic history of account
transactions.\800\ This disclosure will make the cumulative costs
associated with the use of the prepaid account accessible and
transparent to consumers.
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\800\ Sec. 1005.18(c)(5). With respect to government benefit
accounts, Sec. 1005.15(d)(2) provides that for government benefit
accounts, a government agency must comply with the account
information requirements applicable to prepaid accounts as set forth
inSec. 1005.18(c)(3) through (5).
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The final rule also requires that those financial institutions
relying on the alternative means of complying with the periodic
statement requirement make accessible at least 12 months of transaction
history electronically and, if requested, at least 24 months of
transaction history in writing. Consumers, especially those who rely on
a prepaid account as their primary transaction account, may need to
consult more extensive account history in connection with, for example,
housing and employment applications or tax filings; in these
situations, they may benefit from having up to 24 months of account
history available. Additionally, transaction histories may help
consumers to discover unauthorized transfers or other errors. For
instance, in certain circumstances, consumers have up to 120 days from
the date of the unauthorized transfer to assert an error. In order to
fully exercise these protections, consumers must be able to access at
least 120 days of transaction history.
The final rule requires that at least 12 months of transaction
history provided as part of the alternative means of compliance with
the periodic statement requirement be provided electronically. As
discussed further below, the Bureau's understanding is that, while
prepaid accounts generally are not subject to this requirement at
present, most financial institutions offer electronic access to prepaid
accounts' transaction histories and a substantial number of them
maintain 12 months of transaction data in some electronic format.
In developing the proposed rule, the Bureau considered how
consumers prefer to obtain information about their transaction history.
In focus group research, the Bureau generally found that consumers were
satisfied with the amount of information they receive regarding their
transaction history (either online, through text message, or over the
telephone) under existing industry practice, and they generally did not
express a desire to receive a paper statement.\801\ Several industry
participants the Bureau spoke with during its pre-proposal outreach, as
well as several participants in the Bureau's consumer testing, noted
that the time lag between receipt of a paper statement and the
transactions covered by the statement decreased its utility for
tracking account balance information relative to other means, such as
real-
[[Page 84290]]
time text message alerts, which provide consumers with more timely
access. According to one program manager, when it provided electronic
periodic statements to all of its customers, its customers only
infrequently accessed those statements.\802\
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\801\ ICF Report I at 10.
\802\ The program manager reported that consumers viewed the
statements for just over 1 percent of active accounts, and consumers
downloaded the statements for slightly less than 1 percent of active
accounts.
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Many consumers participating in the Bureau's focus groups also
stated that they monitor their account balance using the internet and
mobile devices.\803\ This is consistent with the findings of various
industry surveys, which suggest that many consumers currently have
multiple methods through which they can access information regarding
their prepaid accounts. One survey of consumers with prepaid accounts
asked consumers how they check their balances, and found that more than
half sometimes use a phone call, more than half sometimes check online,
and text message alerts, email alerts, and smartphone apps were each
used by more than a third of respondents.\804\ According to one survey
of 66 GPR card programs, almost three-quarters offer text alerts and
more than half offer email alerts regarding account balances and
transactions.\805\ Another organization reviewed the terms and
conditions associated with 18 GPR card programs that they estimated
collectively represented 90 percent of the total GPR card marketplace
(based on number of active cards in circulation). It found that all of
the reviewed cards allowed cardholders to check balances online, via
text message, by calling customer service, or on a mobile app or a
mobile-enabled Web site.\806\
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\803\ According to a survey conducted by the Board, roughly 87
percent of respondents owned or had regular access to a mobile
phone, and roughly 77 percent of those with a mobile phone had a
smartphone as of November 2015. Additionally, 89 percent had regular
access to the internet, either at home or outside of the home. 2016
FRB Consumers and Mobile Financial Services Survey at 8, 64
tbls.C.21 & C.22. A survey of prepaid card users found that 88
percent use the internet. 2014 Pew Survey at 5 ex.2.
\804\ 2015 Pew Survey at 13.
\805\ 2014 Pew Study at 17.
\806\ Additionally, it found that all of the cards reviewed
provided consumers with accessible customer service assistance and
IVR systems. 2014 CFSI Scorecard at 12 (Mar. 2014).
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Although consumers generally have access to written transaction
history information at present, many financial institutions currently
charge fees for written account information, and in these cases the
final rule will lower the cost to consumers of accessing account
information in this way. Of the 66 GPR card programs reviewed by one
organization, 68 percent disclosed a fee for paper account statements
ranging from 99 cents to $10 (median $2.95).\807\ As discussed below,
the Bureau's discussions with industry participants suggest that few
consumers currently request paper transaction histories or statements.
It is worth noting, however, that if financial institutions are
unwilling to comply with the new rule by providing paper transaction
histories or statements to consumers for free, they may decide to
require all consumers to provide E-Sign consent in order to have access
to the product so that they could provide statements electronically.
This could mean that consumers who cannot or choose not to provide E-
Sign consent will have access to a more limited range of prepaid
accounts.
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\807\ Of the GPR card programs reviewed by that organization, 21
percent of programs did not disclose a paper statement fee, and 11
percent disclosed that paper statements are free. The study did not
distinguish between periodic statements and other forms of written
account history. 2014 Pew Study at 19.
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b. Benefits and Costs to Covered Persons
The benefits and costs to covered persons arising from the
application of Regulation E's periodic statement requirement to all
prepaid accounts will depend on the financial institution's current
business practices and whether the financial institution chooses to
avail itself of the alternative means of complying with the periodic
statement requirement. Specifically, financial institutions may comply
with the requirement by providing periodic statements, either in paper
form or in electronic form having obtained E-Sign consent from the
consumer, or they may choose to implement the alternative means of
complying with the periodic statement requirement.
As discussed above, financial institutions are already required to
comply with the Regulation E periodic statement requirement, or the
specified alternative, for payroll card accounts and for accounts that
receive Federal payments (pursuant to the FMS Rule). Government
agencies that offer government benefit accounts are similarly required
to comply with this requirement (without the requirement to provide
electronic access to account history under the periodic statement
alternative). Based on pre-proposal outreach to industry participants,
the Study of Prepaid Account Agreements, and review of various industry
studies, the Bureau understands that financial institutions generally
provide consumers with electronic access to transaction histories or
electronic periodic statements and generally provide telephone access
to account information similar to what is required by the final
rule.\808\ In many instances, electronic transaction histories
currently provided extend well beyond the 60 days currently required
for certain prepaid accounts.\809\ The Bureau's understanding based on
outreach to industry is that few, if any, financial institutions
provide paper periodic statements or paper transaction histories to
consumers with prepaid accounts other than on an ad hoc basis.
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\808\ One review of 66 GPR card programs found that almost every
card provided free online access to account information. It also
found that most card programs offered email and text alerts free of
charge and that most programs provided the customer with at least a
limited number of free interactive voice-recognition customer
service calls through which consumers could access account
information. 2014 Pew Study at 36. Another review of 18 GPR card
programs, comprising an estimated 90 percent of active GPR cards in
circulation, found that all of the cards reviewed allowed
cardholders ``to check their balance online, via text message, by
calling customer service, or on a mobile app or a mobile-enabled Web
site.'' 2014 CFSI Report at 12.
\809\ One survey found that ``[e]leven of the fifteen cards for
which information is available . . . allow cardholders to access at
least two years of transactional data online, which can be important
for tax-filing and budgeting purposes. Three of the four cards that
offer less than two years of transactional data provide one year of
data, while one card offers six months of data.'' 2014 CFSI Report
at 12.
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The Bureau expects that most financial institutions will continue
to offer account history information to consumers electronically
(except for those cases where a written transaction history is required
in response to an ad hoc consumer request) and will continue to use an
automated telephone line to provide 24-hour access to account balance
information. Therefore, the Bureau believes that the majority of costs
to covered persons of the final rule will arise from two sources.
First, periodic statements or transaction histories must display a
summary total of the amount of all fees assessed against the consumer's
prepaid account for the prior month and for the calendar year to date.
Financial institutions will need to modify existing statements or
electronic transaction histories to include these totals. Second, those
financial institutions that do not currently make at least 12 months of
transaction history available to consumers electronically or do not
maintain access to at least 24 months of transaction history would
potentially incur additional data storage costs and may need to
implement system changes if they choose to avail themselves of the
alternative means of complying with
[[Page 84291]]
Regulation E's periodic statement requirement.\810\
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\810\ As a result of the final rule, financial institutions that
do not provide consumers with 24 months of transaction history may
incur additional costs in the future when migrating information
across information technology platforms since additional data must
be retained.
---------------------------------------------------------------------------
The structure of the costs associated with these changes depends on
whether the financial institution relies on vendors to format or host
online periodic statements or transaction histories or whether it
performs these functions in-house. Those financial institutions that
format their own periodic statements or transaction histories will
incur a one-time implementation cost to capture and summarize fee
information and modify their disclosures to display this
information.\811\ Those financial institutions that currently do not
make available 12 months of account history will incur costs associated
with obtaining additional electronic storage media to expand existing
capacity.
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\811\ In response to the Bureau's pre-proposal outreach, one
program manager estimated that it would cost approximately $15,000
to modify its Web site to provide the summary total of fees as well
as a summary of the total amount of deposits to the account and the
total amount of all debits made to the prepaid account. This should
be an upper bound on the estimated cost to this program manager of
modifying its Web site to display only the required summary total of
fees.
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The proposal would have required financial institutions to make
available 18 months of account history, and according to discussions
with industry participants prior to issuing the proposed rule, the
costs associated with such an expansion would have been minimal. In
response to the proposal, however, several industry commenters said
that they do not currently make available 18 months of account history
and that the cost of doing so would be significant. Of these, several
commenters noted that they currently provide 12 months of electronic
transaction history or that their systems maintain at least 12 months
of transaction history in readily accessible electronic format.
Industry commenters also noted that older account history information
is typically archived and is less readily accessible, but can be
retrieved in response to specific requests. One commenter that
currently archives account information after six months estimated that
it would cost an additional $1.00 per account to keep account
information in active, rather than archived, status for 18 months.
Because the final rule requires 12 rather than 18 months of transaction
history to be made electronically available, and because it permits
financial institutions that, as of the effective date, do not have
readily accessible the data necessary to provide at least 12 months of
electronic account history to gradually increase the number of months
of account data that they provide until they have enough account
information to fully comply with the requirement, the Bureau believes
that the requirement to provide electronic account history information
will have a minimal burden for most financial institutions.
Many providers of prepaid accounts rely on processors to provide
online portals that give consumers access to account history
information. Based on pre-proposal discussions with industry
participants, the Bureau understands that program managers typically
pay processors a flat fee per account that may be a function of both
the extent of the account history provided and the number of accounts
that are being serviced.\812\ The Bureau expects that these covered
entities will generally rely on their processor to modify periodic
statements or electronic transaction histories to display the required
summary totals. However, one program manager predicted that if such a
fee disclosure were a regulatory requirement, the processor would offer
it as part of a standard package of services at no additional
cost.\813\
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\812\ One program manager that relies on a processor for this
function told the Bureau that fees for data storage are charged on a
per account basis one time at activation. According to the program
manager, costs were generally increasing from $0.08 per account for
three months of transaction history to $0.19 per account for one
year of transaction history. This program manager also suggested
that processor prices decrease with scale, and that because it was
operating at low scale it was consequently paying among the highest
prices.
\813\ One program manager stated that its processor quoted a
one-time cost of $65,000 for providing this functionality on its
processor-hosted Web site (in response to an ad-hoc request). This
potentially represents an upper bound for the true development cost
since this number likely includes a mark-up over the true cost of
providing the service. Actual development costs will be borne
jointly by the processor and the financial institutions relying on
the processor for hosting services.
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In formulating its proposal, the Bureau conducted outreach to
prepaid issuers and program managers regarding the utilization of paper
account statements by consumers and the cost to financial institutions
of providing such statements. Based on these discussions and
information provided by commenters, the Bureau's understanding is that
consumer requests for written account histories for GPR cards are
infrequent, generally well under 1 percent of active cardholder-months,
regardless of whether the consumer is charged a fee for the statement.
One commenter stated that it serves over 2 million cardholders and that
it receives 750 requests per month for written transaction histories,
equivalent to approximately 0.04 percent of all cardholder
accounts.\814\ The Bureau notes that some financial institutions
currently charge consumers fees if they wish to receive paper
statements or transaction histories, and in some cases, financial
institutions may charge consumers fees that exceed the cost to provide
these statements.\815\ However, given the infrequent nature of such
requests (regardless of whether a fee is charged for the statement),
the Bureau believes that the revenue impact of the final rule's
requirement to provide paper statements or account histories free of
charge is likely de minimis. Since a financial institution may require
that consumers provide E-Sign consent in order to receive a prepaid
account, and thus provide statements or account histories
electronically instead of following the periodic statement alternative,
any revenue impact could be further mitigated.
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\814\ In pre-proposal outreach, one program manager told the
Bureau that when it eliminated a $2.50 fee for receiving a paper
statement, there was no change in the frequency with which
statements were requested.
\815\ Estimates quoted to the Bureau by financial institutions
varied somewhat but generally were approximately $1 per statement to
respond to ad hoc requests once the costs associated with fielding
the incoming call, postage, and producing the statement were
considered. Financial institutions generally noted that postage is a
large driver of this cost. One financial institution noted that,
given the sensitivity associated with the information, such
statements need to be sent via first class mail. Another financial
institution that relied on its processor to provide ad hoc paper
statements to consumers pays its processor $2 for each paper
statement delivered.
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Some commenters said that the requirement in the proposal to mail
18 months of transaction history upon request would impose a
substantial burden on financial institutions. The commenter, mentioned
above, which stated that it receives 750 requests per month for written
transaction histories noted that the increase from 60 days to 18 months
of transaction history is a 900 percent increase in the volume of
history that would have to be provided. Another commenter estimated
that extending the timeline to 18 months would increase the cost of
mailing statements by three to four times. Additionally, some
commenters explained that transaction data is generally moved to
archived status after 12 months, and that once the data is archived, a
financial institution may incur costs for retrieving information on a
one-off basis in order to respond to consumers' requests for written
histories.
[[Page 84292]]
The Bureau acknowledges that it may cost substantially more to
provide a 24 month written transaction history than to provide a 60 day
written transaction history. The Bureau notes, however, that the final
rule further clarifies that a financial institution may send less than
24 months of written transaction history if the consumer requests a
shorter timeframe. The Bureau anticipates that many consumers
requesting written transaction histories will not need access to a full
24 months of transaction history and that therefore in many cases
financial institutions will be able to send a significantly shorter
transaction history. The Bureau also notes that, given the small
fraction of consumers that request written transaction histories, the
overall burden of the requirement to send written transaction histories
is small, even if the cost of each mailing is substantially higher than
it would be if sending a 60-day history.
If the final rule expands consumer access to account information,
financial institutions could benefit from receiving more timely notice
of unauthorized transfers by consumers and potentially fewer inquiries
by telephone or email. For example, in the event that a consumer
identifies an unauthorized transfer, the financial institution may be
able to place the appropriate holds on the account to prevent further
unauthorized use. Timely notification could also decrease the costs
associated with investigations of alleged errors. In addition, if
timely notification by some consumers were to provide an early warning
of a widespread or systemic set of unauthorized transfer attempts, the
financial institution could benefit from cutting off the avenue for the
unauthorized transfers before the issue becomes more widespread.
However, to the extent that consumers are able to identify unauthorized
transfers and other errors that they would not have identified in the
absence of these disclosures, financial institutions may incur
additional costs.
3. Applying Regulation E's Limited Liability and Error Resolution
Regime
The final rule extends Regulation E's limited liability and error
resolution regime to all prepaid accounts; provisional credit is also
required for all prepaid accounts that have successfully completed the
financial institution's customer identification and verification
processes.\816\ For prepaid accounts that have not been through the
financial institution's customer identification and verification
process, have not completed the process, have failed the process, or
for which the financial institution has no such process for that
particular prepaid program, the financial institution must comply with
Regulation E's limited liability and error resolution regimes, but not
with the provisional credit requirements. Under Sec. 1005.6(a), a
consumer may be held liable for an unauthorized EFT 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. In
addition, Sec. 1005.6(b) limits the amount of liability a consumer may
assume.
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\816\ Payroll card accounts and government benefit accounts are
required to follow Regulation E's limited liability and error
resolution regime regardless of whether the account had been through
the customer identification and verification process. As described
above, the FMS Rule requires that a prepaid card that receives a
Federal payment comply with these provisions.
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For accounts subject to the Regulation E error resolution
provisions, EFTA places the burden of proof on the financial
institution to show that an alleged unauthorized transfer was, in fact,
authorized.\817\ More specifically, after receiving notice that a
consumer believes that an EFT was unauthorized, the financial
institution must promptly perform an investigation to determine whether
an error occurred. Although the investigation must generally be
completed within 10 business days (20 business days if the EFT occurred
within 30 days of the first deposit to the account), the financial
institution may take up to 45 days to complete the investigation if it
provisionally credits the consumer's account for the amount of the
alleged error within 10 business days of receiving the error
notice.\818\ Upon completion of the investigation, Sec. 1005.11(c)(1)
requires the financial institution to report the investigation's
results to the consumer within three business days and correct an error
within one business day after determining that an error occurred. In
cases where the financial institution ultimately can establish that no
error (or a different error) occurred, Sec. 1005.11(d)(2) permits the
financial institution to reverse the provisional credit. If the
financial institution cannot establish that the transfer in question
was authorized, the financial institution must credit the consumer's
account (or finalize the provisional credit).
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\817\ See EFTA section 909(b).
\818\ Sec. 1005.11(c)(2). The financial institution has 90 days
(instead of 45) if the claimed unauthorized EFT 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). 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).
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Prepaid accounts that are payroll card accounts, government benefit
accounts, and those that receive Federal payments are currently
required to provide Regulation E's limited liability and error
resolution protections. Other types of prepaid accounts, such as GPR
cards that do not receive Federal payments, currently are not required
to provide these protections, although some do so by contract. One
study reviewed 18 GPR card programs, estimated to represent 90 percent
of the number of active GPR cards in circulation, and found that all of
the programs reviewed had adopted the consumer liability protections
outlined by Regulation E as it applies to payroll cards.\819\ The
Bureau's Study of Prepaid Account Agreements found that roughly 89
percent of all programs, and all of the largest GPR card programs,
offered limited liability protections to consumers. The Bureau's Study
of Prepaid Account Agreements also found that over two-thirds of
prepaid programs (excluding government benefit accounts and payroll
card accounts) appeared to follow Regulation E's error resolution
regime, including provisional credit requirements, with roughly 80
percent of the largest GPR card programs offering such protections.
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\819\ 2014 CFSI Report at 12. Another study asserts that only
two-fifths of 66 GPR card programs reviewed included all of the
protections, but most of this appears to be the lack of disclosure
of mandatory extensions of time frames to submit claims for good
cause. Regulation E, as applied to payroll card programs, does not
require the disclosure of this information, so it is unclear whether
it can be inferred that lack of disclosure of this information in
the terms and conditions implies lack of protection for consumers.
2014 Pew Study at 20.
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To the extent that financial institutions already follow policies
consistent with Regulation E's limited liability and error resolution
regime, the potential impacts on most consumers and covered persons
arising from these provisions are limited. Additionally, prepaid
accounts are typically subject to payment card association network
rules that provide zero-liability protection and chargeback rights in
some circumstances that, unless changed by the networks, apply
regardless of what Regulation E requires.\820\ In certain cases,
business practices may differ from those guaranteed by the terms and
conditions associated with the prepaid account, and consumers may, in
practice, have additional protections
[[Page 84293]]
beyond those articulated in the account agreement.
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\820\ See, e.g., Network Branded Prepaid Card Ass'n, Cardholder
Protections--NBPCA Position, available at http://www.nbpca.org/en/Government-Affairs/Policy-Positions/Cardholder-Protections.aspx
(last visited Oct. 1, 2016).
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a. Benefits and Costs to Consumers
In general, the potential benefits to consumers arising from the
final rule's requirements include reduced risk (relative to a baseline
where some programs do not offer the protections of the final rule) and
reduced uncertainty regarding responsibilities and liabilities among
market participants. With respect to consumer uncertainty, the Bureau
does not have information that would permit it to quantify the extent
to which some consumers may overestimate the risks associated with
using prepaid accounts (and so may underutilize them) or the extent to
which other consumers may underestimate the risks (and therefore may
fail to take certain precautions if they use them). Both groups will
benefit from the reduced uncertainty regarding limited liability and
error resolution protections that will result from the final rule.
Consumers using prepaid accounts will further benefit from any
reduction in expected financial losses incurred due to unauthorized
EFTs or other errors that will result from the final rule. Although
financial institutions typically offer limited liability and error
resolution protections in connection with prepaid accounts, the final
rule will reduce consumer losses from unauthorized transfers in cases
where such protections were not offered as well as ensure that errors
are investigated expeditiously and that consumers regain access to
funds more quickly. This potential benefit to consumers will depend on
the following: (a) The number of consumers with prepaid accounts that
do not currently follow the limited liability and error resolution
regime, including access to provisional credit, that is described in
the final rule; (b) the average magnitude of the financial losses
consumers would experience from unauthorized transfers or other errors
absent the final rule; and (c) the probability that these unauthorized
transfers or other errors would occur absent the final rule. The Bureau
notes that these benefits could be concentrated among certain segments
of the population.\821\
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\821\ The Final Rule may also provide additional benefits to
consumers. First, the requirements may reduce the frequency with
which unauthorized transfers or other errors occur by creating an
additional incentive for financial institutions to prevent these
adverse events in the first place. This change could benefit
consumers in non-monetary ways if adverse events nevertheless impose
meaningful costs (including inconvenience). Second, even if no
unauthorized transfer or other error has occurred, the requirement
to offer provisional credit provides consumers with a zero-interest
loan and a timely investigation. Third, as discussed further below,
consumers with prepaid accounts from financial institutions that
currently voluntarily offer the Final Rule's protections receive
some benefit from the Final Rule's requirements since, absent the
Final Rule, financial institutions currently offering these
protections could change their terms and conditions and stop
providing these protections in the future.
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In order to quantify the potential benefits to consumers from the
final rule's requirements, the Bureau would need the quantities in (a),
(b), and (c) or a database of representative market information that
can be used to estimate these quantities. To the Bureau's knowledge,
neither these quantities nor such a database currently exists. However,
industry studies provide some insight into the magnitude and
distribution of these determinants of the potential benefits from these
provisions.
The Bureau first considers the number of consumers with prepaid
accounts that currently do not offer the limited liability and error
resolution protections, including access to provisional credit, which
the final rule requires for prepaid accounts that have completed a
financial institution's customer identification and verification
process (and continues to require for all payroll card accounts and
government benefit accounts). As described above, surveys suggest that
between 8 and 16 percent of consumers have used a general purpose
prepaid card in the past 12 months.\822\ At present, Federal law does
not require providers of these products to offer any of the limited
liability and error resolution protections required by the final rule
to consumers, except for those consumers with prepaid accounts that
receive Federal payments (and therefore are covered by the FMS Rule),
or are payroll cards or non-needs tested government benefit cards.
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\822\ 2014 FRB Consumers and Mobile Financial Services Survey at
48 tbl.C.8a. See also 2014 Pew Survey at 1. For the purpose of this
survey, respondents were explicitly told not to include gift cards,
rebate cards, credit cards, or phone cards. Five percent of adults
reported using a prepaid card at least once a month. See also 2013
FDIC Survey at 29-30 (which reports that 12 percent of households
surveyed had ever used prepaid cards, 7.9 percent have used a
prepaid card in the last 12 months, and 3.9 percent have used a
prepaid card in the last 30 days). See also Mercator Advisory Group,
Prepaid 2013: U.S. Consumers Buying More Cards For Own Use, at 9
(Oct. 2013) (which reports that 7 percent of households surveyed in
2013 currently use a GPR card). See also id. at 11 (which reports
that 14 percent of households surveyed in 2013 purchased a GPR card
in the last year). See also GFK, GfK Prepaid Omnibus Research
Findings, at 6 (2014), available at http://www.nbpca.org/~/media/
2519B8BADB1B4388BAF11C511B3ACAE.ashx. The definition of prepaid card
in this survey appears to have included some products that would not
be covered by the final rule's definition of prepaid account. This
survey found that 16 percent of respondents had used a ``prepaid
card'' that was not a gift card in the last 12 months.
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However, financial institutions offering prepaid accounts may (and
often do) voluntarily offer these protections, in many cases because
similar protections are required by payment card association network
rules. As discussed above, the Bureau's Study of Prepaid Account
Agreements found that the vast majority of programs reviewed followed
Regulation E's limited liability protections. In addition, most prepaid
programs appeared to follow Regulation E's error resolution regime,
including provisional credit requirements. Excluding payroll card
account programs and government benefit account programs (which are
currently required to comply), over two-thirds of included programs
provided error resolution protections, with provisional credit,
consistent with Regulation E. The majority of the remainder offered
some form of error resolution, albeit with limitations on the
conditions under which provisional credit is offered. Among the
programs reviewed that were offered by the largest GPR providers, the
Study of Prepaid Account Agreements found that roughly 80 percent
offered error resolution with provisional credit and all offered
limited liability protections. Most remaining programs offered full
error resolution with provisional credit in limited circumstances.
For the foregoing reasons, the Bureau believes that the number of
consumers with prepaid accounts that do not currently offer the limited
liability and error resolution protections (including provisional
credit) that are required by the final rule is small.\823\ However, the
final rule will provide consumers whose prepaid accounts lack these
protections with important benefits. Further, since financial
institutions that voluntarily offer these protections could change
their terms and conditions at any time, the final rule removes the risk
to consumers that these protections could be discontinued.
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\823\ One study which asserts that it covers programs accounting
for 90 percent of active GPR cards in circulation found that all
financial institutions offered liability and error resolution
provisions consistent with those in Regulation E. 2014 CFSI
Scorecard at 12 (Mar. 2014).
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The Bureau has been unable to obtain data describing the average
size of the financial losses consumers currently experience from
unauthorized transfers or other errors that are covered by the final
rule or the frequency with which these events occur. However, these
quantities may be associated with certain observable factors. The
average size of a transaction is likely correlated
[[Page 84294]]
with the loss to the consumer if the consumer is fully liable for the
loss. For example, if a consumer were charged for a given purchase
twice instead of once or were charged for a transaction that should
have been cancelled, the loss would be correlated with the typical size
of those transactions.\824\ Similarly, the balance typically held in a
prepaid account should be correlated with the loss to the consumer if
account access is compromised and the consumer is fully liable.
Finally, the frequency of transactions is likely correlated with the
probability of a loss since transacting with a prepaid account creates
exposure to transaction-related errors.
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\824\ The Bureau recognizes that the risk of loss is likely
different for different types of transactions. For example, one
study using data from a large program manager's GPR card portfolio
shows that fraud rates differ by transaction type. 2012 FRB Kansas
City Study at 72 tbl.6.1. Thus, the size of a typical transaction
need not be similar to the size of a typical loss on a transaction
(conditional on a loss occurring) since the types of transactions
most susceptible to fraud may be relatively high-value or low-value.
---------------------------------------------------------------------------
Although data that would permit the Bureau to quantify the typical
balances and transaction sizes of prepaid accounts are limited, recent
research can provide some information. One study analyzed prepaid
accounts from one large program manager's GPR card program and reports
whether the prepaid accounts receive periodic government direct
deposits (and therefore are subject to the FMS Rule if it is a Federal
payment), periodic non-government direct deposits, periodic self-funded
loads, occasional reloads, or are never reloaded.\825\ It found that 46
percent of GPR cards analyzed have periodic self-funded reloads and
cumulative monthly purchases of $266.\826\ The average lifespan of the
cards that have periodic self-funded reloads was 256 days; the median,
however, was only 60 days.\827\ An additional 13 percent of GPR cards
analyzed had occasional reloads, cumulative monthly purchases of $94,
an average life of 489 days, and a median life of 330 days; and 18
percent of GPR cards analyzed had periodic non-government direct
deposit, cumulative monthly purchases of $660, an average life of 925
days, and a median life of 570 days. To the extent that these figures
are representative of other prepaid programs, they suggest that
approximately three-quarters of GPR cards may be used for significant
purchases and are likely not within the current scope of Regulation E
(or the FMS Rule). Other researchers have also identified programs that
offer GPR cards that consumers regularly load with funds, but are not
payroll cards, are active for at least a year and are used for many
thousands of dollars in purchases, loads, and cash withdrawals.\828\
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\825\ Id. at 43 tbl.2.1. It is worth noting that the shares of
load types reported in table 2.1 of this study add up to 102
percent.
\826\ Id. at 43 tbl.2.1, 59 tbl.4.9.
\827\ Id. at 47 tbl.4.1.
\828\ 2012 FRB Philadelphia Study at 67.
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Only limited data describing the frequency of transactions is
available, and while these frequencies should correlate with the
probability of a loss, the Bureau would require additional information
to convert these frequencies into probabilities.\829\ There is,
however, some suggestive information about the risk of loss in data
describing the incidence of fraud with GPR cards offered by one large
program manager. According to one study using this data, approximately
six out of every 10,000 transactions with GPR cards involve fraud, with
a loss of $9.60 for every $10,000 transacted.\830\ To the extent
consumers are the victims of these frauds, and to the extent these
average figures are similar for all types of prepaid accounts, these
numbers provide some information about one particular risk that
consumers encounter in using GPR cards and one benefit of the final
rule.
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\829\ GPR cards with periodic self-funded reloads average 5.7
purchases and 6.5 debits per month. GPR cards with occasional
reloads average 2.0 purchases and 2.3 debits per month, and GPR
cards with periodic non-government direct deposits have 18.1
purchases and 21 debits per month, on average. 2012 FRB Kansas City
Study at 50 tbl.4.3, 59 tbl.4.9.
\830\ Id. at 72 tbl.6.1.
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The Bureau believes that some consumers with prepaid accounts could
receive important benefits in certain circumstances from the additional
protections that are required by the final rule. Further, the share of
consumers with prepaid accounts who could potentially receive these
benefits may grow over time. One group of industry analysts predicts
that the GPR segment of prepaid accounts will grow on average 10
percent each year from 2014 to 2018, and there appears to be sustained
interest among consumers in using GPR cards as transaction
accounts.\831\ While the voluntary provision of limited liability and
error resolution protections (including provisional credit) might keep
pace with this expansion, it is also possible that growth could lead to
new forms of product differentiation, including variation in consumer
protections.
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\831\ Mercator 12th Annual Market Forecasts at 12-13. The report
addresses the growth rate in the aggregate amount loaded onto cards.
This growth rate approximates the growth rate in the number of
accounts as long as the amount loaded per account remains fairly
stable, but it would overstate the growth rate in the number of
accounts if the amount loaded per account is increasing.
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To the extent that financial institutions sustain increased losses
from the requirement to extend Regulation E's limited liability and
error resolution regime, including provisional credit, to all prepaid
accounts, the final rule's limited liability and error resolution
provisions may result in decreased access to these products if
financial institutions are more apt to close accounts that have
repeated or unusual error claims or to limit who can open accounts in
the first place. The requirement to provide limited liability and error
resolution protection for transactions taking place prior to customer
identification and verification could also lead financial institutions
to prevent prepaid accounts from being used until after such
identification and verification or to limit accounts' functionality
prior to identification and verification, reducing access for consumers
who wish to use accounts before they have been registered or who are
unable or unwilling to complete the identification and verification
process.\832\ Additionally, the final rule's requirements may result in
decreased access to prepaid accounts for some consumers if financial
institutions implement more rigorous screening requirements. That is,
financial institutions may have an increased incentive to identify
customers who would be likely to make fraudulent error claims and deny
them access to these accounts. This screening may, however, also cause
some consumers who would not make such claims to be denied access to
these accounts. Further, to the extent that the screening technology
correctly identifies those individuals who are likely to make
fraudulent error claims, negative externalities arising from these
individuals' fraudulent claims activities (which benefit these
consumers while imposing costs on other consumers and market
participants) are reduced.
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\832\ Financial institutions may already limit account
functionality before customer identification and verification in
order to comply with existing Federal requirements to perform
customer identification prior to establishing prepaid accounts with
particular characteristics. The consumer impacts described would
take place to the extent the final rule causes financial
institutions to further restrict account functionality prior to
consumer identification and verification.
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b. Benefits and Costs to Covered Persons
In general, the costs to financial institutions arising from the
final rule's requirements will depend on their current business
practices, the number and types of errors that their consumers claim,
and any potential future changes
[[Page 84295]]
that would affect the number and types of errors claimed, separate and
apart from the final rule. Implementation of the final rule's
requirements would be simplified by the fact that financial
institutions offering prepaid accounts generally keep a central record
of transactions and track authorized users.
The final rule requires that those financial institutions that do
not currently offer their consumers limited liability and error
resolution protections in accordance with Regulation E establish
procedures for complying with the requirements or modify existing
procedures (depending on their current practices). Specifically,
financial institutions that do not currently offer these protections
will need to develop the capacity to give the required disclosures to
consumers, receive oral or written error claims, investigate error
claims, provide consumers with investigation results in writing,
respond to any consumer request for copies of the documents that the
institution relied on in making its determination, and correct any
errors discovered under the required timeframes.\833\ If unable to
complete their investigation within the required timeframe (generally
10 business days), financial institutions will be compelled to extend
provisional credit (where applicable) and, in the case that a
provisionally credited amount is subsequently reversed, notify the
consumer.
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\833\ Financial institutions often rely on industry partners to
perform some or all of these functions.
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For those financial institutions that do not currently offer
limited liability and error resolution protections in the manner
required by the final rule, the extension of these protections will
require the establishment or modification of practices and procedures,
as well as employee training. The establishment or modification of
these practices and procedures will constitute a one-time
implementation cost for those financial institutions that do not
currently offer limited liability and error resolution in the manner
required by Regulation E, and implementing these procedures will
constitute an ongoing cost for financial institutions.\834\ The costs
associated with implementing these procedures would be a function of
the number and types of errors that consumers claim which, in turn, may
be affected by the composition of the customer base and how those
customers use their prepaid accounts.
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\834\ It is possible that those institutions that currently
offer Regulation E compliant error resolution on a voluntary basis
will choose to rely on higher-skilled staff or perform additional
reviews to assess compliance in light of the Final Rule. CFPB,
Understanding the Effects of Certain Deposit Regulations on
Financial Institutions' Operations, Findings on Relative Costs for
Systems, Personnel, and Processes at Seven Institutions, at 96 (Nov.
2013), available at http://files.consumerfinance.gov/f/201311_cfpb_report_findings-relative-costs.pdf.
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Errors may vary on many dimensions that affect the cost associated
with their investigation.\835\ In pre-proposal outreach, the Bureau
spoke with several financial institutions that immediately resolve
disputes involving amounts below a certain de minimis threshold since
the amount of funds at issue does not justify the likely cost
associated with conducting the investigation. Separately, when an
investigation is conducted, resolution times may be affected by the
responsiveness of third parties, including merchants and ATM owners,
and may be subject to timeframes established by networks or other
standard setting bodies.\836\ Additionally, the amount of information
provided by the consumer and the timeliness of the report can affect
the duration of the investigation.\837\ For instance, ATM error claims
may result from an ATM malfunction that causes the consumer to receive
the wrong amount of funds or from unauthorized use. Error claims that
occur when an ATM dispenses the incorrect amount of funds are generally
resolved when the ATM is balanced; however, in cases involving
unauthorized ATM use, it is possible that the investigation may include
obtaining and consulting video evidence.
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\835\ In addition, with the Final Rule's requirement to extend
provisional credit, there could be additional monetary costs
associated with errors that require an extended timeline for
investigation aside from the cost associated with the investigation
itself.
\836\ Payment card network rules may require the merchant
acquirer to reply within a specified timeline in certain instances
and may, in turn, require merchants to follow the acquirer's time
frame for responding to such requests. See Visa Inc., Chargeback
Management Guidelines for Visa Merchants at 24 (2014), available at
http://usa.visa.com/download/merchants/chargeback-management-guidelines-for-visa-merchants.pdf.
\837\ One program manager reported to the Bureau that, in 85
percent of cases, there were 15 or fewer days between the
transaction date and the initial notification date. Another program
manager reported that in 76 percent of cases, there were 10 or fewer
days between the transaction date and the dispute notification date.
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Errors may also vary in terms of their legitimacy. Consumers may
assert that an error occurred when one did not occur either to attempt
to defraud the financial institution or due to a misunderstanding.
Since, under EFTA, the burden is on the financial institution to
establish that the transaction in question was not an error, it is
possible that the financial institution would be liable for errors that
may not be legitimate. Because the financial institution is liable for
an asserted error unless it can determine the error is not legitimate,
a financial institution may incur a cost whether or not the error
actually occurred. The Bureau therefore finds it more helpful to
classify alleged errors as either accepted or denied, as explained
below, when considering the various cases in which a financial
institution may incur a cost.
Accepted disputes include situations in which the financial
institution credits the consumer's account, either because an error
occurred or, where an error did not occur, because an error was
asserted and the financial institution could not establish that the
transaction was authorized.\838\ In the case of accepted disputes,
financial institutions that do not currently offer limited liability
and error resolution rights consistent with Regulation E will incur
one-time and ongoing costs associated with training personnel, as well
as one-time and ongoing costs associated with information technology
support to track reported disputes, investigations, resolutions, and to
produce reports for internal audit and potential supervisory review.
Ongoing costs associated with conducting investigations include
compensating personnel tasked with dispute intake, obtaining receipts
and other documentation from merchants or ATM owners, and communicating
investigation findings to the consumer. When the financial institution
can neither establish that the EFT was authorized nor receive a credit
from the merchant or ATM owner, financial institutions also will incur
costs associated with paying funds to consumers.\839\ While the Bureau
does not have data that permit it to estimate the magnitude of such
costs, the amount paid to consumers may be related to typical balances
held in prepaid accounts, discussed above in the context of benefits to
consumers.
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\838\ Note that in some limited situations, payment card network
rules permit the issuer to perform a merchant chargeback and be
reimbursed. See Visa Inc., Chargeback Management Guidelines for Visa
Merchants, at 43-88 (2014), available at http://usa.visa.com/download/merchants/chargeback-management-guidelines-for-visa-merchants.pdf.
\839\ In pre-proposal outreach, the Bureau spoke with several
financial institutions regarding error resolution, and the rate at
which error claims were paid out varied greatly. One program manager
paid out roughly half of the claims made (including those credited
by the merchant), with under 30 percent of all claims paid by the
program manager.
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Additionally, the final rule requires financial institutions to
extend provisional credit to consumers asserting an error claim when
the length of the investigation exceeds 10 business days, so long as
the prepaid account has
[[Page 84296]]
been through the customer identification and verification processes. In
cases where the claim is ultimately accepted, offering provisional
credit represents little additional cost to the financial institution
over and above any costs associated with error resolution because the
amount credited is ultimately due to the consumer following the
investigation. Since the financial institution would be required to pay
the claim under the error resolution provision, the only cost to the
financial institution associated with expediting the availability of
funds is the opportunity cost of those funds as applied to another
investment for the applicable period. The Bureau expects that this cost
is generally negligible.
In contrast, denied disputes occur when the financial institution
is able to establish that a transfer was authorized and, therefore, the
institution is not ultimately required to return funds to the consumer.
In the case of denied disputes, financial institutions that do not
currently offer error resolution rights will incur costs associated
with conducting investigations, and financial institutions that do not
currently offer provisional credit will incur costs associated with
crediting accounts when the length of the investigation exceeds 10
business days. Although a financial institution extending provisional
credit can subsequently reverse the credit when it is able to establish
that the transfer was authorized, the consumer may draw down the funds
in the interim or intentionally close the account and abscond with the
funds.\840\ In such cases, extending provisional credit results in the
financial institution losing all or some of the funds that were
extended. For provisional credit that can be reclaimed, the financial
institution will incur a small opportunity cost of those funds as
applied to another investment for the period spanning when the funds
were granted and when they could be reclaimed. The Bureau expects that
this opportunity cost generally will be negligible.
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\840\ One program manager told the Bureau that it was unable to
reclaim provisional credit extended in roughly 65 percent of the
cases in which a merchant could provide proof that the EFT was
authorized.
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The Bureau believes that, to a certain extent, financial
institutions are able to limit losses associated with error claims. In
pre-proposal discussions with financial institutions that provide
prepaid accounts, the Bureau learned that financial institutions often
close (or could close) accounts that have repeated error claims,
thereby limiting their exposure to potential losses, and may add
individuals to a watch list. Additionally, industry partners sometimes
share information regarding individuals who appear to be instigating
fraudulent activity, and one payment card network has plans to create a
centralized database to better detect fraud on prepaid cards.\841\
Financial institutions can limit account access prior to customer
identification and verification and use information provided in the
identification and verification process to help limit the risk of
fraud. The presence or absence of direct deposit, customer tenure, and
card use patterns--including the type of merchant and the existence of
prior activity at the merchant or ATM--can all be used to predict the
likelihood that fraud occurs. The limited liability and error
resolution protections required by the final rule may encourage
financial institutions to invest in more robust systems to prevent
unauthorized transfers.
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\841\ All U.S. Visa prepaid issuing financial institutions and
their program managers have been required to report into Visa's
Prepaid Clearinghouse Service since June 2015. See Press Release,
Visa Inc., Visa Prepaid Clearinghouse Service Creates Centralized
Database to Better Detect and Prevent Fraud Schemes on Prepaid Cards
(Feb. 27, 2014), available at http://investor.visa.com/news/news-details/2014/Visa-Enhances-Industry-Fraud-Detection-on-Prepaid-Cards/default.aspx. While the Bureau supports industry efforts to
reduce fraud, the Bureau cautions that any entities that maintain or
furnish watch lists, screening programs, or other similar services
should consider whether and how the Fair Credit Reporting Act or
other statutes may apply to its activities.
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Several industry commenters said that the application of limited
liability and error resolution provisions, and in particular the
provisional credit requirements, to prepaid accounts under certain
circumstances could increase financial institutions' fraud losses
associated with prepaid accounts. Some commenters claimed that fraud
risk is especially high for transactions taking place before an account
has been registered or in the period shortly after a prepaid account
has been opened. One commenter that processes prepaid transactions
estimated that providing limited liability and error resolution rights
for transactions taking place before a prepaid account is registered
would lead to an increase in fraud exposure of one additional basis
point, compared to a baseline fraud exposure of between four and five
basis points.
The Bureau acknowledges that extending limited liability and error
resolution protections, including provisional credit, to prepaid
accounts that do not already offer these protections prior to customer
identification and verification could increase the fraud exposure of
financial institutions. Partly in response to these concerns, the
Bureau has determined not to require provisional credit for prepaid
accounts that have not successfully completed the financial
institution's customer identification and verification process. To the
extent that financial institutions nonetheless face increased fraud
risk because limited liability and error resolution requirements apply
before customer identification and verification, the Bureau notes that
financial institutions can limit this risk by restricting a prepaid
account's functionality before the identification and verification
process is complete. The Bureau understands that currently many prepaid
accounts cannot be used prior to customer identification and
verification, or are subject to restrictions on how they can be used or
the amount of funds they can hold. To the extent that the requirement
to provide limited liability and error resolution protections increases
fraud exposure related to transactions prior to identification and
verification or early in the account's history, such restrictions may
permit financial institutions to reduce fraud exposure.
Although most programs reviewed as part of the Bureau's Study of
Prepaid Account Agreements provided error resolution with provisional
credit, there was some heterogeneity across programs with respect to
the error resolution and provisional credit policies. To the extent
that concern regarding the absence of a comprehensive Federal
regulatory regime governing error resolution is currently limiting
consumer adoption of prepaid accounts, providing for Regulation E
limited liability and error resolution coverage, with provisional
credit, for prepaid accounts--which include P2P transfer products--may
help to facilitate wider adoption of these accounts and could benefit
financial institutions. Additionally, since the costs associated with
complying with the final rule vary across financial institutions, those
that are already offering these protections may benefit if competitors
need to raise prices or reduce the quality of their products to cover
the costs associated with extending these protections to consumers.
However, those financial institutions that currently offer these
protections on a voluntary basis will lose the option of ceasing to
offer such protections to consumers in the future.
4. Requiring the Posting and Provision of Prepaid Account Agreements
Section 1005.19 of the final rule requires issuers to submit
agreements governing prepaid accounts that they
[[Page 84297]]
offer to the Bureau on a rolling basis. The Bureau intends to post
these agreements on a publicly available Web site established and
maintained by the Bureau in the future.\842\ Issuers are not required
to submit agreements to the Bureau if they qualify for one of two
exceptions: (1) A de minimis exception for those issuers that had fewer
than 3,000 open prepaid accounts as of the last day of the calendar
quarter; \843\ and (2) a product testing exception for those prepaid
accounts offered to a limited group of consumers and otherwise meeting
the requirements specified in Sec. 1005.19(b)(5). Under Sec.
1005.19(c), issuers also must post and maintain on their publicly
available Web site any prepaid account agreements that the issuer
offers to the general public (unless the issuer qualifies for the de
minimis or product testing exceptions); this requirement does not apply
to accounts, such as payroll card accounts or government benefit
accounts, that are not offered to the general public.
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\842\ Only those agreements offered as of the last business day
of the preceding calendar quarter that have not been previously
submitted as well as those agreements that have been amended must be
submitted. Sec. 1005.19 (b)(1)(ii) and (iii). In addition, the
issuer must notify the Bureau of any prepaid account agreement
previously submitted that the issuer is withdrawing. Sec. 1005.19
(b)(1)(iv).
\843\ Sec. 1005.19(b)(4).
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In addition to these requirements, Sec. 1009.19(d) requires that
issuers provide access to individual account agreements to any consumer
holding an open prepaid account, unless such agreements are required to
be posted on the issuer's Web site pursuant to Sec. 1005.19(c). An
issuer may fulfill this requirement by posting and maintaining the
consumer's agreement on its Web site or by promptly providing a copy of
the agreement in response to a consumer's request.\844\
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\844\ If the issuer chooses to comply with this requirement by
providing a copy of the agreement in response to a consumer request,
the issuer must provide the consumer with the ability to request a
copy of the agreement by calling a readily available telephone line.
The issuer is required to send to the consumer or otherwise make the
copy of the consumer's agreement available no later than five
business days after the issuer receives the consumer's request.
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a. Benefits and Costs to Consumers
The final rule will generally increase the amount of information
available to consumers regarding prepaid accounts both when shopping
for a prepaid account and after acquisition of the prepaid account.
Having online access to account agreements (both on the Bureau's Web
site and on the issuer's Web site) will enable suitably motivated
consumers to more easily compare the fees, as well as other terms and
conditions, of various prepaid account products. Entities may use the
information in the repository to develop more competitive products or
extract information that they could sell or otherwise provide to
consumers or third parties, for example in the form of tools that
consumer can use to compare the terms of different prepaid accounts. As
discussed in more detail above with respect to the final rule's pre-
acquisition disclosure requirements, consumers benefit from having more
information about available products and their terms because it helps
them to make better choices and because it can lead to additional
competition in the market for prepaid accounts. Increased competition
could benefit consumers through lower prices, higher quality products,
or both.
For those consumers who have already acquired a prepaid account,
access to their own account's terms and conditions, regardless of
whether the account is currently offered to the public, could be
helpful should a question arise regarding the terms of the account.
Given that some accounts are held for a period of years,\845\ it is
possible that consumers might misplace the initial disclosures provided
with their prepaid accounts. Having the terms and conditions available
post-acquisition could be helpful if a consumer wishes to assert an
error or if other questions arise regarding the account.
---------------------------------------------------------------------------
\845\ See, e.g., 2012 FRB Kansas City Study at 47 chart 4.1
(finding mean life spans of multiple years for some categories of
prepaid accounts).
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Actual and potential consumer holders of prepaid accounts could
also benefit from the requirement that issuers provide prepaid account
agreements to the Bureau on a rolling basis. Provision of agreements to
the Bureau will facilitate the Bureau's market monitoring, helping to
ensure that prepaid accounts comply with regulatory requirements.
Knowing that agreements must be provided to the Bureau and posted on
the issuer's Web site could serve as an impetus for prepaid account
issuers to ensure that they are complying with applicable regulatory
requirements because public posting will make it more likely that
agreement terms or disclosures that do not comply with such
requirements are discovered.
b. Benefits and Costs to Covered Persons
Under the final rule, issuers of prepaid accounts offered to the
public that do not qualify for the de minimis or testing exceptions
will be required to establish procedures that ensure they provide
agreements to the Bureau when required by the final rule and notify the
Bureau when they withdraw an agreement. In addition, issuers will need
to ensure that any submission includes the elements described in Sec.
1005.19(b)(1). The Bureau expects that the burden imposed by this
reporting requirement will be minimal, as issuers are required to
maintain current account agreements for other purposes.
In addition, issuers of prepaid accounts that are offered to the
public are also required to post prepaid account agreements on their
publicly available Web site. Many issuers of prepaid accounts currently
make account agreements available on their Web sites, but the final
rule requires that issuers that do not qualify for the de minimis
exception post and maintain any agreements currently offered to the
public that do not qualify for the product testing exception.
Therefore, issuers will need to ensure that their Web sites include
current agreements. The Bureau anticipates that some issuers will incur
costs to make required agreements publicly available on their Web
sites.
The final rule also requires that all issuers provide consumers
with access to the agreement for their own prepaid account, unless such
agreements are required to be posted on the issuer's Web site pursuant
to Sec. 1005.19(c). For those issuers choosing to comply with this
requirement by posting the relevant agreements online, the issuer must
ensure that its Web site includes all agreements for open accounts and
ensure that the agreements posted online are complete and up-to-date
should product offerings evolve. For those issuers choosing to comply
with the requirement by mailing a paper copy of the agreement or
otherwise making a copy of the agreement available in response to a
consumer request, the cost associated with this provision will depend
on the frequency with which consumers make requests for such
information. Costs associated with fulfilling such requests could
consist of customer service agent time spent receiving and responding
to a request made via telephone, as well as postage or other materials
should the issuer respond to the inquiry with a paper copy of the
agreement. Those issuers choosing to comply in this manner may also
incur implementation costs associated with training customer service
agents to handle such requests and/or changing existing IVR menu
options.
Greater availability of information about the terms of available
prepaid accounts could increase competition by making it easier for
consumers to
[[Page 84298]]
compare account costs and features across different prepaid accounts.
This reduction in consumer search costs could result in lower prices,
which could reduce profits for issuers of prepaid accounts.
The proposed rule would have required agreements for all prepaid
accounts that do not qualify for the product testing exception,
including payroll card accounts and other accounts not offered to the
general public, to be posted to the issuer's publicly available Web
site. Several commenters noted that issuers of payroll card accounts in
particular may have different account agreements for potentially
thousands of different employers, and that the burden of maintaining a
public Web site making such a large number of agreements available
could be especially high. Because the final rule does not require
issuers to post publicly available versions of agreements for prepaid
accounts that are not offered to the general public, issuers will not
bear the burden of making such agreements available on their Web sites,
while consumers will still have access to their own agreements pursuant
to Sec. 1009.19(d), and such agreements will be available to the
public through the Bureau's future Web site.
5. Requirements Applicable to Covered Separate Credit Features
The final rule provides new protections for consumers with respect
to certain overdraft credit features offered in connection with prepaid
accounts. As described in greater detail above, in the final rule, the
Bureau generally intends to cover under Regulation Z overdraft credit
features offered in connection with prepaid accounts where the credit
features are offered by the prepaid account issuer, its affiliate, or
its business partner (except as described in new Sec. 1026.61(a)(4)).
New Sec. 1026.61(b) generally requires that such overdraft credit
features be structured as separate sub-accounts or accounts, distinct
from the prepaid asset account, to facilitate transparency and
compliance with various Regulation Z requirements. Under final Sec.
1026.2(a)(15)(i), a prepaid card is a credit card under Regulation Z
when it is a ``hybrid prepaid-credit card.'' New Sec. 1026.61(a)(2)(i)
provides that a prepaid card is a ``hybrid prepaid-credit card'' with
respect to a separate credit feature if the card meets the following
two conditions: (1) The card can be used from time to time to access
credit from the separate credit feature in the course of authorizing,
settling, or otherwise completing transactions conducted with the card
to obtain goods or services, obtain cash, or conduct P2P transfers; and
(2) the separate credit feature is offered by the prepaid account
issuer, its affiliate, or its business partner. A ``covered separate
credit feature'' is defined in new Sec. 1026.61(a)(2) to mean a
separate credit feature accessible by a hybrid prepaid-credit card.
Certain provisions in Regulation Z apply to ``creditors'' and other
provisions apply to ``card issuers.'' Under the final rule, a person
that offers a covered separate credit feature accessible by a hybrid
prepaid-credit card is both a ``card issuer'' and a ``creditor'' under
Regulation Z. As discussed in the section-by-section analysis of Sec.
1026.2(a)(20) above, the Bureau anticipates that most covered separate
credit features accessible by hybrid prepaid-credit cards will meet the
definition of ``open-end credit'' and that credit will not be home-
secured. A card issuer of a hybrid prepaid-credit card that extends
open-end credit (and thus charges a finance charge for the credit) that
is not home-secured in connection with the covered separate credit
feature is a ``creditor'' for purposes of the rules governing open-end
(not home-secured) credit plans in subpart B in connection with the
covered separate credit feature. The card issuer also must comply with
the credit card rules set forth in subparts B and G with respect to the
covered separate credit feature and the hybrid prepaid-credit
card.\846\ In addition, the final rule includes modifications to
Regulation E that provide new consumer protections for prepaid accounts
accessible by a hybrid prepaid-credit card. These changes subject
providers to a number of new requirements, which are summarized below.
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\846\ As discussed in more detail above in the section-by-
section analysis of Sec. 1026.2(a)(17), a person who offers a
covered separate credit feature accessible by a hybrid prepaid-
credit card and does not impose a finance charge is not offering
open-end credit. Nonetheless, as discussed in the section-by-section
analysis of Sec. 1026.2(a)(17), such a person would still be
subject to certain Regulation Z requirements under certain
circumstances.
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The final rule excludes prepaid cards from coverage as credit cards
under Regulation Z when they access certain specified types of credit.
First, new Sec. 1026.61(a)(2)(ii) provides that a prepaid card is not
a hybrid prepaid-credit card when it accesses a ``non-covered separate
credit feature.'' A non-covered separate credit feature is a separate
credit feature that either: (1) Cannot be accessed in the course of a
prepaid card transaction to obtain goods or services, obtain cash, or
conduct P2P transfers; or (2) is offered by an unrelated third party
that is not the prepaid account issuer, its affiliate, or its business
partner. Although prepaid cards that access non-covered separate credit
features are not considered hybrid prepaid-credit cards, the non-
covered separate credit feature is often subject to Regulation Z in its
own right, depending on its terms and conditions. Second, under new
Sec. 1026.61(a)(4), a prepaid card also is not a credit card when the
prepaid card accesses incidental credit in the form of a negative
balance on the asset account where the prepaid account issuer generally
does not charge credit-related fees. Under the final rule, this
incidental credit is generally subject to Regulation E, instead of
Regulation Z.
By generally classifying prepaid cards that access covered separate
credit features as credit cards, the final rule makes existing credit
card provisions in Regulation Z that restrict the structure and types
of fees that providers may impose applicable to covered separate credit
features accessible by a hybrid prepaid-credit card that are open-end
(not home-secured) consumer credit plans. As discussed above, the
Bureau anticipates that most covered separate credit features will meet
the definition of ``open-end credit'' and these credit plans will not
be home-secured. Accordingly, the provisions applicable to open-end
consumer credit plans are of particular importance in considering the
potential impacts of the final rule. For example, existing Regulation Z
Sec. 1026.52(a) generally prohibits card issuers from imposing fees in
excess of 25 percent of the credit limit during the first year
following the opening of a credit card account under an open-end (not
home-secured) consumer credit plan. Under the final rule, this
restriction applies to credit-related fees assessed in connection with
covered separate credit features accessible by a hybrid prepaid-credit
card that are open-end (not home-secured) consumer credit plans. In
addition, Sec. 1026.52(b) limits penalty fees, and Sec. 1026.56
prohibits over-the-limit fees unless the consumer consents by opting-in
to such fees, with respect to covered separate credit features
accessible by a hybrid prepaid-credit card that are open-end (not home-
secured) consumer credit plans.
The final rule also modifies Regulation E to specify in Sec.
1005.18(g)(1) that a financial institution generally must provide to
any prepaid account without a covered separate credit feature the same
account terms, conditions, and features that it provides on prepaid
accounts in the same prepaid account program that have
[[Page 84299]]
such a credit feature. The final rule permits a financial institution
to charge the same or higher fees on the asset feature of a prepaid
account with a covered separate credit feature accessible by a hybrid
prepaid-credit card relative to the amount of a comparable fee it
charges on prepaid accounts in the same prepaid account program without
such a credit feature. However, Sec. 1005.18(g)(1) prohibits a
financial institution from charging a lower fee on the asset feature of
a prepaid account with a covered separate credit feature accessible by
a hybrid prepaid-credit card relative to the amount of a comparable fee
it charges on prepaid accounts in the same prepaid account program
without such a credit feature.
In addition to these restrictions on fee structure and type,
certain newly applicable provisions of Regulations E and Z restrict how
a financial institution may obtain repayment of a balance incurred on a
covered separate credit feature accessible by a hybrid prepaid-credit
card. The final rule, in Sec. 1005.10(e)(1), applies the EFTA
compulsory use prohibition to covered separate credit features
accessible by a hybrid prepaid-credit card. Accordingly, creditors are
prohibited from requiring the electronic repayment of credit extended
through a covered separate credit feature accessible by a hybrid
prepaid-credit card on a preauthorized, recurring basis.\847\ In
particular, creditors are required to offer prepaid account consumers
an alternative to the automatic repayment of credit balances, such as a
consumer-initiated transfer of funds from an asset account to the
credit account. While consumers may voluntarily agree to an automatic
repayment plan for their convenience, such voluntary plans are subject
to certain restrictions.
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\847\ However, a creditor may offer an incentive to consumers
for agreeing to repayment by preauthorized, recurring EFTs.
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In particular, the final rule's provisions ensure a minimum period
of time between when a debt is incurred and when the debt is due to be
repaid for covered separate credit features accessible by a hybrid
prepaid-credit card that are open-end (not home-secured) consumer
credit plans. Specifically, with regard to such plans, the final rule
requires card issuers to adopt reasonable procedures designed to ensure
that periodic statements are mailed or delivered at least 21 days prior
to the fixed monthly payment due date.\848\ In addition to requiring
card issuers to obtain the consumer's written, signed agreement to any
automatic repayment with respect to a deposit account held with the
card issuer, Regulation Z Sec. 1026.12(d) prevents card issuers from
deducting a payment more frequently than once per calendar month under
any such automatic repayment plan.
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\848\ See the section-by-section analyses of Sec. Sec.
1026.5(b)(2)(ii) and 1026.7(b)(11) above.
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Pursuant to Regulation Z as amended by the final rule, card issuers
offering hybrid prepaid-credit cards must comply with a number of
requirements governing solicitation and application. During the 30 days
following prepaid account registration, Sec. 1026.61(c) prohibits a
card issuer from opening a covered separate credit feature accessible
by a hybrid prepaid-credit card, providing a solicitation or
application to open such a credit feature, or allowing an existing
credit feature to become a covered separate credit feature accessible
by a hybrid prepaid-credit card. Currently, Sec. 1026.12(a)(1)
prohibits unsolicited issuance of credit cards. Under the final rule,
Sec. 1026.12(a)(1) applies to hybrid prepaid-credit cards, and a card
issuer may only attach a covered separate credit feature to a prepaid
card in response to an oral or written request or application for the
card. Any credit card applications or solicitations offered to
consumers for a covered separate credit feature must comply with the
requirements specified in Sec. 1026.60. In evaluating an application,
a card issuer is required by current Sec. 1026.51(a) to establish and
maintain reasonable written policies and procedures to consider the
consumer's income or assets and current obligations in evaluating the
consumer's ability to make the required minimum periodic payments under
the terms of the plan. The final rule applies this ability to pay
requirement to covered separate credit features accessible by a hybrid
prepaid-credit card that are open-end (not home-secured) consumer
credit plans.
Current Regulation Z also includes a number of additional
disclosure requirements that the final rule applies to covered separate
credit features accessible by a hybrid prepaid-credit card. Before the
consumer makes a transaction using a covered separate credit feature
accessible by a hybrid prepaid-credit card, creditors are required to
provide the account-opening disclosures required by Sec. 1026.6(b).
Moreover, the final rule requires creditors to comply with Sec. 1026.7
and provide a periodic statement for each billing cycle in which the
account has a debit or credit balance of more than $1 or in which a
finance charge has been imposed. This periodic statement requirement
supplements the prepaid account periodic statement that is required by
Regulation E.\849\ In addition, creditors generally are obligated to
provide the disclosures described in Sec. 1026.9(c)(2) when changing
the terms of the covered separate credit feature.
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\849\ Instead of providing a prepaid account periodic statement
as required under Regulation E, final Regulation E Sec. 1005.18(c)
provides that a financial institution is not required to provide
periodic statements if it makes available to the consumer balance
information by telephone, 12 months of electronic account
transaction history, and upon the consumer's request, 24 months of
written account transaction history. As mentioned above, Sec.
1026.5(b)(2) specifies that for credit card accounts under an open-
end (not home-secured) consumer credit plan, card issuers must adopt
reasonable procedures designed to ensure that periodic statements
are mailed or delivered at least 21 days prior to the fixed monthly
payment due date.
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Because of statutory differences, transactions performed using a
covered separate credit feature accessible by a hybrid prepaid-credit
card may, in some circumstances, be afforded liability and error
resolution protections that exceed those applicable to transactions
exclusively involving funds drawn from the prepaid asset account. For
those credit card transactions subject to Regulation Z's liability
limitations, current Sec. 1026.12(b) restricts cardholder liability to
$50 in the event of unauthorized use. By contrast, Regulation E, in
current Sec. 1005.6(b), permits a financial institution to hold a
consumer liable in the event of unauthorized use for up to $500 if the
consumer does not report the loss in a timely manner.\850\ In addition,
current Regulation Z's definition of billing error is more expansive
than Regulation E's definition of error and includes an extension of
credit for property or services not accepted by the consumer (or the
consumer's designee) or not delivered as agreed. Compare Sec.
1026.13(a), with Sec. 1005.11(a).
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\850\ Irrespective of whether a transaction is subject to a
liability limitation specified by Regulation E or Z, payment card
networks' ``zero liability'' policies may further limit consumers'
liability for unauthorized transactions.
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Because Regulation Z and Regulation E provide for different
liability limitations and error resolution procedures, the final rule
specifies in Regulation E Sec. 1026.12(a)(1)(iv)(B) and Regulation Z
Sec. 1026.13(i)(2) which limitations and error resolution procedures
apply to transactions made with a hybrid prepaid-credit card.\851\ For
those transactions that exclusively draw on a covered separate credit
[[Page 84300]]
feature, the final rule specifies that Regulation Z's liability
limitations and error resolution procedures apply. For those
transactions that solely debit a prepaid asset account and do not draw
on a covered separate credit feature, the final rule specifies that
Regulation E's liability limitations and error resolution procedures
apply. Finally, for those transactions that both debit a prepaid asset
account and draw on a covered separate credit feature, Regulation E's
liability limitations and error resolution procedures generally apply,
with the exception of the error resolution provisions of Sec.
1026.13(d) and (g) of Regulation Z, which apply to the credit portion
of the transaction.
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\851\ See also existing Regulation Z Sec. 1026.12(g), which
cross-references Regulation E Sec. 1005.12(a), for guidance on
whether Regulation Z or Regulation E applies regarding issuance and
liability for unauthorized use, in instances involving both credit
and EFT aspects.
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The baseline for the Bureau's consideration of the benefits, costs,
and impacts arising from the final rule is the current market for
prepaid accounts. However, to inform the rulemaking, the Bureau also
considers the potential future impacts of the final rule by comparing
the likely future development of the market for these products to how
the market might have evolved in the absence of the final rule.
Consistent with the baseline used for discussion of the other final
rule provisions, this baseline incorporates both the existing
regulatory structure and economic attributes of the relevant market.
Most notably, this baseline includes underlying consumer preferences
and the current set of incumbent firms and potential entrants.
Although a number of financial institutions offer prepaid accounts
to consumers, the vast majority do not currently offer overdraft
services in connection with these accounts and thus their current
products are not directly impacted by the various credit provisions of
the final rule.\852\ However, one of the largest prepaid account
program managers offers an overdraft service in connection with its
prepaid accounts, which include both GPR cards and payroll card
accounts. The Bureau's understanding is that the credit limits extended
to consumers using these overdraft services are typically smaller than
credit limits offered by credit card accounts, and consumers typically
pay a per transaction fee, which does not vary with the size of the
overdraft, to use the feature.\853\ The Bureau understands that
providers voluntarily choose to limit the number of fees that a
consumer may incur during a specified period, and providers may waive
fees for consumers who repay the overdraft within 24 hours or who
overdraft by a de minimis amount. Further, the Bureau understands that
providers require consumers to opt-in to the service and only offer the
service to consumers who meet certain eligibility criteria.
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\852\ One source suggests that government benefit card program
revenue from overdraft fees ``virtually disappeared'' in 2014. 2015
FRB Government Prepaid Cards Report at 1. In 2015, overdraft fees
accounted for less than 0.1 percent of total cardholder fee revenue
for government benefit card programs. 2016 FRB Government Prepaid
Cards Report at 8.
\853\ See, e.g., 2012 NetSpend WSJ Article.
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Financial institutions currently offering prepaid accounts subject
to a negative balance fee that wish to continue to charge such fees
will need to restructure these accounts to comply with the final rule's
credit provisions. There is little evidence regarding how common such
fees are in practice. In the Study of Prepaid Account Agreements
conducted in connection with the proposed rule, the Bureau found that
roughly 7 percent of reviewed agreements noted a negative balance fee
in their terms and conditions.\854\ In response to the proposal, one
credit union league commenter stated that 91 percent of member credit
union survey respondents stated that they do not charge a sustained
negative balance fee. One office of a State Attorney General commented
that one-third of 38 employers it surveyed used payroll card programs
that included overdraft or negative balance fees, though it is unclear
how many distinct prepaid account providers this figure represents.
Rather than trigger coverage under the final rule's credit provisions,
the Bureau believes that most financial institutions that currently
reserve the right to impose negative balance fees will no longer do so.
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\854\ Study of Prepaid Account Agreements at 25-26. This
percentage excludes those agreements designated as offering opt-in
overdraft services (24 of 325 reviewed agreements). Including those
agreements with formal opt-in overdraft services, roughly 10 percent
noted a negative balance fee. Id. at 26.
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Although there are few prepaid providers currently offering
overdraft services, the final rule's restrictions will affect a
significant portion of the fee-based revenue generated by those prepaid
programs offering overdraft. According to the office of a State
Attorney General, overdraft fees and declined balance fees may comprise
a substantial portion of the fee-based revenue for financial
institutions offering payroll card programs, stating that, in its
survey of 38 employers' payroll card programs, overdraft fees comprised
over 40 percent of the fees assessed by those vendors that charge them.
Consumers regularly using overdraft services offered in connection
with prepaid accounts represent only a small minority of all prepaid
account consumers. The Bureau understands that the small number of
prepaid account providers that currently offer overdraft services
condition consumer eligibility on receipt of a regularly occurring
direct deposit exceeding a predetermined threshold. Additionally,
consumers must affirmatively choose to activate, or opt-in to, the
service. Therefore, only those consumers who both meet the eligibility
requirements and affirmatively choose to use the service are able to
overdraft. A reasonable estimate of current market activity suggests
that less than 1 percent of prepaid accountholders regularly use
overdraft features offered in connection with their prepaid
accounts.\855\ Thus, the benefits, costs, and impacts arising from the
final rule's overdraft credit provisions will have a limited effect on
prepaid account consumers generally, as described more fully below,
even though those consumers currently relying on overdraft services may
be affected by changed product features, altered eligibility
requirements, or loss of access.\856\
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\855\ Although NetSpend is a significant prepaid account program
manager and offers overdraft services in connection with some of its
GPR and payroll card products, a news article reported that only 6
percent of NetSpend's customers regularly use overdraft. 2012
NetSpend WSJ Article. In addition, a larger percentage of accounts
would potentially be eligible for their overdraft program. A
financial filing suggested that NetSpend had 3.6 million active
cards as of Sept. 30, 2015, and 49 percent of those active cards had
direct deposit. Total Sys. Serv., Inc., Quarterly Report (Form 10-
Q), at 27, available at http://www.sec.gov/Archives/edgar/data/721683/000119312515367677/d97203d10q.htm (for the quarterly period
ended Sept. 30, 2015).
Focusing attention only on GPR card and payroll card accounts,
which excludes other prepaid account products and therefore
underestimates the market size, one projection estimated that there
would be 22.4 million active prepaid debit and payroll cards in the
United States as of 2014. Aite Group LLC, The Contenders: Prepaid
Debit and Payroll Cards Reach Ubiquity, at 13 fig.5 (Nov. 2012).
Recent reports are largely consistent with this projection. One
recent report estimated that there were 6.0 million active payroll
cards as of 2014. Aite Group LLC, Checkmate: U.S. Payroll Card
Programs Trump Paper Checks, at 8 fig.4 (Apr. 2015). A second recent
study estimated that there were 16.1 million GPR cards in
circulation. Bob Rohr, First Annapolis, Chase Enhances Competitive
Positioning of Liquid, Navigator: Thought Leadership on the Global
Payments Industry, at 5 fig.2 (Sept. 2015), available at http://www.firstannapolis.com/wp-content/uploads/2015/09/September-2015_First-Annapolis-Navigator1.pdf.
\856\ For example, changes in pricing structure or other
protections may make covered separate credit features accessible by
a hybrid prepaid-credit card either more or less desirable to a
consumer relative to current overdraft services offered in
connection with prepaid accounts. It is also possible that changes
in the profitability of offering this product could lead those few
current providers to change business models and, in so doing,
potentially impact both those consumers using covered separate
credit features accessible by a hybrid prepaid-credit card as well
as prepaid accountholders not using such features.
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[[Page 84301]]
In response to the proposal, a few industry commenters stated that
the Bureau's treatment of overdraft services as credit subject to
Regulation Z did not appear to be supported by any data, and they cited
a lack of Bureau complaint data regarding overdraft on prepaid cards.
Because relatively few consumers use overdraft services in connection
with their prepaid accounts, the Bureau does not consider the volume of
complaints to be informative regarding the benefits and costs of the
final rule's treatment of overdraft services as credit. Further,
because prepaid account providers offer overdraft services to consumers
in a relatively uniform manner, there is neither an accessible
counterfactual nor a natural experiment available that would enable the
Bureau to evaluate alternative credit regulatory regimes.
Industry commenters also suggested that the Bureau's consumer
testing did not support the Bureau's approach to regulating overdraft
credit features offered in connection with prepaid accounts, stating
that the testing supported a disclosure-based approach. The Bureau
notes that, while consumer testing may inform the composition of a
disclosure, it was not designed to evaluate behavioral responses to
alternative credit regulatory regimes and, in any event, cannot capture
strategic responses by industry to new regulatory requirements.
a. Benefits and Costs to Consumers
The Bureau believes that the final rule's requirements concerning
disclosures, liability limitations, and error resolution procedures for
covered separate credit features accessible by a hybrid prepaid-credit
card provide a number of consumer benefits, aligning with those
conferred by Congress on credit card accountholders under TILA. In some
cases, the final rule strengthens consumer protections relative to
those protections offered by current industry practices. In other
cases, the final rule codifies requirements that, though largely
consistent with current practices, are not mandatory under Federal law.
The Bureau believes that the final rule's requirements concerning
credit-related disclosures, liability limitations, and error resolution
procedures will have a minimal impact on which consumers have access to
covered separate credit features accessible by a hybrid prepaid-credit
card and the amount of credit offered. Although the credit-related
disclosures provided to consumers seeking to add a covered separate
credit feature accessible by a hybrid prepaid-credit card may motivate
some consumers to choose not to apply for such a feature, the
incremental cost associated with producing and distributing such
disclosures, considering that providers must give various other
disclosures to consumers acquiring a prepaid account, is modest. In
addition, providers may further mitigate costs by obtaining E-Sign
consent from the consumer and delivering subsequent credit-related
disclosures in electronic form. The credit limits that providers
currently offer consumers in connection with overdraft services offered
in connection with prepaid accounts already serve to limit liability,
so the additional requirements with respect to error resolution and
liability limitations for covered separate features accessible by a
hybrid prepaid-credit card should not prompt providers to engage in
additional screening behaviors. These costs should not meaningfully
affect which consumers are given the option to add a covered separate
credit feature or the cost of that credit.
In contrast, certain other credit-related provisions of the final
rule, including provisions that restrict the type and structure of
certain fees and the timing of repayment, will likely have a
significant impact on which consumers have access to covered separate
credit features accessible by a hybrid prepaid-credit card, the amount
of credit offered, and the payment terms associated with the credit. As
will be discussed below, these impacts likely will occur because
providers choosing to offer covered separate credit features accessible
by a hybrid prepaid-credit card likely will modify their current fee
structures to comply with the rule. In addition, providers likely will
change eligibility criteria for covered separate credit features
accessible by a hybrid prepaid-credit card due to the increased credit
risk resulting from the final rule's provisions addressing the timing
of repayment.
The benefits, costs, and impacts arising from the final rule's
credit-related provisions likely will vary with the consumer's current
intensity and intentionality of use of overdraft services. As described
above, most consumers do not currently use overdraft services in
connection with their prepaid accounts. Consumers use prepaid accounts
for varied reasons. Some consumers rely on these accounts to aid in
controlling spending or to facilitate budgeting.\857\ Such consumers
are unlikely to choose to use covered separate credit features
accessible by a hybrid prepaid-credit card. By contrast, consumers with
different motivations for using prepaid accounts may desire access to
covered separate credit features and may rely on such features provided
they meet the program's eligibility requirements.\858\
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\857\ Several studies, as well as the Bureau's focus group
research, indicate that some consumers view spending control or
budgeting as a benefit offered by prepaid accounts. See, e.g., 2014
Pew Survey; The Pew Charitable Trusts, Key Focus Group Findings on
Prepaid Debit Cards (Apr. 2012), available at http://
www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/
FSP1201420Pew20DebitCardsR10A4512pdf.pdf; see also ICF Report I at
5.
\858\ These requirements generally include receipt of a
regularly occurring direct deposit in excess of a specified
threshold.
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Consumers who currently use prepaid accounts that offer overdraft
services will experience the impacts of the final rule's credit-related
provisions most directly. Some consumers who currently knowingly use
overdraft services in connection with their prepaid accounts rely on
such services only occasionally while others choose to rely on such
services as a source of credit with regularity. The Bureau received
extensive consumer comment in response to the proposed rule, including
comments that were coordinated as part of a letter-writing campaign
organized by a program manager that offers overdraft services in
connection with some of its prepaid account products. These comments
stated, among other things, that consumers benefit from having access
to overdraft services to make emergency or otherwise unexpected
purchases. Some consumer commenters stated that the overdraft services
offered by their prepaid provider were cheaper and less risky than
alternatives, such as payday loans. In addition to this intentional
reliance on overdraft services as source of credit, eligible consumers
who have opted-in to an overdraft service may also unintentionally
overdraw their prepaid accounts if they do not monitor their prepaid
account balances.\859\
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\859\ Some providers currently mitigate this possibility by
requiring overdraft users to sign up for text or email alerts or by
other mechanisms, even though they are not required by Federal law
to do so.
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The Bureau expects that the final rule's restrictions on certain
fees potentially charged to covered separate credit features accessible
by a hybrid prepaid-credit card will incentivize, and in some cases
require, those providers offering covered separate credit features
accessible by a hybrid prepaid-credit card to change their pricing
structures.
[[Page 84302]]
Most notably, the final rule subjects most fees charged during the
first year following the opening of a covered separate credit feature
accessible by a hybrid prepaid-credit card that is an open-end (not
home-secured) consumer credit plan, other than periodic interest rates,
to a cap of 25 percent of the initial credit line.\860\ Currently,
consumers who rely on an overdraft service offered in connection with
their prepaid account generally pay a per transaction fee, which does
not vary with the size of the overdraft, to use the feature.\861\ This
is similar to the fee structure typically used for checking account
overdraft products, and these fees can be high relative to the amount
of credit extended. Therefore, the final rule's restriction on the
amount of fees that may be collected in the first year will be a
binding constraint on the card issuer for all but infrequent users of
covered separate credit features accessible by a hybrid prepaid-credit
card. Considering the current pricing structure of prepaid account
programs that offer overdraft services, the final rule's requirement
could translate directly into lower transaction-based fees, at least
during the first year of the covered separate credit feature accessible
by a hybrid prepaid-credit card, for consumers using such
features.\862\
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\860\ This cap already applies to credit card accounts under an
open-end (not home-secured) consumer credit plan pursuant to the
CARD Act.
\861\ For example, consumers may pay $15 per overdrawn
transaction to access a credit line of $100. See, e.g., 2012
NetSpend WSJ Article. Although providers may limit the number of
fees that a consumer may incur during a specified period or opt not
to charge for overdrafts that cause an account to go negative by a
de minimis amount, this choice is voluntary.
\862\ It is possible that some providers could choose to issue a
change-in-terms notice to consumers after the first year of the
covered separate credit feature accessible by a hybrid prepaid-
credit card and restore the present fee structure for consumers who
have held their card for at least one year. However, the Bureau
believes that such an approach is not likely to be adopted because:
(1) A provider engaging in such a strategy risks losing non-
overdraft related fee revenue, which may be substantial, should
consumers respond to such a strategy by choosing a different
product; and (2) a provider would potentially bear additional
administrative costs associated with maintaining multiple fee
structures within the same program. See Fumiko Hayashi & Emily
Cuddy, Recurrent Overdrafts: A Deliberate Decision by Some Prepaid
Cardholders?, at 32 tbl.4 (Fed. Reserve Bank of Kan. City, Working
Paper No. RWP 14-08, 2015), available at https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-08.pdf (showing
that non-overdraft related fees comprise well over half of fees
collected from overdrafters on average for one provider).
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Because this provision restricts the level of certain fees and not
others, it is likely that providers that currently offer overdraft
services in connection with their prepaid accounts will change prepaid
account pricing structures and raise fees not subject to the
restriction (or create new fees).\863\ Issuers of hybrid prepaid-credit
cards could respond to the final rule's fee provisions by either
raising fees charged in connection with the prepaid account that do not
relate to the covered separate credit feature for all prepaid
accountholders, assessing an application fee for the covered separate
credit feature to those prepaid accountholders who apply for such
credit, or shifting to a pricing structure based on a periodic interest
rate.\864\ However, each of these options is likely to decrease demand
relative to the present for either prepaid accounts or covered separate
credit features. The quantity of prepaid accounts demanded from
providers that offer covered separate credit features accessible by a
hybrid prepaid-credit card could decrease if these providers respond to
the final rule's credit pricing restrictions by generally raising
prepaid account fees that are unrelated to the covered separate credit
feature.\865\ Alternatively, if providers respond by imposing or
raising an application fee, the number of consumers demanding credit
could decrease. This could occur because an up-front application fee is
more salient for consumers than the current add-on pricing model, which
relies on back-end transaction-based fees, or because consumers are
less likely to have available funds to pay a larger, up-front fee.
Similarly, shifting to a pricing structure based on a periodic interest
rate would require that card issuers disclose to consumers a
comparatively large, and therefore potentially salient, interest rate
(if current credit limits and repayment intervals are retained). It is
also possible that providers may choose not to offer covered separate
credit features accessible by a hybrid prepaid-credit card or to offer
these products to a more select set of consumers, relative to the
baseline.
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\863\ If providers are profit-maximizing firms, their current
choice not to offer an alternative fee structure compliant with the
final rule's provisions suggests that their profits would decrease
under such an alternative fee arrangement given the present industry
structure.
\864\ Like an application fee, periodic interest would not be
subject to the restriction.
\865\ Because the terms and conditions for transactions
accessing the prepaid account cannot vary based on whether the
prepaid accountholder accepts a covered separate credit feature
accessible by a hybrid prepaid-credit card, providers are unable to
target an increased prepaid account fee solely on those prepaid
accountholders who accept the credit feature. Therefore, providers
likely will target fees that are positively correlated with a
consumer's demand for the covered separate credit feature, such as
an application fee, for potential increases. This follows because a
prepaid accountholder who desires a covered separate credit feature
is less likely to switch to a substitute product in response to a
fee increase than a prepaid accountholder who does not desire a
covered separate credit feature (and therefore has more available
substitute prepaid products from which to choose).
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Provider responses to the final rule's provisions may cause those
consumers who use overdraft services infrequently to pay higher prices
for the covered separate credit feature or to choose to use less
credit. For example, if providers respond to the pricing restrictions
by charging consumers a high application fee to access credit, those
consumers who anticipate occasional use may choose not to apply for
credit because they may not be willing to pay a salient and transparent
up-front fee (unless they highly value the possibility of having this
credit readily available). This could benefit some consumers by
preventing them from inadvertently accessing a credit feature (after
having opted-in) and incurring the attendant fees. However, if an
unanticipated need for funds were to arise, some of these consumers may
need to adapt their household budgets in other ways, which may include
relying on other credit sources that are potentially higher cost or
less convenient.\866\ If a consumer needs to rely on another credit
source, managing a relationship with an additional financial services
provider could also result in efficiency losses, and the consumer may
find understanding a second provider's terms and conditions and
tracking account balances and due dates more costly than relying on one
provider for both the prepaid account and credit feature.
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\866\ Consumers may not have the funds to pay an application fee
at the point when they need credit.
The fees charged currently for overdraft services in connection
with prepaid accounts, which generally range from $15 to $35 per
transaction, are typically lower than checking account overdraft
fees. According to data obtained from one research firm, the Bureau
found that the median overdraft fee among the 33 institutions
monitored by the research firm was $34 in 2012, and the median
overdraft fee across nearly 800 smaller banks and credit unions was
$30 in 2012. CFPB Overdraft White Paper at 52.
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As noted above, some consumers who frequently use overdraft
services may not have developed account management skills.\867\ Other
such consumers may accurately anticipate their use of overdraft
services but still prefer to use overdraft because they perceive
overdraft services to be their best available source of short-term
credit. As described above, providers will not be able to maintain the
current
[[Page 84303]]
per transaction fee structure for those consumers who use the covered
separate credit feature accessible by a hybrid prepaid-credit card more
than occasionally in the first year following account opening (assuming
that the credit limit remains unchanged).\868\ Providers may respond to
the final rule's fee restrictions by raising other prepaid account fees
not related to the covered separate credit feature or by relying on an
up-front fee, such as an application fee, or periodic interest rate.
However, consumers may find the payment of an up-front fee or the
disclosure of a periodic interest rate highly salient. Many prepaid
accountholders may not be willing to pay a one-time application fee or
periodic interest rate of the magnitude that providers would need to
charge to rationalize offering the credit feature. Given this response,
the profit generated from an up-front fee or a periodic interest rate
may not be sufficient to rationalize offering a covered separate credit
feature.
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\867\ According to one study, 41 percent of prepaid users (who
currently or previously had a checking account) had either closed a
checking account themselves or had an account closed by an
institution because of overdraft or bounced check fees. 2014 Pew
Survey at 8.
\868\ As discussed above, consumers who opt-in to overdraft
services generally pay a flat fee per overdraft. At present, there
is generally no fee associated with opting-in to overdraft services
offered in connection with a prepaid account.
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Consumers who currently use overdraft features frequently will pay
lower fees to access covered separate credit features under the final
rule to the extent that they are able to access such services and
choose to do so despite a salient up-front fee.\869\ Furthermore, those
consumers choosing to obtain a covered separate credit feature
accessible by a hybrid prepaid-credit card despite a high up-front fee
will have increased incentive to utilize it once purchased because the
marginal cost associated with accessing the credit will be lower than
under the current per transaction pricing structure.
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\869\ As described above, those consumers who are no longer able
to access such services will potentially pay higher fees if they
choose to rely on other types of consumer credit.
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The final rule also likely will affect which prepaid account
consumers are eligible for covered separate credit features accessible
by a hybrid prepaid-credit card. The final rule requires that card
issuers establish and maintain reasonable written policies and
procedures for considering the consumer's ability to make required
minimum payments in deciding whether to offer the consumer a covered
separate credit feature accessible by a hybrid prepaid-credit card that
is an open-end (not home-secured) consumer credit plan. Furthermore, to
attempt to mitigate the effects on profitability of the additional
credit risk borne in complying with the final rule's credit-related
provisions, it is likely that providers offering covered separate
credit features accessible by a hybrid prepaid-credit card (or
considering doing so) will alter the eligibility criteria. As a result,
some consumers who are currently eligible (or would otherwise become
eligible in the future) may lose (or not obtain) eligibility, and these
consumers would either need to decrease consumption or rely upon
alternative (and potentially higher cost) fund sources.
Other provisions of the final rule provide consumers with
additional control over their funds by ensuring that there is a minimum
period of time between when debts are incurred and when they are due to
be repaid. The final rule requires that for covered separate credit
features accessible by a hybrid prepaid-credit card that are open-end
(not home-secured) consumer credit plans, card issuers adopt reasonable
procedures designed to ensure that periodic statements are mailed or
delivered at least 21 days prior to the fixed monthly payment due
date.\870\ Therefore, card issuers may not require that debts be repaid
immediately from the next deposit into the consumer's asset account. In
addition, the Regulation Z prohibition on offsets gives consumers
discretion to decide whether to use funds deposited into their prepaid
accounts to pay off debts incurred in connection with a covered
separate credit feature accessible by a hybrid prepaid-credit card or
for another use that they deem a higher priority. Although this no-
offset provision increases the onus on the consumer to budget for the
debt and to remember to pay it to avoid additional fees or other
adverse effects, consumers would still have the option of setting up an
automatic payment around the fixed monthly payment due date to avoid
this result if the creditor chooses to offer this capability. Moreover,
under the final rule, a card issuer may sweep funds only periodically
(and no more than once per calendar month) from the prepaid asset
account to repay a debt, so long as it has the consumer's written
authorization to do so. This restriction on the frequency of sweeps and
the required delay that results from the requirement relating to the
timing of periodic statements allow consumers to benefit from
additional control of their funds.
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\870\ See the section-by-section analyses of Sec. Sec.
1026.5(b)(2)(ii) and 1026.7(b)(11) above.
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These restrictions on the ability of a card issuer to apply prepaid
account funds to outstanding debts incurred through the use of the
covered separate credit feature will increase the credit risk
associated with offering covered separate credit features accessible by
a hybrid prepaid-credit card and, all else equal, will decrease their
profitability. To compensate for this risk, providers may respond by
offering less credit to consumers, charging higher fees for credit
extended, or increasing collections activity.\871\ One industry
commenter noted that the cost for consumers to access credit will
increase if it becomes more difficult for creditors to recover debts
and stated that providers may resort to the use of debt collectors if
they are unable to exercise offset rights. The commenter predicted that
the Bureau's proposal would increase the cost of borrowing, and
consumers would be more likely to have delinquent accounts. The Bureau
recognizes that the cost for some consumers to access this credit may
increase, but the protections required by the final rule decrease the
risk faced by consumers in using these features. Another industry
commenter stated that a decision to remove or reduce an overdraft
credit line could have an adverse impact on a consumer's credit score
should creditors share consumer credit limits and utilization with
reporting agencies. The Bureau's understanding is that providers do not
currently share credit limits or utilization with reporting agencies
for overdraft services, and the Bureau notes that if creditors were to
decide to share consumer credit limits and utilization with reporting
agencies, the impact on a consumer's credit score of such reporting may
be positive as well as negative, depending on the consumer's
utilization and payment behavior.
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\871\ The final rule limits the magnitude of certain fees
charged in connection with covered separate credit features
accessible by a hybrid prepaid-credit card so any change in fee
levels must comply with these restrictions.
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Other provisions of the final rule provide potential benefits to
consumers. The final rule requires providers offering covered separate
credit features accessible by a hybrid prepaid-credit card to adhere to
certain requirements that restrict when they may offer these features
to consumers. By temporally separating the option to add a covered
separate credit feature from the choice to acquire a prepaid account,
these restrictions provide the prepaid accountholder with additional
transparency and ensure that the consumer has the opportunity to become
informed and consider options
[[Page 84304]]
when applying for credit.\872\ Periodic statements and other
disclosures required by the final rule, as well as the requirement that
the covered separate credit feature be structured as a separate account
or sub-account, will aid transparency and better enable consumers to
monitor their accounts. Consumers potentially will receive separate
periodic statements for their prepaid account (or an electronic history
of transactions for the prepaid account) and their covered separate
credit feature accessible by a hybrid prepaid-credit card, though the
two periodic statements may be combined if the combined statement meets
the requirements of both Regulations E and Z. The periodic statement
requirement ensures that consumers receive important information
regarding transactions performed and fees incurred using their covered
separate credit feature. Absent this requirement, creditors may choose
not to disclose all such information pertaining to the covered separate
credit feature. In addition, for statutory reasons, transactions solely
accessing the covered separate credit feature are subject to stronger
liability limitations and error resolution protections than those
transactions that do not access the credit feature.\873\ The Bureau
anticipates that these particular requirements will have a modest
incremental impact on consumer access to credit beyond the impacts
arising from the other new provisions, as discussed above.
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\872\ The final rule provides that card issuers must adhere to
timing requirements regarding solicitation and application that
generally prevent card issuers from doing any of the following
within 30 days of prepaid account registration: (1) Opening a
covered separate credit feature accessible by a hybrid prepaid-
credit card; (2) making a solicitation or providing an application
for such a feature; or (3) allowing an existing credit feature to
become such a covered separate credit feature accessible by a hybrid
prepaid-credit card.
\873\ Those transactions that access both the prepaid asset
account and the covered separate credit feature generally are
subject to Regulation E's liability limitations and error resolution
procedures, as well as some of Regulation Z's error resolution
procedures, described in existing Sec. 1026.13(d) and (g).
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The Bureau also considered, among other options, extending the
Regulation E overdraft opt-in regime, described in Sec. 1005.17, to
prepaid accounts. Industry commenters advocated this approach, as well
as variations that included additional protections (such as a cap on
the number of overdraft fees). One industry commenter noted that
consumers may want optional overdraft services provided under
Regulation E but may not want credit card services under Regulation Z.
The commenter stated that consumers use overdraft services in a manner
indicating conscientious use of the service and that a Regulation E
disclosure and opt-in approach is sufficient to protect consumers who
do not want overdraft services and to ensure that consumers who want
overdraft services understand the terms of the service. Commenters also
asserted that consumer confusion could result from treating prepaid
overdraft services differently from deposit account overdraft
services.\874\ The Bureau believes that the disclosure requirements of
the final rule, including the restrictions on the timing of
solicitation and application for covered separate credit features,
should mitigate potential consumer confusion and distinguish the
prepaid card account from any optional covered separate credit feature
that may subsequently be accessed using a hybrid prepaid-credit card.
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\874\ For example, one industry trade association commenter
noted that subjecting overdraft services to Regulation Z could
result in consumer confusion and that consumers may mistakenly
purchase prepaid cards believing that they are credit cards.
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The few financial institutions that currently provide overdraft
services in connection with prepaid accounts generally act consistently
with the Regulation E opt-in regime. However, the Bureau learned
through comments that many additional financial institutions would
offer overdraft services in connection with their prepaid accounts if
it were to adopt a Regulation E opt-in approach. Relative to the
approach taken in the final rule, the Regulation E opt-in approach
could potentially result in more widespread consumer use of overdraft
services in connection with prepaid accounts. This could result from
additional entry by providers due to the resolution of the regulatory
uncertainty that currently deters their entry and from increased
marketing activities by both incumbents and entrants aimed at growing
demand for overdraft services offered in connection with prepaid
accounts. However, under a Regulation E opt-in approach, consumers
using services that would be considered covered separate credit
features accessible by a hybrid prepaid-credit card under the final
rule would not enjoy the protections required by Regulation Z and other
benefits, as discussed above.\875\
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\875\ As discussed above, the Bureau is engaged in research and
other activity in anticipation of a separate rulemaking regarding
checking account overdraft products and practices. The Bureau
expects that the rulemaking will consider whether additional
regulatory protections are warranted for those products and
practices.
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The Bureau believes that industry pricing could evolve to a
structure that approximates the checking account overdraft pricing
structure, which is heavily reliant on back-end pricing via overdraft
fees, under a Regulation E opt-in approach.\876\ This could result in
some consumers potentially paying higher fees for overdraft services
than they do at present (or than they would under the final rule), but
it also could result in other consumers paying less for their prepaid
accounts if growth in demand for overdraft services or competitive
pressures prompt providers to adopt alternative fee schedules. Relative
to the final rule, adopting a Regulation E opt-in approach could result
in higher prices for overdraft services for consumers who can obtain
these services because the final rule's restrictions on the pricing of
covered separate credit features accessible by a hybrid prepaid-credit
card would not apply.
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\876\ In a study of several large banks' checking account
overdraft programs, the Bureau found that, for opted-in consumers,
overdraft and NSF fees accounted for about 75 percent of their total
checking account fees and averaged over $250 per year. CFPB, Data
Point: Checking Account Overdraft, at 5 (July 2014), available at
http://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf.
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In the proposed rule, the Bureau also considered an alternative
variant of the Regulation Z approach that subjected a broader set of
transactions to coverage, including incidental credit extended in the
form of a negative balance on a prepaid account in most
situations.\877\ Under the proposal, all per transaction fees for
credit transactions were finance charges, even if they were the same
amount as the fee charged for transactions paid entirely with funds
available in the prepaid account. The Bureau received extensive comment
addressing the proposed rule's definition of finance charge. Commenters
noted that a negative balance could result from force pay and other
situations where the issuer does not authorize the transaction and
explained that the proposed rule's definition of finance charge could
consider prepaid cards to be credit cards if the financial institution
charged per transaction fees for these overdrafts, even if the per
transaction fee were the same as the per transaction fee charged to
access prepaid account funds. Many industry commenters were concerned
that because of the breadth of the fees that would be considered
finance charges under the proposal, a prepaid account issuer either
could not charge
[[Page 84305]]
general transaction fees on the prepaid account or would have to waive
certain fees on any transaction that happened to involve credit, as
defined under the proposal, to avoid triggering the credit card rules.
One industry commenter estimated that such transactions, which can
occur in connection with gasoline purchases, hotel stays, and other
common consumer transactions, account for 10 percent of all prepaid
card transactions.
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\877\ Under the proposal, Regulation Z did not apply when the
prepaid card only accessed credit not subject to any finance charge,
as defined in proposed Sec. 1026.4, or any fee described in
proposed Sec. 1026.4(c), and any credit accessed was not payable by
written agreement in more than four installments.
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Commenters discussed burdens to both industry and consumers arising
from the application of the proposed rule's credit provisions in these
situations. Commenters stated that the proposed rule's approach would
have the consequence of causing financial institutions issuing prepaid
cards that do not have credit features to eliminate per transaction
(``pay-as-you-go'') pricing plans and prepaid card use outside of the
United States, impose stricter authorization rules, hold authorizations
for longer periods than they do currently, or freeze cardholder funds,
thereby inconveniencing consumers. Further, commenters argued that
providers would need to implement new fee logic patterns, among other
adjustments.
The final rule's approach to these issues mitigates these concerns.
Under new Sec. 1026.61(a)(4), a prepaid card is not a hybrid prepaid-
credit card when the prepaid card accesses incidental credit in the
form of a negative balance on the asset account where the provider
generally does not charge credit-related fees for the credit. This
exception is intended to exempt three types of credit so long as the
provider generally does not charge credit-related fees for the credit:
(1) incidental credit related to ``force pay'' transactions; (2) a de
minimis $10 payment cushion; and (3) a delayed load cushion where
credit is extended while a load of funds from an asset account is
pending. New Sec. 1026.61(a)(4)(ii)(B) allows a provider to qualify
for the exception in new Sec. 1026.61(a)(4) even if it charges
transaction fees on the asset feature of the prepaid account for
overdrafts so long as the amount of the per transaction fee does not
exceed the amount of the per transaction fee imposed for transactions
conducted entirely with funds available in the asset feature of a
prepaid account.
The final rule's approach of not subjecting incidental credit to
the Regulation Z requirements will avoid the costs associated with
subjecting products to coverage due to force pay transactions and
delayed load situations. Further, the de minimis payment cushion
exemption will encourage providers to extend small amounts of credit to
consumers (at no additional cost) relative to the approach in the
proposed rule. The Bureau believes that, in general, these provisions
will benefit consumers and providers alike.
b. Benefits and Costs to Covered Persons
This discussion covers many of the same issues already addressed in
the preceding section. The final rule introduces additional
requirements for prepaid account providers that offer covered separate
credit features accessible by a hybrid prepaid-credit card.\878\ As
discussed above, the Bureau's understanding is that few financial
institutions currently offer prepaid accounts with overdraft services.
By restricting how providers may offer overdraft services to prepaid
accountholders, the final rule's provisions may limit the economic
viability of some current business practices. Because overdraft
services currently offered in the market do not conform to the final
rule's requirements, providers offering covered separate credit
features accessible by a hybrid prepaid-credit card will need to
restructure existing programs if they wish to continue offering the
product. The final rule's requirements could adversely affect the
profitability of existing overdraft programs and may lead some current
providers to discontinue offering such services.\879\
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\878\ These obligations fall on the financial institution, card
issuer, or creditor depending on the provision. In some cases, the
same entity may fulfill multiple roles.
\879\ The final rule's additional restrictions constrain
provider choice regarding fee schedules relative to the present and,
at best, will have a neutral impact on profitability, all else
equal.
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The Bureau also understands that other firms currently might be
considering offering covered separate credit features accessible by a
hybrid prepaid-credit card in the future. The final rule's requirements
decrease the likelihood that such entry will occur. For example, the
final rule's provision subjecting most fees charged during the first
year (other than periodic interest rates) of the covered separate
credit feature accessible by a hybrid prepaid-credit card that is an
open-end (not home-secured) consumer credit plan to a cap of 25 percent
of the initial credit line prevents providers from implementing certain
pricing structures. These additional constraints likely will reduce the
potential profitability of offering covered separate credit features
accessible by a hybrid prepaid-credit card.
Several industry commenters stated that the additional costs
imposed by the final rule's credit-related requirements will motivate
those few prepaid account providers offering overdraft services to stop
doing so or to offer it in a form that is more costly and less
convenient to consumers. By contrast, one consumer advocate commenter
suggested that by providing additional regulatory clarity, the final
rule's provisions may lead more financial institutions offering prepaid
accounts to choose to offer related credit features. While the Bureau
recognizes that regulatory uncertainty has likely discouraged the
widespread availability of related credit features, the Bureau
considers it unlikely that greater regulatory clarity alone could
offset the costs of the new regulatory requirements sufficiently so
that more financial institutions would offer prepaid accounts with
related credit features.
The final rule limits the types of fees that card issuers may
charge during the first year after a consumer holder of a prepaid
account opens a covered separate credit feature accessible by a hybrid
prepaid-credit card that is an open-end (not home-secured) consumer
credit plan. Among other restrictions, the final rule subjects most
fees charged during the first year of the covered separate credit
feature (other than periodic interest rates) to a cap of 25 percent of
the initial credit line. Given the pricing structure and size of the
lines of credit offered in conjunction with current prepaid overdraft
offerings, the Bureau believes the final rule's fee cap requirement
generally will be binding for any consumer incurring more than one
overdraft fee in the first year after the opening of the covered
separate credit feature accessible by a hybrid prepaid-credit
card.\880\ Because this restriction could mean that some consumers pay
fewer fees subject to the cap, providers will experience a reduction in
revenues.
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\880\ The Bureau believes that current transaction-based charges
for overdrafts range from $15 to $35. Assuming a credit line of
$100, the new restriction implies that the card issuer may collect,
at most, one overdraft fee (or $25) in the first year of the covered
separate credit feature accessible by a hybrid prepaid-credit card.
It is possible that card issuers would be willing to extend larger
credit lines to consumers than they do at present. However, issuers
would incur more risk in doing so and likely would need to develop
more robust underwriting procedures, both to ensure a sufficient
return and to comply with Regulation Z's ability-to-pay requirement.
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Providers may respond to this revenue reduction by adopting an
alternative pricing structure that is less reliant on transaction-based
fees to access covered separate credit features, but adoption of such
an alternative
[[Page 84306]]
pricing structure is likely to result in decreased demand for covered
separate credit features or prepaid accounts generally. For example,
providers may choose to adopt a pricing structure that includes higher
fees for non-credit related features of the prepaid account. However,
adopting such a pricing strategy would potentially put these providers
at a competitive disadvantage because it would mean raising the price
of holding a prepaid account for any consumer relying on the non-credit
related features targeted for the price increase, including consumers
who do not use covered separate credit features accessible by a hybrid
prepaid-credit card. In response to such a price increase, consumers
not seeking a covered separate credit feature accessible by a hybrid
prepaid-credit card may turn to prepaid accounts offered by other
financial institutions.
Alternatively, providers may adopt a pricing structure in which a
fee is collected during the application process prior to the opening of
the covered separate credit feature (and thus is not subject to the
cap), or they may choose to charge a periodic interest rate. However,
when faced with the option of pre-paying for overdraft services,
consumers may be less willing to incur up-front charges for the service
than they are under the current per transaction pricing structure,
which relies on back-end fees. In addition, consumers may find
disclosure of the periodic interest rate to be a salient deterrent to
opening a covered separate credit feature accessible by a hybrid
prepaid-credit card, especially at rate that providers may need to
charge to rationalize offering the feature. Regardless of the
alternative fee schedule adopted, the small group of prepaid account
providers that offer covered separate credit features accessible by a
hybrid prepaid-credit card will earn lower profits than they do at
present (all else equal).
Other provisions of the final rule also decrease the profitability
of offering covered separate credit features accessible by a hybrid
prepaid-credit card. The final rule restricts a creditor's ability to
access assets held in a consumer's prepaid account, permitting
creditors to sweep funds from the prepaid account only monthly to repay
a debt incurred by an associated covered separate credit feature.\881\
As noted by commenters, creditors that do not obtain the consumer's
written consent to sweep funds will need to offer consumers an
alternative means of repaying the balance, which could require updating
current systems or adopting new systems. Commenters also noted that
credit cards and prepaid cards rely on different payment processing
systems, so changing to a Regulation Z compliant system would likely
imply substantial implementation costs.\882\
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\881\ Creditors must obtain the consumer's consent to sweep
funds. Because they may sweep funds only monthly, creditors will
maintain debts on their books for a longer period, relative to the
present where sweeps occur with the next incoming deposit, and will
incur a small opportunity cost in connection with decreased access
to funds so long as they do not charge consumers a periodic interest
rate.
\882\ One commenter estimated that most small financial
institutions would incur a total approximate cost of $95,000 to
implement the Regulation Z requirements. However, the basis for this
estimate is unclear.
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Aside from these implementation costs, the final rule's restriction
on sweeps raises the ongoing cost to creditors associated with offering
these accounts by increasing the risk of default.\883\ In addition, the
final rule's requirement that with respect to covered separate credit
features accessible by a hybrid prepaid-credit card that are open-end
(not home-secured) consumer credit plans, card issuers adopt reasonable
procedures designed to ensure that periodic statements are mailed or
delivered at least 21 days prior to the fixed monthly payment due date
ensures a time gap between when a debt is incurred and when it must be
repaid. To manage this additional credit risk, card issuers may choose
to offer less credit to consumers or to charge higher fees (or a
periodic interest rate) for credit extended.
---------------------------------------------------------------------------
\883\ Providers may pass on some of these increased costs to
consumers by increasing prices for the prepaid account and the
covered separate credit feature.
---------------------------------------------------------------------------
To comply with the final rule's provisions, the few prepaid
providers that currently offer overdraft services will incur
implementation costs associated with educating consumers about any
product changes, developing new disclosures, and designing and
executing new procedures. Industry commenters noted that credit card
regulatory expertise may not currently exist in-house and that
providers wishing to offer covered separate credit features accessible
by a hybrid prepaid-credit card may need to acquire such expertise. In
addition, one provider that currently offers overdraft services in
connection with some of its prepaid products commented that modifying
its business to apply Regulation Z would cause it to incur costs
associated with developing a billing system and accepting alternative
forms of payment, among other costs. Providers wishing to offer covered
separate credit features accessible by a hybrid prepaid-credit card
will need to ensure that any solicitation and application materials
conform to Regulation Z's requirements. This may require providers to
produce new disclosures or modify existing disclosures. Providers
wishing to offer covered separate credit features accessible by a
hybrid prepaid-credit card additionally are required to comply with the
final rule's timing requirements with respect to the solicitation of
consumer holders of prepaid accounts, application, and account opening.
Card issuers are also required to establish and maintain reasonable
written policies and procedures to consider the consumer's ability to
make required minimum payments when deciding to offer a covered
separate credit feature accessible by a hybrid prepaid-credit card that
is an open-end (not home-secured) consumer credit plan. As noted above,
card issuers should incur minimal additional burden from these
provisions because they can assess the consumer's ability-to-pay at low
cost. Given providers' increased incentive to screen applicants due to
their inability to sweep incoming funds immediately from the prepaid
asset account to pay a debt incurred on the covered separate credit
feature, the incremental impact of this provision on operational costs
is minimal.\884\
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\884\ If fewer consumers qualify for the product as a result of
the final rule's requirement to assess the consumer's ability to
make the required minimum payments, provider revenues could
decrease.
---------------------------------------------------------------------------
Providers will also incur ongoing costs in adhering to other
provisions of the final rule. These costs include those associated with
providing periodic statements for covered separate credit features
accessible by a hybrid prepaid-credit card as well as additional
disclosures in certain circumstances, such as when certain account
terms change. Specifically, providers will incur costs designing these
disclosures and ensuring that they comply with Regulation Z. In some
cases, providers will also incur costs associated with printing and
distributing these disclosures.\885\ Finally, to the extent that
Regulation Z's liability limitations and error resolution provisions
apply, providers may incur additional costs due to Regulation Z's more
restrictive limitations on consumer liability and expanded definition
of error. However, these costs should be minimal if credit lines do not
increase relative to the present.
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\885\ Providers could mitigate some of these costs by obtaining
E-Sign consent from the consumer.
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Because the final rule's provisions could affect consumer choice,
the small number of prepaid providers that
[[Page 84307]]
currently offer overdraft services may experience changes in the size
or composition of the customer base seeking this product. Adjustments
in aggregate market demand or consumer substitution to or from other
providers within the market could affect these providers' profits. For
example, if financial institutions currently offering prepaid accounts
with overdraft services make their products less desirable to consumers
who value credit by not offering covered separate credit features or by
charging higher fees to hold prepaid accounts, those financial
institutions offering prepaid accounts without covered separate credit
features could benefit as consumers substitute away from products
offering covered separate credit features.
In terms of alternatives, the Bureau also considered extending the
Regulation E opt-in regime to prepaid accounts. Several industry
commenters urged the Bureau to adopt a Regulation E opt-in approach,
stating that it would provide consumers sufficient protection and would
be less costly to implement than covering overdraft services under
Regulation Z. Those few providers that currently offer overdraft
services in connection with their prepaid accounts largely adhere to
the Regulation E opt-in requirements, and therefore they would incur
minimal additional costs in implementing such an approach, relative to
the baseline of the current market. Based on comments received in
response to the proposal, the Bureau believes that resolving the
regulatory uncertainty that currently deters some providers from
offering overdraft services by adopting a Regulation E opt-in approach
would lead many more prepaid providers to offer overdraft services in
connection with their prepaid accounts than offer such products
currently. In addition, given the additional costs imposed by the
Regulation Z approach relative to the Regulation E opt-in approach,
more financial institutions offering prepaid accounts may have found it
economically viable to offer overdraft services in the future under a
Regulation E opt-in regime relative to the approach adopted by the
final rule.
The Bureau also considered an alternative variant of the Regulation
Z approach in the proposed rule that subjected a broader set of
transactions to coverage, including those transactions accessing credit
outside the course of a transaction; credit offered by parties
unrelated to the prepaid account issuer, its affiliates, or its
business partners; and credit extended as a negative balance on a
prepaid account that would have been subject to a per transaction fee
(even if the amount of the fee were the same as the amount charged for
transactions paid entirely with funds available in the prepaid
account). As discussed above, commenters suggested that this approach
would impose a number of costs on industry, including: (1) potential
compliance issues when the consumer attaches an unrelated credit
feature to the prepaid account without the knowledge of the unrelated
third-party creditor; and (2) interruptions to the flow of funds in
contexts, such as force pay transactions, where an account balance may
become negative and a transaction-related fee (that is the same as the
fee charged for transactions paid entirely with funds available in the
prepaid account) may be imposed, even though the prepaid account issuer
does not authorize the credit extension.
The final rule's approach mitigates these concerns by excluding
prepaid cards from coverage as credit cards under Regulation Z when
they access certain specified types of credit. First, under new Sec.
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card
with respect to ``non-covered separate credit features,'' which means
that the separate credit feature either: (1) cannot be accessed in the
course of a prepaid card transaction to obtain goods or services,
obtain cash, or conduct P2P transfers; or (2) is offered by an
unrelated third party that is not the prepaid account issuer, its
affiliate, or its business partner. Second, under new Sec.
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card
when the prepaid card accesses incidental credit in the form of a
negative balance on the asset account where the prepaid account issuer
generally does not charge credit-related fees for the credit. New Sec.
1026.61(a)(4)(ii)(B) allows a provider to qualify for the exception in
new Sec. 1026.61(a)(4) even if it charges transaction fees on the
asset feature of the prepaid account for overdrafts so long as the
amount of the per transaction fee does not exceed the amount of the per
transaction fee imposed for transactions conducted entirely with funds
available in the asset feature of a prepaid account.
F. Potential Specific Impacts of the Final Rule
1. Depository Institutions and Credit Unions with $10 Billion or Less
in Total Assets, as Described in Section 1026
The final rule's requirements apply uniformly across covered
financial institutions without regard for their asset size.\886\ Among
those depository institutions and credit unions that the Bureau
believes are directly affected by the final rule, roughly 67 percent
have $10 billion or less in total assets.\887\ The impact of the final
rule on depository institutions and credit unions will depend on a
number of factors, including: (1) whether the institution offers
prepaid accounts; (2) the relative contribution of prepaid account
earnings to overall firm profits; and (3) the cost of complying with
the final rule (which depends on both present prepaid account offerings
and the regulations to which those accounts are currently subject).
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\886\ The de minimis exception for providing prepaid account
agreements to the Bureau and posting them to a Web site is a
function of the number of open accounts, not the asset size of the
issuer.
\887\ These figures reflect asset sizes reported as of December
2015 in the Federal Financial Institutions Examination Council 041
Call Report and the NCUA 5300 Call Report. Depository institutions
and credit unions offering white label programs or programs through
certain agent relationships were not included in arriving at this
statistic.
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With respect to most provisions, the Bureau does not expect that
the final rule will have a unique impact on depository institutions and
credit unions with $10 billion or less in total assets, as described in
section 1026. One exception pertains to the provisions addressing
covered separate credit features accessible by a hybrid prepaid-credit
card. Issuers with consolidated assets of less than $10 billion are
exempt from the Board's Regulation II restrictions on debit card
interchange fees.\888\ Additionally, for issuers with over $10 billion
in assets, Regulation II's interchange fee restrictions do not apply to
electronic debit transactions made using debit cards provided pursuant
to certain government-administered payment programs or using certain
reloadable, general-use prepaid cards.\889\ However, these exemptions
for issuers with over $10 billion in assets do not apply if a
cardholder may incur a fee or charge for an overdraft \890\ (unless the
fee or charge is imposed for transferring funds from another asset
account to cover a shortfall in the account accessible by the
card).\891\ Because they would be subject to Regulation II's
restrictions on debit interchange fees if they offered overdraft
services in connection with prepaid accounts, financial institutions
with greater than $10 billion in assets presently have less incentive
to offer overdraft services than
[[Page 84308]]
similarly situated depository institutions with less than $10 billion
in assets. Therefore, the new consumer protections applicable to
covered separate credit features accessible by a hybrid prepaid-credit
card may be more likely to have an impact on those institutions with
less than $10 billion in assets. One credit union commenter agreed with
this conclusion but did not provide specific rationale for why the
impact on those institutions with less than $10 billion in assets would
differ from the impact on institutions with greater than $10 billion in
assets.
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\888\ 12 CFR 235.5(a).
\889\ 12 CFR 235.5(b) and (c).
\890\ Here, an overdraft includes a shortage of funds or a
transaction processed for an amount exceeding the account balance.
\891\ 12 CFR 235.5(d)(1).
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2. Impact of the Final Rule's Provisions on Consumers in Rural Areas
Consumers in rural areas may derive benefits from the final rule
that are different in certain respects from the benefits experienced by
consumers in general. Consumers in rural areas may differ from other
consumers in terms of their reliance on prepaid accounts as well as
their ability to use online disclosures for shopping by accessing the
internet.\892\ The Bureau is not aware of evidence that states whether
consumers in rural areas are more likely to acquire prepaid accounts,
to use prepaid accounts that do not currently follow Regulation E's
limited liability and error resolution regime, or to use covered
separate credit features accessible by a hybrid prepaid-credit
card.\893\
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\892\ Broadband availability may be more limited in rural areas.
See Nat'l Telecomm. and Info. Admin., U.S. Broadband Availability:
June 2010--June 2012, at 10 (May 2013), available at http://www.ntia.doc.gov/files/ntia/publications/usbb_avail_report_05102013.pdf.
\893\ One study found that consumers living in rural areas were
more likely to deposit tax refunds onto a prepaid card than
consumers living in urban areas. Caroline Ratcliff et al., Urban
Inst., Prepaid Cards at Tax Time and Beyond, at 26 (Mar. 2014),
available at http://www.urban.org/UploadedPDF/413082-prepaid-cards-at-tax-time-report.pdf. Another study reports prepaid debit card use
by metropolitan status and did not find a robust relationship
between whether a household was in a metropolitan area and prepaid
debit card use. 2013 FDIC Survey at 41.
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VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),\894\ as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996,\895\ requires
each agency to consider the potential impact of its regulations on
small entities, including small businesses, small governmental units,
and small not-for-profit organizations.\896\ The RFA defines a ``small
business'' as a business that meets the size standard developed by the
Small Business Administration (SBA) pursuant to the Small Business
Act.\897\
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\894\ Public Law 96-354, 94 Stat. 1164 (1980).
\895\ Public Law 104-21, section 241, 110 Stat. 847, 864-65
(1996).
\896\ 5 U.S.C. 601-612. The term ```small organization' means
any not-for-profit enterprise which is independently owned and
operated and is not dominant in its field, unless an agency
establishes [an alternative definition after notice and comment].''
5 U.S.C. 601(4). The term ```small governmental jurisdiction' means
governments of cities, counties, towns, townships, villages, school
districts, or special districts, with a population of less than
fifty thousand, unless an agency establishes [an alternative
definition after notice and comment].'' 5 U.S.C. 601(5). Aside from
credit unions, the Bureau does not believe that any small not-for-
profit organizations are regulated by the final rule for RFA
purposes. In its Study of Prepaid Account Agreements, the Bureau did
not locate any small governmental jurisdictions regulated by the
final rule for RFA purposes.
\897\ 5 U.S.C. 601(3). The Bureau may establish an alternative
definition after consulting with the SBA and providing an
opportunity for public comment. Id.
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The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule
would not have a significant economic impact on a substantial number of
small entities.\898\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small entity representatives prior to proposing a rule for which
an IRFA is required.\899\
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\898\ 5 U.S.C. 601 et seq.
\899\ 5 U.S.C. 609.
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The undersigned certified that the proposed rule would not have a
significant economic impact on a substantial number of small entities
and that an IRFA was therefore not required. In the proposed rule, the
Bureau requested comment regarding its methodology for estimating
burden on small entities as well as relevant data. The Bureau received
little comment with respect to these issues. However, the Bureau
addresses the comments received and integrates additional information
provided by commenters into its analysis of these issues when available
and informative. Upon considering relevant comments as well as the
modifications to the proposed rule that were made in developing the
final rule, the conclusion that the rule will not have a significant
economic impact on a substantial number of small entities is unchanged.
Therefore, a FRFA is not required.\900\
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\900\ 5 U.S.C. 605(b).
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A. Overview of Analysis
The analysis below evaluates the economic impact of the final rule
on directly affected small entities as defined by the RFA. The Bureau
considers an entity to be ``directly affected'' by the final rule for
RFA purposes if it issues prepaid accounts, manages a prepaid account
program, or offers covered separate credit features accessible by a
hybrid prepaid-credit card.\901\ This analysis establishes that
directly affected small banks and credit unions each represent a
fraction of 1 percent of all small banks and credit unions. Further,
the analysis also establishes that directly affected small or
potentially small non-bank entities comprise roughly 4 percent of all
small entities within the relevant North American Industry
Classification System (NAICS) code.\902\ These percentages do not
comprise a substantial number of small entities for purposes of the
RFA.
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\901\ The final rule directly regulates financial institutions,
card issuers, and creditors. In many cases, entities other than
financial institutions perform program management functions. To
inform the rulemaking, the Bureau additionally considers the impact
of the final rule on such entities even though the final rule does
not directly regulate these entities for RFA purposes.
\902\ The North American Industry Classification System (NAICS)
is the standard used by the SBA to match small business size
standards to industries. For this analysis, the Bureau considers
directly affected non-bank entities to fall within NAICS code 522320
(Financial transactions processing, reserve, and clearinghouse
activities).
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Further, this analysis also establishes that the only small non-
bank entities likely to experience a significant economic impact from
the final rule are those that currently: (1) Do not provide limited
liability protections to consumers; (2) do not provide error resolution
protections to consumers; or (3) offer products that would be
considered covered separate credit features accessible by a hybrid
prepaid-credit card.\903\ The Bureau concludes that less than 1 percent
of all small non-bank entities within the relevant NAICS code will
experience a significant economic impact from the final rule. This does
not comprise a significant economic impact on a substantial number of
small entities for purposes of the RFA.
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\903\ A few commenters noted that the proposal's approach of
limiting the exemption to the requirement to provide the long-form
disclosure pre-acquisition to those retailers selling products from
at least two different issuing financial institutions would
potentially have a disproportionate impact on small retailers. The
final rule mitigates this concern by broadening the type of entity
that qualifies for the alternative timing regime. Further, such
retailers are not ``directly affected'' by the final rule for RFA
purposes, and even if they were, limiting the exemption would not
cause these retailers to experience a significant economic impact.
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[[Page 84309]]
B. Number and Classes of Directly Affected Entities
The provisions of the final rule apply to any account meeting the
criteria described in Sec. 1005.2(b)(3). Providers of these accounts
include issuers and program managers. Prepaid account issuers are
typically banks and credit unions, and program managers are typically
non-banks.\904\ Some issuers also act as the program manager for some
or all of the prepaid accounts that they issue. While most of the final
rule does not directly regulate prepaid program managers for RFA
purposes if they are not financial institutions, the Bureau exercises
its discretion to take a comprehensive approach that considers both
prepaid account issuers and program managers in determining whether the
final rule will have a significant economic impact on a substantial
number of small entities.\905\ Financial institutions, creditors, and
card issuers must also comply with the final rule's requirements
pertaining to credit.\906\
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\904\ P2P payment products and other non-Visa or non-MasterCard
branded prepaid products are sometimes issued by non-bank entities.
\905\ To determine whether the economic impact is significant,
the Bureau compares the total revenues earned by both the program
manager and the issuer to the total costs incurred by these entities
resulting from the final rule. In some cases, the same entity
performs both the issuing and program management functions, and in
other cases, different entities perform these functions.
\906\ Currently, the non-bank program manager fulfills these
roles for those prepaid products that offer overdraft services
although the creditor may be an entity distinct from the program
manager or issuer.
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Because the Bureau is not aware of a comprehensive list of entities
that actively issue or manage prepaid accounts or a comprehensive list
of prepaid account programs, the Bureau compiled its own list of known
prepaid account issuers and program managers in connection with the
proposed rule.\907\ Table 1 reports estimated counts of banks, credit
unions, and non-bank entities identified by the Bureau as likely
directly affected by the final rule. Table 1 also reports the total
number of entities, as well as the total number of small or potentially
small entities, within each relevant NAICS code to provide context for
those counts.\908\
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\907\ This list was compiled using information gathered from the
Bureau's review of publicly available information and industry
outreach. This compilation includes all issuers and program managers
whose prepaid account agreements were included in the Study of
Prepaid Account Agreements. The Bureau also included other issuers
and program managers identified in its pre-proposal review of
publicly available information even though account agreements for
their prepaid programs were not located. The Bureau does not believe
that modifications made to the proposed rule to arrive at the final
rule will increase the number of directly affected entities and
therefore retains the estimates of total entity counts obtained in
connection with the proposed rule.
\908\ Because many of the directly affected non-bank entities
are privately held firms, information regarding their size was
difficult to obtain, so a reliable size classification could not be
made. In addition, one bank's size could not be classified because
multiple banks shared the same name. Therefore, out of an abundance
of caution, the Bureau considered any entity for which a size
classification could not be made to be ``potentially small.''
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Banks and credit unions. Based on its Study of Prepaid Account
Agreements, outreach to interested stakeholders and other regulatory
agencies, review of industry studies, and consideration of comments
received in response to the proposed rule, the Bureau has determined
that the final rule will directly affect very few small banks or credit
unions.
Several commenters to the proposed rule suggested that the Bureau
undercounted the number of small banks or credit unions directly
affected by the proposed rule's provisions. However, those commenters
appeared to include banks or credit unions that offer prepaid cards
through a vendor or bankers' bank in concluding that the Bureau
undercounted the number of directly affected small banks or credit
unions. As described in the proposed rule, the Bureau does not consider
those entities directly affected by the final rule and therefore does
not include such entities in its counts (to the extent that they could
be identified).\909\
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\909\ 79 FR 77102, 77284 n.536 (Dec. 23, 2014).
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In such relationships, a distinct vendor or banker's bank generally
handles most compliance duties. The Bureau considered such entities,
which generally perform these duties on behalf of program participants,
to be directly affected by the final rule for RFA purposes but did not
include program participants (to the extent that they could be
identified as such by the Bureau). Program participants that rely on
white-label providers or other agent-based relationships generally
include small banks or credit unions that offer prepaid products as a
convenience to their customers. One trade association commenter stated
that small banks participating in these programs may retain certain
responsibilities, including retrieving and replacing disclosures and
verifying vendor compliance. The Bureau believes that these costs would
not comprise a significant economic impact for such entities. Further,
the Bureau understands that prepaid accounts offered through these
arrangements generally provide limited liability and error resolution
protections and do not provide overdraft services. Therefore, the
concern raised by commenters does not affect the Bureau's conclusion
for RFA purposes because such entities would not experience a
significant economic impact, as discussed below, even if they were
included in the Bureau's counts.
A few industry commenters also suggested that the rule would affect
entities that do not currently offer prepaid products but may wish to
do so in the future. For purposes of the RFA, the Bureau uses the set
of current market participants as the baseline and therefore considers
the impact of the final rule only on entities that currently offer
products that meet the final rule's criteria for a prepaid account.
For this analysis, the Bureau considered small those banks and
credit unions averaging less than $550 million in assets across the
institution's four quarterly Call Report entries for 2012.\910\ As
shown in Table 1, the Bureau identified 19 directly affected small or
potentially small banks and six directly affected small credit
unions.\911\ These entities constitute less than 1 percent of small
banks and credit unions. This fraction does not comprise a substantial
number of small entities under the RFA. Because the number of directly
affected small or potentially small banks and credit unions was so
small, the Bureau did not evaluate whether the economic impact of the
final rule on small banks and credit unions is significant.\912\
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\910\ The Bureau obtained similar classifications using assets
reported in later year Call Reports. The SBA considers small those
banks and credit unions with less than $550 million in assets. U.S.
Small Bus. Admin., Table of Small Business Size Standards Matched to
North American Industry Classification System Codes (Feb. 2016),
available at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
\911\ Using asset sizes for 2013 and 2014 to assign a size
classification yielded 17 small or potentially small banks and five
small credit unions. Using asset sizes for 2015 yielded 16 small or
potentially small banks and five small credit unions.
\912\ As discussed below, the Bureau found that there was not a
significant economic impact on a substantial number of small non-
bank entities, and the Bureau has no reason to believe that the
impact would be meaningfully greater for banks and credit unions.
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Non-bank entities. As described above, directly affected non-bank
entities are primarily prepaid program managers but also include
issuers of P2P payment products and other non-Visa or non-MasterCard
branded prepaid products. For this analysis, the Bureau considered
directly affected non-bank entities to fall within NAICS code 522320
(Financial transactions processing, reserve, and clearinghouse
activities).\913\ The SBA considers small
[[Page 84310]]
those non-bank entities within NAICS code 522320 with average annual
receipts less than $38.5 million.\914\ The Bureau used revenue
estimates obtained by reviewing publicly available information as a
proxy for receipts in evaluating the entity's size. The Bureau
considered small those entities estimated to have less than $38.5
million in annual revenues.\915\
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\913\ According to the Census Bureau, NAICS code 522320
corresponds to ``establishments primarily engaged in providing one
or more of the following: (1) Financial transaction processing
(except central bank); (2) reserve and liquidity services (except
central bank); and/or (3) check or other financial instrument
clearinghouse services (except central bank).'' One illustrative
example given by the Census Bureau is ``electronic funds [sic]
transfer services.'' U.S. Census Bureau, 2007 NAICS Definition,
available at http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=522320&search=2007. FinCEN relied on NAICS code 522320
in its Prepaid Access Rule. See 76 FR 45403, 45414 (July 29, 2011).
\914\ U.S. Small Bus. Admin., Table of Small Business Size
Standards Matched to North American Industry Classification System
Codes (Feb. 2016), available at http://www.sba.gov/sites/default/files/files/_Standards_Table.pdf.
\915\ When available, the Bureau used publicly available revenue
estimates for 2012, which coincides with the most recent Economic
Census. When revenue estimates from 2012 were not available, the
Bureau used available information from recent years.
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The Bureau identified 127 non-bank entities that the final rule
will directly affect. The Bureau could classify the size of 44 such
entities, and approximately 30 percent of these entities (13 entities)
were classified as small. It is likely, however, that many of the
remaining 83 non-bank entities that the Bureau was unable to classify
are small as well. Therefore, the Bureau classified these entities as
potentially small. Applying these classifications, the number of
directly affected small or potentially small non-bank entities is a
modest percentage of all small entities within the relevant NAICS code
(4 percent).\916\ This does not comprise a substantial number of small
entities under the RFA. Nonetheless, the Bureau evaluated the impacts
of the final rule's provisions on these entities to inform the
rulemaking more fully.
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\916\ In its Regulatory Flexibility Act analysis for its Prepaid
Access Rulemaking, FinCEN relied on commercial database information
(Dun and Bradstreet, D&B Duns Market Identifiers Plus (US)) and
narrowed its count to those entities within NAICS code 522320 that
perform either EFTs or electronic financial payment services. FinCEN
estimated that 700 entities met this classification. Using the SBA
threshold of $7 million in average annual receipts that was in
effect at the time, FinCEN estimated that 93 percent (or 651) of
these entities were small. See 76 FR 45403, 45414-15 (July 29,
2011).
Currently, the SBA considers entities within NAICS code 522320
with less than $38.5 million in average annual receipts to be small.
It follows that at least 651 entities meeting FinCEN's narrower
classification would be considered small so long as the total number
of entities meeting the narrower classification is unchanged. The
Bureau concludes that under the narrower classification used by
FinCEN, directly affected small or potentially small non-bank
entities comprise, at most, 15 percent (96/651) of all small
entities.
[GRAPHIC] [TIFF OMITTED] TR22NO16.000
C. Impacts of Provisions on Directly Affected Non-Bank Entities
The following discussion summarizes the economic impacts arising
from the major provisions of the final rule on directly affected small
non-bank entities. Most of the final rule does not directly regulate
these entities for RFA purposes if they are not financial
[[Page 84311]]
institutions.\917\ However, prepaid account issuers may work with small
non-bank entities (generally program managers) to comply with the final
rule. Aside from the credit-related provisions and the extension of
Regulation E's limited liability and error resolution regime, other
than provisional credit requirements, to all prepaid accounts,\918\
most provisions of the final rule will result in minimal burden for
small non-bank entities. The Bureau discusses these impacts in detail
below, using the current market as the baseline. In addition, the
Bureau briefly discusses other provisions that potentially affect small
non-bank entities.
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\917\ With regard to the final rule's credit provisions,
however, non-bank entities may be directly regulated if they are
creditors or card issuers.
\918\ The final rule only extends the Regulation E provisional
credit requirements to prepaid accounts for which the financial
institution has completed the customer identification and
verification process. These protections are currently required for
payroll card accounts and government benefit accounts. The exception
for unverified accounts does not extend to payroll card accounts or
government benefit accounts.
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1. Credit-Related Requirements
The final rule's provisions relating to credit could cause those
entities that currently offer overdraft services in connection with
prepaid accounts to experience a significant economic impact in
complying with the final rule's requirements. These impacts are
discussed in more detail in the section 1022(b)(2)(A) consideration of
benefits, costs, and impacts above. However, the Bureau's understanding
is that two small or potentially small non-bank entities, at most,
offer products that would be considered covered separate credit
features accessible by a hybrid prepaid-credit card.\919\
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\919\ In addition, those entities currently charging negative
balance fees must restructure accounts to comply with the final
rule's credit-related provisions if they wish to continue to charge
these fees. As discussed above, the Bureau found in its Study of
Prepaid Account Agreements that some prepaid programs may impose a
fee if a prepaid account has a negative balance. Evaluated on a
program level (and not an entity/provider level) and excluding those
agreements for those programs designated as offering opt-in
overdraft services, the Study found that roughly 7 percent of
reviewed agreements noted such a fee in their terms and conditions.
To avoid triggering coverage under the credit provisions of the
final rule, the Bureau believes that most providers will choose not
to impose negative balance fees.
There is little evidence regarding how common such fees are in
practice. One credit union league commenter stated that 91 percent
of member credit union survey respondents stated that they do not
charge a sustained negative balance fee, but they did not clarify if
survey respondents were addressing negative balance fees assessed on
prepaid accounts in particular. Even if 9 percent of credit unions
offering prepaid accounts charge such fees, there is not a
substantial number of credit unions directly affected by this
provision. Another commenter stated that one-third of 38 employers
surveyed used payroll card vendors with programs that included
overdraft or negative balance fees. However, it is unclear how many
distinct program managers this data included because the study
reported statistics in terms of employer respondents and not in
terms of the number of entities offering payroll card programs
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2. Limited Liability and Error Resolution Requirements
The final rule requires financial institutions offering prepaid
accounts to comply with Regulation E's limited liability and error
resolution regime, with some modification to the requirement to extend
provisional credit. For accounts subject to Regulation E's limited
liability and error resolution provisions, EFTA places the burden of
proof on the financial institution to show that an alleged unauthorized
transfer was authorized.\920\ Specifically, after receiving notice that
a consumer believes that an EFT was unauthorized, the financial
institution must promptly perform an investigation to determine whether
an error occurred. EFTA and Regulation E further state that if the
financial institution is unable to complete the investigation within 10
business days, the institution may take up to 45 days to complete the
investigation if it provisionally re-credits the consumer's account for
the amount of the alleged error.\921\ If the financial institution
ultimately can establish that the transfer in question was not an
error, it can reverse the provisional credit.
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\920\ EFTA section 909(b).
\921\ The timeline is somewhat different for certain types of
transactions and for new accounts.
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Under EFTA and Regulation E,\922\ a consumer may be held liable for
an unauthorized EFT 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. If the consumer provides
notice to the financial institution within two business days of
learning of the loss or theft, the consumer's liability is the lesser
of $50 or the amount of any unauthorized transfers made before giving
notice. If notice is not given within two business days, 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 or theft and (2) the amount of unauthorized
transfers that occur after two business days but before notice is given
to the financial institution.\923\ If a consumer's periodic statement
shows an unauthorized transfer, the consumer must notify the financial
institution within 60 calendar days after the periodic statement was
sent or face unlimited liability for all unauthorized transfers made
after the 60-day period.
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\922\ EFTA section 909; Sec. 1005.6.
\923\ Section 1005.6(b)(3) provides, in part, that a consumer
must report an unauthorized 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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Current Regulation E applies to some prepaid products that are
included in the final rule's definition of prepaid account--namely
payroll card accounts and certain accounts used for distribution of
government benefits.\924\ Further, many financial institutions
currently provide prepaid products, which are considered prepaid
accounts under the final rule, that offer limited liability and error
resolution protections even though the financial institution is not
directly required to do so by Regulation E at present. There are many
factors influencing current business practices with respect to these
protections. First, as discussed in greater detail above, the FMS Rule
extends Regulation E's payroll card account protections to prepaid
cards that receive Federal payments. Because it may be difficult to
distinguish prepaid accounts that receive Federal payments from those
that do not receive such payments, financial institutions may choose to
extend these protections to all prepaid accounts. Second, as discussed
in more detail below, the Bureau's market research suggests that many
financial institutions choose to provide these protections to consumers
by contract as part of their customer service offerings. Finally,
payment card network associations' rules require that financial
institutions limit consumers' liability for unauthorized charges and
remedy certain errors related to transactions that occur over their
networks and may require that financial institutions extend provisional
credit within a shorter timeframe than required by EFTA and Regulation
E for losses from unauthorized card use.\925\
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\924\ Under current Regulation E, covered government benefit
programs do not need to provide periodic statements or online access
to account information so long as they provide balance information
to benefits recipients via telephone and electronic terminals and at
least 60 days of written account history upon request. Needs-tested
EBT programs established or administered under State or local law
are exempt from Regulation E. Sec. 1005.15(a).
\925\ See, e.g., Visa Inc., Zero Liability, available at https://www.visa.com/chip/personal/security/zero-liability.jsp (last
visited Oct. 1, 2016); MasterCard Inc., Zero Liability Protection,
available at http://www.mastercard.us/zero-liability.html (last
visited Oct. 1, 2016).
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[[Page 84312]]
Limited liability protections. The Bureau's market research
conducted in connection with the proposed rule, including its Study of
Prepaid Account Agreements, strongly suggested that the vast majority
of directly affected small or potentially small non-bank entities
extend some form of limited liability protections to consumers. Table 2
summarizes the Bureau's findings from its Study of Prepaid Account
Agreements regarding industry practice with respect to limited
liability. Of the 96 directly affected small or potentially small non-
bank entities identified by the Bureau, 15 entities only offered
payroll card accounts, to the Bureau's knowledge, and therefore were
required to provide Regulation E's limited liability protections to
consumers. The Bureau was able to locate an agreement for at least one
prepaid account program for all but 14 of the remaining 81 entities.
In its Study of Prepaid Account Agreements, the Bureau examined the
language in prepaid account agreements that addressed limitations on
consumers' liability for unauthorized transfers to assess whether each
program contractually provided the limited liability protections that
Regulation E requires for covered accounts. For each entity with at
least one available prepaid account agreement (and offering at least
one non-payroll card program),\926\ the Bureau classified the entity's
limited liability protections as belonging to one of three categories:
(1) Liability limitations consistent with Regulation E's requirements
or better for all reviewed agreements; (2) some liability limitations
but less than what is required by Regulation E; and (3) no limited
liability protections.\927\
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\926\ The Bureau did not identify any directly affected small or
potentially small non-bank entities that exclusively offered
government benefit programs.
\927\ The Bureau reviewed available prepaid account agreements,
as described in its Study of Prepaid Account Agreements. In some
instances, a small or potentially small non-bank entity offered
multiple programs that appeared to provide different levels of
limited liability protection. When a non-bank entity offered
multiple programs with different levels of protection, the Bureau
classified the entity according to the program providing the lowest
level of protection for consumers. The Bureau classified error
resolution policies similarly.
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Table 2 reports the results of this review. The Bureau determined
that approximately 75 percent (16 percent + 59 percent) of all small or
potentially small non-bank entities likely to be directly affected by
the final rule provided protections at least as comprehensive as those
required by Regulation E. The Bureau found that 4 percent of small or
potentially small non-bank entities provided some liability limitations
(but less than what Regulation E requires for at least one program).
Six percent of small or potentially small non-bank entities had at
least one agreement that did not mention any liability
limitations.\928\ The Bureau was unable to locate any account
agreements for the remaining 15 percent of small or potentially small
non-bank entities.
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\928\ One of these six entities also did not provide error
resolution protections (see below).
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The final column of Table 2 reports the relative frequency of
limited liability protections offered by directly affected small or
potentially small non-bank entities with at least one available
agreement (or which only offer payroll card accounts). Within this
narrower group of entities, 88 percent (18 percent + 70 percent)
provided liability limitations at least as comprehensive as Regulation
E's requirements for all reviewed programs, and thus, will not need to
change their practices to comply with the final rule. An additional 5
percent provided some liability limitations for at least one of their
programs and thus will incur only a portion of the total burden arising
from the final rule's requirement to extend Regulation E's limited
liability protections.\929\
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\929\ The Bureau repeated this analysis restricting attention to
just those 13 non-bank entities that it could classify as small. Of
these entities, 12 provided liability limitations consistent with
Regulation E (or only offered payroll card accounts). The one
remaining entity did not have an available account agreement.
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[[Page 84313]]
[GRAPHIC] [TIFF OMITTED] TR22NO16.001
Error resolution protections. The Bureau's market research
performed in connection with the proposed rule, including its Study of
Prepaid Account Agreements, strongly suggested that the majority of
directly affected small or potentially small non-bank entities extended
some form of error resolution protections to consumers. Table 3
summarizes the Study's findings regarding industry practice with
respect to error resolution and provisional credit for the 96 directly
affected small or potentially small non-bank entities identified by the
Bureau.
In its Study of Prepaid Account Agreements, the Bureau examined
relevant language in prepaid account agreements addressing error
resolution to assess whether each program contractually provided the
same error resolution protections that Regulation E requires for
covered accounts. For each small or potentially small non-bank entity
with at least one available prepaid account agreement, the Bureau
classified the entity's error resolution protections as belonging to
one of four categories: (1) Full error resolution, consistent with
Regulation E, with provisional credit for all consumers when the error
is not resolved within a defined period of time (for all reviewed
agreements); (2) error resolution with limitations on provisional
credit; (3) error resolution with no mention of provisional credit; and
(4) no error resolution.
Table 3 reports the results of that review. The Bureau determined
that approximately 58 percent (16 percent + 42 percent) of all small or
potentially small non-bank entities directly affected by the final rule
provided full error resolution with provisional credit for all reviewed
programs.\930\ Therefore, over half of small or potentially small non-
bank entities will not need to change their error resolution or
provisional credit practices to comply with the final rule. Further, an
additional 18 percent of entities provided error resolution protections
but only offered provisional credit in limited circumstances. These
non-bank entities will experience only a portion of the total increase
in burden associated with the final rule's requirement that a financial
institution extend provisional credit to all consumers whose prepaid
accounts have been verified when an error is not resolved within a
defined period. An additional 8 percent of entities offered error
resolution to consumers but will potentially incur the entire increase
in burden associated with extending provisional credit because they do
not currently offer it. Only 2 percent of small or potentially small
non-bank entities (two entities) provided no error resolution
protections for at least one of
[[Page 84314]]
their prepaid programs and, therefore, will incur the entire burden
associated with providing error resolution and provisional credit for
at least one program.
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\930\ The percentages cited in this paragraph may not add up to
100 percent due to rounding.
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The final column of Table 3 reports the relative frequency of the
error resolution policies for those directly affected small or
potentially small non-bank entities for which the Bureau could locate
at least one program's agreement (or that only offer payroll card
accounts). Within this group of directly affected entities, 67 percent
(18 percent + 49 percent) provided full error resolution with
provisional credit for all reviewed programs and thus will not need to
change their policies. An additional 21 percent will incur only a
portion of the total burden arising from the final rule's provisional
credit requirements.\931\
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\931\ The Bureau repeated this analysis restricting attention to
the 13 non-bank entities that could be classified as small. The
distribution of policies was as follows: 31 percent of entities
complied with Regulation E because they only offered payroll card
accounts; 46 percent provided full error resolution with provisional
credit for all reviewed agreements (excluding payroll only
providers); 8 percent provided error resolution with limitations on
provisional credit for at least some reviewed agreements; 8 percent
provided error resolution with no mention of provisional credit for
at least some reviewed agreements; and 0 percent did not provide
error resolution protections. Prepaid account agreements could not
be located for 8 percent of the small non-bank entities.
[GRAPHIC] [TIFF OMITTED] TR22NO16.002
Costs associated with limited liability and error resolution
protections. Those few directly affected small or potentially small
non-bank entities that do not provide limited liability or error
resolution protections to consumers will incur costs associated with
providing these protections. As described in the section 1022(b)(2)(A)
discussion, these entities will incur one-time implementation costs
associated with the establishment or modification of
[[Page 84315]]
policies and procedures to extend these protections (in addition to
increased ongoing operational costs). This includes costs associated
with developing the capacity to: (1) Give required error resolution
notices to consumers; (2) receive oral or written error claims; (3)
investigate error claims; (4) provide consumers with investigation
results in writing; (5) respond to any consumer requests for copies of
the documents that the institution relied upon in making its
determination of whether the transaction was authorized; and (6)
correct any errors discovered within the required timeframes. The
establishment of these policies and procedures will constitute a one-
time cost for those few small or potentially small non-bank entities
that do not offer limited liability or error resolution protections to
consumers. Implementing these procedures and paying out claims and
provisional credit will create ongoing costs.\932\
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\932\ This discussion assumes that the burdens associated with
the requirements to provide liability and error resolution
protections are borne by a non-bank program manager. However, in
practice, some banks or credit unions may perform these functions
themselves, rather than rely on a non-bank program manager. Further,
non-bank program managers tasked with the functions associated with
resolving errors by issuing banks may in turn rely on industry
partners, including processors. The Bureau's understanding from
discussion with industry participants in developing the proposed
rule is that processors may charge a fixed fee per dispute as well
as a variable fee component that depends on the complexity of the
dispute and investigation.
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Both those directly affected small or potentially small non-bank
entities that offer limited liability and error resolution protections
to consumers but do not provide provisional credit and those entities
that provide liability protections or provisional credit in a more
limited form than required by the final rule will incur costs arising
from the final rule. The costs associated with paying out claims will
increase for those directly affected entities offering less
comprehensive liability protections than required by the final rule.
Further, directly affected entities that do not offer provisional
credit (or that offer it in a more limited form) will be unable to use
funds extended as provisional credit during the investigation period
for other uses and will therefore incur a small opportunity cost.
Finally, an entity that extends provisional credit and subsequently
determines that an alleged error was, in fact, an authorized transfer
could incur additional costs if it is unable to reclaim provisional
credit previously extended.
The costs associated with providing these consumer protections may
vary across covered entities for several reasons. For example, an
entity's customer base may influence both the type of errors reported
(and therefore the costs associated with investigations) as well as the
likelihood of reclaiming provisional credit previously extended. The
initial screening procedures used by a prepaid account provider to
determine account eligibility, as well as ongoing monitoring of
accounts, likely affect realized losses. Although small entities could
be at a disadvantage with respect to fraud screening relative to larger
entities that may have access to more information or more sophisticated
screening technologies, small entities are sometimes able to rely on
industry partners to screen for and to investigate potential
fraud.\933\ Small entities may choose to limit fraud liability by
closing accounts that have repeated error claims or by not offering
accounts to individuals who previously engaged in potentially
fraudulent activity.
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\933\ In pre-proposal outreach, one potentially small program
manager told the Bureau that it receives information from its
processor regarding whether a consumer had filed unsubstantiated
disputes with other prepaid programs serviced by the processor.
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As discussed in the proposed rule, the Bureau conducted pre-
proposal industry outreach to attempt to determine the costs borne by
prepaid account providers to implement Regulation E compliant error
resolution, including provisional credit. Estimates of the ongoing
costs associated with providing error resolution with provisional
credit varied. During this outreach, one program manager, which
provided limited liability and error resolution protections with
provisional credit consistent with Regulation E to all consumers,
stated that it reserved $0.35 per active cardholder per month for fraud
losses (including both losses related to Regulation E error claims as
well as other types of fraud). During pre-proposal outreach, another
program manager, which also provided limited liability and error
resolution with provisional credit consistent with Regulation E, stated
that it incurred total fraud losses related to Regulation E that
translated to roughly $0.22 per cardholder per month. One commenter to
the proposed rule that processes prepaid transactions estimated that
the prepaid industry generally experiences fraud losses of between four
and five basis points when the cardholder's identity is known. The
commenter estimated that providing limited liability and error
resolution rights for transactions taking place before a prepaid
account is registered would lead to an increase in fraud exposure of
one additional basis point. However, the Bureau notes that the final
rule does not require that financial institutions offer provisional
credit to holders of unverified prepaid accounts.
Those small or potentially small non-bank entities that provide
limited liability and error resolution protections to consumers but
give provisional credit only in limited circumstances (or not at all)
will sustain increased ongoing operational costs. The Bureau did not
receive comment explicitly addressing the incremental cost associated
with extending provisional credit incurred by those entities that
otherwise provide error resolution protections. However, estimates
derived from available information suggest that the magnitude of the
ongoing cost of providing these protections is roughly one-third of the
total ongoing cost associated with fraud losses (including those
specifically related to provisional credit).\934\ If the upper bound of
overall fraud losses, including losses associated with providing
provisional credit, is assumed to be $0.22 to $0.35 per active
cardholder per month (based on the information above), it follows that
the cost to extend provisional credit to all consumers is roughly $0.08
to $0.12 per active cardholder per month. Because many financial
institutions currently provide provisional credit (albeit in
[[Page 84316]]
limited circumstances), the impact of this provision is further
mitigated.
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\934\ During pre-proposal outreach, one program manager told the
Bureau that when extended provisional credit to all accounts (having
previously only provided provisional credit to those accounts
receiving Federal payments), its losses from providing provisional
credit increased by four to six times the previous level, and
overall fraud losses increased 40 percent (including the increased
losses arising from extending provisional credit). Assuming that
there was no change in fraud losses not relating to provisional
credit, this implies that provisional credit accounted for between 7
and 10 percent of the initial level of fraud losses and just over a
third of the final fraud losses. This is shown as follows. Let E =
fraud losses not relating to provisional credit, P = fraud losses
relating to provisional credit, and L = total fraud losses prior to
the expansion of provisional credit coverage to all consumers.
Therefore, L = P + E prior to the expansion of provisional credit
coverage to all consumers. After the expansion of provisional credit
coverage to all consumers (and assuming no change in E), it follows
that (i.) 1.4L = 5P + E if losses increase by four times the
previous level and (ii.) 1.4L = 7P + E if losses increase by six
times the previous level. The percentage of initial fraud losses
accounted for by provisional credit is represented by P/L.
Rearranging (i.) gives P/L = 0.4/4 = 10 percent, and rearranging
(ii.) gives P/L = 0.4/6 = 6.7 percent. In the scenario described by
(i.), a four time increase, fraud losses not relating to provisional
credit (E) account for 90 percent of the total fraud losses before
the increase. In the scenario described by (ii.), a six time
increase, (E) accounts for 93.3 percent of the total fraud losses
before the increase. Assuming that E does not change, the percentage
of final fraud losses accounted for by provisional credit once
extended to all accounts in scenario (i.) is 5(.10)/[5(.10) + .90] =
36 percent and 7(.067)/[7(.067) + .933] = 34 percent in scenario
(ii.).
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3. Other Major Provisions Potentially Affecting Small Entities
The final rule includes a number of additional requirements that
are fully applicable to small entities. The final rule requires
financial institutions to comply with the following provisions. For the
reasons stated below, the cumulative burdens arising from these
provisions, which are more extensively described in the section
1022(b)(2)(A) discussion above, are expected to be minimal for small
non-bank entities.
Pre-acquisition disclosure requirements. The final rule requires
that financial institutions disclose fees to consumers in a
specifically described disclosure form (the ``short form''). The short
form disclosure includes a ``static'' portion containing specified
subset of fees, an ``additional fee types'' portion that states the
total number of fee types that are charged for the prepaid account but
which are not disclosed in the static portion of the form, the two fee
types that generated the most revenue from consumers during the prior
24-month period that are not disclosed in the static portion of the
form, and certain other information.\935\ In addition to the short form
disclosure, financial institutions are required to provide a disclosure
that includes a full listing of fees and related conditions, together
with certain other information, in accordance with certain formatting
requirements (the ``long form'').
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\935\ Additionally, a short form disclosure for a payroll card
account or government benefit account must include either (1) a
statement that consumers are not required to accept such an account
that directs the consumer to ask about other ways to receive wages,
salary, or benefits, or (2) a statement that the consumer has
several options to receive wages, salary, or benefits, followed by a
list of options available to the consumer, and a statement that
directs the consumer to choose one.
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Financial institutions will need to review and revise existing
disclosures to ensure that they conform to the new requirements and
will incur one-time implementation costs to do so. Because certain
disclosure requirements depend on the channel through which the prepaid
account is distributed, the magnitude of the burden associated these
requirements will depend on how the prepaid account is
distributed.\936\ For those prepaid accounts distributed in a retail
location, the final rule requires that the product's packaging material
include the short form disclosure and that the long form disclosure be
accessible by telephone and online. Financial institutions distributing
prepaid accounts online are required to provide the short form and long
form disclosures online, and those financial institutions distributing
prepaid accounts in person (other than in a retail location) are
required to provide both forms in print. For transactions conducted by
telephone, financial institutions are required to provide the short
form disclosure information orally, to inform consumers of the
existence of the long form disclosure and its availability by telephone
and on a Web site, and to provide the information in the long form
disclosure to the consumer upon request.
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\936\ These channels include retail distribution, online
distribution, and in-person distribution (other than in a retail
location), among others. The impacts on financial institutions
relying on each of these channels to distribute prepaid accounts are
described in the section 1022(b)(2)(A) discussion.
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From industry outreach conducted in connection with the proposed
rule, the Bureau learned that small non-bank entities typically do not
distribute prepaid accounts through the retail channel.\937\ To the
extent that they distribute accounts through the retail channel, small
non-bank entities generally rely on this channel for a limited
proportion of their overall portfolio. Small non-bank entities
distributing accounts through non-retail channels will incur a one-time
cost to review and edit existing disclosures to ensure that they
include all applicable fees and follow the specified formatting
requirements. This may include acquiring the capability to determine
which fees must be disclosed in the revenue-based fee portion of the
short form disclosure if such information is not already readily
accessible. Small non-bank entities will need to revise the disclosures
they currently provide to comply with the final rule's requirements.
This will require small non-bank entities distributing prepaid accounts
online to update Web sites. Those small non-bank entities distributing
prepaid accounts orally by telephone may need to update interactive
voice response (IVR) systems, scripts, and training for live customer
service agents.
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\937\ This is, in part, due to the potentially high fixed costs
associated with distributing prepaid accounts through this channel.
If a small, non-bank entity performs program management functions to
offer a white label solution in a retail environment, it could incur
some implementation costs depending on the terms of the contract.
The Bureau's understanding is that few such small, non-bank entities
exist.
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As described in the section 1022(b)(2)(A) discussion, the pre-
acquisition disclosure requirements also impose ongoing operational
costs. To determine the composition of the short form disclosure, small
non-bank entities will need to review revenue data on an annual
biennial basis to ascertain which fees should be included in the
revenue-based part of the short form disclosure. Absent a need to
revise the short form disclosure, reviewing the information necessary
to make these determinations should comprise minimal ongoing cost. If a
revision to the disclosure is necessary, small non-bank entities will
incur costs associated with these revisions. Small non-bank entities
will incur costs, believed to be minimal, to update Web sites and phone
systems to include the revised disclosures, if applicable. The Bureau
believes that the costs associated with updates to written and
electronic disclosures are minimal.
Requirements pertaining to consumer access to account information.
Other key provisions of the final rule potentially triggering burden
include expansions to requirements to provide consumer access to
account information (largely extending the current payroll card account
periodic statement alternative to all prepaid accounts with certain
modifications) and the establishment of certain additional disclosures
related to consumer access to account information. Financial
institutions offering prepaid accounts are required to comply with
Regulation E's periodic statement requirement, but the final rule also
provides an alternative means of compliance with this requirement.
Specifically, financial institutions are not required to furnish
periodic statements to consumers so long as they provide the following
at no cost to the consumer: (1) Access to the prepaid account balance
through a readily available telephone line; (2) access to at least 12
months of account transaction history online; and (3) at least 24
months of written account transaction history upon the consumer's
request. Regardless of whether the financial institution chooses to
provide periodic statements or implement the alternative, the financial
institution must disclose to the consumer a summary total of the amount
of all fees it assessed against the consumer's prepaid account, for
both the prior calendar month as well as the calendar year to date.
Although not all covered financial institutions are required to
make transaction history available to consumers under current
Regulation E, current industry practice is to provide consumers with
electronic access to at least 60 days of transaction history.
Regulation E requires financial institutions to provide payroll card
accountholders with electronic access to at least 60 days of account
history if they do not furnish periodic statements.
[[Page 84317]]
Additionally, the FMS Rule requires that consumers holding accounts
that receive Federal payments have access to at least 60 days of
account history. In addition, the Bureau understands from industry
outreach conducted in connection with the proposed rule that some
financial institutions make available online more than 60 days of
transaction history, ranging from six months to the entire life of the
prepaid account. The final rule requires that those financial
institutions relying on the alternative means of complying with
Regulation E's periodic statement requirement provide 12 months of
electronic history as well as 24 months of written account history on
request. Additionally, financial institutions offering prepaid accounts
will need to modify existing transaction history reporting or periodic
statements to include the required summary total of fees.
The costs associated with implementing these provisions depend on
the extent to which the financial institution relies on outside vendors
to perform information technology functions. For those covered entities
maintaining in-house information technology platforms, the cost
associated with updating systems to maintain this information and
providing additional electronic storage media should be limited. Those
covered entities that format their own periodic statements or
transaction histories, and do not currently display the required
summary total of fees on their periodic statements or transaction
histories, will incur a one-time implementation cost to modify these
disclosures.\938\
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\938\ During outreach conducted in connection with the proposed
rule, one program manager estimated that it would cost approximately
$15,000 to modify its Web site to provide the summary total of fees
as well as a summary total of the total amount of deposits to the
account and the total amount of all debits made to the prepaid
account. Because the proposed rule's approach required additional
modifications, this should be an upper bound on the estimated cost
to this program manager of modifying its Web site to display only
the summary total of fees required by the final rule.
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Many small non-bank entities rely on processors to provide online
hosting of consumer account histories. The Bureau's understanding from
outreach conducted in connection with the proposed rule is that
entities outsourcing this function pay processors a fee per prepaid
account. This fee may depend on the extent of account history provided
to consumers as well as the total number of accounts hosted by the
processor.\939\ These entities generally rely on their processor to
modify periodic statements or electronic transaction histories to
display the required summary total of fees.\940\ However, one non-bank
program manager predicted that its processor would offer such a
modification as part of its standard package of services at no
additional cost if such summary totals were a regulatory requirement.
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\939\ During outreach conducted in connection with the proposed
rule, one non-bank program manager that relies on a processor for
this function stated that its processor charged fees for data
storage on a per-account basis at activation. Costs were generally
increasing from $0.08 per account for three months of transaction
history to $0.19 per account for one year of transaction history.
This program manager also suggested that, because processor prices
decrease with scale, it paid among the highest prices charged by the
processor because it was operating at low scale.
\940\ During outreach conducted in connection with the proposed
rule, one non-bank program manager stated that its processor quoted
a one-time cost of $65,000 associated with providing the summary
totals required by the proposed rule on its processor-hosted Web
site (in response to an ad-hoc request). In all probability, this
represents an upper bound for the true development cost because this
number likely includes a mark-up over the true cost of providing the
service, and the final rule does not require all of the summary
totals included in the proposed rule.
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As discussed in the section 1022(b)(2)(A) consideration of
benefits, costs, and impacts, the Bureau's understanding from industry
outreach is that most covered financial institutions provide consumers
with telephone access to balance information. Therefore, the Bureau
regards the potential burdens associated with these provisions to be de
minimis and not likely, considered separately or cumulatively, to
result in a significant economic impact.
Submission and posting of account agreements. The final rule also
requires prepaid account issuers to submit copies of their agreements
to the Bureau on a rolling basis and to post the agreements that they
offer to the general public on their publicly available Web sites. For
any issuer that is not required by Sec. 1005.19(c) to post agreements
on its own publicly available Web site, the final rule requires that
the issuer provide access to individual account agreements to any
consumer holding an open prepaid account. An issuer may fulfill this
requirement by posting and maintaining the consumer's agreement on its
Web site or by promptly providing a copy of the agreement in response
to a consumer's request.\941\
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\941\ If the issuer chooses to comply with this requirement by
providing a copy of the agreement in response to a consumer request,
the issuer must provide the consumer with the ability to request a
copy of the agreement by calling a readily available telephone line.
The issuer is required to send to the consumer or otherwise make the
copy of the consumer's agreement available no later than five
business days after the issuer receives the consumer's request.
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The Bureau believes that the costs associated with submitting new
and updated agreements to the Bureau (and withdrawing old agreements)
and responding to consumer requests will be minimal because, in most
cases, entities will comply with the requirement through electronic
submission of the agreement to the Bureau and by posting copies of
their agreement on a preexisting publicly available Web site. For those
entities that choose not to post agreements online, the cost associated
with responding to ad hoc consumer requests for copies of account
agreements would include the one-time cost of training customer service
agents and ongoing costs for postage.
D. Conclusion
To determine whether the economic impact of the final rule will be
significant, the Bureau compared estimates of the cumulative costs
imposed by the provisions on directly affected small or potentially
small non-bank entities to estimates of revenues earned by these
entities.\942\ To determine whether the final rule is likely to have a
significant economic impact on directly affected small non-bank
entities, the Bureau compares an estimate of revenues earned by the
entities to an estimate of the aggregate potential costs incurred by
these entities to comply with the final rule's provisions.\943\
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\942\ The Bureau did not separately consider the costs borne by
small banks and credit unions because the final rule will not
directly affect a substantial number of such entities, as shown
above. However, it is worth noting that issuers (typically banks and
credit unions) and program managers (frequently non-banks) jointly
earn revenues and bear costs. The current policies of small non-bank
entities are considered in determining if the economic impact of the
final rule will be significant.
\943\ The revenue split between the issuer and the program
manager varies across prepaid programs that rely on distinct firms
to perform these functions. In this analysis, the Bureau does not
take a position as to whether the prepaid account issuer or the
program manager assumes the burdens imposed by the final rule's
provisions. However, it is worth noting, for purposes of considering
the economic impact of the final rule's requirements with respect to
error resolution and limited liability, that a program manager that
assumes fraud risk likely has the ability to determine the fees
charged to consumers, to control screening procedures, or to take
other actions to mitigate fraud losses.
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Revenues. Because both revenue information and metrics describing
the number of active prepaid accounts were not generally available (at
the entity level) for directly affected small or potentially small non-
bank entities, the Bureau relied on findings from industry studies
(which may cover programs offered by entities that are not small or
potentially small) to derive an estimate
[[Page 84318]]
of the likely fee and interchange revenue earned per cardholder per
month for certain types of prepaid accounts.\944\ Although entities
offering prepaid accounts may derive revenue from many sources,
including other lines of business, the Bureau conservatively assumed
that small entities only derive revenues from fees paid by cardholders
and interchange fees. The Bureau obtained revenue estimates $9.98 per
active cardholder per month for GPR accounts distributed online and
$6.77 per active cardholder per month for payroll card accounts.\945\
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\944\ See 2012 FRB Philadelphia Study; see also 2012 FRB Kansas
City Study. One credit union commenter estimated that average annual
prepaid profits were $5,000 per small financial institution, but it
did not provide revenue information nor did it clarify whether these
were profits earned by financial institutions that offer prepaid
cards through a vendor. Another commenter suggested that the data
relied upon by the Bureau was old and that prices in the industry
have decreased, but the commenter did not provide an alternative
preferred source of data nor did the commenter argue that revenues
per cardholder have decreased.
\945\ Using this approach, the Bureau obtained a revenue
estimate of $9.14 per active cardholder per month for GPR accounts
distributed in a retail setting, but the Bureau notes that its
understanding from pre-proposal industry outreach is that small non-
bank entities typically do not distribute prepaid accounts in a
retail setting. The Bureau obtained revenue estimates by combining
information from tables 5.7 and 5.8 from the 2012 FRB Philadelphia
Study. For example, the Bureau estimated revenues earned from GPR
accounts distributed online in the following manner. First, using
information in table 5.7, the difference between the interchange
received and the interchange paid ($23.35-$6.41 = $16.94) determined
the net interchange. Next, the ratio of total revenues (assuming
that these are composed of only cardholder fees and net interchange
earned) to cardholder fees was obtained (($76.00 + $16.94)/$76.00 =
1.223). This inflator was applied to cardholder fees reported in
table 5.8 (1.223*$8.16 = $9.98).
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Costs. The Bureau does not derive a cost per active cardholder per
month incurred by small non-bank entities arising from the rule's
provisions relating to credit. One credit union service organization
commenter estimated that it would take most small financial
institutions $95,000 to comply with the credit-related provisions of
the final rule. However, the Bureau assumes that final rule's
provisions regarding credit will constitute a significant economic
impact on those small non-bank entities that currently offer overdraft
services in connection with their prepaid products.
As described above, the Bureau estimates that those entities that
do not offer any form of limited liability or error resolution
protections to consumers will sustain an increase in ongoing costs of
$0.22 to $0.35 per active cardholder per month. In addition, these
entities will incur costs associated with implementing Regulation E
compliant limited liability and error resolution protections.
The Bureau estimates that those entities that currently provide
limited liability and error resolution protections without provisional
credit will experience an increase in ongoing costs of roughly $0.08 to
$0.12 per active cardholder per month (or up to one-third of the
ongoing costs incurred by those entities that do not provide any form
of limited liability or error resolution protections). In addition,
these entities will incur costs associated with implementing the
administration of provisional credit. The one-time implementation costs
for these activities should be minimal for those entities already
otherwise providing error resolution.
The Bureau does not have information that would enable it to
isolate the ongoing cost associated with extending Regulation E's
limited liability protections from the ongoing cost of providing error
resolution generally. However, to the extent that ongoing fraud loss
estimates provided to the Bureau during pre-proposal outreach include
the cost associated with providing liability limitations, these costs
may be, at most, $0.23 per cardholder per month.\946\ Given this
uncertainty, the Bureau conservatively assumes that the absence of
either limited liability protections or error resolution protections
could cause an entity to experience a significant economic impact.
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\946\ If the ongoing cost of providing limited liability, error
resolution, and provisional credit protections is $0.35 per active
cardholder per month, and provisional credit represents $0.12 of
that total, then the ongoing cost associated with providing limited
liability protections could be, at most, $0.23 per active cardholder
per month.
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With respect to other costs, those small or potentially small
entities offering prepaid accounts typically do not provide these
accounts through the retail channel. Therefore, the costs associated
with the pre-acquisition disclosure requirements, expressed on a per
active cardholder per month basis, are minimal.\947\ As discussed
above, the ongoing operational and one-time implementation costs
associated with the final rule's requirements regarding access to
account information will vary depending on whether the entity performs
these functions in-house or relies on an external processor. Some
entities will incur costs associated with making available additional
transaction history. From the Study of Prepaid Account Agreements, the
industry standard appears to be to provide at least 60 days of
transaction history information online. Pre-proposal outreach suggested
that those entities that rely on a processor may expect an upper bound
cost of $0.01 per active cardholder per month to make additional
transaction history information available.\948\ In addition, the Bureau
estimates the upper bound of the cost associated with modifying
transaction histories or statements to include the required fee totals
to be less than $0.01 per active cardholder per month for those
performing the software modification in-house and $0.02 per active
cardholder per month for those relying on a processor to perform the
modification.\949\ The cost associated with submitting agreements to
the Bureau and with responding to consumer requests for agreements is
minimal, as described above in the
[[Page 84319]]
section 1022(b)(2)(A) consideration of benefits, costs, and impacts.
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\947\ For those entities distributing prepaid accounts via the
telephone, the costs associated with the pre-acquisition disclosure
requirements, which are considered more extensively in the section
1022(b)(2)(A) discussion, are estimated to be $0.03 per active
cardholder per month (assuming that 5 percent of consumers acquiring
an account via the telephone request that the long form be read to
them and an average card life of 11 months). According to the 2012
FRB Kansas City Study, the mean lifespan for prepaid cards included
in its analysis was 347 days. 2012 FRB Kansas City Study at 47
tbl.4.1.
The costs associated with providing the pre-acquisition
disclosure for accounts distributed online are minimal because they
consist largely of a Web site update. According to one survey,
online distribution is nine times as common as phone distribution.
2014 Pew Survey at 5. Therefore, accounting for the relative
frequency of the distribution channel, the costs associated with the
pre-acquisition disclosure requirements, expressed on an active
cardholder per month basis, are de minimis.
\948\ One program manager operating at small scale reported that
its costs were $0.08 per account for three months of transaction
history and $0.19 per account for one year of transaction history.
The processor charged these costs at activation (one time). Given an
average GPR card account life of 11 months, this translates to an
increase in costs of $0.01 per active cardholder per month.
\949\ To derive these estimates, the Bureau assumes that a small
non-bank program manager earns $3 million in annual revenues. This
was the median revenue estimate identified by the Bureau for those
small non-bank program managers for which a revenue estimate was
located in publicly available information. Using the estimate of
$9.98 in revenues per active cardholder per month cited above for
GPR card revenues, this translates to roughly 300,601($3,000,000/
$9.98) active cardholder-months on an annual basis. The Bureau
assumes that these fixed implementation costs are spread out over a
five year period (or over 1,503,005 active cardholder-months).
Therefore, the upper bound of the cost associated with modifying
transaction histories or statements to include the required fee
totals is estimated to be $0.01 per active cardholder per month,
using the cost estimate of $15,000 quoted above, ($15,000/1,503,005)
for those entities performing the software modification in-house and
$0.02 per active cardholder per month, taking the average of the two
cost estimates ($65,000 and $0) quoted above, (($65,000 + $0)/
(2*1,503,005)) for those entities relying on a processor to perform
the modification.
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Further, the Bureau believes that non-compliance related economic
costs, such as potential future changes in market share arising from
the new disclosure requirements, are minimal for all provisions except
for those concerning covered separate credit features accessible by a
hybrid prepaid-credit card. Such non-compliance related economic costs,
including potential costs relating to disclosure, are difficult to
predict, and the Bureau does not have reason to believe that they would
cause small entities to experience a significant economic impact. In
the aggregate, the costs not related to credit, error resolution, and
limited liability are estimated to comprise at most $0.06 per active
cardholder per month.
Entities experiencing a significant economic impact. Considering
the revenue estimates described above, the Bureau concludes that those
few small or potentially small non-bank entities that provide prepaid
accounts that lack either limited liability or error resolution
protections will likely experience a significant economic impact.\950\
In addition, the Bureau assumes that those entities currently offering
overdraft services in connection with prepaid accounts may experience a
significant economic impact from the final rule's provisions.
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\950\ It is worth noting that this approach does not take into
account the likely cost and revenue structure of P2P payment
programs that may offer prepaid accounts to consumers. However, the
Bureau identified only four small or potentially small non-bank
entities offering P2P payment programs. One of these entities does
not provide error resolution protections for consumers so the Bureau
assumes that it will incur a significant economic impact. Therefore,
this information omission, at most, could result in failing to
attribute a significant economic impact to three small or
potentially small non-bank entities.
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In sum, the Bureau believes that there are approximately 14
directly affected small or potentially small non-bank entities are
likely to experience a significant economic impact from the final
rule's provisions. In arriving at this conclusion, the Bureau used the
observed distribution of error resolution and limited liability
protections to impute likely levels of protection for those entities
for which no account agreement is available.\951\ The Bureau assumes
that the two directly affected small or potentially small non-bank
entities that offer covered separate credit features accessible by a
hybrid prepaid-credit card will experience a significant economic
impact from the final rule's provisions. In addition, the Bureau
conservatively assumes that all 12 entities that currently provide
liability limitations less than provided by Regulation E will incur a
significant economic impact.\952\ Two of these entities also do not
provide error resolution protections.
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\951\ The Bureau excludes payroll only providers from the
observed distribution when imputing the likely protections for those
14 small or potentially small non-bank entities for which the Bureau
could not locate account agreements. With respect to limited
liability, 12 entities are imputed to provide liability limitations
consistent with Regulation E, one entity is imputed to provide
liability limitations that are less comprehensive than what
Regulation E provides, and one entity is imputed to not provide
liability limitations. With respect to error resolution, eight
entities are imputed to provide error resolution consistently with
Regulation E (including provisional credit), four entities are
imputed to provide error resolution consistently with Regulation E
but with limitations on provisional credit, and two entities are
imputed to provide error resolution consistently with Regulation E
but no provisional credit.
\952\ These 12 entities include six entities that do not provide
liability limitations, four entities that provide liability
limitations that are not as comprehensive as required by Regulation
E, one entity imputed to not provide liability limitations, and one
entity imputed to provide liability limitations that are not as
comprehensive as those required by Regulation E.
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These 14 entities comprise less than 1 percent of the 2,325 small
non-bank entities in the relevant NAICS code. The Bureau also believes
that roughly 2 percent of all small non-bank entities in the relevant
NAICS code that perform either EFTs or electronic payment services will
experience a significant economic impact.\953\
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\953\ To derive this estimate, the Bureau assumes that 700
entities are within the NAICS code 522320 and perform either EFTs or
electronic payment services. This is consistent with the number
relied upon in FinCEN's Prepaid Access Rule. See 76 FR 45403 (July
29, 2011). Using a threshold of $7 million in annual receipts (the
SBA threshold at the time), FinCEN estimated that 93 percent, or
651, of these entities were small. At present, the SBA considers
entities within NAICS code 522320 with under $38.5 million in annual
receipts to be small. Therefore, the Bureau further assumes that at
least 651 of these entities are small. The Bureau conservatively
uses a denominator of 651 to obtain this estimate.
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E. Certification
Accordingly, the undersigned certifies that the final rule will not
have a significant economic impact on a substantial number of small
entities.
IX. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\954\ Federal
agencies are generally required to seek approval from the Office of
Management and Budget (OMB) for information collection requirements
prior to implementation. Further, the Bureau may not conduct or sponsor
a collection of information unless OMB approves the collection under
the PRA and displays a currently valid OMB control number.
Notwithstanding any other provision of law, no person is required to
comply with, or is subject to penalty for failure to comply with, a
collection of information if the collection instrument does not display
a currently valid OMB control number.
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\954\ 44 U.S.C. 3501 et seq.
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On December 23, 2014, notice of the proposed rule was published in
the Federal Register. The Bureau invited comment on the burden
estimates and any other aspect of the proposed collections of
information, including suggestions for reducing the burden. The comment
period for the proposal expired on March 23, 2015.
The Bureau received one comment specifically addressing the PRA
notice. A commenter from a university research center summarized the
quantitative information presented in the PRA notice and asked why the
analysis of regulatory costs did not include an estimate of how the
proposal would affect prepaid account users and sellers beyond initial
regulatory compliance. The Bureau considered the benefits and costs to
consumers of the proposed rule, as well as the impact on access to
credit, in the discussion pursuant to Dodd-Frank Act section 1022(b).
Regarding PRA burden specifically, however, there is no impact on
consumers from this rulemaking since only business entities are
respondents with respect to the information collections that are
materially affected. Regarding program managers and issuers, the Bureau
used current market information about costs and other data as well as
data on the numbers of users to estimate both the one-time and the
ongoing PRA burden of the information collections in the rule. Ongoing
PRA burden accounts for burden from the information collections beyond
initial regulatory compliance.
The final rule amends 12 CFR part 1005, Electronic Fund Transfers
(Regulation E) and 12 CFR part 1026, Truth in Lending (Regulation Z).
Regulation E and Regulation Z currently contain collections of
information approved by OMB. The Bureau's OMB control number for
Regulation E is 3170-0014 (Electronic Fund Transfer Act (Regulation E)
12 CFR part 1005). The Bureau's OMB control number for Regulation Z is
3170-0015 (Truth in Lending Act (Regulation Z) 12 CFR part 1026). As
described below, the final rule amends the collections of information
currently in Regulation E and Regulation Z subparts B and G. The
frequency of response is on occasion. These information collections are
required to provide benefits for consumers and are mandatory. The only
information the Bureau collects under the final rule are the account
agreements
[[Page 84320]]
for prepaid account programs, so no issue of confidentiality arises.
The affected public includes businesses, government agencies and other
for-profit and not-for-profit organizations. The Bureau is not aware of
any small not-for-profit organizations, aside from credit unions, that
are directly affected by the final rule.
The Bureau generally accounts for the paperwork burden associated
with Regulation E and Regulation Z for the following respondents
pursuant to its administrative enforcement authority: insured
depository financial institutions and insured credit unions with more
than $10 billion in total assets, their depository institution
affiliates (together, the Bureau depository respondents), and certain
non-depository financial institutions (the Bureau non-depository
respondents), such as prepaid account program managers. The Bureau and
the FTC generally both have enforcement authority over non-depository
financial institutions under Regulation E and Regulation Z.
Accordingly, the Bureau has allocated to itself half of the estimated
burden on Bureau non-depository respondents. Other Federal agencies,
including the FTC, are responsible for estimating and reporting to OMB
the total paperwork burden for the financial institutions for which
they have administrative enforcement authority. They may, but are not
required to, use the Bureau's burden estimation methodology.
For Regulation E, using the Bureau's burden estimation methodology
discussed below, the estimated burden for the approximately 181 prepaid
account providers likely subject to the final rule, including Bureau
respondents, is one-time burden of 155,347 hours and ongoing burden of
14,304 hours. The Bureau allocates to itself 76,343 hours of one-time
burden: Bureau depository respondents account for 15,504 hours while
Bureau non-depository respondents account for 121,678 hours, half of
which the Bureau allocates to itself and half to the FTC. The remaining
one-time burden (155,347-15,504-121,678 = 18,165 hours) is allocated to
the other Federal agencies that have administrative enforcement
authority over banks and credit unions not subject to the Bureau's
administrative enforcement authority. Similarly, the Bureau allocates
to itself 7,207 hours of ongoing burden: Bureau depository respondents
account for 1,410 hours while Bureau non-depository respondents account
for 11,595 hours, half of which the Bureau allocates to itself and half
to the FTC. The remaining ongoing burden (14,304-1,410-11,595 = 1,299
hours) is allocated to the other Federal agencies that have
administrative enforcement authority over banks and credit unions not
subject to the Bureau's administrative enforcement authority.
For Regulation Z, using the Bureau's burden estimation methodology
discussed below, the estimated burden for three non-depository
institutions subject to the final rule would be one-time burden of 460
hours and ongoing burden of 6,491 hours. The Bureau allocates to itself
half of both these burden estimates (230 hours and 3,245 hours,
respectively) and half to the FTC.
The aggregate estimates of total burdens presented in this part are
based on estimated burden hours that are averages across respondents.
The Bureau expects that the amount of time required to implement each
of the changes for a given institution may vary based on the size,
complexity, and practices of the respondent. The Bureau used existing
burden estimates, information obtained through industry research and
outreach, and information provided in comments on the proposed rule to
develop the figures presented below.
Most prepaid account programs already comply with the current
requirements of Regulation E, as they apply to payroll card accounts.
The additional requirements in the final rule would, with a few
exceptions, require small extensions or revisions to existing practices
after the initial costs. There are several participants in the prepaid
account supply chain and the activities of the participants may vary
across prepaid account programs. The Bureau understands that, in
general, the respondents for purposes of PRA are program managers,
except for the collection required by Sec. 1005.19 (internet posting
of prepaid account agreements and submission to the Bureau), where the
respondents will likely be prepaid account issuers.\955\
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\955\ An issuer may also be a program manager and issuers can
delegate to program managers the submission of prepaid account
agreements to the Bureau. These practices would not affect any of
the Bureau's estimates of total burden but may affect how the burden
is divided among depository institutions and non-depository
institutions.
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Regarding the new requirements in Regulation E, the Bureau's PRA
burden estimation methodology assumes that one-time burden from the
short form and long form disclosure requirements and the access to
account information requirement depends on the number of fee schedules.
The number of responses-per-respondent for these information
collections is the number of fee schedules per program manager. The
one-time burden from the error resolution requirements arises from the
relatively few programs that do not already meet the requirements. The
number of responses-per-respondent for this information collection is
the number of non-compliant programs per program manager. We assume
that the one-time burden from the rolling submission of account
agreements, which includes fee schedules, depends primarily on the fee
schedule, and therefore the number of responses-per-respondent for this
information collection is the number of fee schedules per issuer.
Ongoing burden may increase with the above factors as well as with the
number of customers.
A. Regulation E
As discussed further below, the final rule requires financial
institutions to make available to consumers disclosures before a
consumer acquires a prepaid account. These disclosures take two forms:
A short form disclosure highlighting key fees and information that the
Bureau believes are most important for consumers to know about prior to
acquisition and a long form disclosure that sets forth all of the
prepaid account's fees and the conditions under which those fees could
be imposed as well as certain other information. Second, the final rule
extends, with certain modifications, existing error resolution and
limited liability provisions for payroll card accounts and certain
government benefit accounts to all prepaid accounts.\956\ Third, the
final rule adopts provisions requiring prepaid account issuers to
submit agreements to the Bureau for posting on a publicly-available Web
site established and maintained by the Bureau and to post prepaid
account agreements offered to the public on the issuers' own Web sites.
Finally, the final rule, as applicable, revises and clarifies subparts
A and B of Regulation E in various places to reflect the new provisions
adopted for prepaid accounts. These revisions and clarifications
include, among other
[[Page 84321]]
things, revisions to provisions currently applicable to payroll card
accounts and certain government benefit accounts.
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\956\ All prepaid cards used to distribute Federally-
administered benefits (such as Social Security and SSI) and State
and local non-needs tested benefits (such as unemployment, child
support, and pension payments) are currently covered by Regulation
E. However, government agencies are currently not required to
provide periodic statements or online access to account information
for cards distributing State and local non-needs tested benefits, as
long as balance information is made available to benefits recipients
via telephone and electronic terminals and a written account history
of at least 60 days is given upon request. Needs-tested EBT programs
established or administered under State or local law are not
currently subject to Regulation E pursuant to existing Sec.
1005.15(a). The final rule does not change this.
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The Bureau's Study of Prepaid Account Agreements and review of
industry research found that most programs of GPR prepaid accounts and
government benefit accounts currently comply with the major provisions
of the payroll card requirements of Regulation E. Thus, on an ongoing
basis, these accounts will be affected mostly by the modifications
adopted in the final rule to the current provisions for payroll card
accounts and which will now also hold for GPR prepaid accounts and
government benefits accounts.
Providers of prepaid accounts generally provide account opening
disclosures, change-in-terms notices, and annual error resolution
notices that meet the current requirements of Regulation E. Final Sec.
1005.18(f)(1) expands the account opening requirements of Sec.
1005.7(b)(5) as applied to prepaid accounts to require the disclosure
of all fees, not just fees for EFTs. However, the Bureau understands
that most fees are currently generally disclosed at account opening.
Thus, the one-time and ongoing burden from this requirement should be
minimal.
Providers offering certain EFT services for prepaid accounts would
also need to provide transaction disclosures. For example, a disclosure
would be required for transactions conducted at an ATM. The Bureau
believes that most or all providers currently give these disclosures.
In the alternative, however, these disclosures impose minimal burden as
they are machine-generated and do not involve an employee of the
institution. For preauthorized transfers to the consumer's account
occurring at least once every 60 days, such as direct deposit, the
institution would be required to provide notice as to whether the
transfer occurred unless positive notice was provided by the payor. In
lieu of sending a notice of deposit, the institution may provide a
readily available telephone number that the consumer can call to verify
receipt of the deposit. Thus, the burden of this requirement is also
minimal. For preauthorized transfers from the account, either the
institution or the payee would need to notify the consumer of payment
variations. Because in the vast majority of instances the payee, rather
than the account provider, would satisfy this obligation, the burden on
providers is minimal.
Under final Sec. 1005.18(b)(2) and (4), a financial institution is
required to make available a short form and a long form disclosure
before the consumer acquires the prepaid account, subject to certain
exceptions provided in Sec. 1005.18(b)(1). The Bureau estimates that
providers, including Bureau respondents, will take 40 hours per prepaid
account fee schedule, on average, to develop the short form disclosure
and to update systems. Providers will take eight hours every 24 months
for each prepaid account fee schedule to evaluate, and if necessary,
update the information on the short form disclosure regarding
additional fee types. Providers will incur no other ongoing costs for
the short form disclosure since they already offer consumers a pre-
acquisition disclosure. The Bureau estimates that providers, including
Bureau respondents, will take on average 8 hours per prepaid account
fee schedule to develop the long form disclosure and update systems.
Most of the content of the long form disclosure is already provided in
prepaid account agreements.\957\
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\957\ Final Sec. 1005.18(b)(4)(vii) requires that the long form
disclosure include the disclosures described in Sec. 1026.60(e)(1)
or (2)(ii) if at any point a covered separate credit feature
accessible by a hybrid prepaid-card (as defined in Sec. 1026.61)
may be offered in connection with the prepaid account. This burden
is minimal given the Bureau's burden estimation methodology for
Regulation Z, as explained below. Final Sec. 1005.18(b)(9) provides
that if a financial institution principally uses a foreign language
in certain circumstances then it must provide both the short and
long form in that same foreign language. The Bureau believes that
current industry practice regarding pre-acquisition disclosures in
foreign languages is generally consistent with this requirement. The
long form disclosure also needs to be provided in English upon
request, but this is a minimal one-time and ongoing expense.
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Final Sec. 1005.18(f)(3) requires that certain disclosures be made
on the actual prepaid account access device. These include the name of
the financial institution and the URL of a Web site and a telephone
number that the consumer can use to contact the financial institution
about the prepaid account. The Bureau believes that currently all
prepaid account access devices provide these disclosures.
Final Sec. 1005.18(c)(1) requires financial institutions to
furnish periodic statements unless the provider uses the alternative
method of compliance, which requires the financial institution to make
available to the consumer the following information: The consumer's
account balance, through a readily available telephone line, at least
12 months of transaction history electronically, and written
transaction history in response to an oral or written request that
covers the 24 months preceding the date the financial institution
receives the request. The Bureau expects that most providers will use
the alternative method of compliance. The Study of Prepaid Account
Agreements found that most prepaid account programs provided electronic
access to account information; and while few agreements stated that the
program provided at least 12 months of prepaid account transaction
history, many programs provided access to account information for much
longer time frames than what was listed in the account agreements. In
addition, several commenters stated that they provided 12 months of
electronic transaction history. Regarding the requirement to provide a
transaction history in writing pursuant to Sec. 1005.18(c)(1)(iii),
few consumers ever request a written transaction history.
Regardless of how a financial institution chooses to comply, final
Sec. 1005.18(c)(5) requires that the financial institution disclose to
the consumer a summary total of the amount of all fees assessed against
the consumer's prepaid account for both the prior month as well as the
calendar year to date. This information must be disclosed on any
periodic statement and any electronic or written history of account
transactions provided.\958\ Prepaid account programs generally do not
currently provide these summary totals. The Bureau estimates that
providers will take on average 24 hours per prepaid account fee
schedule to implement these changes.
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\958\ For periodic statements, the monthly summary may be for
the statement period or for the prior calendar month; for other
transaction histories, it must be for the prior calendar month.
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The final rule extends to all prepaid accounts the limited
liability and error resolution provisions of Regulation E, as they
currently apply to payroll card accounts.\959\ See Sec. 1005.18(e)(1)
and (2). As discussed above, the Study of Prepaid Account Agreements
and its industry research found that most providers of prepaid accounts
provide limited liability and error resolution protections (including
provisional credit) generally consistent with the Regulation E
requirements for payroll card accounts. The Bureau estimates that
providers (including Bureau respondents) that do not fully comply with
the payroll card rule's limited liability and error resolution
provisions will require 8 hours per non-compliant program to develop
fully compliant
[[Page 84322]]
limited liability and error resolution procedures. Regarding ongoing
costs, Bureau outreach indicates that providers receive perhaps one
call per month per customer who actively uses a card and that 95
percent of those calls are resolved without requiring time from a
customer service agent. Of the remaining 5 percent, very few calls
involve assertions of error, but escalated calls are time consuming and
respondents incur an ongoing burden.
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\959\ The Bureau is finalizing an exception from the requirement
to provide provisional credit for prepaid accounts (other than
payroll card accounts and government benefit accounts) for which the
financial institution has not completed its consumer identification
and verification process with respect to that prepaid account. Sec.
1005.18(e)(3).
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If a financial institution changes a prepaid account's terms and
conditions as a result of Sec. 1005.18(h)(1) taking effect such that a
change-in-terms notice would have been required under Sec. 1005.8(a)
or Sec. 1005.18(f)(2) for existing customers, a financial institution
must notify consumers with accounts acquired before October 1, 2017 at
least 21 days in advance of the change becoming effective, provided the
financial institution has the consumer's contact information. If the
financial institution obtains the consumer's contact information fewer
than 30 days in advance of the change becoming effective, the financial
institution is permitted instead to provide notice of the change within
30 days of obtaining the consumer's contact information.
If a financial institution has received E-Sign consent from the
consumer, then the financial institution may notify the consumer
electronically. Otherwise, if a financial institution is mailing or
delivering written communications to the consumer within the applicable
time period, then that financial institution must send a notice in
physical form. If the financial institution will not be mailing or
delivering communications to the consumer within the applicable time
period, then the financial institution will be able to notify the
consumer in electronic form without regard to the consumer notice and
consent requirements of section 101(c) of the E-Sign Act.
Financial institutions with prepaid accounts that offer overdraft
credit features are likely to trigger this requirement. For any
consumer who has not consented to electronic communications and who
will be receiving other physical mailings from the financial
institution in the specified time period, that financial institution
will incur a cost of printing the notice, which can be included in the
envelope or package which was already scheduled to be delivered. It is
unlikely that the financial institution will incur additional mailing
costs to send these notices. The remaining notices of change may be
sent to consumers electronically. Therefore, the Bureau believes that
the cost associated with providing these notices is minimal.
Final Sec. 1005.18(h)(2)(ii) requires that financial institutions
notify any consumer, who acquires a prepaid account after the effective
date in packaging printed prior to the effective date, of any changes
as a result of Sec. 1005.18(h)(1) taking effect such that a change-in-
terms notice would have been required under Sec. 1005.8(a) or Sec.
1005.18(f)(2) for existing customers within 30 days of acquiring the
customer's contact information. In addition, financial institutions
must also mail or deliver updated initial disclosures pursuant to Sec.
1005.7 and Sec. 1005.18(f)(1) within 30 days of obtaining the
consumer's contact information. Those financial institutions that are
affected should not incur significant costs to notify consumers and
provide updated initial disclosures. Consumers who have consented to
electronic communication may receive the notices and updated
disclosures electronically, at a minimal cost to financial
institutions. Those consumers who cannot be contacted electronically
may receive the notices and updated initial disclosures with another
scheduled mailing within the 30 day time period. Financial institutions
will incur small costs to print these notices and disclosures, but it
is unlikely that financial institutions will incur additional mailing
costs. Any remaining consumers who are not scheduled to receive
mailings may be notified without regard to the consumer notice and
consent requirements of section 101(c) of the E-Sign Act.
Final Sec. 1005.19(b) requires certain issuers to submit to the
Bureau, on a rolling basis, short form disclosures and prepaid account
agreements (including fee schedules) that are offered, amended or
withdrawn. The Bureau estimates that each issuer will initially take 1
hour to register and spend 5 minutes to upload each of 17 agreements
(our estimate of the overall average number of fee schedules per
issuer). Thus the one-time burden is 145 (= 60 + (5*17)) minutes or
2.42 hours per issuer. There is considerable uncertainty regarding the
number of issuers that will offer, amend or withdraw an issuer
agreement each year on an ongoing basis and the number of issuer
agreements that each issuer will offer, amend or withdraw. The Bureau's
experience with the submission of credit card agreements pursuant to
Sec. 1026.58 of Regulation Z suggests that issuers who upload issuer
agreements will upload at most 5 issuer agreements annually on an
ongoing basis.\960\ We assume that every issuer uploads 5 issuer
agreements annually on an ongoing basis, so our estimate is an upper
bound on the burden.
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\960\ In a recent analysis of submissions for the third quarter
of 2014, the Bureau found 103 credit card issuers submitted 429
agreements in a single quarter, so just over four per issuer. 80 FR
21153, 21156. We repeated this analysis using submissions for all of
2014, which is the last year of data available, and found that 210
credit card issuers submitted 1002 agreements, so just under five
per issuer. See http://www.consumerfinance.gov/credit-cards/agreements/.
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The estimated burden on Bureau respondents from the final rule's
changes to Regulation E are summarized below.
[[Page 84323]]
[GRAPHIC] [TIFF OMITTED] TR22NO16.003
B. Regulation Z
The Bureau understands that approximately 218,000 consumers
currently have a form of overdraft protection on their GPR and payroll
cards.\961\ The Bureau's PRA estimation methodology assumes that the
same number will use a credit feature after the final rule takes
effect, although this is likely an overestimate.\962\ Further, the
methodology generally assumes that the per-respondent and per
transaction burdens would be consistent with those currently reported
for credit card accounts in Regulation Z.
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\961\ The Bureau is aware of three providers of overdraft credit
features on prepaid accounts and believes that NetSpend is the only
significant provider. A recent financial filing suggested that
NetSpend had 3.6 million active cards as of Sept. 30, 2015. Total
Sys. Serv., Inc., Form 10-Q, at 27, available at https://www.sec.gov/Archives/edgar/data/721683/000119312515367677/d97203d10q.htm (for the quarterly period ended Sept. 30, 2015).
NetSpend also stated in a news article that only about 6 percent of
its customers regularly use overdraft. See 2012 NetSpend WSJ
Article. Assuming each NetSpend customer has overdraft protection on
only one account, there are 216,000 prepaid accounts with overdraft
protection. No data is available for the other two providers. The
Bureau believes, based on industry data, that the median provider of
prepaid accounts likely has about 10,000 customers. Assuming 10
percent have an overdraft service or credit feature on one prepaid
account gives an additional 2,000 accounts with overdraft
protection.
\962\ Current data on the size of the market for credit features
on prepaid accounts has limited usefulness in predicting the size of
the market under the final rule, since both eligibility criteria and
credit features may change as a result. See previous discussions in
this supplementary information.
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As described in greater detail above, in the final rule, the Bureau
generally intends to cover under Regulation Z overdraft credit features
offered in connection with prepaid accounts where the credit features
are offered by the prepaid account issuer, its affiliates, or its
business partners (except as described in new Sec.
1026.61(a)(4)).\963\ The Bureau anticipates that most of these
overdraft credit features covered under the final rule would meet the
definition of ``open-end credit.'' \964\ In addition, under the final
rule, a prepaid card that accesses such an overdraft credit feature
would be a ``credit card'' under Regulation Z.\965\ The overdraft
credit features described above would be governed by subparts A, B, D,
and G of Regulation Z. Pursuant to Regulation Z, persons offering such
plans would be required to comply with the requirements governing
information collections. These requirements are as follows.
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\963\ These overdraft credit features are covered under the term
``covered separate credit feature'' as defined in new Sec. 1026.61.
\964\ This would apply if the creditor establishes a program
where the creditor routinely extends credit and may impose finance
charges from time to time on an outstanding unpaid balance for
credit.
\965\ The final rule defines such a prepaid card that is a
credit card as a ``hybrid prepaid-credit card'' in new Sec.
1026.61.
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As discussed below, certain disclosure provisions in Regulation Z
apply to ``creditors'' and other disclosure provisions apply to ``card
issuers.'' Under the final rule, a person that is offering an overdraft
credit feature as described above in connection with a prepaid account
would be both a ``card issuer'' and a ``creditor'' under Regulation Z.
Persons offering an overdraft credit feature described above in
connection with a prepaid account are required to inform consumers of
costs and terms before they use the credit feature and in general to
inform them of certain subsequent changes in the terms of the credit
feature. Initial information would need to include the finance charge
and
[[Page 84324]]
other charges, the APR, a description of how balances on which a
finance charge is based would be calculated, and any collateral that
would secure repayment. If the creditor changes certain terms initially
disclosed, or increases the minimum periodic payment, a written change-
in-terms notice generally would need to be provided to the consumer at
least 45 days prior to the effective date of the change. Consistent
with estimates currently reported for credit card accounts in
Regulation Z, the Bureau estimates 8 hours of one-time burden per
respondent to develop these disclosures and a small ongoing burden per
account. The Bureau also assumes that for these accounts, the number of
account opening disclosures equals the number of accounts in any
year.\966\
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\966\ In one recent analysis, the median life span for GPR cards
with occasional reloads was 330 days and 570 days for GPR cards with
periodic non-government direct deposit. 2012 FRB Kansas City Study
at 47 tbl.4.1.
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Creditors are required to provide a written statement of activity
for each billing cycle (i.e., periodic statement). The statement has to
be provided for each account that has a balance of more than $1 or on
which a finance charge is imposed, and it has to include a description
of activity on the account, opening and closing balances, finance
charges imposed, and payment information. Consistent with estimates
currently reported for credit card accounts in Regulation Z, the Bureau
estimates 80 hours of one-time burden per respondent to develop these
disclosures and a small ongoing burden per account.
Creditors are required to notify consumers about their rights and
responsibilities regarding billing errors. Creditors have to provide
either a complete statement of billing rights each year or a summary on
each periodic statement. If a consumer alleges a billing error, the
creditor must provide an acknowledgment, within 30 days of receipt,
that the creditor received the consumer's error notice and must report
on the results of its investigation within 90 days. If a billing error
did not occur, the creditor must provide an explanation as to why the
creditor believed an error did not occur and provide documentary
evidence to the consumer upon request. The creditor must also give
notice of the portion of the disputed amount and related finance or
other charges that the consumer still owed and notice of when payment
was due. The Bureau estimates 8 hours of one-time burden per respondent
to develop these disclosures and a small ongoing burden per account.
The Bureau further assumes that, based on discussions with industry, in
any year 1.5 percent of customers will assert errors that require
significant time from customer service representatives.
Persons offering an overdraft credit feature discussed above in
connection with a prepaid account are required, when advertising their
product, to include certain basic credit information if the
advertisement refers to specified credit terms or costs. The Bureau
estimates 8 hours of one-time burden per respondent to develop these
disclosures and small ongoing burden to maintain or revise these
disclosures.
Persons offering an overdraft credit feature described above in
connection with a prepaid account are required to send the Bureau
copies of the overdraft credit feature agreement. The Bureau estimates
each card issuer will take 5 minutes to upload each agreement. We
assume the same overall average number of agreements per issuer as
above (which will not be representative of any of the three), so each
issuer will initially take 85 minutes to upload 17 agreements and will
upload 5 agreements annually on an ongoing basis.
Finally, persons offering overdraft credit features as described
above in connection with a prepaid account must provide additional
disclosures with solicitations and applications. Such card issuers must
disclose key terms of the account, such as the APR, information about
variable rates, and fees such as annual fees, minimum finance charges,
and transaction fees for purchases. The Bureau estimates 8 hours of
one-time burden per respondent to develop these disclosures and small
ongoing burden to maintain or revise these disclosures.\967\
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\967\ The recordkeeping requirement in Sec. 1026.25 does not
specify the kind of records that must be retained, so for purposes
of PRA the paperwork burden is minimal.
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The estimated burden on Bureau respondents from the changes to
Regulation Z are summarized below.
[[Page 84325]]
[GRAPHIC] [TIFF OMITTED] TR22NO16.004
The Consumer Financial Protection Bureau has a continuing interest
in the public's opinions of our collections of information. At any
time, comments regarding the burden estimate, or any other aspect of
this collection of information, including suggestions for reducing the
burden, may be sent to: The Office of Management and Budget (OMB),
Attention: Desk Officer for the Consumer Financial Protection Bureau,
Office of Information and Regulatory Affairs, Washington, DC 20503, or
by the internet to [email protected], with copies to the
Bureau at the Consumer Financial Protection Bureau (Attention: PRA
Office), 1700 G Street NW., Washington, DC 20552, or by the internet to
[email protected].
List of Subjects
12 CFR Part 1005
Automated teller machines, Banks, Banking, Consumer protection,
Credit unions, Electronic fund transfers, National banks, Remittances,
Reporting and recordkeeping requirements, Savings Associations.
12 CFR Part 1026
Advertising, Appraisal, Appraiser, Banking, Banks, Consumer
protection, Credit, Credit unions, Mortgages, National banks, Reporting
and recordkeeping requirements, Savings associations, Truth in lending.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau amends 12 CFR
parts 1005 and 1026 as follows:
PART 1005--ELECTRONIC FUND TRANSFERS (REGULATION E)
0
1. The authority citation for part 1005 continues to read as follows:
Authority: 12 U.S.C. 5512, 5532, 5581; 15 U.S.C. 1693b. Subpart
B is also issued under 12 U.S.C. 5601 and 15 U.S.C. 1693o-1.
Subpart A--General
0
2. Section 1005.2 is amended by revising paragraphs (b)(2) and (3) to
read as follows:
Sec. 1005.2 Definitions.
* * * * *
(b) * * *
(2) The term does not include an account held by a financial
institution under a bona fide trust agreement.
(3) The term includes a prepaid account.
(i) ``Prepaid account'' means:
(A) A ``payroll card account,'' which 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; or
(B) A ``government benefit account,'' as defined in Sec.
1005.15(a)(2); or
[[Page 84326]]
(C) An account that is marketed or labeled as ``prepaid'' and that
is redeemable upon presentation at multiple, unaffiliated merchants for
goods or services or usable at automated teller machines; or
(D) An account:
(1) That is issued on a prepaid basis in a specified amount or not
issued on a prepaid basis but capable of being loaded with funds
thereafter,
(2) Whose primary function is to conduct transactions with
multiple, unaffiliated merchants for goods or services, or at automated
teller machines, or to conduct person-to-person transfers, and
(3) That is not a checking account, share draft account, or
negotiable order of withdrawal account.
(ii) For purposes of paragraphs (b)(3)(i)(C) and (D) of this
section, the term ``prepaid account'' does not include:
(A) An account that is loaded only with funds from a health savings
account, flexible spending arrangement, medical savings account, health
reimbursement arrangement, dependent care assistance program, or
transit or parking reimbursement arrangement;
(B) An account that is directly or indirectly established through a
third party and loaded only with qualified disaster relief payments;
(C) The person-to-person functionality of an account established by
or through the United States government whose primary function is to
conduct closed-loop transactions on U.S. military installations or
vessels, or similar government facilities;
(D)(1) A gift certificate as defined in Sec. 1005.20(a)(1) and
(b);
(2) A store gift card as defined in Sec. 1005.20(a)(2) and (b);
(3) A loyalty, award, or promotional gift card as defined in Sec.
1005.20(a)(4) and (b); or
(4) 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; or
(E) An account established for distributing needs-tested benefits
in a program established under state or local law or administered by a
state or local agency, as set forth in Sec. 1005.15(a)(2).
* * * * *
0
3. Section 1005.10 is amended by revising paragraph (e)(1) to read as
follows:
Sec. 1005.10 Preauthorized transfers.
* * * * *
(e) Compulsory use--(1) Credit. 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. This
exception does not apply to a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Regulation Z,
12 CFR 1026.61.
* * * * *
0
4. Section 1005.11 is amended by revising paragraphs (c)(2)(i)(A) and
(B) and adding paragraph (c)(2)(i)(C) to read as follows:
Sec. 1005.11 Procedures for resolving errors.
* * * * *
(c) * * *
(2) * * *
(i) * * *
(A) The institution requires but does not receive written
confirmation within 10 business days of an oral notice of error;
(B) The alleged error involves an account that is subject to
Regulation T of the Board of Governors of the Federal Reserve System
(Securities Credit by Brokers and Dealers, 12 CFR part 220); or
(C) The alleged error involves a prepaid account, other than a
payroll card account or government benefit account, for which the
financial institution has not completed its consumer identification and
verification process, as set forth in Sec. 1005.18(e)(3)(ii).
* * * * *
0
5. Section 1005.12 is amended by revising paragraphs (a)(1)(ii),
(a)(1)(iv), and (a)(2)(i) and (ii) and adding paragraph (a)(2)(iii) to
read as follows:
Sec. 1005.12 Relation to other laws.
(a) * * *
(1) * * *
(ii) The issuance of an access device (other than an access device
for a prepaid account) 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) of this part;
* * * * *
(iv) A consumer's liability for an unauthorized electronic fund
transfer and the investigation of errors involving:
(A) Except with respect to a prepaid account, an extension of
credit that is incident to an electronic fund transfer 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, or under an
overdraft service, as defined in Sec. 1005.17(a);
(B) With respect to transactions that involve a covered separate
credit feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as those terms are defined
in Regulation Z, 12 CFR 1026.61, an extension of credit that is
incident to an electronic fund transfer that occurs when the hybrid
prepaid-credit card accesses both funds in the asset feature of the
prepaid account and a credit extension from the credit feature with
respect to a particular transaction;
(C) Transactions that involves credit extended through a negative
balance to the asset feature of a prepaid account that meets the
conditions set forth in Regulation Z, 12 CFR 1026.61(a)(4); and
(D) With respect to transactions involving a prepaid account and a
non-covered separate credit feature as defined in Regulation Z, 12 CFR
1026.61, transactions that access the prepaid account, as applicable.
(2) * * *
(i) 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 (12 CFR
part 1026);
(ii) Except as provided in paragraph (a)(1)(ii) of this section,
the issuance of a credit card that is also an access device; and
(iii) With respect to transactions involving a prepaid account and
a non-covered separate credit feature as defined in Regulation Z, 12
CFR 1026.61, a consumer's liability for unauthorized use and the
investigation of errors involving transactions that access the non-
covered separate credit feature, as applicable.
* * * * *
0
6. Section 1005.15 is revised to read as follows:
Sec. 1005.15 Electronic fund transfer of government benefits.
(a) Government agency subject to regulation. (1) A government
agency is deemed to be a financial institution for purposes of the Act
and this part if directly or indirectly it 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
[[Page 84327]]
law or administered by a state or local agency. The agency shall comply
with all applicable requirements of the Act and this part except as
modified by this section.
(2) For purposes of this section, the term ``account'' or
``government benefit account'' means an account established by a
government agency for distributing government benefits to a consumer
electronically, such as through automated teller machines or point-of-
sale 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.
(b) Issuance of access devices. For purposes of this section, 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.
(c) Pre-acquisition disclosure requirements. (1) 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 Sec. 1005.18(b).
(2) Additional content for government benefit accounts--(i)
Statement regarding consumer's payment options. As part of its short
form pre-acquisition disclosures, the agency must provide a statement
that the consumer does not have to accept the government benefit
account and directing the consumer to ask about other ways to receive
their benefit payments from the agency instead of receiving them via
the account, using the following clause or a substantially similar
clause: ``You do not have to accept this benefits card. Ask about other
ways to receive your benefits.'' Alternatively, an agency may provide a
statement that the consumer has several options to receive benefit
payments, followed by a list of the options available to the consumer,
and directing the consumer to indicate which option the consumer
chooses using the following clause or a substantially similar clause:
``You have several options to receive your payments: [list of options
available to the consumer]; or this benefits card. Tell the benefits
office which option you choose.'' This statement must be located above
the information required by Sec. 1005.18(b)(2)(i) through (iv). This
statement must appear in a minimum type size of eight points (or 11
pixels) and appear in no larger a type size than what is used for the
fee headings required by Sec. 1005.18(b)(2)(i) through (iv).
(ii) Statement regarding state-required information or other fee
discounts and waivers. An agency may, but is not required to, include a
statement in one additional line of text in the short form disclosure
directing the consumer to a particular location outside the short form
disclosure for information on ways the consumer may access government
benefit account funds and balance information for free or for a reduced
fee. This statement must be located directly below any statements
disclosed pursuant to Sec. 1005.18(b)(3)(i) and (ii), or, if no such
statements are disclosed, above the statement required by Sec.
1005.18(b)(2)(x). This statement must appear in the same type size used
to disclose variable fee information pursuant to Sec. 1005.18(b)(3)(i)
and (ii), or, if none, the same type size used for the information
required by Sec. 1005.18(b)(2)(x) through (xiii).
(3) Form of disclosures. When a short form disclosure required by
paragraph (c) of this section is provided in writing or electronically,
the information required by Sec. 1005.18(b)(2)(i) through (ix) shall
be provided in the form of a table. Except as provided in Sec.
1005.18(b)(6)(iii)(B), the short form disclosure required by Sec.
1005.18(b)(2) shall be provided in a form substantially similar to
Model Form A-10(a) of appendix A of this part. Sample Form A-10(f) in
appendix A of this part provides an example of the long form disclosure
required by Sec. 1005.18(b)(4) when the agency does not offer multiple
service plans.
(d) Access to account information--(1) Periodic statement
alternative. A government agency need not furnish periodic statements
required by Sec. 1005.9(b) if the agency makes available to the
consumer:
(i) 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);
(ii) An electronic history of the consumer's account transactions,
such as through a Web site, that covers at least 12 months preceding
the date the consumer electronically accesses the account; and
(iii) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 24 months preceding the date the agency receives the
consumer's request.
(2) Additional access to account information requirements. For
government benefit accounts, a government agency shall comply with the
account information requirements applicable to prepaid accounts as set
forth in Sec. 1005.18(c)(3) through (5).
(e) Modified disclosure, limitations on liability, and error
resolution requirements. A government agency that provides information
under paragraph (d)(1) of this section shall comply with the following:
(1) Initial disclosures. The agency shall modify the disclosures
under Sec. 1005.7(b) by disclosing:
(i) Access to account information. 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 summary of the
right to receive a periodic statement required by Sec. 1005.7(b)(6)),
including a telephone number to call to request a history. The
disclosure required by this paragraph (e)(1)(i) may be made by
providing a notice substantially similar to the notice contained in
paragraph (a) of appendix A-5 of this part.
(ii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-5 of this part, in place of the notice required by Sec.
1005.7(b)(10).
(2) Annual error resolution notice. The agency shall provide an
annual notice concerning error resolution that is substantially similar
to the notice contained in paragraph (b) of appendix A-5 of this part,
in place of the notice required by Sec. 1005.8(b). Alternatively, the
agency may include on or with each electronic or written history
provided in accordance with paragraph (d)(1) of this section, a notice
substantially similar to the abbreviated notice for periodic statements
contained in paragraph (b) in appendix A-3 of this part, modified as
necessary to reflect the error resolution provisions set forth in this
section.
(3) Modified limitations on liability requirements. (i) For
purposes of Sec. 1005.6(b)(3), the 60-day period for reporting any
unauthorized transfer shall begin on the earlier of:
(A) The date the consumer electronically accesses the consumer's
account under paragraph (d)(1)(ii) of this section, provided that the
electronic history made available to the consumer reflects the
unauthorized transfer; or
(B) The date the agency sends a written history of the consumer's
account transactions requested by the
[[Page 84328]]
consumer under paragraph (d)(1)(iii) of this section in which the
unauthorized transfer is first reflected.
(ii) An agency may comply with paragraph (e)(3)(i) of this section
by limiting the 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.
(4) Modified error resolution requirements. (i) The agency shall
comply with the requirements of Sec. 1005.11 in response to an oral or
written notice of an error from the consumer that is received by the
earlier of:
(A) Sixty days after the date the consumer electronically accesses
the consumer's account under paragraph (d)(1)(ii) of this section,
provided that the electronic history made available to the consumer
reflects the alleged error; or
(B) Sixty days after the date the agency sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (d)(1)(iii) of this section in which the alleged error is
first reflected.
(ii) In lieu of following the procedures in paragraph (e)(4)(i) of
this section, an agency complies with the requirements for resolving
errors in 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.
(f) Disclosure of fees and other information. For government
benefit accounts, a government agency shall comply with the disclosure
and change-in-terms requirements applicable to prepaid accounts as set
forth in Sec. 1005.18(f).
(g) Government benefit accounts accessible by hybrid prepaid-credit
cards. For government benefit accounts accessible by hybrid prepaid-
credit cards as defined in Regulation Z, 12 CFR 1026.61, a government
agency shall comply with prohibitions and requirements applicable to
prepaid accounts as set forth in Sec. 1005.18(g).
0
7. Section 1005.17 is amended by revising paragraphs (a)(2) and (3) and
adding paragraph (a)(4) to read as follows:
Sec. 1005.17 Requirements for overdraft services.
(a) * * *
(2) A service that transfers funds from another account held
individually or jointly by a consumer, such as a savings account;
(3) A line of credit or other transaction exempt from Regulation Z
(12 CFR part 1026) pursuant to 12 CFR 1026.3(d); or
(4) A covered separate credit feature accessible by a hybrid
prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61; or
credit extended through a negative balance on the asset feature of the
prepaid account that meets the conditions of 12 CFR 1026.61(a)(4).
* * * * *
0
8. Section 1005.18 is revised to read as follows:
Sec. 1005.18 Requirements for financial institutions offering prepaid
accounts.
(a) Coverage. A financial institution shall comply with all
applicable requirements of the Act and this part with respect to
prepaid accounts except as modified by this section. For rules
governing government benefit accounts, see Sec. 1005.15.
(b) Pre-acquisition disclosure requirements--(1) Timing of
disclosures--(i) General. Except as provided in paragraphs (b)(1)(ii)
or (iii) of this section, a financial institution shall provide the
disclosures required by paragraph (b) of this section before a consumer
acquires a prepaid account.
(ii) Disclosures for prepaid accounts acquired in retail locations.
A financial institution is not required to provide the long form
disclosures required by paragraph (b)(4) of this section before a
consumer acquires a prepaid account in person at a retail location if
the following conditions are met:
(A) The prepaid account access device is contained inside the
packaging material.
(B) The disclosures required by paragraph (b)(2) of this section
are provided on or are visible through an outward-facing, external
surface of a prepaid account access device's packaging material.
(C) The disclosures required by paragraph (b)(2) of this section
include the information set forth in paragraph (b)(2)(xiii) of this
section that allows a consumer to access the information required to be
disclosed by paragraph (b)(4) of this section by telephone and via a
Web site.
(D) The long form disclosures required by paragraph (b)(4) of this
section are provided after the consumer acquires the prepaid account.
(iii) Disclosures for prepaid accounts acquired orally by
telephone. A financial institution is not required to provide the long
form disclosures required by paragraph (b)(4) of this section before a
consumer acquires a prepaid account orally by telephone if the
following conditions are met:
(A) The financial institution communicates to the consumer orally,
before the consumer acquires the prepaid account, that the information
required to be disclosed by paragraph (b)(4) of this section is
available both by telephone and on a Web site.
(B) The financial institution makes the information required to be
disclosed by paragraph (b)(4) of this section available both by
telephone and on a Web site.
(C) The long form disclosures required by paragraph (b)(4) of this
section are provided after the consumer acquires the prepaid account.
(2) Short form disclosure content. In accordance with paragraph
(b)(1) of this section, a financial institution shall provide a
disclosure setting forth the following fees and information for a
prepaid account, as applicable:
(i) Periodic fee. The periodic fee charged for holding the prepaid
account, assessed on a monthly or other periodic basis, using the term
``Monthly fee,'' ``Annual fee,'' or a substantially similar term.
(ii) Per purchase fee. The fee for making a purchase using the
prepaid account, using the term ``Per purchase'' or a substantially
similar term.
(iii) ATM withdrawal fees. Two fees for using an automated teller
machine to initiate a withdrawal of cash in the United States from the
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'' or a substantially similar term, and ``in-
network'' or ``out-of-network,'' respectively, or substantially similar
terms.
(iv) Cash reload fee. The fee for reloading cash into the prepaid
account using the term ``Cash reload'' or a substantially similar term.
The fee disclosed must be the total of all charges from the financial
institution and any third parties for a cash reload.
(v) ATM balance inquiry fees. Two fees for using an automated
teller machine to check the balance of the prepaid account in the
United States, 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,'' respectively, or substantially
similar terms.
(vi) Customer service fees. Two fees for calling the financial
institution about the prepaid account, both for calling an interactive
voice response system and a live customer service agent, using the term
``Customer service'' or a
[[Page 84329]]
substantially similar term, and ``automated'' or ``live agent,'' or
substantially similar terms, respectively, and ``per call'' or a
substantially similar term. When providing a short form disclosure for
multiple service plans pursuant to paragraph (b)(6)(iii)(B)(2) of this
section, disclose only the fee for calling the live agent customer
service about the prepaid account, using the term ``Live customer
service'' or a substantially similar term and ``per call'' or a
substantially similar term.
(vii) Inactivity fee. The fee for non-use, dormancy, or inactivity
of the prepaid account, using the term ``Inactivity'' or a
substantially similar term, as well as the conditions that trigger the
financial institution to impose that fee.
(viii) Statements regarding additional fee types--(A) Statement
regarding number of additional fee types charged. A statement
disclosing the number of additional fee types the financial institution
may charge consumers with respect to the prepaid account, using the
following clause or a substantially similar clause: ``We charge [x]
other types of fees.'' The number of additional fee types disclosed
must reflect the total number of fee types under which the financial
institution may charge fees, excluding:
(1) Fees required to be disclosed pursuant to paragraphs (b)(2)(i)
through (vii) and (b)(5) of this section; and
(2) Any finance charges as described in Regulation Z, 12 CFR
1026.4(b)(11), imposed in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61.
(B) Statement directing consumers to disclosure of additional fee
types. If a financial institution makes a disclosure pursuant to
paragraph (b)(2)(ix) of this section, a statement directing consumers
to that disclosure, located after but on the same line of text as the
statement regarding the number of additional fee types required by
paragraph (b)(2)(viii)(A) of this section, using the following clause
or a substantially similar clause: ``Here are some of them:''.
(ix) Disclosure of additional fee types--(A) Determination of which
additional fee types to disclose. The two fee types that generate the
highest revenue from consumers for the prepaid account program or
across prepaid account programs that share the same fee schedule during
the time period provided in paragraphs (b)(2)(ix)(D) and (E) of this
section, excluding:
(1) Fees required to be disclosed pursuant to paragraphs (b)(2)(i)
through (vii) and (b)(5) of this section;
(2) Any fee types that generated less than 5 percent of the total
revenue from consumers for the prepaid account program or across
prepaid account programs that share the same fee schedule during the
time period provided in paragraphs (b)(2)(ix)(D) and (E) of this
section; and
(3) Any finance charges as described in Regulation Z, 12 CFR
1026.4(b)(11), imposed in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61.
(B) Disclosure of fewer than two additional fee types. A financial
institution that has only one additional fee type that satisfies the
criteria in paragraph (b)(2)(ix)(A) of this section must disclose that
one additional fee type; it may, but is not required to, also disclose
another additional fee type of its choice. A financial institution that
has no additional fee types that satisfy the criteria in paragraph
(b)(2)(ix)(A) of this section is not required to make a disclosure
under this paragraph (b)(2)(ix); it may, but is not required to,
disclose one or two fee types of its choice.
(C) Fee variations in additional fee types. If an additional fee
type required to be disclosed pursuant to paragraph (b)(2)(ix)(A) of
this section has more than two fee variations, or when providing a
short form disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, the financial institution must
disclose the name of the additional fee type and the highest fee amount
in accordance with paragraph (b)(3)(i) of this section. Except when
providing a short form disclosure for multiple service plans pursuant
to paragraph (b)(6)(iii)(B)(2) of this section, if an additional fee
type has two fee variations, the financial institution must disclose
the name of the additional fee type together with the names of the two
fee variations and the fee amounts in a format substantially similar to
that used to disclose the two-tier fees required by paragraphs
(b)(2)(v) and (vi) of this section and in accordance with paragraph
(b)(7)(ii)(B)(1) of this section. If a financial institution only
charges one fee under a particular fee type, the financial institution
must disclose the name of the additional fee type and the fee amount;
it may, but is not required to, disclose also the name of the one fee
variation for which the fee amount is charged, in a format
substantially similar to that used to disclose the two-tier fees
required by paragraphs (b)(2)(v) and (vi) of this section, except that
the financial institution would disclose only the one fee variation
name and fee amount instead of two.
(D) Timing of initial assessment of additional fee type
disclosure--(1) Existing prepaid account programs as of October 1,
2017. For a prepaid account program in effect as of October 1, 2017,
the financial institution must disclose the additional fee types based
on revenue for a 24-month period that begins no earlier than October 1,
2014.
(2) Existing prepaid account programs as of October 1, 2017 with
unavailable data. If a financial institution does not have 24 months of
fee revenue data for a particular prepaid account program from which to
calculate the additional fee types disclosure in advance of October 1,
2017, the financial institution must disclose the additional fee types
based on revenue it reasonably anticipates the prepaid account program
will generate over the 24-month period that begins on October 1, 2017.
(3) New prepaid account programs created on or after October 1,
2017. For a prepaid account program created on or after October 1,
2017, the financial institution must disclose the additional fee types
based on revenue it reasonably anticipates the prepaid account program
will generate over the first 24 months of the program.
(E) Timing of periodic reassessment and update of additional fee
types disclosure--(1) General. A financial institution must reassess
its additional fee types disclosure periodically as described in
paragraph (b)(2)(ix)(E)(2) of this section and upon a fee schedule
change as described in paragraph (b)(2)(ix)(E)(3) of this section. The
financial institution must update its additional fee types disclosure
if the previous disclosure no longer complies with the requirements of
this paragraph (b)(2)(ix).
(2) Periodic reassessment. A financial institution must reassess
whether its previously disclosed additional fee types continue to
comply with the requirements of this paragraph (b)(2)(ix) every 24
months based on revenue for the previous 24-month period. The financial
institution must complete this reassessment and update its disclosures,
if applicable, within three months of the end of the 24-month period,
except as provided in the update printing exception in paragraph
(b)(2)(ix)(E)(4) of this section. A financial institution may, but is
not required to, carry out this reassessment and update, if applicable,
more frequently than every 24 months, at which time a new 24-month
period commences.
(3) Fee schedule change. If a financial institution revises the fee
schedule for a prepaid account program, it must
[[Page 84330]]
determine whether it reasonably anticipates that the previously
disclosed additional fee types will continue to comply with the
requirements of this paragraph (b)(2)(ix) for the 24 months following
implementation of the fee schedule change. If the financial institution
reasonably anticipates that the previously disclosed additional fee
types will not comply with the requirements of this paragraph
(b)(2)(ix), it must update the disclosure based on its reasonable
anticipation of what those additional fee types will be at the time the
fee schedule change goes into effect, except as provided in the update
printing exception in paragraph (b)(2)(ix)(E)(4) of this section. If an
immediate change in terms and conditions is necessary to maintain or
restore the security of an account or an electronic fund transfer
system as described in Sec. 1005.8(a)(2) and that change affects the
prepaid account program's fee schedule, the financial institution must
complete its reassessment and update its disclosures, if applicable,
within three months of the date it makes the change permanent, except
as provided in the update printing exception in paragraph
(b)(2)(ix)(E)(4) of this section.
(4) Update printing exception. Notwithstanding the requirements to
update additional fee types disclosures in paragraph (b)(2)(ix)(E) of
this section, a financial institution is not required to update the
listing of additional fee types that are provided on, in, or with
prepaid account packaging materials that were manufactured, printed, or
otherwise produced prior to a periodic reassessment and update pursuant
to paragraph (b)(2)(ix)(E)(2) of this section or prior to a fee
schedule change pursuant to paragraph (b)(2)(ix)(E)(3) of this section.
(x) Statement regarding overdraft credit features. If a covered
separate credit feature accessible by a hybrid prepaid-credit card as
defined in Regulation Z, 12 CFR 1026.61, may be offered at any point to
a consumer in connection with the prepaid account, a statement that
overdraft/credit may be offered, the time period after which it may be
offered, and that fees would apply, using the following clause or a
substantially similar clause: ``You may be offered overdraft/credit
after [x] days. Fees would apply.'' If no such credit feature will be
offered at any point to a consumer in connection with the prepaid
account, a statement that no overdraft credit feature is offered, using
the following clause or a substantially similar clause: ``No overdraft/
credit feature.''
(xi) Statement regarding registration and FDIC or NCUA insurance. A
statement regarding the prepaid account program's eligibility for FDIC
deposit insurance or NCUA share insurance, as appropriate, and
directing the consumer to register the prepaid account for insurance
and other account protections, where applicable, as follows:
(A) Account is insurance eligible and does not have pre-acquisition
customer identification/verification. If a prepaid account program is
set up to be eligible for FDIC deposit or NCUA share insurance, and
customer identification and verification does not occur before the
account is opened, using the following clause or a substantially
similar clause: ``Register your card for [FDIC insurance eligibility]
[NCUA insurance, if eligible,] and other protections.''
(B) Account is not insurance eligible and does not have pre-
acquisition customer identification/verification. If a prepaid account
program is not set up to be eligible for FDIC deposit or NCUA share
insurance, and customer identification and verification does not occur
before the account is opened, using the following clause or a
substantially similar clause: ``Not [FDIC] [NCUA] insured. Register
your card for other protections.''
(C) Account is insurance eligible and has pre-acquisition customer
identification/verification. If a prepaid account program is set up to
be eligible for FDIC deposit or NCUA share insurance, and customer
identification and verification occurs for all prepaid accounts within
the prepaid program before the account is opened, using the following
clause or a substantially similar clause: ``Your funds are [eligible
for FDIC insurance] [NCUA insured, if eligible].''
(D) Account is not insurance eligible and has pre-acquisition
customer identification/verification. If a prepaid account program is
not set up to be eligible for FDIC deposit or NCUA share insurance, and
customer identification and verification occurs for all prepaid
accounts within the prepaid account program before the account is
opened, using the following clause or a substantially similar clause:
``Your funds are not [FDIC] [NCUA] insured.''
(E) No customer identification/verification. If a prepaid account
program is set up such that there is no customer identification and
verification process for any prepaid accounts within the prepaid
account program, using the following clause or a substantially similar
clause: ``Treat this card like cash. Not [FDIC] [NCUA] insured.''
(xii) Statement regarding CFPB Web site. A statement directing the
consumer to a Web site URL of the Consumer Financial Protection Bureau
(cfpb.gov/prepaid) for general information about prepaid accounts,
using the following clause or a substantially similar clause: ``For
general information about prepaid accounts, visit cfpb.gov/prepaid.''
(xiii) Statement regarding information on all fees and services. A
statement directing the consumer to the location of the long form
disclosure required by paragraph (b)(4) of this section to find details
and conditions for all fees and services. For a financial institution
offering prepaid accounts at a retail location pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section, this
statement must also include a telephone number and a Web site URL that
a consumer may use to directly access, respectively, an oral and an
electronic version of the long form disclosure required under paragraph
(b)(4) of this section. The disclosure required by this paragraph must
be made using the following clause or a substantially similar clause:
``Find details and conditions for all fees and services in [location]''
or, for prepaid accounts offered at retail locations pursuant to
paragraph (b)(1)(ii) of this section, made using the following clause
or a substantially similar clause: ``Find details and conditions for
all fees and services inside the package, or call [telephone number] or
visit [Web site].'' The Web site URL may not exceed 22 characters and
must be meaningfully named. A financial institution may, but is not
required to, disclose an SMS code at the end of the statement
disclosing the telephone number and Web site URL, if the SMS code can
be accommodated on the same line of text as the statement required by
this paragraph.
(xiv) Additional content for payroll card accounts--(A) Statement
regarding wage or salary payment options. For payroll card accounts, a
statement that the consumer does not have to accept the payroll card
account and directing the consumer to ask about other ways to receive
wages or salary from the employer instead of receiving them via the
payroll card account using the following clause or a substantially
similar clause: ``You do not have to accept this payroll card. Ask your
employer about other ways to receive your wages.'' Alternatively, a
financial institution may provide a statement that the consumer has
several options to receive wages or salary, followed by a list of the
options available to the consumer, and directing the consumer to tell
the employer which option the
[[Page 84331]]
consumer chooses using the following clause or a substantially similar
clause: ``You have several options to receive your wages: [list of
options available to the consumer]; or this payroll card. Tell your
employer which option you choose.'' This statement must be located
above the information required by paragraphs (b)(2)(i) through (iv).
(B) Statement regarding state-required information or other fee
discounts and waivers. For payroll card accounts, a financial
institution may, but is not required to, include a statement in one
additional line of text directing the consumer to a particular location
outside the short form disclosure for information on ways the consumer
may access payroll card account funds and balance information for free
or for a reduced fee. This statement must be located directly below any
statements disclosed pursuant to paragraphs (b)(3)(i) and (ii) of this
section, or, if no such statements are disclosed, above the statement
required by paragraph (b)(2)(x) of this section.
(3) Short form disclosure of variable fees and third-party fees and
prohibition on disclosure of finance charges--(i) General disclosure of
variable fees. If the amount of any fee that is required to be
disclosed in the short form disclosure pursuant to paragraphs (b)(2)(i)
through (vii) and (ix) of this section could vary, a financial
institution shall disclose the highest amount it may impose for that
fee, followed by a symbol, such as an asterisk, linked to a statement
explaining that the fee could be lower depending on how and where the
prepaid account is used, using the following clause or a substantially
similar clause: ``This fee can be lower depending on how and where this
card is used.'' Except as provided in paragraph (b)(3)(ii) of this
section, a financial institution must use the same symbol and statement
for all fees that could vary. The linked statement must be located
above the statement required by paragraph (b)(2)(x) of this section.
(ii) Disclosure of variable periodic fee. If the amount of the
periodic fee disclosed in the short form disclosure pursuant to
paragraph (b)(2)(i) of this section could vary, as an alternative to
the disclosure required by paragraph (b)(3)(i) of this section, the
financial institution may disclose the highest amount it may impose for
the periodic fee, followed by a symbol, such as a dagger, that is
different from the symbol the financial institution uses pursuant to
paragraph (b)(3)(i) of this section, to indicate that a waiver of the
fee or a lower fee might apply, linked to a statement in one additional
line of text disclosing the waiver or reduced fee amount and explaining
the circumstances under which the fee waiver or reduction may occur.
The linked statement must be located directly above or in place of the
linked statement required by paragraph (b)(3)(i) of this section, as
applicable.
(iii) Single disclosure for like fees. As an alternative to the
two-tier fee disclosure required by paragraphs (b)(2)(iii), (v), and
(vi) of this section and any two-tier fee required by paragraph
(b)(2)(ix) of this section, a financial institution may disclose a
single fee amount when the amount is the same for both fees.
(iv) Third-party fees in general. Except as provided in paragraph
(b)(3)(v) of this section, a financial institution may not include any
third-party fees in a disclosure made pursuant to paragraph (b)(2) of
this section.
(v) Third-party cash reload fees. Any third-party fee included in
the cash reload fee disclosed in the short form pursuant to paragraph
(b)(2)(iv) of this section must be the highest fee known by the
financial institution at the time it prints, or otherwise prepares, the
short form disclosure required by paragraph (b)(2) of this section. A
financial institution is not required to revise its short form
disclosure to reflect a cash reload fee change by a third party until
such time that the financial institution manufactures, prints, or
otherwise produces new prepaid account packaging materials or otherwise
updates the short form disclosure.
(vi) Prohibition on disclosure of finance charges. A financial
institution may not include in a disclosure made pursuant to paragraphs
(b)(2)(i) through (ix) of this section any finance charges as described
in Regulation Z, 12 CFR 1026.4(b)(11), imposed in connection with a
covered separate credit feature accessible by a hybrid prepaid-credit
card as defined in 12 CFR 1026.61.
(4) Long form disclosure content. In accordance with paragraph
(b)(1) of this section, a financial institution shall provide a
disclosure setting forth the following fees and information for a
prepaid account, as applicable:
(i) Title for long form disclosure. A heading stating the name of
the prepaid account program and that the long form disclosure contains
a list of all fees for that particular prepaid account program.
(ii) Fees. All fees that may be imposed in connection with a
prepaid account. For each fee, the financial institution must disclose
the amount of the fee and the conditions, if any, under which the fee
may be imposed, waived, or reduced. A financial institution may not use
any symbols, such as an asterisk, to explain conditions under which any
fee may be imposed. A financial institution may, but is not required
to, include in the long form disclosure any service or feature it
provides or offers at no charge to the consumer. The financial
institution must also disclose any third-party fee amounts known to the
financial institution that may apply. For any such third-party fee
disclosed, the financial institution may, but is not required to,
include either or both a statement that the fee is accurate as of or
through a specific date or that the third-party fee is subject to
change. If a third-party fee may apply but the amount of that fee is
not known by the financial institution, it must include a statement
indicating that the third-party fee may apply without specifying the
fee amount. A financial institution is not required to revise the long
form disclosure required by paragraph (b)(4) of this section to reflect
a fee change by a third party until such time that the financial
institution manufactures, prints, or otherwise produces new prepaid
account packaging materials or otherwise updates the long form
disclosure.
(iii) Statement regarding registration and FDIC or NCUA insurance.
The statement required by paragraph (b)(2)(xi) of this section,
together with an explanation of FDIC or NCUA insurance coverage and the
benefit of such coverage or the consequence of the lack of such
coverage, as applicable.
(iv) Statement regarding overdraft credit features. The statement
required by paragraph (b)(2)(x) of this section.
(v) Statement regarding financial institution contact information.
A statement directing the consumer to a telephone number, mailing
address, and Web site URL of the person or office that a consumer may
contact to learn about the terms and conditions of the prepaid account,
to obtain prepaid account balance information, to request a copy of
transaction history pursuant to paragraph (c)(1)(iii) of this section
if the financial institution does not provide periodic statements
pursuant to Sec. 1005.9(b), or to notify the financial institution
when the consumer believes that an unauthorized electronic fund
transfer occurred as required by Sec. 1005.7(b)(2) and paragraph
(d)(1)(ii) of this section.
(vi) Statement regarding CFPB Web site and telephone number. A
statement directing the consumer to a Web site URL of the Consumer
Financial Protection Bureau (cfpb.gov/prepaid) for general information
about prepaid accounts, and a statement directing the consumer to a
Consumer Financial
[[Page 84332]]
Protection Bureau telephone number (1-855-411-2372) and Web site URL
(cfpb.gov/complaint) to submit a complaint about a prepaid account,
using the following clause or a substantially similar clause: ``For
general information about prepaid accounts, visit cfpb.gov/prepaid. If
you have a complaint about a prepaid account, call the Consumer
Financial Protection Bureau at 1-855-411-2372 or visit cfpb.gov/complaint.''
(vii) Regulation Z disclosures for overdraft credit features. The
disclosures described in Regulation Z, 12 CFR 1026.60(e)(1), in
accordance with the requirements for such disclosures in 12 CFR
1026.60, if, at any point, a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in 12 CFR 1026.61, may be
offered in connection with the prepaid account. A financial institution
may, but is not required to, include above the Regulation Z disclosures
required by this paragraph a heading and other explanatory information
introducing the overdraft credit feature. A financial institution is
not required to revise the disclosure required by this paragraph to
reflect a change in the fees or other terms disclosed therein until
such time as the financial institution manufactures, prints, or
otherwise produces new prepaid account packaging materials or otherwise
updates the long form disclosure.
(5) Disclosure requirements outside the short form disclosure. At
the time a financial institution provides the short form disclosure, it
must also disclose the following information: the name of the financial
institution; the name of the prepaid account program; the purchase
price for the prepaid account, if any; and the fee for activating the
prepaid account, if any. In a setting other than in a retail location,
this information must be disclosed in close proximity to the short
form. In a retail location, this information, other than the purchase
price, must be disclosed on the exterior of the access device's
packaging material. In a retail location, the purchase price must be
disclosed either on the exterior of or in close proximity to the
prepaid account access device's packaging material.
(6) Form of pre-acquisition disclosures--(i) General--(A) Written
disclosures. Except as provided in paragraphs (b)(6)(i)(B) and (C) of
this section, disclosures required by paragraph (b) of this section
must be in writing.
(B) Electronic disclosures. The disclosures required by paragraph
(b) of this section must be provided in electronic form when a consumer
acquires a prepaid account through electronic means, including via a
Web site or mobile application, and must be viewable across all screen
sizes. The long form disclosure must be provided electronically through
a Web site when a financial institution is offering prepaid accounts at
a retail location pursuant to the retail location exception in
paragraph (b)(1)(ii) of this section. Electronic disclosures must be
provided in a manner which is reasonably expected to be accessible in
light of how a consumer is acquiring the prepaid account, in a
responsive form, and using machine-readable text that is accessible via
Web browsers or mobile applications, as applicable, and via screen
readers. Electronic disclosures provided pursuant to paragraph (b) of
this section need not meet the 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.).
(C) Oral disclosures. Disclosures required by paragraphs (b)(2) and
(5) of this section must be provided orally when a consumer acquires a
prepaid account orally by telephone as described in paragraph
(b)(1)(iii) of this section. For prepaid accounts acquired in retail
locations or orally by telephone, disclosures required by paragraph
(b)(4) of this section provided by telephone pursuant to paragraph
(b)(1)(ii)(B) or (b)(1)(iii)(B) of this section also must be made
orally.
(ii) Retainable form. Pursuant to Sec. 1005.4(a)(1), disclosures
required by paragraph (b) of this section must be made in a form that a
consumer may keep, except for disclosures provided orally pursuant to
paragraphs (b)(1)(ii) or (iii) of this section, long form disclosures
provided via SMS as permitted by paragraph (b)(2)(xiii) of this section
for a prepaid account sold at retail locations pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section, and the
disclosure of a purchase price pursuant to paragraph (b)(5) of this
section that is not disclosed on the exterior of the packaging material
for a prepaid account sold at a retail location pursuant to the retail
location exception in paragraph (b)(1)(ii) of this section.
(iii) Tabular format--(A) General. When a short form disclosure is
provided in writing or electronically, the information required by
paragraphs (b)(2)(i) through (ix) of this section shall be provided in
the form of a table. Except as provided in paragraph (b)(6)(iii)(B) of
this section, the short form disclosures required by paragraph (b)(2)
of this section shall be provided in a form substantially similar to
Model Forms A-10(a) through (d) in appendix A of this part, as
applicable. When a long form disclosure is provided in writing or
electronically, the information required by paragraph (b)(4)(ii) of
this section shall be provided in the form of a table. Sample Form A-
10(f) in appendix A of this part provides an example of the long form
disclosure required by paragraph (b)(4) of this section when the
financial institution does not offer multiple service plans.
(B) Multiple service plans--(1) Short form disclosure for default
service plan. When a financial institution offers multiple service
plans within a particular prepaid account program and each plan has a
different fee schedule, the information required by paragraphs
(b)(2)(i) through (ix) of this section may be provided in the tabular
format described in paragraph (b)(6)(iii)(A) of this section for the
service plan in which a consumer is initially enrolled by default upon
acquiring the prepaid account.
(2) Short form disclosure for multiple service plans. As an
alternative to disclosing the default service plan pursuant to
paragraph (b)(6)(iii)(B)(1) of this section, when a financial
institution offers multiple service plans within a particular prepaid
account program and each plan has a different fee schedule, fee
disclosures required by paragraphs (b)(2)(i) through (vii) and (ix) of
this section may be provided in the form of a table with separate
columns for each service plan, in a form substantially similar to Model
Form A-10(e) in appendix A of this part. Column headings must describe
each service plan included in the table, using the terms ``Pay-as-you-
go plan,'' ``Monthly plan,'' ``Annual plan,'' or substantially similar
terms; or, for multiple service plans offering preferred rates or fees
for the prepaid accounts of consumers who also use another non-prepaid
service, column headings must describe each service plan included in
the table for the preferred- and non-preferred service plans, as
applicable.
(3) Long form disclosure. The information in the long form
disclosure required by paragraph (b)(4)(ii) of this section must be
presented in the form of a table for all service plans.
(7) Specific formatting requirements for pre-acquisition
disclosures--(i) Grouping--(A) Short form disclosure. The information
required in the short form disclosure by paragraphs (b)(2)(i) through
(iv) of this section must be grouped together and provided in that
order. The information required by paragraphs (b)(2)(v) through (ix) of
this section must be generally grouped
[[Page 84333]]
together and provided in that order. The information required by
paragraphs (b)(3)(i) and (ii) of this section, as applicable, must be
generally grouped together and in the location described by paragraphs
(b)(3)(i) and (ii) of this section. The information required by
paragraphs (b)(2)(x) through (xiii) of this section must be generally
grouped together and provided in that order. The statement regarding
wage or salary payment options for payroll card accounts required by
paragraph (b)(2)(xiv)(A) of this section must be located above the
information required by paragraphs (b)(2)(i) through (iv) of this
section, as described in paragraph (b)(2)(xiv)(A) of this section. The
statement regarding state-required information or other fee discounts
or waivers permitted by paragraph (b)(2)(xiv)(B) of this section, when
applicable, must appear in the location described by paragraph
(b)(2)(xiv)(B) of this section.
(B) Long form disclosure. The information required by paragraph
(b)(4)(i) of this section must be located in the first line of the long
form disclosure. The information required by paragraph (b)(4)(ii) of
this section must be generally grouped together and organized under
subheadings by the categories of function for which a financial
institution may impose the fee. Text describing the conditions under
which a fee may be imposed must appear in the table required by
paragraph (b)(6)(iii)(A) of this section in close proximity to the fee
amount. The information in the long form disclosure required by
paragraphs (b)(4)(iii) through (vi) of this section must be generally
grouped together, provided in that order, and appear below the
information required by paragraph (b)(4)(ii) of this section. If,
pursuant to Sec. 1005.18(b)(4)(vii), the financial institution
includes the disclosures described in Regulation Z, 12 CFR
1026.60(e)(1), such disclosures must appear below the disclosures
required by paragraph (b)(4)(vi) of this section.
(C) Multiple service plan disclosure. When providing a short form
disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, in lieu of the requirements in
paragraph (b)(7)(i)(A) of this section for grouping of the disclosures
required by paragraphs (b)(2)(i) through (iv) and (v) through (ix) of
this section, the information required by paragraphs (b)(2)(i) through
(ix) of this section must be grouped together and provided in that
order.
(ii) Prominence and size--(A) General. All text used to disclose
information in the short form or in the long form disclosure pursuant
to paragraphs (b)(2), (b)(3)(i) and (ii), and (b)(4) of this section
must be in a single, easy-to-read type that is all black or one color
and printed on a background that provides a clear contrast.
(B) Short form disclosure--(1) Fees and other information. The
information required in the short form disclosure by paragraphs
(b)(2)(i) through (iv) of this section must appear as follows: Fee
amounts in bold-faced type; single fee amounts in a minimum type size
of 15 points (or 21 pixels); two-tier fee amounts for ATM withdrawal in
a minimum type size of 11 points (or 16 pixels) and in no larger a type
size than what is used for the single fee amounts; and fee headings in
a minimum type size of eight points (or 11 pixels) and in no larger a
type size than what is used for the single fee amounts. The information
required by paragraphs (b)(2)(v) through (ix) of this section must
appear in a minimum type size of eight points (or 11 pixels) and appear
in the same or a smaller type size than what is used for the fee
headings required by paragraphs (b)(2)(i) through (iv) of this section.
The information required by paragraphs (b)(2)(x) through (xiii) of this
section must appear in a minimum type size of seven points (or nine
pixels) and appear in no larger a type size than what is used for the
information required to be disclosed by paragraphs (b)(2)(v) through
(ix) of this section. Additionally, the statements disclosed pursuant
to paragraphs (b)(2)(viii)(A) and (b)(2)(x) of this section and the
telephone number and URL disclosed pursuant to paragraph (b)(2)(xiii)
of this section, where applicable, must appear in bold-faced type. The
following information must appear in a minimum type size of six points
(or eight pixels) and appear in no larger a type size that what is used
for the information required by paragraphs (b)(2)(x) through (xiii) of
this section: text used to distinguish each of the two-tier fees
pursuant to paragraphs (b)(2)(iii), (v), (vi), and (ix) of this
section; text used to explain that the fee required by paragraph
(b)(2)(vi) of this section applies ``per call,'' where applicable; and
text used to explain the conditions that trigger an inactivity fee and
that the fee applies monthly or for the applicable time period,
pursuant to paragraph (b)(2)(vii) of this section.
(2) Variable fees. The symbols and corresponding statements
regarding variable fees disclosed in the short form pursuant to
paragraphs (b)(3)(i) and (ii) of this section, when applicable, must
appear in a minimum type size of seven points (or nine pixels) and
appear in no larger a type size than what is used for the information
required by paragraphs (b)(2)(x) through (xiii) of this section. A
symbol required next to the fee amount pursuant to paragraphs (b)(3)(i)
and (ii) of this section must appear in the same type size or pixel
size as what is used for the corresponding fee amount.
(3) Payroll card account additional content. The statement
regarding wage or salary payment options for payroll card accounts
required by paragraph (b)(2)(xiv)(A) of this section, when applicable,
must appear in a minimum type size of eight points (or 11 pixels) and
appear in no larger a type size than what is used for the fee headings
required by paragraphs (b)(2)(i) through (iv) of this section. The
statement regarding state-required information and other fee discounts
or waivers permitted by paragraph (b)(2)(xiv)(B) of this section must
appear in the same type size used to disclose variable fee information
pursuant to paragraph (b)(3)(i) and (ii) of this section, or, if none,
the same type size used for the information required by paragraphs
(b)(2)(x) through (xiii) of this section.
(C) Long form disclosure. Long form disclosures required by
paragraph (b)(4) of this section must appear in a minimum type size of
eight points (or 11 pixels).
(D) Multiple service plan short form disclosure. When providing a
short form disclosure for multiple service plans pursuant to paragraph
(b)(6)(iii)(B)(2) of this section, the fee headings required by
paragraphs (b)(2)(i) through (iv) of this section must appear in bold-
faced type. The information required by paragraphs (b)(2)(i) through
(xiii) of this section must appear in a minimum type size of seven
points (or nine pixels), except the following must appear in a minimum
type size of six points (or eight pixels) and appear in no larger a
type size than what is used for the information required by paragraphs
(b)(2)(i) through (xiii) of this section: Text used to distinguish each
of the two-tier fees required by paragraphs (b)(2)(iii) and (v) of this
section; text used to explain that the fee required by paragraph
(b)(2)(vi) of this section applies ``per call,'' where applicable; text
used to explain the conditions that trigger an inactivity fee pursuant
to paragraph (b)(2)(vii) of this section; and text used to distinguish
that fees required by paragraphs (b)(2)(i) and (vii) of this section
apply monthly or for the applicable time period.
(iii) Segregation. Short form and long form disclosures required by
paragraphs (b)(2) and (4) of this section must be segregated from other
information and must contain only information that is required or
permitted for those
[[Page 84334]]
disclosures by paragraph (b) of this section.
(8) Terminology of pre-acquisition disclosures. Fee names and other
terms must be used consistently within and across the disclosures
required by paragraph (b) of this section.
(9) Prepaid accounts acquired in foreign languages--(i) General. A
financial institution must provide the pre-acquisition disclosures
required by paragraph (b) of this section in a foreign language, if the
financial institution uses that same foreign language in connection
with the acquisition of a prepaid account in the following
circumstances:
(A) The financial institution principally uses a foreign language
on the prepaid account packaging material;
(B) The financial institution principally uses a foreign language
to advertise, solicit, or market a prepaid account and provides a means
in the advertisement, solicitation, or marketing material that the
consumer uses to acquire the prepaid account by telephone or
electronically; or
(C) The financial institution provides a means for the consumer to
acquire a prepaid account by telephone or electronically principally in
a foreign language.
(ii) Long form disclosures in English upon request. A financial
institution required to provide pre-acquisition disclosures in a
foreign language pursuant to paragraph (b)(9)(i) of this section must
also provide the information required to be disclosed in its pre-
acquisition long form disclosure pursuant to paragraph (b)(4) of this
section in English upon a consumer's request and on any part of the Web
site where it discloses this information in a foreign language.
(c) Access to prepaid account information--(1) Periodic statement
alternative. A financial institution need not furnish periodic
statements required by Sec. 1005.9(b) if the financial institution
makes available to the consumer:
(i) The consumer's account balance, through a readily available
telephone line;
(ii) An electronic history of the consumer's account transactions,
such as through a Web site, that covers at least 12 months preceding
the date the consumer electronically accesses the account; and
(iii) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 24 months preceding the date the financial institution
receives the consumer's request.
(2) Periodic statement alternative for unverified prepaid accounts.
For prepaid accounts that are not payroll card accounts or government
benefit accounts, a financial institution is not required to provide a
written history of the consumer's account transactions pursuant to
paragraph (c)(1)(iii) of this section for any prepaid account for which
the financial institution has not completed its consumer identification
and verification process as described in paragraph (e)(3)(i)(A) through
(C) of this section.
(3) Information included on electronic or written histories. The
history of account transactions provided under paragraphs (c)(1)(ii)
and (iii) of this section must include the information set forth in
Sec. 1005.9(b).
(4) Inclusion of all fees charged. A financial institution must
disclose the amount of any fees assessed against the account, whether
for electronic fund transfers or otherwise, on any periodic statement
provided pursuant to Sec. 1005.9(b) and on any history of account
transactions provided or made available by the financial institution.
(5) Summary totals of fees. A financial institution must display a
summary total of the amount of all fees assessed by the financial
institution against the consumer's prepaid account for the prior
calendar month and for the calendar year to date on any periodic
statement provided pursuant to Sec. 1005.9(b) and on any history of
account transactions provided or made available by the financial
institution.
(d) Modified disclosure requirements. A financial institution that
provides information under paragraph (c)(1) of this section shall
comply with the following:
(1) Initial disclosures. The financial institution shall modify the
disclosures under Sec. 1005.7(b) by disclosing:
(i) Access to account information. A telephone number that the
consumer may call to obtain the account balance, the means by which the
consumer can obtain an electronic account transaction history, such as
the address of a Web site, and a summary of the consumer's right to
receive a written account transaction history upon request (in place of
the summary of the right to receive a periodic statement required by
Sec. 1005.7(b)(6)), including a telephone number to call to request a
history. The disclosure required by this paragraph may be made by
providing a notice substantially similar to the notice contained in
paragraph (a) of appendix A-7 of this part.
(ii) Error resolution. A notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-7 of this part, in place of the notice required by Sec.
1005.7(b)(10).
(2) Annual error resolution notice. The financial institution shall
provide an annual notice concerning error resolution that is
substantially similar to the notice contained in paragraph (b) of
appendix A-7 of this part, in place of the notice required by Sec.
1005.8(b). Alternatively, a financial institution may include on or
with each electronic and written account transaction history provided
in accordance with paragraph (c)(1) of this section, a notice
substantially similar to the abbreviated notice for periodic statements
contained in paragraph (b) of appendix A-3 of this part, modified as
necessary to reflect the error resolution provisions set forth in
paragraph (e) of this section.
(e) Modified limitations on liability and error resolution
requirements--(1) Modified limitations on liability requirements. A
financial institution that provides information under paragraph (c)(1)
of this section shall comply with the following:
(i) For purposes of Sec. 1005.6(b)(3), the 60-day period for
reporting any unauthorized transfer shall begin on the earlier of:
(A) The date the consumer electronically accesses the consumer's
account under paragraph (c)(1)(ii) of this section, provided that the
electronic account transaction history made available to the consumer
reflects the unauthorized transfer; or
(B) The date the financial institution sends a written history of
the consumer's account transactions requested by the consumer under
paragraph (c)(1)(iii) of this section in which the unauthorized
transfer is first reflected.
(ii) A financial institution may comply with paragraph (e)(1)(i) of
this section by limiting the 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.
(2) Modified error resolution requirements. A financial institution
that provides information under paragraph (c)(1) of this section shall
comply with the following:
(i) The financial institution shall comply with the requirements of
Sec. 1005.11 in response to an oral or written notice of an error from
the consumer that is received by the earlier of:
(A) Sixty days after the date the consumer electronically accesses
the consumer's account under paragraph
[[Page 84335]]
(c)(1)(ii) of this section, provided that the electronic account
transaction history made available to the consumer reflects the alleged
error; or
(B) Sixty days after the date the financial institution sends a
written history of the consumer's account transactions requested by the
consumer under paragraph (c)(1)(iii) of this section in which the
alleged error is first reflected.
(ii) In lieu of following the procedures in paragraph (e)(2)(i) of
this section, a financial institution complies with the requirements
for resolving errors in Sec. 1005.11 if it investigates any oral or
written notice of an error from the consumer that is received by the
institution within 120 days after the transfer allegedly in error was
credited or debited to the consumer's account.
(3) Error resolution for unverified accounts--(i) Provisional
credit for errors on accounts that have not been verified. As set forth
in Sec. 1005.11(c)(2)(i)(C), for prepaid accounts that are not payroll
card accounts or government benefit accounts, a financial institution
may take up to the maximum length of time permitted under Sec.
1005.11(c)(2)(i) or (c)(3)(ii), as applicable, to investigate and
determine whether an error occurred without provisionally crediting a
consumer's account if the financial institution has not completed its
consumer identification and verification process with respect to that
prepaid account.
(ii) For purposes of paragraph (e)(3)(i) of this section, a
financial institution has not completed its consumer identification and
verification process where:
(A) It has not concluded its consumer identification and
verification process, provided the financial institution has disclosed
to the consumer the risks of not registering the account using a notice
that is substantially similar to the model notice contained in
paragraph (c) of appendix A-7 of this part.
(B) It has concluded its consumer identification and verification
process, but could not verify the identity of the consumer, provided
the financial institution has disclosed to the consumer the risks of
not registering the account using a notice that is substantially
similar to the model notice contained in paragraph (c) of appendix A-7
of this part; or
(C) It does not have a consumer identification and verification
process by which the consumer can register the prepaid account.
(iii) Resolution of pre-verification errors. If a consumer's
account has been verified, the financial institution must comply with
the provisions set forth in Sec. 1005.11(c) in full with respect to
any errors that satisfy the timing requirements of Sec. 1005.11, or
the modified timing requirements in this paragraph (e), as applicable,
including with respect to errors that occurred prior to verification.
(A) Notwithstanding paragraph (e)(3)(iii) of this section, if, at
the time the financial institution was required to provisionally credit
the account (pursuant to Sec. 1005.11(c)(2)(i) or (c)(3)(ii), as
applicable), the financial institution has not yet completed its
identification and verification process with respect to that account,
the financial institution may take up to the maximum length of time
permitted under Sec. 1005.11(c)(2)(i) or (c)(3)(ii), as applicable, to
investigate and determine whether an error occurred without
provisionally crediting the account.
(f) Disclosure of fees and other information--(1) Initial
disclosure of fees and other information. A financial institution must
include, as part of the initial disclosures given pursuant to Sec.
1005.7, all of the information required to be disclosed in its pre-
acquisition long form disclosure pursuant to paragraph (b)(4) of this
section.
(2) Change-in-terms notice. The change-in-terms notice provisions
in Sec. 1005.8(a) apply to any change in a term or condition that is
required to be disclosed under Sec. 1005.7 or paragraph (f)(1) of this
section. If a financial institution discloses the amount of a third-
party fee in its pre-acquisition long form disclosure pursuant to
paragraph (b)(4)(ii) of this section and initial disclosures pursuant
to paragraph (f)(1) of this section, the financial institution is not
required to provide a change-in-terms notice solely to reflect a change
in that fee amount imposed by the third party. If a financial
institution provides pursuant to paragraph (f)(1) of this section the
Regulation Z disclosures required by paragraph (b)(4)(vii) of this
section for an overdraft credit feature, the financial institution is
not required to provide a change-in-terms notice solely to reflect a
change in the fees or other terms disclosed therein.
(3) Disclosures on prepaid account access devices. The name of the
financial institution and the Web site URL and a telephone number a
consumer can use to contact the financial institution about the prepaid
account must be disclosed on the prepaid account access device. If a
financial institution does not provide a physical access device in
connection with a prepaid account, the disclosure must appear on the
Web site, mobile application, or other entry point a consumer must
visit to access the prepaid account electronically.
(g) Prepaid accounts accessible by hybrid prepaid-credit cards--(1)
In general. Except as provided in paragraph (g)(2) of this section,
with respect to a prepaid account program where consumers may be
offered a covered separate credit feature accessible by a hybrid
prepaid-credit card as defined by Regulation Z, 12 CFR 1026.61, a
financial institution must provide to any prepaid account without a
covered separate credit feature the same account terms, conditions, and
features that it provides on prepaid accounts in the same prepaid
account program that have such a credit feature.
(2) Exception for higher fees or charges. A financial institution
is not prohibited under paragraph (g)(1) of this section from imposing
a higher fee or charge on the asset feature of a prepaid account with a
covered separate credit feature accessible by a hybrid prepaid-credit
card than the amount of a comparable fee or charge that it imposes on
any prepaid account in the same prepaid account program that does not
have such a credit feature.
(h) Effective date and special transition rules for disclosure
provisions--(1) Effective date generally. Except as provided in
paragraphs (h)(2) and (3) of this section, the requirements of this
subpart, as modified by this section, apply to prepaid accounts as
defined in Sec. 1005.2(b)(3), including government benefit accounts
subject to Sec. 1005.15, beginning October 1, 2017.
(2) Early disclosures--(i) Exception for disclosures on existing
prepaid account access devices and prepaid account packaging materials.
The disclosure requirements of this subpart, as modified by this
section, shall not apply to any disclosures that are provided, or that
would otherwise be required to be provided, on prepaid account access
devices, or on, in, or with prepaid account packaging materials that
were manufactured, printed, or otherwise produced in the normal course
of business prior to October 1, 2017.
(ii) Disclosures for prepaid accounts acquired on or after October
1, 2017. This paragraph applies to prepaid accounts acquired by
consumers on or after October 1, 2017 via packaging materials that were
manufactured, printed, or otherwise produced prior to October 1, 2017.
(A) Notices of certain changes. If a financial institution has
changed a prepaid account's terms and conditions as a result of
paragraph (h)(1) of this section taking effect such that a change-in-
terms notice would have been
[[Page 84336]]
required under Sec. 1005.8(a) or paragraph (f)(2) of this section for
existing customers, the financial institution must provide to the
consumer a notice of the change within 30 days of obtaining the
consumer's contact information.
(B) Initial disclosures. The financial institution must mail or
deliver to the consumer initial disclosures pursuant to Sec. 1005.7
and paragraph (f)(1) of this section that have been updated as a result
of paragraph (h)(1) of this section taking effect, within 30 days of
obtaining the consumer's contact information.
(iii) Disclosures for prepaid accounts acquired before October 1,
2017. This paragraph applies to prepaid accounts acquired by consumers
before October 1, 2017. If a financial institution has changed a
prepaid account's terms and conditions as a result of paragraph (h)(1)
of this section taking effect such that a change-in-terms notice would
have been required under Sec. 1005.8(a) or paragraph (f)(2) of this
section for existing customers, the financial institution must provide
to the consumer a notice of the change at least 21 days in advance of
the change becoming effective, provided the financial institution has
the consumer's contact information. If the financial institution
obtains the consumer's contact information less than 30 days in advance
of the change becoming effective or after it has become effective, the
financial institution is permitted instead to notify the consumer of
the change in accordance with the timing requirements set forth in
paragraph (h)(2)(ii)(A) of this section.
(iv) Method of providing notice to consumers. With respect to
prepaid accounts governed by paragraph (h)(2)(ii) or (iii) of this
section, if a financial institution has not obtained a consumer's
consent to provide disclosures in electronic form pursuant to the
Electronic Signatures in Global and National Commerce Act (E-Sign Act)
(15 U.S.C. 7001 et seq.), or is not otherwise already mailing or
delivering to the consumer written account-related communications
within the respective time periods specified in paragraphs (h)(2)(ii)
or (iii) of this section, the financial institution may provide to the
consumer a notice of a change in terms and conditions pursuant to
paragraph (h)(2)(ii) or (iii) of this section or required or voluntary
updated initial disclosures as a result of paragraph (h)(1) of this
section taking effect in electronic form without regard to the consumer
notice and consent requirements of section 101(c) of the E-Sign Act.
(3) Account information not available on October 1, 2017--(i)
Electronic and written account transaction history. If, on October 1,
2017, a financial institution does not have readily accessible the data
necessary to make available 12 months of electronic account transaction
history pursuant to paragraph (c)(1)(ii) of this section or to provide
24 months of written account transaction history upon request pursuant
to paragraph (c)(1)(iii) of this section, the financial institution may
make available or provide such histories using the data for the time
period it has until the financial institution has accumulated the data
necessary to comply in full with the requirements set forth in
paragraphs (c)(1)(ii) and (iii) of this section.
(ii) Summary totals of fees. If, on October 1, 2017, the financial
institution does not have readily accessible the data necessary to
calculate the summary totals of the amount of all fees assessed by the
financial institution on the consumer's prepaid account for the prior
calendar month and for the calendar year to date pursuant to paragraph
(c)(5) of this section, the financial institution may display the
summary totals using the data it has until the financial institution
has accumulated the data necessary to display the summary totals as
required by paragraph (c)(5) of this section.
0
9. Section 1005.19 is added to read as follows:
Sec. 1005.19 Internet posting of prepaid account agreements.
(a) Definitions--(1) Agreement. For purposes of this section,
``agreement'' or ``prepaid account agreement'' means the written
document or documents evidencing the terms of the legal obligation, or
the prospective legal obligation, between a prepaid account issuer and
a consumer for a prepaid account. ``Agreement'' or ``prepaid account
agreement'' also includes fee information, as defined in paragraph
(a)(3) of this section.
(2) Amends. For purposes of this section, 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 paragraph (a)(3) of this
section, is deemed to be substantive.
(3) Fee information. For purposes of this section, ``fee
information'' means the short form disclosure for the prepaid account
pursuant to Sec. 1005.18(b)(2) and the fee information and statements
required to be disclosed in the pre-acquisition long form disclosure
for the prepaid account pursuant to Sec. 1005.18(b)(4).
(4) Issuer. For purposes of this section, ``issuer'' or ``prepaid
account issuer'' means the entity to which a consumer is legally
obligated, or would be legally obligated, under the terms of a prepaid
account agreement.
(5) Offers. For purposes of this section, an issuer ``offers'' an
agreement if the issuer markets, solicits applications for, or
otherwise makes available a prepaid account that would be subject to
that agreement, regardless of whether the issuer offers the prepaid
account to the general public.
(6) Offers to the general public. For purposes of this section, an
issuer ``offers to the general public'' an agreement if the issuer
markets, solicits applications for, or otherwise makes available to the
general public a prepaid account that would be subject to that
agreement.
(7) Open account. For purposes of this section, a prepaid account
is an ``open account'' or ``open prepaid account'' if: There is an
outstanding balance in the account; the consumer can load funds to the
account even if the account does not currently hold a balance; or the
consumer can access credit from a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Regulation Z,
12 CFR 1026.61, in connection with the 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.''
(8) Prepaid account. For purposes of this section, ``prepaid
account'' means a prepaid account as defined in Sec. 1005.2(b)(3).
(b) Submission of agreements to the Bureau--(1) Submissions on a
rolling basis. An issuer must make submissions of prepaid account
agreements to the Bureau on a rolling basis, in the form and manner
specified by the Bureau. Rolling submissions must be sent to the Bureau
no later than 30 days after an issuer offers, amends, or ceases to
offer any prepaid account agreement as described in paragraphs
(b)(1)(ii) through (iv) of this section. Each submission must contain:
(i) 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), the effective
date of the prepaid account agreement, the name of the program manager,
if any, and the names of other relevant parties, if applicable (such as
the employer for a
[[Page 84337]]
payroll card program or the agency for a government benefit program);
(ii) Any prepaid account agreement offered by the issuer that has
not been previously submitted to the Bureau;
(iii) Any prepaid account agreement previously submitted to the
Bureau that has been amended, as described in paragraph (b)(2) of this
section; and
(iv) Notification regarding any prepaid account agreement
previously submitted to the Bureau that the issuer is withdrawing, as
described in paragraphs (b)(3), (b)(4)(ii), and (b)(5)(ii) of this
section.
(2) Amended agreements. If a prepaid account agreement previously
submitted to the Bureau is amended, the issuer must submit the entire
amended agreement to the Bureau, in the form and manner specified by
the Bureau, no later than 30 days after the change comes effective.
(3) Withdrawal of agreements no longer offered. If an issuer no
longer offers a prepaid account agreement that was previously submitted
to the Bureau, the issuer must notify the Bureau, in the form and
manner specified by the Bureau, no later than 30 days after the issuer
ceases to offer the agreement, that it is withdrawing the agreement.
(4) De minimis exception. (i) An issuer is not required to submit
any prepaid account agreements to the Bureau if the issuer has fewer
than 3,000 open prepaid accounts. If the issuer has 3,000 or more open
prepaid accounts as of the last day of the calendar quarter, the issuer
must submit to the Bureau its prepaid account agreements no later than
30 days after the last day of that calendar quarter.
(ii) 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 submissions to the Bureau on a rolling
basis until the issuer notifies the Bureau that the issuer is
withdrawing all agreements it previously submitted to the Bureau.
(5) Product testing exception. (i) An issuer is not required to
submit a prepaid account agreement to the Bureau if the agreement meets
the criteria set forth in paragraphs (b)(5)(i)(A) through (C) of this
section. If the agreement fails to meet the criteria set forth in
paragraphs (b)(5)(i)(A) through (C) of this section as of the last day
of the calendar quarter, the issuer must submit to the Bureau that
prepaid account agreement no later than 30 days after the last day of
that calendar quarter. An agreement qualifies for the product testing
exception if 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 other than in connection with such a product
test.
(ii) If an agreement that did not previously qualify for the
product testing exception newly qualifies for the exception, the issuer
must continue to make submissions to the Bureau on a rolling basis with
respect to that agreement until the issuer notifies the Bureau that the
issuer is withdrawing the agreement.
(6) Form and content of agreements submitted to the Bureau--(i)
Form and content generally. (A) Each agreement must contain the
provisions of the agreement and the fee information currently in
effect.
(B) Agreements must not include any personally identifiable
information relating to any consumer, such as name, address, telephone
number, or account number.
(C) The following are not deemed to be part of the agreement for
purposes of this section, 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.
(D) Agreements must be presented in a clear and legible font.
(ii) Fee information. 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, as defined by paragraph (a)(3) of this section.
(iii) Integrated agreement. An issuer may not provide 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.
(c) Posting of agreements offered to the general public. (1) An
issuer must post and maintain on its publicly available Web site any
prepaid account agreements offered to the general public that the
issuer is required to submit to the Bureau under paragraph (b) of this
section.
(2) Agreements posted pursuant to this paragraph (c) must conform
to the form and content requirements for agreements submitted to the
Bureau set forth in paragraph (b)(6) of this section.
(3) The issuer must post and update the agreements posted on its
Web site pursuant to this paragraph (c) as frequently as the issuer is
required to submit new or amended agreements to the Bureau pursuant to
paragraph (b)(2) of this section.
(4) Agreements posted pursuant to this paragraph (c) may be posted
in any electronic format that is readily usable by the general public.
Agreements must be placed in a location that is prominent and readily
accessible to the public and must be accessible without submission of
personally identifiable information.
(d) Agreements for all open accounts--(1) Availability of an
individual consumer's prepaid account agreement. With respect to any
open prepaid account, an issuer must either:
(i) Post and maintain the consumer's agreement on its Web site; or
(ii) Promptly provide a copy of the consumer's agreement to the
consumer upon the consumer's request. 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 a copy of the consumer's prepaid account
agreement no later than five business days after the issuer receives
the consumer's request.
(2) Form and content of agreements. (i) Except as provided in this
paragraph (d), agreements posted on the issuer's Web site pursuant to
paragraph (d)(1)(i) of this section or sent to the consumer upon the
consumer's request pursuant to paragraph (d)(1)(ii) of this section
must conform to the form and content requirements for agreements
submitted to the Bureau as set forth in paragraph (b)(6) of this
section.
(ii) If the issuer posts an agreement on its Web site under
paragraph (d)(1)(i) of this section, 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.
(iii) Agreements posted or otherwise provided pursuant to this
paragraph (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
[[Page 84338]]
measures to make the agreement accessible only to the consumer or other
authorized persons.
(iv) Agreements posted or otherwise provided pursuant to this
paragraph (d) must set forth the specific provisions and fee
information applicable to the particular consumer.
(v) Agreements posted pursuant to paragraph (d)(1)(i) of this
section must be updated as frequently as the issuer is required to
submit amended agreements to the Bureau pursuant to paragraph (b)(2) of
this section. Agreements provided upon consumer request pursuant to
paragraph (d)(1)(ii) of this section must be accurate as of the date
the agreement is sent to the consumer.
(vi) Agreements provided upon consumer request pursuant to
paragraph (d)(1)(ii) of this section must be provided by the issuer in
paper form, unless the consumer agrees to receive the agreement
electronically.
(e) E-Sign Act requirements. Except as otherwise provided in this
section, issuers may provide prepaid account agreements in electronic
form under paragraphs (c) and (d) of this section 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.).
(f) Effective date--(1) Effective date generally. Except as
provided in paragraph (f)(2) of this section, the requirements of this
section apply to prepaid accounts beginning on October 1, 2017.
(2) Delayed effective date for the agreement submission
requirement. The requirement to submit prepaid account agreements to
the Bureau on a rolling basis pursuant to paragraph (b) of this section
is delayed until October 1, 2018. An issuer must submit to the Bureau
no later than October 31, 2018 all prepaid account agreements it offers
as of October 1, 2018.
(3) Requirements to post and provide consumers agreements. Nothing
in paragraph (f)(2) of this section shall affect the requirements to
post prepaid account agreements on an issuer's Web site pursuant to
paragraphs (c) and (d) of this section or the requirement to provide a
copy of the consumer's agreement to the consumer upon request pursuant
to paragraph (d) of this section.
Subpart B--Requirements for Remittance Transfers
0
10. Section 1005.32 is amended by revising paragraph (a)(1)(iii) to
read as follows:
Sec. 1005.32 Estimates.
(a) * * *
(1) * * *
(iii) The remittance transfer is sent from the sender's account
with the institution; provided however, for the purposes of this
paragraph, a sender's account does not include a prepaid account,
unless the prepaid account is a payroll card account or a government
benefit account.
* * * * *
0
11. In Appendix A to part 1005:
0
a. In the table of contents:
0
i. The entries for A-5 and A-7 are revised.
0
ii. Entries for A-10(a) through A-10(f) are added.
0
iii. The entry for reserved A-10 through A-30 is revised to A-11
through A-29.
0
b. Model Clauses A-5 and A-7 are revised.
0
c. Model Forms A-10(a) through (f) are added.
0
d. Model Forms A-11 through A-29 are reserved.
The additions and revisions read as follows:
Appendix A to Part 1005--Model Disclosure Clauses and Forms
Table of Contents
* * * * *
A-5--Model Clauses for Government Agencies (Sec. 1005.15(e)(1) and
(2))
* * * * *
A-7--Model Clauses for Financial Institutions Offering Prepaid
Accounts (Sec. 1005.18(d) and (e)(3))
* * * * *
A-10(a)--Model Form for Short Form Disclosures for Government
Benefit Accounts (Sec. Sec. 1005.15(c) and 1005.18(b)(2), (3), (6),
and (7))
A-10(b)--Model Form for Short Form Disclosures for Payroll Card
Accounts (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(c)--Model Form for Short Form Disclosures for Prepaid Accounts,
Example 1 (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(d)--Model Form for Short Form Disclosures for Prepaid Accounts,
Example 2 (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(e)--Model Form for Short Form Disclosures for Prepaid Accounts
with Multiple Service Plans (Sec. 1005.18(b)(2), (3), (6), and (7))
A-10(f)--Sample Form for Long Form Disclosures for Prepaid Accounts
(Sec. 1005.18(b)(4), (6), and (7))
A-11 through A-29 [Reserved]
* * * * *
A-5--Model Clauses for Government Agencies (Sec. 1005.15(e)(1) and
(2))
(a) Disclosure by government agencies of information about
obtaining account information for government benefit accounts (Sec.
1005.15(e)(1)(i)).
You may obtain information about the amount of benefits you have
remaining by calling [telephone number]. That information is also
available [on the receipt you get when you make a transfer with your
card at (an ATM) (a POS terminal)] [when you make a balance inquiry
at an ATM] [when you make a balance inquiry at specified locations].
This information, along with a 12-month history of account
transactions, is also available online at [Internet address].
You also have the right to obtain at least 24 months of written
history of account transactions by calling [telephone number], or by
writing to us at [address]. You will not be charged a fee for this
information unless you request it more than once per month.
[Optional: Or you may request a written history of account
transactions by contacting your caseworker.]
(b) Disclosure of error resolution procedures for government
agencies that do not provide periodic statements (Sec.
1005.15(e)(1)(ii) and (e)(2)).
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [telephone number] Write us at [address] [or email
us at [email address]] as soon as you can, if you think an error has
occurred in your [agency's name for program] account. We must allow
you to report an error until 60 days after the earlier of the date
you electronically access your account, if the error could be viewed
in your electronic history, or the date we sent the FIRST written
history on which the error appeared. You may request a written
history of your transactions at any time by calling us at [telephone
number] or writing us at [address] [optional: or by contacting your
caseworker]. You will need to tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the dollar
amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business
days after we hear from you and will correct any error promptly. If
we need more time, however, we may take up to 45 days to investigate
your complaint or question. If we decide to do this, we will credit
your account within 10 business days for the amount you think is in
error, so that you will have the use of the money during the time it
takes us to complete our investigation. If we ask you to put your
complaint or question in writing and we do not receive it within 10
business days, we may not credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate
your complaint or question. For new accounts, we may take up to 20
business days to credit your account for the amount you think is in
error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error,
we will send you a written explanation.
You may ask for copies of the documents that we used in our
investigation.
If you need more information about our error resolution
procedures, call us at
[[Page 84339]]
[telephone number][the telephone number shown above].
* * * * *
A-7--Model Clauses for Financial Institutions Offering Prepaid Accounts
(Sec. 1005.18(d) and (e)(3))
(a) Disclosure by financial institutions of information about
obtaining account information for prepaid accounts (Sec.
1005.18(d)(1)(i)).
You may obtain information about the amount of money you have
remaining in your prepaid account by calling [telephone number].
This information, along with a 12-month history of account
transactions, is also available online at [Internet address].
[For accounts that are or can be registered:] [If your account
is registered with us,] You also have the right to obtain at least
24 months of written history of account transactions by calling
[telephone number], or by writing us at [address]. You will not be
charged a fee for this information unless you request it more than
once per month.
(b) Disclosure of error-resolution procedures for financial
institutions that do not provide periodic statements (Sec.
1005.18(d)(1)(ii) and (d)(2)).
In Case of Errors or Questions About Your Prepaid Account
Telephone us at [telephone number] or Write us at [address] [or
email us at [email address]] as soon as you can, if you think an
error has occurred in your prepaid account. We must allow you to
report an error until 60 days after the earlier of the date you
electronically access your account, if the error could be viewed in
your electronic history, or the date we sent the FIRST written
history on which the error appeared. You may request a written
history of your transactions at any time by calling us at [telephone
number] or writing us at [address]. You will need to tell us:
Your name and [prepaid account] number.
Why you believe there is an error, and the dollar amount
involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business
days after we hear from you and will correct any error promptly. If
we need more time, however, we may take up to 45 days to investigate
your complaint or question. If we decide to do this, [and your
account is registered with us,] we will credit your account within
10 business days for the amount you think is in error, so that you
will have the money during the time it takes us to complete our
investigation. If we ask you to put your complaint or question in
writing and we do not receive it within 10 business days, we may not
credit your account. [Keep reading to learn more about how to
register your card.]
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate
your complaint or question. For new accounts, we may take up to 20
business days to credit your account for the amount you think is in
error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error,
we will send you a written explanation.
You may ask for copies of the documents that we used in our
investigation.
If you need more information about our error-resolution
procedures, call us at [telephone number] [the telephone number
shown above] [or visit [Internet address]].
(c) Warning regarding unregistered prepaid accounts (Sec.
1005.18(e)(3)).
It is important to register your prepaid account as soon as
possible. Unless you register your account, we may not credit your
account in the amount you think is in error until we complete our
investigation. To register your account, go to [Internet address] or
call us at [telephone number]. We will ask you for identifying
information about yourself (including your full name, address, date
of birth, and [Social Security Number] [government-issued
identification number]), so that we can verify your identity.
BILLING CODE 4810-AM-P
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BILLING CODE 4810-AM-C
A-11 through A-29 [Reserved]
* * * * *
0
12. In Supplement I to part 1005:
0
a. Under Section 1005.2--Definitions:
[[Page 84346]]
0
i. In subsection 2(b) Account, paragraph 2 is removed and paragraph 3
is redesignated as paragraph 2.
0
ii. Subsection Paragraph 2(b)(3) is added.
0
b. Under Section 1005.4--General Disclosure Requirements; Jointly
Offered Services:
0
i. In subsection 4(a) Form of Disclosures, paragraph 1 is revised.
0
c. Under Section 1005.10--Preauthorized Transfers:
0
i. Subsection 10(e)(1) Credit is revised.
0
ii. In subsection 10(e)(2) Employment or Government Benefit, paragraph
2 is added.
0
d. Under Section 1005.12--Relation to Other Laws:
0
i. Subsection 12(a) Relation to Truth in Lending is revised.
0
ii. In subsection 12(b) Preemption of Inconsistent State Laws,
paragraph 2 is revised and paragraphs 3 and 4 are added.
0
e. Section 1005.15--Electronic Fund Transfer of Government Benefits is
added.
0
f. Section 1005.18--Requirements for Financial Institutions Offering
Payroll Card Accounts is removed.
0
g. Section 1005.18--Requirements for Financial Institutions Offering
Prepaid Accounts is added.
0
h. Section 1005.19--Internet Posting of Prepaid Account Agreements is
added.
0
i. Under Section 1005.30--Remittance Transfer Definitions:
0
i. In subsection 30(c) Designated Recipient, paragraph 2.ii is revised.
0
ii. In subsection 30(g) Sender, paragraphs 1 and 3 are revised.
0
j. Under Appendix A--Model Disclosure Clauses and Forms:
0
i. Paragraphs 2 and 3 are revised.
The revisions, additions, and removals read as follows:
Supplement I to Part 1005--Official Interpretations
Section 1005.2--Definitions
* * * * *
2(b) Account
* * * * *
Paragraph 2(b)(3)
Paragraph 2(b)(3)(i)
1. Debit card includes prepaid card. For purposes of subpart A
of Regulation E, unless otherwise specified, the term debit card
also includes a prepaid card.
2. Certain employment-related cards not covered as payroll card
accounts. The term ``payroll card account'' does not include an
account used solely to disburse incentive-based payments (other than
commissions which can represent the primary means through which a
consumer is paid), such as bonuses, which are unlikely to be a
consumer's primary source of salary or other compensation. The term
also does not include an account used solely to make disbursements
unrelated to compensation, such as petty cash reimbursements or
travel per diem payments. Similarly, a payroll card account does not
include an account that is used in isolated instances to which an
employer typically does not make recurring payments, such as when
providing final payments or in emergency situations when other
payment methods are unavailable. While such accounts would not be
payroll card accounts, such accounts could constitute prepaid
accounts generally, provided the other conditions of the definition
of that term in Sec. 1005.2(b)(3) are satisfied. 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.
3. Marketed or labeled as ``prepaid.'' The term ``marketed or
labeled as `prepaid' '' means promoting or advertising an account
using the term ``prepaid.'' For example, an account is marketed or
labeled as prepaid if the term ``prepaid'' appears on the access
device associated with the account or the access device's packaging
materials, or on a display, advertisement, or other publication to
promote purchase or use of the account. An account may be marketed
or labeled as prepaid if the financial institution, its service
provider, including a program manager, or the payment network on
which an access device for the account is used, promotes or
advertises, or contracts with another party to promote or advertise,
the account using the label ``prepaid.'' A product or service that
is marketed or labeled as prepaid is not a ``prepaid account''
pursuant to Sec. 1005.2(b)(3)(i)(C) if it does not otherwise meet
the definition of account under Sec. 1005.2(b)(1).
4. Issued on a prepaid basis. 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.
5. Capable of being loaded with funds. 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.
6. Prepaid account acting as a pass-through vehicle for funds.
To satisfy Sec. 1005.2(b)(3)(i)(D), a prepaid account must 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, such as a digital wallet, 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 is not 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 satisfies Sec.
1005.2(b)(3)(i)(D).
7. Not required to be reloadable. Prepaid accounts need not be
reloadable by the consumer or a third party.
8. Primary function. To satisfy Sec. 1005.2(b)(3)(i)(D), an
account's primary function must be to provide consumers with general
transaction capability, which includes the general ability to use
loaded funds to conduct transactions with multiple, unaffiliated
merchants for goods or services, or at automated teller machines, or
to conduct person-to-person transfers. This definition excludes
accounts that provide such capability only incidentally. For
example, the primary function of a brokerage account is to hold
funds so that the consumer can conduct transactions through a
licensed broker or firm, not to conduct transactions with multiple,
unaffiliated merchants for good or services, or at automated teller
machines, or to conduct person-to-person transfers. Similarly, the
primary function of a savings account is to accrue interest on funds
held in the account; such accounts restrict the extent to which the
consumer can conduct general transactions and withdrawals.
Accordingly, brokerage accounts and savings accounts do not satisfy
Sec. 1005.2(b)(3)(i)(D), and thus are not prepaid accounts as
defined by Sec. 1005.2(b)(3). The following examples provide
additional guidance:
i. An account's primary function is to enable a consumer to
conduct transactions with multiple, unaffiliated merchants for goods
or services, at automated teller machines, or to conduct person-to-
person transfers, even if the account also enables a third party to
disburse funds to a consumer. For example, a prepaid account that
conveys tax refunds or insurance proceeds to a consumer meets the
primary function test if the account can be used, e.g., to purchase
goods or services at multiple, unaffiliated merchants.
ii. Whether an account satisfies Sec. 1005.2(b)(3)(i)(D) is
determined by reference to the account, not the access device
associated with the account. An account satisfies Sec.
1005.2(b)(3)(i)(D) even if the account's access device can be used
for other purposes, for example, as a form of identification. Such
accounts may include, for example, a prepaid account used to
disburse student loan proceeds via a card device that can be used at
unaffiliated merchants or to withdraw cash from an automated teller
machine, even if that access device also acts as a student
identification card.
iii. Where multiple accounts are associated with the same access
device, the primary function of each account is determined
separately. One or more accounts can satisfy Sec.
1005.2(b)(3)(i)(D) even if other accounts associated with the same
access device do not. For example, a student identification card may
act as an access device associated with two separate accounts: An
account used to conduct transactions with multiple, unaffiliated
merchants for goods or services, and an account used to conduct
closed-loop
[[Page 84347]]
transactions on campus. The account used to conduct transactions
with multiple, unaffiliated merchants for goods or services
satisfies Sec. 1005.2(b)(3)(i)(D), even though the account used to
conduct closed-loop transactions does not (and as such the latter is
not a prepaid account as defined by Sec. 1005.2(b)(3)).
iv. An account satisfies Sec. 1005.2(b)(3)(i)(D) if its primary
function is to provide general transaction capability, even if an
individual consumer does not in fact use it to conduct multiple
transactions. For example, the fact that a consumer may choose to
withdraw the entire account balance at an automated teller machine
or transfer it to another account held by the consumer does not
change the fact that the account's primary function is to provide
general transaction capability.
v. An account whose primary function is other than to conduct
transactions with multiple, unaffiliated merchants for goods or
services, or at automated teller machines, or to conduct person-to-
person transfers, does not satisfy Sec. 1005.2(b)(3)(i)(D). Such
accounts may include, for example, a product whose only function is
to make a one-time transfer of funds into a separate prepaid
account.
9. Redeemable upon presentation at multiple, unaffiliated
merchants. For guidance, see comments 20(a)(3)-1 and -2.
10. Person-to-person transfers. A prepaid account whose primary
function is to conduct person-to-person transfers is an account that
allows a consumer to send funds by electronic fund transfer to
another consumer or business. An account may qualify as a prepaid
account if its primary function is person-to-person transfers even
if it is neither redeemable upon presentation at multiple,
unaffiliated merchants for goods or services, nor usable at
automated teller machines. 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.
Paragraph 2(b)(3)(ii)
1. Excluded health care and employee benefit related prepaid
products. For purposes of Sec. 1005.2(b)(3)(ii)(A), ``health
savings account'' means a health savings account as defined in 26
U.S.C. 223(d); ``flexible spending arrangement'' means a 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); ``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; ``dependent care assistance program''
means a dependent care assistance program pursuant to 26 U.S.C. 129;
and ``transit or parking reimbursement arrangement'' means a
qualified transportation fringe benefit provided by an employer
pursuant to 26 U.S.C. 132.
2. Excluded disaster relief funds. For purposes of Sec.
1005.2(b)(3)(ii)(B), ``qualified disaster relief funds'' means funds
made available through a qualified disaster relief program as
defined in 26 U.S.C. 139(b).
3. Marketed and labeled as a gift card or gift certificate.
Section 1005.2(b)(3)(ii)(D) excludes, among other things, reloadable
general-use prepaid cards that are both marketed and labeled as gift
cards or gift certificates, whereas Sec. 1005.20(b)(2) excludes
such products that are marketed or labeled as gift cards or gift
certificates. Comment 20(b)(2)-2 describes, in part, a network-
branded GPR 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 Sec.
1005.20, such a product would be considered marketed as a gift card
or gift certificate because of this occasional holiday marketing
activity. For purposes of Sec. 1005.2(b)(3)(ii)(D), 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.
* * * * *
Section 1005.4--General Disclosure Requirements; Jointly Offered
Services
4(a) Form of Disclosures
1. General. The disclosures required by this part must be in a
clear and readily understandable written form that the consumer may
retain. Additionally, except as otherwise set forth in Sec. Sec.
1005.18(b)(7) and 1005.31(c), no particular rules govern type size,
number of pages, or the relative conspicuousness of various terms.
Numbers or codes are considered readily understandable if explained
elsewhere on the disclosure form.
* * * * *
Section 1005.10--Preauthorized Transfers
* * * * *
10(e) Compulsory Use
10(e)(1) Credit
1. General rule for loan payments. Creditors may not require
repayment of loans by electronic means on a preauthorized, recurring
basis.
2. Overdraft credit plans not accessible by hybrid prepaid-
credit cards. i. Section 1005.10(e)(1) provides an exception from
the general rule for an overdraft credit plan other than for a
covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in Regulation Z, 12 CFR 1026.61. A financial
institution may therefore require the automatic repayment of an
overdraft credit plan, other than a covered separate credit feature
accessible by a hybrid prepaid-credit card, even if the overdraft
extension is charged to an open-end account that may be accessed by
the consumer in ways other than by overdrafts.
ii. Credit extended through a negative balance on the asset
feature of a prepaid account that meets the conditions of Regulation
Z, 12 CFR 1026.61(a)(4), is considered credit extended pursuant to
an overdraft credit plan for purposes of Sec. 1005.10(e)(1). Thus,
the exception for overdraft credit plans in Sec. 1005.10(e)(1)
applies to this credit.
3. Applicability to covered separate credit features accessible
by hybrid prepaid-credit cards. i. Under Sec. 1005.10(e)(1),
creditors may not require by electronic means on a preauthorized,
recurring basis repayment of credit extended under a covered
separate credit feature accessible by a hybrid prepaid-credit card
as defined in Regulation Z, 12 CFR 1026.61. The prohibition in Sec.
1005.10(e)(1) applies to any credit extended under such a credit
feature, including preauthorized checks. See Regulation Z, 12 CFR
1026.61, and comment 61(a)(1)-3.
ii. Under Regulation Z, 12 CFR 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 Regulation Z, 12 CFR 1026.12(d)(3), with respect to
covered separate credit features accessible by hybrid prepaid-credit
cards as defined in 12 CFR 1026.61, a card issuer generally is not
prohibited 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 under a plan that is
authorized in writing by the cardholder, so long as the card issuer
does not make such deductions to the plan more frequently than once
per calendar month. A card issuer is prohibited under Regulation Z,
12 CFR 1026.12(d), from automatically deducting all or part of the
cardholder's credit card debt under a covered separate credit
feature from a deposit account (such as a prepaid account) held with
the card issuer on a daily or weekly basis, or whenever deposits are
made to the deposit account. Section 1005.10(e)(1) further restricts
the card issuer from requiring payment from a deposit account (such
as a prepaid account) of credit card balances of a covered separate
credit feature accessible by a hybrid prepaid-credit card by
electronic means on a preauthorized, recurring basis.
4. Incentives. A creditor may offer a program with a reduced
annual percentage rate or other cost-related incentive for an
automatic repayment feature, provided the program with the automatic
payment feature is not the only loan program offered by the creditor
for the type of credit involved. Examples include:
i. Mortgages with graduated payments in which a pledged savings
account is automatically debited during an initial period to
supplement the monthly payments made by the borrower.
ii. Mortgage plans calling for preauthorized biweekly payments
that are debited electronically to the consumer's account and
produce a lower total finance charge.
10(e)(2) Employment or Government Benefit
* * * * *
2. Government benefit. 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
[[Page 84348]]
institution (designated by the government agency) or receiving their
benefits by another means.
* * * * *
Section 1005.12--Relation to Other Laws
12(a) Relation to Truth in Lending
1. Issuance rules for access devices other than access devices
for prepaid accounts. For access devices that also constitute credit
cards (other than access devices for prepaid accounts), 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) or an
overdraft service, as defined in Sec. 1005.17(a). Regulation Z (12
CFR part 1026) rules apply if there is another type of credit
feature; for example, one permitting direct extensions of credit
that do not involve the asset account.
2. Overdraft services. 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. Instead, 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 may be assessed on the
account (Sec. 1005.17).
3. Issuance of prepaid access devices that can access a covered
separate credit feature subject to Regulation Z. An access device
for a prepaid account cannot access a covered separate credit
feature as defined in Regulation Z, 12 CFR 1026.61, when the access
device is issued if the access device is issued prior to the
expiration of the 30-day period set forth in 12 CFR 1026.61(c).
Regulation Z, 12 CFR 1026.61(c), provides that with respect to a
covered separate credit feature that could be accessible by a hybrid
prepaid-credit card at any point, a card issuer must not do any of
the following until 30 days after the prepaid account has been
registered: (1) Open a covered separate credit feature accessible by
the hybrid prepaid-credit card; (2) make a solicitation or provide
an application to open a covered separate credit feature accessible
by the hybrid prepaid-credit card; or (3) allow an existing credit
feature that was opened prior to the consumer to become a covered
separate credit feature accessible by the hybrid prepaid-credit
card. An access device for a prepaid account that is not a hybrid
prepaid-credit card as that term is defined in Regulation Z, 12 CFR
1026.61, is subject to the issuance rules in Regulation E.
4. Addition of a covered separate credit feature to an existing
access device for a prepaid account. Regulation Z governs the
addition of a covered separate credit feature as that term is
defined in Regulation Z, 12 CFR 1026.61, to an existing access
device for a prepaid account. In this case, the access device would
become a hybrid prepaid-credit card under Regulation Z (12 CFR part
1026). A covered separate credit feature may be added to a
previously issued access device for a prepaid account only upon the
consumer's application or specific request as described in
Regulation Z, 12 CFR 1026.12(a)(1), and only in compliance with 12
CFR 1026.61(c).
5. Determining applicable regulation related to liability and
error resolution. i. Under Sec. 1005.12(a)(1)(iv)(B), with respect
to a transaction that involves a covered separate credit feature and
an asset feature on a prepaid account that are both accessible by a
hybrid prepaid-credit card as those terms are defined in Regulation
Z, 12 CFR 1026.61, where credit is extended under a covered separate
credit feature accessible by a hybrid prepaid-credit card that is
incident to an electronic fund transfer when the hybrid prepaid-
credit card accesses both funds in the asset feature of a prepaid
account and credit extensions from the credit feature with respect
to a particular transaction, Regulation E's liability limitations
and error resolution provisions apply to the transaction, in
addition to Regulation Z, 12 CFR 1026.13(d) and (g) (which apply
because of the extension of credit associated with the covered
separate credit feature). Section 1005.12(a)(1)(iv)(C) provides that
with respect to transactions that involves credit extended through a
negative balance to the asset feature of a prepaid account that
meets the conditions set forth in Regulation Z, 12 CFR
1026.61(a)(4), these transactions are governed solely by the
liability limitations and error resolution procedures in Regulation
E, and Regulation Z does not apply. Section 1005.12(a)(1)(iv)(D) and
(a)(2)(iii), taken together, provide that with respect to
transactions involving a prepaid account and a non-covered separate
credit feature as defined in Regulation Z, 12 CFR 1026.61, a
financial institution must comply with Regulation E's liability
limitations and error resolution procedures with respect to
transactions that access the prepaid account as applicable, and the
creditor must comply with Regulation Z's liability limitations and
error resolution procedures with respect to transactions that access
the non-covered separate credit feature, as applicable.
ii. Under Sec. 1005.12(a)(1)(iv)(A), with respect to 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 to the transaction, in addition to Regulation Z, 12 CFR
1026.13(d) and (g) (which apply because of the extension of credit
associated with the overdraft feature on the asset account).
iii. For transactions involving access devices that also
function as credit cards under Regulation Z (12 CFR part 1026),
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 access funds in a consumer
asset account, such as a checking account or prepaid account, the
liability limitations and error resolution requirements of
Regulation Z apply. If the transaction accesses funds in an asset
account only (with no credit extended), the provisions of Regulation
E apply. If the transaction access funds in an asset account but
also involves an extension of credit under the overdraft credit
feature subject to Regulation Z attached to the account, Regulation
E's liability limitations and error resolution provisions apply, in
addition to Regulation Z, 12 CFR 1026.13(d) and (g) (which apply
because of the extension of credit associated with the overdraft
feature on the asset account). If a consumer's access device is also
a credit card and the device is used to make unauthorized
withdrawals from an asset account, but also is used to obtain
unauthorized cash advances directly from a credit feature that is
subject to Regulation Z that is separate from the asset account,
both Regulation E and Regulation Z apply.
iv. The following examples illustrate these principles:
A. A consumer has a card that can be used either as a credit
card or an access device that draws on the consumer's checking
account. When used as a credit card, the card does not first access
any funds in the checking account but draws only on a separate
credit feature subject to Regulation Z. If the card is stolen and
used as a credit card to make purchases or to get cash advances at
an ATM from the line of credit, the liability limits and error
resolution provisions of Regulation Z apply; Regulation E does not
apply.
B. In the same situation, if the card is stolen and is used as
an access device to make purchases or to get cash withdrawals at an
ATM from the checking account, the liability limits and error
resolution provisions of Regulation E apply; Regulation Z does not
apply.
C. In the same situation, assume the card is stolen and used
both as an access device for the checking account and as a credit
card; for example, the thief makes some purchases using the card to
access funds in the checking account and other purchases using the
card as a credit card. Here, the liability limits and error
resolution provisions of Regulation E apply to the unauthorized
transactions in which the card was used as an access device for the
checking account, and the corresponding provisions of Regulation Z
apply to the unauthorized transactions in which the card was used as
a credit card.
D. Assume a somewhat different type of card, one that draws on
the consumer's checking account and can also draw on an overdraft
credit feature subject to Regulation Z attached to the checking
account. The overdraft credit feature associated with the card is
accessed only when the consumer uses the card to make a purchase (or
other transaction) for which there are insufficient or unavailable
funds in the checking account. In this situation, if the card is
stolen and used to make purchases funded entirely by available funds
in the checking account, the liability limits and the error
resolution provisions of Regulation E apply. If the use of the card
results in an extension of credit that is incident to an electronic
fund transfer where the transaction is funded partially by funds in
the consumer's asset account and partially by credit extended under
the overdraft credit feature, the error resolution provisions of
Regulation Z, 12 CFR 1026.13(d) and (g), apply in addition to the
Regulation E provisions, but the other liability limit and error
resolution provisions of Regulation Z do not. Relatedly, if the use
[[Page 84349]]
of the card is funded entirely by credit extended under the
overdraft credit feature, the transaction is governed solely by the
liability limitations and error resolution requirements of
Regulation Z. See Regulation Z, 12 CFR 1026.13(i).
E. The same principles in comment 12(a)-5.iv.A, B, C, and D
apply to an access device for a prepaid account that also is a
hybrid prepaid-credit card with respect to a covered separate credit
feature under Regulation Z, 12 CFR 1026.61. See also Regulation Z,
12 CFR 1026.13(i)(2) and comment 13(i)-4.
12(b) Preemption of Inconsistent State Laws
* * * * *
2. Preemption determinations generally. The Bureau recognizes
state law preemption determinations made by the Board of Governors
of the Federal Reserve System prior to July 21, 2011, until and
unless the Bureau makes and publishes any contrary determination.
3. Preemption determination--Michigan. The Board of Governors of
the Federal Reserve System determined that certain provisions in the
state law of Michigan are preempted by the Federal law, effective
March 30, 1981:
i. Definition of unauthorized use. Section 488.5(4) of the state
law of Michigan, governing electronic fund transfers, is preempted
to the extent that it relates to the section of state law governing
consumer liability for unauthorized use of an access device.
ii. Consumer liability for unauthorized use of an account.
Section 488.14 of the state law of Michigan, governing electronic
fund transfers, is preempted because it is inconsistent with Sec.
1005.6 and is less protective of the consumer than the Federal law.
The state law places liability on the consumer for the unauthorized
use of an account in cases involving the consumer's negligence.
Under the Federal law, a consumer's liability for unauthorized use
is not related to the consumer's negligence and depends instead on
the consumer's promptness in reporting the loss or theft of the
access device.
iii. Error resolution. Section 488.15 of the state law of
Michigan, governing electronic fund transfers, is preempted because
it is inconsistent with Sec. 1005.11 and is less protective of the
consumer than the Federal law. The state law allows financial
institutions up to 70 days to resolve errors, whereas the Federal
law generally requires errors to be resolved within 45 days.
iv. Receipts and periodic statements. Sections 488.17 and 488.18
of the state law of Michigan, governing electronic fund transfers,
are preempted because they are inconsistent with Sec. 1005.9, other
than for transfers of $15 or less pursuant to Sec. 1005.9(e). The
state provisions require a different disclosure of information than
does the Federal law. The receipt provision is also preempted
because it allows the consumer to be charged for receiving a receipt
if a machine cannot furnish one at the time of a transfer.
4. Preemption determination--Tennessee. The Bureau determined
that the following provision in the state law of Tennessee is
preempted by the Federal law, effective April 25, 2013:
i. Gift certificates, store gift cards, and general-use prepaid
cards. 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 general-use prepaid
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
general-use prepaid cards and their underlying funds are permitted
to expire under Sec. 1005.20(e).
* * * * *
Section 1005.15--Electronic Fund Transfer of Government Benefits
15(c) Pre-Acquisition Disclosure Requirements
1. Disclosing the short and long form before acquisition.
Section 1005.15(c)(1) requires that, before a consumer acquires an
account governed by Sec. 1005.15, a government agency must comply
with the pre-acquisition disclosure requirements applicable to
prepaid accounts as set forth in Sec. 1005.18(b). Section
1005.18(b)(1)(i) generally requires delivery of both the short form
disclosure required by Sec. 1005.18(b)(2), accompanied by the
information in Sec. 1005.18(b)(5), and the long form disclosure
required by Sec. 1005.18(b)(4) before a consumer acquires a prepaid
account. For purposes of Sec. 1005.15(c), a consumer is deemed to
have received the disclosures required by Sec. 1005.18(b) prior to
acquisition when the consumer receives the disclosures before
choosing to receive benefits via the government benefit account. The
following example illustrates when a consumer receives disclosures
before acquisition of an account for purposes of Sec. 1005.15(c):
i. 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. The consumer receives the prepaid card and
the disclosures required by Sec. 1005.18(b) to review at the time
the consumer receives benefits eligibility information from the
agency. After receiving the disclosures, the consumer chooses to
receive benefits via the government benefit account. These
disclosures were provided to the consumer pre-acquisition, and the
agency has complied with Sec. 1005.15(c). By contrast, if the
consumer does not receive the disclosures required by Sec.
1005.18(b) to review until the time at which the consumer received
the first benefit payment deposited into the government benefit
account, these disclosures were provided to the consumer post-
acquisition, and were not provided in compliance with Sec.
1005.15(c).
2. Acquisition and disclosures given during the same
appointment. The disclosures and notice required by Sec. 1005.15(c)
may be given in the same process or appointment during which the
consumer receives a government benefit card. When a consumer
receives benefits eligibility information and enrolls to receive
benefits during the same process or appointment, a government agency
that gives the disclosures and notice required by Sec. 1005.15(c)
before the consumer chooses to receive the first benefit payment on
the card complies with the timing requirements of Sec. 1005.15(c).
3. Form and formatting requirements for government benefit
account disclosures. The form and formatting requirements for
government benefit accounts in Sec. 1005.15(c) correspond to those
for payroll card accounts set forth in Sec. 1005.18(b). See
comments 18(b)(2)(xiv)(A)-1 and 18(b)(2)(xiv)(B)-1 for additional
guidance regarding the requirements set forth in Sec.
1005.15(c)(2)(i) and (ii), respectively.
4. Disclosure requirements outside the short form disclosure.
Section 1005.18(b)(5) requires that the name of the financial
institution be disclosed outside the short form disclosure. For
government benefit accounts, the financial institution that must be
disclosed pursuant to Sec. 1005.18(b)(5) is the financial
institution that directly holds the account or issues the account's
access device. The disclosure provided outside the short form
disclosure may, but is not required to, also include the name of the
government agency that established the government benefit account.
15(d) Access to Account Information
1. Access to account information. For guidance, see comments
18(c)-1 through -3 and 18(c)-5 through -9.
15(e) Modified Disclosure, Limitations on Liability, and Error
Resolution Requirements
1. Modified limitations on liability and error resolution
requirements. For guidance, see comments 18(e)-1 through -3.
15(f) Disclosure of Fees and Other Information
1. Disclosures on prepaid account access devices. Pursuant to
Sec. 1005.18(f)(3), the name of the financial institution and the
Web site URL and a telephone number a consumer can use to contact
the financial institution about the prepaid account must be
disclosed on the prepaid account access device. For government
benefit accounts, the financial institution whose name and contact
information must be disclosed pursuant to Sec. 1005.18(f)(3) is the
financial institution that directly holds the account or issues the
account's access device.
* * * * *
Section 1005.18--Requirements for Financial Institutions Offering
Prepaid Accounts
18(a) Coverage
1. Issuance of access device. Consistent with Sec. 1005.5(a)
and except as provided, as applicable, in Sec. 1005.5(b), a
financial institution may issue an access device only in response to
an oral or written request for the device, or as a renewal or
substitute for an accepted access device. 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. 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 location or
applies for a prepaid account by telephone or online.
2. Application to employers and service providers. Typically,
employers and third-
[[Page 84350]]
party service providers do not meet the definition of a ``financial
institution'' subject to the regulation because they neither hold
prepaid accounts (including payroll card accounts) nor issue prepaid
cards and agree with consumers to provide EFT services in connection
with prepaid accounts. However, to the extent an employer or a
service provider undertakes either of these functions, it would be
deemed a financial institution under the regulation.
18(b) Pre-Acquisition Disclosure Requirements
1. Written and electronic pre-acquisition disclosures. Section
1005.4(a)(1) generally requires that disclosures be made in writing;
written disclosures may be provided in electronic form in accordance
with the Electronic Signatures in Global and National Commerce Act
(E-Sign Act) (15 U.S.C. 7001 et seq.). Because Sec.
1005.18(b)(6)(i)(B) provides that electronic disclosures required by
Sec. 1005.18(b) need not meet the consumer consent or other
applicable provisions of the E-Sign Act, Sec. 1005.18(b) addresses
certain requirements for written and electronic pre-acquisition
disclosures separately. Section 1005.18(b) also addresses specific
requirements for pre-acquisition disclosures provided orally.
2. Currency. Fee amounts required to be disclosed by Sec.
1005.18(b) may be disclosed in a foreign currency for a prepaid
account denominated in that foreign currency, other than the fee for
the purchase price required by Sec. 1005.18(b)(5). For example, a
prepaid account sold in a U.S. airport intended for use in England
may disclose in pound sterling ([pound]) the fees required to be
disclosed in the short form and long form disclosures and outside
the short form disclosure, except for the purchase price.
18(b)(1) Timing of Disclosures
18(b)(1)(i) General
1. Disclosing the short form and long form before acquisition.
Section 1005.18(b)(1)(i) generally requires delivery of a short form
disclosure as described in Sec. 1005.18(b)(2), accompanied by the
information required to be disclosed by Sec. 1005.18(b)(5), and a
long form disclosure as described in Sec. 1005.18(b)(4) before a
consumer acquires a prepaid account. For purposes of Sec.
1005.18(b)(1)(i), a consumer acquires a prepaid account by
purchasing, opening or choosing to be paid via a prepaid account, as
illustrated by the following examples:
i. A consumer inquires about obtaining a prepaid account at a
branch location of a bank. A consumer then receives the disclosures
required by Sec. 1005.18(b). After receiving the disclosures, a
consumer then opens a prepaid account with the bank. This consumer
received the short form and long form pre-acquisition in accordance
with Sec. 1005.18(b)(1)(i).
ii. A consumer learns that he or she can receive wages via a
payroll card account, at which time the consumer is provided with a
payroll card and the disclosures required by Sec. 1005.18(b) to
review. The consumer then chooses to receive wages via a payroll
card account. These disclosures were provided pre-acquisition in
compliance with Sec. 1005.18(b)(1)(i). By contrast, if a consumer
receives the disclosures required by Sec. 1005.18(b) to review at
the end of the first pay period, after the consumer received the
first payroll payment on the payroll card, these disclosures were
provided to a consumer post-acquisition, and thus not provided in
compliance with Sec. 1005.18(b)(1)(i).
2. Disclosures provided electronically. Disclosures required by
Sec. 1005.18(b) may be provided before or after a consumer has
initiated the process of acquiring a prepaid account electronically.
When the disclosures required by Sec. 1005.18(b) are presented
after a consumer has initiated the process for acquiring a prepaid
account online or via a mobile device, but before a consumer chooses
to accept the prepaid account, such disclosures are also made pre-
acquisition in accordance with Sec. 1005.18(b)(1)(i). The
disclosures required by Sec. 1005.18(b) that are provided
electronically when a consumer acquires a prepaid account
electronically are not considered to be given pre-acquisition unless
a consumer must view the Web page containing the disclosures before
choosing to accept the prepaid account. The following examples
illustrate several methods by which a financial institution may
present Sec. 1005.18(b) disclosures before a consumer acquires a
prepaid account electronically in compliance with Sec.
1005.18(b)(1)(i):
i. A financial institution presents the short form disclosure
required by Sec. 1005.18(b)(2), together with the information
required by Sec. 1005.18(b)(5), and the long form disclosure
required by Sec. 1005.18(b)(4) on the same Web page. A consumer
must view the Web page before choosing to accept the prepaid
account.
ii. A financial institution presents the short form disclosure
required by Sec. 1005.18(b)(2), together with the information
required by Sec. 1005.18(b)(5), on a Web page. The financial
institution includes, after the short form disclosure or as part of
the statement required by Sec. 1005.18(b)(2)(xiii), a link that
directs the consumer to a separate Web page containing the long form
disclosure required by Sec. 1005.18(b)(4). The consumer must view
the Web page containing the long form disclosure before choosing to
accept the prepaid account.
iii. A financial institution presents on a Web page the short
form disclosure required by Sec. 1005.18(b)(2), together with the
information required by Sec. 1005.18(b)(5), followed by the initial
disclosures required by Sec. 1005.7(b), which contains the long
form disclosure required by Sec. 1005.18(b)(4), in accordance with
Sec. 1005.18(f)(1). The financial institution includes, after the
short form disclosure or as part of the statement required by Sec.
1005.18(b)(2)(xiii), a link that directs the consumer to the section
of the initial disclosures containing the long form disclosure
pursuant to Sec. 1005.18(b)(4). A consumer must view this Web page
before choosing to accept the prepaid account.
18(b)(1)(ii) Disclosures for Prepaid Accounts Acquired in Retail
Locations
1. Retail locations. Section 1005.18(b)(1)(ii) sets forth an
alternative timing regime for pre-acquisition disclosures for
prepaid accounts acquired in person at retail locations. For
purposes of Sec. 1005.18(b)(1)(ii), a retail location is a store or
other physical site where a consumer can purchase a prepaid account
in person and that is operated by an entity other than the financial
institution that issues the prepaid account. A branch of a financial
institution that offers its own prepaid accounts is not a retail
location with respect to those accounts and, thus, both the short
form and the long form disclosure must be provided pre-acquisition
pursuant to the timing requirement set forth in Sec.
1005.18(b)(1)(i).
2. Disclosures provided inside prepaid account access device
packaging material. Except when providing the long form disclosure
post-acquisition in accordance with the retail location exception
set forth in Sec. 1005.18(b)(1)(ii), the disclosures required by
Sec. 1005.18(b)(2), (4), and (5) must be provided to a consumer
pre-acquisition in compliance with Sec. 1005.18(b)(1)(i). A short
form disclosures is not considered to have been provided pre-
acquisition if, for example, it is inside the packaging material
accompanying a prepaid account access device such that the consumer
cannot see or access the disclosures before acquiring the prepaid
account.
3. Consumers working in retail locations. A payroll card account
offered to consumers working in retail locations is not eligible for
the retail location exception in Sec. 1005.18(b)(1)(ii); thus, a
consumer employee must receive both the short form and long form
disclosures for the payroll card account pre-acquisition pursuant to
the timing requirement set forth in Sec. 1005.18(b)(1)(i).
4. Providing the long form disclosure by telephone and Web site
pursuant to the retail location exception. Pursuant to Sec.
1005.18(b)(1)(ii), a financial institution may provide the long form
disclosure described in Sec. 1005.18(b)(4) after a consumer
acquires a prepaid account in a retail location, if the conditions
set forth in Sec. 1005.18(b)(1)(ii)(A) through (D) are met.
Pursuant to Sec. 1005.18(b)(1)(ii)(C), a financial institution must
make the long form disclosure accessible to consumers by telephone
and via a Web site when not providing a written version of the long
form disclosure pre-acquisition. A financial institution may, for
example, provide the long form disclosure by telephone using an
interactive voice response or similar system or by using a customer
service agent.
18(b)(1)(iii) Disclosures for Prepaid Accounts Acquired Orally by
Telephone
1. Prepaid accounts acquired by telephone. Section
1005.18(b)(1)(iii) sets forth requirements for prepaid accounts
acquired orally by telephone. For purposes of 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 personally
identifiable information to acquire a prepaid account. 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.
[[Page 84351]]
2. Disclosures for prepaid accounts acquired by telephone.
Pursuant to Sec. 1005.18(b)(1)(iii), a financial institution must
disclose the information required by Sec. 1005.18(b)(2) and (5)
orally before a consumer acquires a prepaid account orally by
telephone. A financial institution may, for example, provide these
disclosures by using an interactive voice response or similar system
or by using a customer service agent, after the consumer has
initiated the purchase of a prepaid account by telephone, but before
the consumer acquires the prepaid account. In addition, a financial
institution must provide the initial disclosures required by Sec.
1005.7, as modified by Sec. 1005.18(f)(1), before the first
electronic fund transfer is made involving the prepaid account.
18(b)(2) Short Form Disclosure Content
1. Disclosures that are not applicable or are free. The short
form disclosures required by Sec. 1005.18(b)(2) must always be
provided prior to prepaid account acquisition, even when a
particular feature is free or is not applicable to a specific
prepaid account product. For example, if a financial institution
does not charge a fee to a consumer for withdrawing money at an
automated teller machine in the financial institution's network or
an affiliated network, which is required to be disclosed pursuant to
Sec. 1005.18(b)(2)(iii), the financial institution would list ``ATM
withdrawal in-network'' on the short form disclosure and list ``$0''
as the fee. If, however, the financial institution does not have its
own network or an affiliated network from which a consumer can
withdraw money via automated teller machine, the financial
institution would list ``ATM withdrawal in-network'' on the short
form disclosure but instead of disclosing a fee amount, state ``N/
A.'' (The financial institution must still disclose any fee it
charges for out-of-network ATM withdrawals.)
2. Prohibition on disclosure of finance charges. Pursuant to
Sec. 1005.18(b)(3)(vi), a financial institution may not include in
the short form disclosure finance charges as described in Regulation
Z, 12 CFR 1026.4(b)(11), imposed in connection with a covered
separate credit feature accessible by a hybrid prepaid-credit card
as defined in Sec. 1026.61. See also comment 18(b)(3)(vi)-1.
18(b)(2)(i) Periodic Fee
1. Periodic fee variation. If the amount of a fee disclosed on
the short form could vary, the financial institution must disclose
in the short form the information required by Sec.
1005.18(b)(3)(i). If the amount of the periodic fee could vary, the
financial institution may opt instead to use an alternative
disclosure pursuant to Sec. 1005.18(b)(3)(ii). See comments
18(b)(3)(i)-1 and 18(b)(3)(ii)-1.
18(b)(2)(iii) ATM Withdrawal Fees
1. International ATM withdrawal fees. Pursuant to Sec.
1005.18(b)(2)(iii), a financial institution must disclose the fees
imposed when a consumer uses an automated teller machine to initiate
a withdrawal of cash in the United States from the prepaid account,
both within and outside of the financial institution's network or a
network affiliated with the financial institution. A financial
institution may not disclose its fee (if any) for using an automated
teller machine to initiate a withdrawal of cash in a foreign country
in the disclosure required by Sec. 1005.18(b)(2)(iii), although it
may be required to disclose that fee as an additional fee type
pursuant to Sec. 1005.18(b)(2)(ix).
18(b)(2)(iv) Cash Reload Fee
1. Total of all charges. Pursuant to Sec. 1005.18(b)(2)(iv), a
financial institution must disclose the total of all charges imposed
when a consumer reloads cash into a prepaid account, including
charges imposed by the financial institution as well as any charges
that may be imposed by third parties for the cash reload. The cash
reload fee includes the cost of adding cash to the prepaid account
at a point-of-sale terminal, the cost of purchasing an additional
card or other device on which cash is loaded and then transferred
into the prepaid account, or any other method a consumer may use to
reload cash into the prepaid account. For example, a financial
institution does not have its own proprietary cash reload network
and instead contracts with a third-party reload network for this
service. The financial institution itself does not charge any fee
related to cash reloads but the third-party reload network charges a
fee of $3.95 per cash reload. The financial institution must
disclose the cash reload fee as $3.95. If the financial institution
offers more than one method to reload cash into the prepaid account,
Sec. 1005.18(b)(3)(i) requires disclosure of the highest cash
reload fee. For example, a financial institution contracts with two
third-party cash reload networks; one third party charges $3.95 for
a point-of-sale reload and the other third party charges $2.95 for
purchase of a reload pack. In addition to the third-party cash
reload charge, the financial institution charges a $1 fee for every
cash reload. The financial institution must disclose the cash reload
fee on the short form as $4.95, that is, the highest third-party fee
plus the financial institution's $1 fee. See comments 18(b)(3)(v)-1
for additional guidance regarding third-party fees for cash reloads.
2. Cash deposit fee. If a financial institution does not permit
cash reloads via a third-party reload network but instead permits
cash deposits, for example, in a bank branch, the term ``cash
deposit'' may be substituted for ``cash reload.''
18(b)(2)(v) ATM Balance Inquiry Fees
1. International ATM balance inquiry fees. Pursuant to Sec.
1005.18(b)(2)(v), a financial institution must disclose the fees
imposed when a consumer uses an automated teller machine to check
the balance of the prepaid account in the United States, both within
and outside of the financial institution's network or a network
affiliated with the financial institution. A financial institution
may not disclose its fee (if any) for using an automated teller
machine to check the balance of the prepaid account in a foreign
country in the disclosure required by Sec. 1005.18(b)(2)(v),
although it may be required to disclose that fee as an additional
fee type pursuant to Sec. 1005.18(b)(2)(ix).
18(b)(2)(vii) Inactivity Fee
1. Inactivity fee conditions. Section 1005.18(b)(2)(vii)
requires disclosure of any fee for non-use, dormancy, or inactivity
of the prepaid account as well as the conditions that trigger the
financial institution to impose that fee. For example, a financial
institution that imposes an inactivity fee of $1 per month after 12
months without any transactions on the prepaid account would
disclose on the short form ``Inactivity (after 12 months with no
transactions)'' and ``$1.00 per month.''
18(b)(2)(viii) Statements Regarding Additional Fee Types
18(b)(2)(viii)(A) Statement Regarding Number of Additional Fee Types
Charged
1. Fee types counted in total number of additional fee types.
Section 1005.18(b)(2)(viii)(A) requires a statement disclosing the
number of additional fee types the financial institution may charge
consumers with respect to the prepaid account, using the following
clause or a substantially similar clause: ``We charge [x] other
types of fees.'' The number of additional fee types disclosed must
reflect the total number of fee types under which the financial
institution may charge fees, excluding fees required to be disclosed
pursuant to Sec. 1005.18(b)(2)(i) through (vii) and (b)(5) and any
finance charges as described in Regulation Z, 12 CFR 1026.4(b)(11),
imposed in connection with a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in 12 CFR
1026.61. The following clarify which fee types to include in the
total number of additional fee types:
i. Fee types excluded from the number of additional fee types.
The number of additional fee types required to be disclosed pursuant
to Sec. 1005.18(b)(2)(viii)(A) does not include the fees otherwise
required to be disclosed in the short form pursuant to Sec.
1005.18(b)(2)(i) through (vii), nor any purchase fee or activation
fee required to be disclosed outside the short form pursuant to
Sec. 1005.18(b)(5). It also does not include any finance charges as
described in Regulation Z, 12 CFR 1026.4(b)(11), imposed in
connection with a credit feature defined in 12 CFR 1026.61. The
number of additional fee types includes only fee types under which
the financial institution may charge fees; accordingly, third-party
fees are not included unless they are imposed for services performed
on behalf of the financial institution. In addition, the number of
additional fee types includes only fee types the financial
institution may charge consumers with respect to the prepaid
account; accordingly, additional fee types does not include other
revenue sources such as interchange fees or fees paid by employers
for payroll card programs, government agencies for government
benefit programs, or other entities sponsoring prepaid account
programs for financial disbursements.
ii. Fee types counted in the number of additional fee types. Fee
types that bear a relationship to, but are separate from, the static
fee types disclosed in the short form must be counted as additional
fees for purposes of Sec. 1005.18(b)(2)(viii). For
[[Page 84352]]
example, the ATM withdrawal and ATM balance inquiry fee types
required to be disclosed respectively by Sec. 1005.18(b)(2)(iii)
and (v) that are excluded from the number of additional fee types
pursuant to Sec. 1005.18(b)(2)(viii) do not include such services
outside of the United States. Thus, any international ATM fees
charged by the financial institution for ATM withdrawal or balance
inquiries must each be counted in the total number of additional fee
types. Similarly, any fees for reloading funds into a prepaid
account in a form other than cash (such as electronic reload and
check reload, as described in comment 18(b)(2)(viii)(A)-2) must be
counted in the total number of additional fee types because Sec.
1005.18(b)(2)(iv) is limited to cash reloads. Also, additional fee
types disclosed in the short form pursuant to Sec.
1005.18(b)(2)(ix) must be counted in the total number of additional
fee types.
2. Examples of fee types and fee variations. The term fee type,
as used in Sec. 1005.18(b)(2)(viii) and (ix), is a general category
under which a financial institution charges fees to consumers. A
financial institution may charge only one fee within a particular
fee type, or may charge two or more variations of fees within the
same fee type. The following is a list of examples of fee types a
financial institution may use when determining both the number of
additional fee types charged pursuant to Sec.
1005.18(b)(2)(viii)(A) and any additional fee types to disclose
pursuant to Sec. 1005.18(b)(2)(ix). A financial institution may
create an appropriate name for other additional fee types.
i. Fee types related to reloads of funds. Fees for reloading
funds into a prepaid account. Fees for cash reloads are required to
be disclosed in the short form pursuant to Sec. 1005.18(b)(2)(iv)
and that such fees are not counted in the total number of additional
fee types or disclosed as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix). Fee types for other methods to reload funds, such
as Electronic reload or Check reload, would be counted in the total
number of additional fee types and may be required to be disclosed
as additional fee types pursuant to Sec. 1005.18(b)(2)(ix).
A. Electronic reload. Fees for reloading a prepaid account
through electronic methods. Fee variations within this fee type may
include fees for transferring funds from a consumer's bank account
via ACH, reloads conducted using a debit card or credit card, and
for incoming wire transfers.
B. Check reload. Fees for reloading a prepaid account using
checks. Fee variations within this fee type may include fees for
depositing checks at an ATM, depositing checks with a teller at the
financial institution's branch location, mailing checks to the
financial institution for deposit, and depositing checks using
remote deposit capture.
ii. Fee types related to withdrawals of funds. Fees for
withdrawing funds from a prepaid account. Per purchase fees and ATM
withdrawal fees within the United States are fee types required to
be disclosed in the short form respectively pursuant to Sec.
1005.18(b)(2)(ii) and (iii) and thus such fees are not counted in
the total number of additional fee types or disclosed as an
additional fee type pursuant to Sec. 1005.18(b)(2)(ix). Fee types
for other methods to withdraw funds, such as Electronic withdrawal,
Teller withdrawal, Cash back at point of sale (POS), and Account
closure would be counted in the total of additional fee types and
may be required to be disclosed as additional fee types pursuant to
Sec. 1005.18(b)(2)(ix).
A. Electronic withdrawal. Fees for withdrawing funds from a
prepaid account through electronic methods other than an ATM. Fee
variations within this fee type may include fees for transferring
funds from the prepaid account to a consumer's bank account or other
destination.
B. Teller withdrawal. Fees for withdrawing funds from a prepaid
account in person with a teller at a bank or credit union. Fee
variations within this fee type may include fees for withdrawing
funds, whether at the financial institution's own branch locations
or at another bank or credit union.
C. Cash back at POS. Fees for withdrawing cash from a prepaid
account via cash back at a merchant's point-of-sale terminal.
D. Account closure. Fees for closing out a prepaid account, such
as for a check refund. Fee variations within this fee type may
include fees for regular and expedited delivery of close-out funds.
iii. Fee types related to international transactions. Fee types
for international transactions and ATM activity.
A. International ATM withdrawal. Fees for withdrawing funds at
an ATM outside the United States. This fee type does not include
fees for ATM withdrawals in the United States, as such fees are
required to be disclosed in the short form pursuant to Sec.
1005.18(b)(2)(iii).
B. International ATM balance inquiry. Fees for balance inquiries
at an ATM outside the United States. This fee type does not include
fees for ATM balance inquiries in the United States, as such fees
are required to be disclosed in the short form pursuant to Sec.
1005.18(b)(2)(v).
C. International transaction (excluding ATM withdrawal and
balance inquiry). Fees for transactions outside the United States.
Fee variations within this fee type may include fees for currency
conversion, foreign exchange processing, and other charges for
transactions outside of the United States.
iv. Bill payment. Fees for bill payment services. Fee variations
within this fee type may include fees for ACH bill payment, paper
check bill payment, check cancellation, and expedited delivery of
paper check.
v. Person-to-person or card-to-card transfer of funds. Fees for
transferring funds from one prepaid account to another prepaid
account. Fee variations within this fee type may include fees for
transferring funds to another prepaid account within or outside of a
specified prepaid account program, transferring funds to another
cardholder within United States or outside the United States, and
expedited transfer of funds.
vi. Paper checks. Fees for providing paper checks that draw on
the prepaid account. Fee variations within this fee type may include
fees for providing checks and associated shipping costs. This does
not include checks issued as part of a bill pay service, which are
addressed in comment 18(b)(2)(viii)(A)-2.iv above.
vii. Stop payment. Fees for stopping payment of a preauthorized
transfer of funds.
viii. Fee types related to card services. Fee types for card
services.
A. Card replacement. Fees for replacing or reissuing a prepaid
card that has been lost, stolen, damaged, or that has expired. Fee
variations within this fee types may include fees for replacing the
card, regular or expedited delivery of the replacement card, and
international card replacement.
B. Secondary card. Fees for issuing an additional access device
assigned to a particular prepaid account.
C. Personalized card. Fees for customizing or personalizing a
prepaid card.
ix. Legal. Fees for legal process. Fee variations within this
fee type may include fees for garnishments, attachments, levies, and
other court or administrative orders against a prepaid account.
3. Multiple service plans. Pursuant to Sec. 1005.18(b)(2)(vi),
a financial institution using the multiple service plan short form
disclosure pursuant to Sec. 1005.18(b)(6)(iii)(B)(2) must disclose
only the fee for calling customer service via a live agent. Thus,
pursuant to Sec. 1005.18(b)(2)(viii), any charge for calling
customer service via an interactive voice response system must be
counted in the total number of additional fee types.
4. Consistency in additional fee type categorization. A
financial institution must use the same categorization of fee types
in the number of additional fee types disclosed pursuant to Sec.
1005.18(b)(2)(viii) and in its determination of which additional fee
types to disclose pursuant to Sec. 1005.18(b)(2)(ix).
18(b)(2)(viii)(B) Statement Directing Consumers to Disclosure of
Additional Fee Types
1. Statement clauses. Section 1005.18(b)(2)(viii)(B) requires,
if a financial institution makes a disclosure of additional fee
types pursuant to Sec. 1005.18(b)(2)(ix), it must include in the
short form a statement directing consumers to that disclosure,
located after but on the same line of text as the statement
regarding the number of additional fee types required by Sec.
1005.18(b)(2)(viii)(A), using the following clause or a
substantially similar clause: ``Here are some of them:''. A
financial institution that makes no disclosure pursuant to Sec.
1005.18(b)(2)(ix) may not include a disclosure pursuant to Sec.
1005.18(b)(2)(viii)(B). The following examples provide guidance
regarding substantially similar clauses a financial institution may
use in certain circumstances to make its disclosures under Sec.
1005.18(b)(2)(viii)(A) and (B):
i. A financial institution that has one additional fee type and
discloses that additional fee type pursuant to Sec.
1005.18(b)(2)(ix) might provide the statements required by Sec.
1005.18(b)(2)(viii)(A) and (B) together as: ``We charge 1 other type
of fee. It is:''.
[[Page 84353]]
ii. A financial institution that has five additional fee types
and discloses one of those additional fee types pursuant to Sec.
1005.18(b)(2)(ix) might provide the statements required by Sec.
1005.18(b)(2)(viii)(A) and (B) together as: ``We charge 5 other
types of fees. Here is 1 of them:''.
iii. A financial institution that has two additional fee types
and discloses both of those fee types pursuant to Sec.
1005.18(b)(2)(ix) might provide the statement required by Sec.
1005.18(b)(2)(viii)(A) and (B) together as: ``We charge 2 other
types of fees. They are:''.
18(b)(2)(ix) Disclosure of Additional Fee Types
18(b)(2)(ix)(A) Determination of Which Additional Fee Types To Disclose
1. Number of fee types to disclose. Section 1005.18(b)(2)(ix)(A)
requires disclosure of the two fee types that generate the highest
revenue from consumers for the prepaid account program or across
prepaid account programs that share the same fee schedule during the
time period provided in Sec. 1005.18(b)(2)(ix)(D) and (E),
excluding the categories set forth in Sec. 1005.18(b)(2)(ix)(A)(1)
through (3). See comment 18(b)(2)(viii)(A)-2 for guidance on and
examples of fee types. If a prepaid account program has two fee
types that satisfy the criteria in Sec. 1005.18(b)(2)(ix)(A), it
must disclose both fees. If a prepaid account program has three or
more fee types that potentially satisfy the criteria in Sec.
1005.18(b)(2)(ix)(A), the financial institution must disclose only
the two fee types that generate the highest revenue from consumers.
See comment 18(b)(2)(ix)(B)-1 for guidance regarding the disclosure
of additional fee types for a prepaid account with fewer than two
fee types that satisfy the criteria in Sec. 1005.18(b)(2)(ix)(A).
2. Abbreviations. Commonly accepted or readily understandable
abbreviations may be used as needed for additional fee types and fee
variations disclosed pursuant to Sec. 1005.18(b)(2)(ix). For
example, to accommodate on one line in the short form disclosure the
additional fee types ``international ATM balance inquiry'' or
``person-to-person transfer of funds,'' with or without fee
variations, a financial institution may choose to abbreviate the fee
type name as ``Int'l ATM inquiry'' or ``P2P transfer.''
3. Revenue from consumers. The revenue calculation for the
disclosure of additional fee types pursuant to Sec.
1005.18(b)(2)(ix)(A) is based on fee types that the financial
institution may charge consumers with respect to the prepaid
account. The calculation excludes other revenue sources such as
revenue generated from interchange fees and fees paid by employers
for payroll card programs, government agencies for government
benefit programs, and other entities sponsoring prepaid account
programs for financial disbursements. It also excludes third-party
fees, unless they are imposed for services performed on behalf of
the financial institution.
4. Assessing revenue within and across prepaid account programs
to determine disclosure of additional fee types. Pursuant to Sec.
1005.18(b)(2)(ix)(A), the disclosure of the two fee types that
generate the highest revenue from consumers must be determined for
each prepaid account program or across prepaid account programs that
share the same fee schedule. Thus, if a financial institution offers
more than one prepaid account program, unless the programs share the
same fee schedule, the financial institution must consider the fee
revenue data separately for each prepaid account program and not
consolidate the fee revenue data across prepaid account programs.
Prepaid account programs are deemed to have the same fee schedules
if they charge the same fee amounts, including offering the same fee
waivers and fee reductions for the same features. The following
examples illustrate how to assess revenue within and across prepaid
account programs to determine the disclosure of additional fee
types:
i. Prepaid account programs with different fee schedules. A
financial institution offers multiple prepaid account programs and
each program has a different fee schedule. The financial institution
must consider the revenue from consumers for each program
separately; it may not consider the revenue from all of its prepaid
account programs together in determining the disclosure of
additional fee types for its programs.
ii. Prepaid account programs with identical fee schedules. A
financial institution offers multiple prepaid account programs and
they all share the same fee schedule. The financial institution may
consider the revenue across all of its prepaid account programs
together in determining the disclosure of additional fee types for
its programs.
iii. Prepaid account programs with both different fee schedules
and identical fee schedules. A financial institution offers multiple
prepaid account programs, some of which share the same fee schedule.
The financial institution may consider the revenue across all
prepaid account programs with identical fee schedules in determining
the disclosure of additional fee types for those programs. The
financial institution must separately consider the revenue from each
of the prepaid account programs with unique fee schedules.
iv. Multiple service plan prepaid account programs. A financial
institution that discloses multiple service plans on a short form
disclosure as permitted by Sec. 1005.18(b)(6)(iii)(B)(2) must
consider revenue across all of those plans in determining the
disclosure of additional fee types for that program. If, however,
the financial institution instead is disclosing the default service
plan pursuant to Sec. 1005.18(b)(6)(iii)(B)(1), the financial
institution must consider the revenue generated from consumers for
the default service plan only. See Sec. 1005.18(b)(6)(iii)(B)(2)
and comment 18(b)(6)(iii)(B)(2)-1 for guidance on what constitutes
multiple service plans.
5. Exclusions. Once the financial institution has calculated the
fee revenue data for the prepaid account program or across prepaid
account programs that share the same fee schedule during the
appropriate time period, it must remove from consideration the
categories excluded pursuant to Sec. 1005.18(b)(2)(ix)(A)(1)
through (3) before determining the fee types, if any, that generated
the highest revenue.
i. Exclusion for fee types required to be disclosed elsewhere.
Fee types otherwise required to be disclosed in or outside the short
form are excluded from the additional fee types required to be
disclose pursuant to Sec. 1005.18(b)(2)(ix)(A)(1). Thus, the
following fee types are excluded: Periodic fee, per purchase fee,
ATM withdrawal fees (for ATM withdrawals in the United States), cash
reload fee, ATM balance inquiry fees (for ATM balance inquiries in
the United States), customer service fees, and inactivity fee.
However, while the cash reload fee type is excluded, other reload
fee types, such as electronic reload and check reload, are not
excluded under Sec. 1005.18(b)(2)(ix)(A)(1) and thus may be
disclosed as additional fee types pursuant to Sec.
1005.18(b)(2)(ix). Similarly, while the fee types ATM withdrawal and
ATM balance inquiry in the United States are excluded, international
ATM withdrawal and international ATM balance inquiry fees are not
excluded under Sec. 1005.18(b)(2)(ix)(A)(1) and thus may be
disclosed as additional fee types pursuant to Sec.
1005.18(b)(2)(ix). Also pursuant to Sec. 1005.18(b)(2)(ix)(A)(1),
the purchase price and activation fee, if any, required to be
disclosed outside the short form disclosure pursuant to Sec.
1005.18(b)(5), are excluded from the additional fee types required
to be disclosed pursuant to Sec. 1005.18(b)(2)(ix).
ii. De minimis exclusion. Any fee types that generated less than
5 percent of the total revenue from consumers for the prepaid
account program or across prepaid account programs that share the
same fee schedule during the time period provided in Sec.
1005.18(b)(2)(ix)(D) and (E) are excluded from the additional fee
types required to be disclosed pursuant to Sec.
1005.18(b)(2)(ix)(A)(2). For example, for a particular prepaid
account program over the appropriate time period, bill payment,
check reload, and card replacement are the only fee types that
generated 5 percent or more of the total revenue from consumers at,
respectively, 15 percent, 10 percent, and 7 percent. Two other fee
types, legal fee and personalized card, generated revenue below 1
percent of the total revenue from consumers. The financial
institution must disclose bill payment and check reload as the
additional fee types for that particular prepaid account program
because those two fee types generated the highest revenue from
consumers from among the categories not excluded from disclosure as
additional fee types. For a different prepaid account program over
the appropriate time period, bill payment is the only fee type that
generated 5 percent or more of the total revenue from consumers. Two
other fee types, check reload and card replacement, each generated
revenue below 5 percent of the total revenue from consumers. The
financial institution must disclose bill payment as an additional
fee type for that particular prepaid account program because it is
the only fee type that satisfies the criteria of Sec.
1005.18(b)(2)(ix)(A). The financial institution may, but is not
required to, disclose either check reload or card
[[Page 84354]]
replacement on the short form as well, pursuant to Sec.
1005.18(b)(2)(ix)(B). See comment 18(b)(2)(ix)(B)-1.
iii. Exclusion for credit-related fees. Any finance charges as
described in Regulation Z, 12 CFR 1026.4(b)(11), imposed in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in 12 CFR 1026.61, are
excluded from the additional fee types required to be disclosed
pursuant to Sec. 1005.18(b)(2)(ix)(A)(3). Pursuant to Sec.
1005.18(b)(2)(viii)(A)(2), such finance charges are also excluded
from the number of additional fee types disclosed.
18(b)(2)(ix)(B) Disclosure of Fewer Than Two Additional Fee Types
1. Disclosure of one or no additional fee types. The following
examples provide guidance on the additional fee types disclosure
pursuant to Sec. 1005.18(b)(2)(ix)(B) for a prepaid account with
fewer than two fee types that satisfy the criteria in Sec.
1005.18(b)(2)(ix)(A):
i. A financial institution has a prepaid account program with
only one fee type that satisfies the criteria in Sec.
1005.18(b)(2)(ix)(A) and thus, pursuant to Sec.
1005.18(b)(2)(ix)(A), the financial institution must disclose that
one fee type. The prepaid account program has three other fee types
that generate revenue from consumers, but they do not exceed the de
minimis threshold or otherwise satisfy the criteria in Sec.
1005.18(b)(2)(ix)(B). Pursuant to Sec. 1005.18(b)(2)(ix)(B), the
financial institution is not required to make any additional
disclosure, but it may choose to disclose one of the three fee types
that do not meet the criteria in Sec. 1005.18(b)(2)(ix)(A).
ii. A financial institution has a prepaid account program with
four fee types that generate revenue from consumers, but none
exceeds the de minimis threshold or otherwise satisfy the criteria
in Sec. 1005.18(b)(2)(ix)(A). Pursuant to Sec.
1005.18(b)(2)(ix)(B), the financial institution is not required to
make any disclosure, but it may choose to disclose one or two of the
fee types that do not meet the criteria in Sec.
1005.18(b)(2)(ix)(A).
2. No disclosure of finance charges as an additional fee type.
Pursuant to Sec. 1005.18(b)(3)(vi), a financial institution may not
disclose any finance charges as a voluntary additional fee
disclosure under Sec. 1005.18(b)(2)(ix)(B).
18(b)(2)(ix)(C) Fee Variations in Additional Fee Types
1. Two or more fee variations. Section 1005.18(b)(2)(ix)(C)
specifies how to disclose additional fee types with two fee
variations, more than two fee variations, and for multiple service
plans pursuant to Sec. 1005.18(b)(6)(iii)(B)(2). See comment
18(b)(2)(viii)(A)-2 for guidance on and examples of fee types and
fee variations within those fee types. The following examples
illustrate how to disclose two-tier fees and other fee variations in
additional fee types:
i. Two fee variations with different fee amounts. A financial
institution charges a fee of $1 for providing a card replacement
using standard mail service and charges a fee of $5 for providing a
card replacement using expedited delivery. The financial institution
must calculate the total revenue generated from consumers for all
card replacements, both via standard mail service and expedited
delivery, during the required time period to determine whether it is
required to disclose card replacement as an additional fee type
pursuant to Sec. 1005.18(b)(2)(ix). Because there are only two fee
variations for the fee type ``card replacement,'' if card
replacement is required to be disclosed as an additional fee type
pursuant to Sec. 1005.18(b)(2)(ix)(A), the financial institution
must disclose both fee variations pursuant to Sec.
1005.18(b)(2)(ix)(C). Thus, the financial institution would disclose
on the short form the fee type and two variations as ``Card
replacement (regular or expedited delivery)'' and the fee amount as
``$1.00 or $5.00''.
ii. More than two fee variations. A financial institution offers
two methods of bill payment--via ACH and paper check--and offers two
modes of delivery for bill payments made by paper check--regular
standard mail service and expedited delivery. The financial
institution charges $0.25 for bill pay via ACH, $0.50 for bill pay
via paper check sent by regular standard mail service, and $3 for
bill pay via paper check sent via expedited delivery. The financial
institution must calculate the total revenue generated from
consumers for all methods of bill pay and all modes of delivery
during the required time period to determine whether it must
disclose bill payment as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix). Because there are more than two fee variations
for the fee type ``bill payment,'' if bill payment is required to be
disclosed as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix)(A), the financial institution must disclose the
highest fee, $3, followed by a symbol, such as an asterisk, linked
to a statement explaining that the fee could be lower depending on
how and where the prepaid account is used, pursuant to Sec.
1005.18(b)(3)(i). Thus, the financial institution would disclose on
the short form the fee type as ``Bill payment'' and the fee amount
as ``$3.00*''.
iii. Two fee variations with like fee amounts. A financial
institution offers two methods of check reload for which it charges
a fee--depositing checks at an ATM and depositing checks with a
teller at the financial institution's branch locations. There is a
fee of $0.50 for both methods of check deposit. The financial
institution must calculate the total revenue generated from both of
these check reload methods during the required time period to
determine whether it must disclose this fee type as an additional
fee type pursuant to Sec. 1005.18(b)(2)(ix). Because the fee
amounts are the same for the two methods of check deposit, if the
fee type is required to be disclosed as an additional fee type, the
financial institution's options for disclosing this fee type in
accordance with Sec. 1005.18(b)(2)(ix)(C) and (b)(3)(iii) include:
``Check reload (ATM or teller check dep)'' and the fee amount as
``$0.50'' or ``Check reload'' and the fee amount as ``$0.50''.
iv. Multiple service plans. A financial institution provides a
short form disclosure for multiple service plans pursuant to Sec.
1005.18(b)(6)(iii)(B)(2). Notwithstanding that an additional fee
type has only two fee variations, a financial institution must
disclose the highest fee in accordance with Sec. 1005.18(b)(3)(i).
2. One fee variation under a particular fee type. Section
1005.18(b)(2)(ix)(C) provides in part that, if a financial
institution only charges one fee under a particular fee type, the
financial institution must disclose the name of the additional fee
type and the fee amount; it may, but is not required to, disclose
also the name of the one fee variation, if any, for which the fee
amount is charged, in a format substantially similar to that used to
disclose the two-tier fees required by Sec. 1005.18(b)(2)(v) and
(vi), except that the financial institution must disclose only the
one fee variation name and fee amount instead of two. For example, a
financial institution offers one method of electronic reload for
which it charges a fee--electronic reload conducted using a debit
card. The financial institution must calculate the total revenue
generated from consumers for the fee type electronic reload (i.e.,
in this case, electronic reloads conducted using a debit card)
during the required time period to determine whether it must
disclose electronic reload as an additional fee type pursuant to
Sec. 1005.18(b)(2)(ix). Because the financial institution only
charges one fee variation under the fee type electronic reload, if
this fee type is required to be disclosed as an additional fee type,
the financial institution has two options for disclosing this fee
type in accordance with Sec. 1005.18(b)(2)(ix)(C): ``Electronic
reload (debit card)'' and the fee amount as ``$1.00'' or
``Electronic reload'' and the fee amount as ``$1.00''.
18(b)(2)(ix)(D) Timing of Initial Assessment of Additional Fee Types
Disclosure
18(b)(2)(ix)(D)(1) Existing Prepaid Account Programs as of October 1,
2017
1. 24 month period with available data. Section
1005.18(b)(2)(ix)(D)(1) requires for a prepaid account program in
effect as of October 1, 2017 the financial institution must disclose
additional fee types based on revenue for a 24-month period that
begins no earlier than October 1, 2014. Thus, a prepaid account
program that was in existence as of October 1, 2017 must assess its
additional fee types disclosure from data collected during a
consecutive 24-month period that took place between October 1, 2014
and October 1, 2017. For example, an existing prepaid account
program was first offered to consumers on January 1, 2012 and
provides its first short form disclosure on October 1, 2017. The
earliest 24-month period from which that financial institution could
calculate its first additional fee types disclosure would be from
October 1, 2014 to September 30, 2016.
18(b)(2)(ix)(D)(2) Existing Prepaid Account Programs as of October 1,
2017 With Unavailable Data
1. 24 month period without available data. Section
1005.18(b)(2)(ix)(D)(2) requires that if a financial institution
does not have 24 months of fee revenue data for a particular
[[Page 84355]]
prepaid account program from which to calculate the additional fee
types disclosure in advance of October 1, 2017, the financial
institution must disclose the additional fee types based on revenue
it reasonably anticipates the prepaid account program will generate
over the 24-month period that begins on October 1, 2017. For
example, a financial institution begins offering to consumers a
prepaid account program six months before October 1, 2017. Because
the prepaid account program will not have 24 months of fee revenue
data prior to October 1, 2017, pursuant to Sec.
1005.18(b)(2)(ix)(D)(2) the financial institution must disclose the
additional fee types it reasonably anticipates the prepaid account
program will generate over the 24-month period that begins on
October 1, 2017. The financial institution would take into account
the data it had accumulated at the time of its calculation to arrive
at the reasonably anticipated additional fee types for the prepaid
account program.
18(b)(2)(ix)(E) Timing of Periodic Reassessment and Update of
Additional Fee Types Disclosure
18(b)(2)(ix)(E)(2) Periodic Reassessment
1. Periodic reassessment and, if applicable, update of
additional fee types disclosure. Pursuant to Sec.
1005.18(b)(2)(ix)(E)(2), a financial institution must reassess
whether its previously disclosed additional fee types continue to
comply with the requirements of Sec. 1005.18(b)(2)(ix) every 24
months based on revenue for the previous 24-month period. The
financial institution must complete this reassessment and update its
disclosures, if applicable, within three months of the end of the
24-month period, except as provided in the update printing exception
in Sec. 1005.18(b)(2)(ix)(E)(4). The following examples provide
guidance on the periodic assessment and, if applicable, update of
the disclosure of additional fee types pursuant to Sec.
1005.18(b)(2)(ix)(E)(2):
i. Reassessment with no change in the additional fee types
disclosed. A financial institution disclosed two additional fee
types (bill payment and card replacement) for a particular prepaid
account program on October 1, 2017. Starting on October 1, 2019, the
financial institution assessed the fee revenue data it collected
over the previous 24 months, and the two additional fee types
previously disclosed continue to qualify as additional fee types
pursuant to Sec. 1005.18(b)(2)(ix). The financial institution is
not required to take any action with regard to the disclosure of
additional fee types for that prepaid account program.
ii. Reassessment with a change in the additional fee types
disclosed. A financial institution disclosed two additional fee
types (bill payment and card replacement) for a particular prepaid
account program on October 1, 2017. Starting on October 1, 2019, the
financial institution assessed the fee revenue data it collected
over the previous 24 months, and bill payment continued to qualify
as an additional fee type pursuant to Sec. 1005.18(b)(2)(ix) but
check reload qualified as the second additional fee type instead of
card replacement. The financial institution must update the
additional fee types disclosure in its short form disclosures
provided electronically, orally, and in writing (other than for
printed materials that qualify for the update printing exception in
Sec. 1005.18(b)(2)(ix)(E)(4)) no later than January 1, 2020, which
is three months after the end of the 24-month period.
iii. Reassessment with the addition of an additional fee type
already voluntarily disclosed. A financial institution disclosed one
additional fee type (bill payment) and voluntarily disclosed one
other additional fee type (card replacement, both for regular and
expedited delivery) for a particular prepaid account program on
October 1, 2017. Starting on October 1, 2019, the financial
institution assessed the fee revenue data it collected over the
previous 24 months, and bill payment continued to qualify as an
additional fee type pursuant to Sec. 1005.18(b)(2)(ix) and card
replacement now qualified as the second additional fee type. Because
the financial institution already had disclosed its card replacement
fees in the format required for an additional fee type disclosure,
the financial institution is not required to take any action with
regard to the additional fee types disclosure in the short form for
that prepaid account program.
2. Reassessment more frequently than every 24 months. Pursuant
to Sec. 1005.18(b)(2)(ix)(E)(2), a financial institution may, but
is not required to, carry out the reassessment and update, if
applicable, more frequently than every 24 months, at which time a
new 24-month period commences. A financial institution may choose to
do this, for example, to sync its reassessment process for
additional fee types with its financial reporting schedule or other
financial analysis it performs regarding the particular prepaid
account program. If a financial institution chooses to reassess its
additional fee types disclosure more frequently than every 24
months, it is still required to use 24 months of fee revenue data to
conduct the reassessment. For example, a financial institution first
offered a particular prepaid account program on October 1, 2016 and
thus was required to estimate its initial additional fee types
disclosure pursuant to Sec. 1005.18(b)(2)(ix)(D)(2). If the
financial institution chooses to begin its reassessment of its fee
revenue data on October 1, 2018, it would use the data it collected
over the previous 24 months (October 1, 2016 to September 30, 2018)
and complete its reassessment and its update, if applicable, by
January 1, 2019.
18(b)(2)(ix)(E)(3) Fee Schedule Change
1. Revised prepaid account programs. Section
1005.18(b)(2)(ix)(E)(3) requires that if a financial institution
revises the fee schedule for a prepaid account program, it must
determine whether it reasonably anticipates that the previously
disclosed additional fee types will continue to comply with the
requirements of Sec. 1005.18(b)(2)(ix) for the 24 months following
implementation of the fee schedule change. A fee schedule change
resets the 24-month period for assessment; a financial institution
must comply with the requirements of Sec. 1005.18(b)(2)(ix)(E)(2)
at the end of the 24-month period following implementation of the
fee schedule change. If the financial institution reasonably
anticipates that the previously disclosed additional fee types will
not comply with the requirements of Sec. 1005.18(b)(2)(ix), it must
update the disclosure based on its reasonable anticipation of what
those additional fee types will be at the time the fee schedule
change goes into effect, except as provided in the update printing
exception in Sec. 1005.18(b)(2)(ix)(E)(4). For example, if a
financial institution lowers its card replacement fee from $4 to $3
on December 1, 2018 after having first assessed its additional fee
types disclosure as of October 1, 2017, the financial institution
would assess whether it reasonably anticipates that the existing
additional fee types disclosure will continue to reflect the
additional fee types that generate the highest revenue from
consumers for that prepaid account program for the next 24 months
(until December 1, 2020). If the financial institution reasonably
anticipates that its additional fee types will remain unchanged over
the next 24 months, the financial institution is not required to
take any action with regard to the additional fee types disclosure
for that prepaid account program. In the same example, if the
financial institution reasonably anticipates that the previously
disclosed additional fee types will not comply with the requirements
of Sec. 1005.18(b)(2)(ix) for the 24 months following
implementation of the fee schedule change, the financial institution
must update the listing of additional fee types at the time the fee
schedule change goes into effect, except as provided in the update
printing exception pursuant to Sec. 1005.18(b)(2)(ix)(E)(4).
18(b)(2)(ix)(E)(4) Update Printing Exception
1. Application of the update printing exception to prepaid
accounts sold in retail locations. Pursuant to Sec.
1005.18(b)(2)(ix)(E)(4), notwithstanding the requirements to update
additional fee types disclosures in Sec. 1005.18(b)(2)(ix)(E), a
financial institution is not required to update the listing of
additional fee types that are provided on, in, or with prepaid
account packaging materials that were manufactured, printed, or
otherwise produced prior to a periodic reassessment and update
pursuant to Sec. 1005.18(b)(2)(ix)(E)(2) or prior to a fee schedule
change pursuant to Sec. 1005.18(b)(2)(ix)(E)(3). For prepaid
accounts sold in retail locations, for example, Sec.
1005.18(b)(2)(ix)(E)(4) permits a financial institution to implement
any necessary updates to the listing of the additional fee types
disclosures on the short form disclosure that appear on its physical
prepaid account packaging materials at the time the financial
institution prints new materials. Section 1005.18(b)(2)(ix)(E)(4)
does not require financial institutions to destroy existing
inventory in retail locations or elsewhere in the distribution
channel, to the extent the disclosures on such packaging materials
are otherwise accurate, to comply with this requirement. For
example, a financial institution determines that an additional fee
type listed on a short form disclosure in a retail location no
longer qualifies as an additional fee type pursuant to Sec.
1005.18(b)(2)(ix). The financial institution must update any
electronic and
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oral short form disclosures pursuant to the timing requirements set
forth in Sec. 1005.18(b)(2)(ix)(E). Pursuant to Sec.
1005.18(b)(2)(ix)(E)(4), the financial institution may continue
selling any previously printed prepaid account packages that contain
the prior listing of additional fee types; prepaid account packages
printed after that time must contain the updated listing of
additional fee types.
18(b)(2)(x) Statement Regarding Overdraft Credit Features
1. Short form disclosure when overdraft credit feature may be
offered. Section 1005.18(b)(2)(x) requires disclosure of a statement
if a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in Regulation Z, 12 CFR 1026.61, may be
offered at any point to a consumer in connection with the prepaid
account. This statement must be provided on the short form
disclosures for all prepaid accounts that may offer such a feature,
regardless of whether some consumers may never be solicited or
qualify to enroll in such a feature.
18(b)(2)(xi) Statement Regarding Registration and FDIC or NCUA
Insurance
1. Disclosure of FDIC or NCUA insurance. Section
1005.18(b)(2)(xi) requires a statement regarding the prepaid account
program's eligibility for FDIC deposit insurance or NCUA share
insurance, as appropriate, and directing the consumer to register
the prepaid account for insurance and other account protections,
where applicable. If the consumer's prepaid account funds are held
at a credit union, the disclosure must indicate NCUA insurance
eligibility. If the consumer's prepaid account funds are held at a
financial institution other than a credit union, the disclosure must
indicate FDIC insurance eligibility.
2. Customer identification and verification processes. For
additional guidance on the timing of customer identification and
verification processes, and on prepaid account programs for which
there is no customer identification and verification process for any
prepaid accounts within the prepaid account program, see Sec.
1005.18(e)(3) and comments 18(e)-4 and -5.
18(b)(2)(xiii) Statement Regarding Information on All Fees and Services
1. Financial institution's telephone number. For a financial
institution offering prepaid accounts at a retail location pursuant
to the retail location exception in Sec. 1005.18(b)(1)(ii), the
statement required by Sec. 1005.18(b)(2)(xiii) must also include a
telephone number (and the Web site URL) that a consumer may use to
directly access an oral version of the long form disclosure. To
provide the long form disclosure by telephone, a financial
institution could use a live customer service agent or an
interactive voice response system. The financial institution could
use a telephone number specifically dedicated to providing the long
form disclosure or a more general customer service telephone number
for the prepaid account program. For example, a financial
institution would be deemed to provide direct access pursuant to
Sec. 1005.18(b)(2)(xiii) if a consumer navigates one or two prompts
to reach the oral long form disclosure via a live customer service
agent or an interactive voice response system using either a
specifically dedicated telephone number of a more general customer
service telephone number.
2. Financial institution's Web site. For a financial institution
offering prepaid accounts at a retail location pursuant to the
retail location exception in Sec. 1005.18(b)(1)(ii), the statement
required by Sec. 1005.18(b)(2)(xiii) must also include a Web site
URL (and a telephone number) that a consumer may use to directly
access an electronic version of the long form disclosure. For
example, a financial institution that requires a consumer to
navigate various other Web pages before viewing the long form
disclosure would not be deemed to provide direct access pursuant to
Sec. 1005.18(b)(2)(xiii). Trademark and product names and their
commonly accepted or readily understandable abbreviations comply
with the requirement in Sec. 1005.18(b)(2)(xiii) that the URL be
meaningfully named. For example, ABC or ABCard would be readily
understandable abbreviations for a prepaid account program named the
Alpha Beta Card.
18(b)(2)(xiv) Additional Content for Payroll Card Accounts
18(b)(2)(xiv)(A) Statement Regarding Wage or Salary Payment Options
1. Statement options for payroll card accounts. Section
1005.18(b)(2)(xiv)(A) requires a financial institution to include at
the top of the short form disclosure for payroll card accounts,
above the information required by Sec. 1005.18(b)(2)(i) through
(iv), one of two statements regarding wage payment options.
Financial institutions offering payroll card accounts may choose
which of the two statements required by Sec. 1005.18(b)(2)(xiv)(A)
to use in the short form disclosure. The list of other options
required in the second statement might include the following, as
applicable: Direct deposit to the consumer's bank account, direct
deposit to the consumer's own prepaid account, paper check, or cash.
A financial institution may, but is not required to, provide more
specificity as to whom consumers must ask or inform of their choice
of wage payment method, such as specifying the employer's Human
Resources Department.
2. Statement options for government benefit accounts. See Sec.
1005.15(c)(2)(i) for statement options for government benefit
accounts.
3. Statement permitted for other prepaid accounts. A financial
institution offering a prepaid account other than a payroll card
account or government benefit account may, but is not required to,
include a statement in the short form disclosure regarding payment
options that is similar to either of the statements required for
payroll card accounts pursuant to Sec. 1005.18(b)(2)(xiv)(A) or
government benefit accounts pursuant to Sec. 1005.15(c)(2)(i). For
example, a financial institution issuing a prepaid account to
disburse student financial aid proceeds may disclose a statement
such as the following: ``You have several options to receive your
financial aid payments: Direct deposit to your bank account, direct
deposit to your own prepaid card, paper check, or this prepaid card.
Tell your school which option you choose.''
18(b)(2)(xiv)(B) Statement Regarding State-Required Information or
Other Fee Discounts and Waivers
1. Statement options for state-required information or other fee
discounts or waivers. Section 1005.18(b)(2)(xiv)(B) permits, but
does not require, a financial institution to include in the short
form disclosure for payroll card accounts one additional line of
text directing the consumer to a particular location outside the
short form disclosure for information on ways the consumer may
access payroll card account funds and balance information for free
or for a reduced fee. For example, a financial institution might
include the following line of text in the short form disclosure:
``See below for free ways to access your funds and balance
information'' and then list below, but on the same page as, the
short form disclosure several ways consumers can access their
prepaid account funds and balance information for free.
Alternatively, the financial institution might direct the consumer
to another location for that information, such as by stating ``See
the cardholder agreement for free ways to access your funds and
balance information.'' A similar statement is permitted for
government benefit accounts pursuant to Sec. 1005.15(c)(2)(ii).
18(b)(3) Short Form Disclosure of Variable Fees and Third-Party Fees
and Prohibition on Disclosure of Finance Charges
18(b)(3)(i) General Disclosure of Variable Fees
1. Short form disclosure of variable fees. Section
1005.18(b)(3)(i) requires disclosure in the short form of the
highest fee when a fee can vary, followed by a symbol, such as an
asterisk, linked to a statement explaining that the fee could be
lower depending on how and where the prepaid account is used. For
example, a financial institution provides interactive voice response
(IVR) customer service for free and provides the first three live
agent customer service calls per month for free, after which it
charges $0.50 for each additional live agent customer service call
during that month. Pursuant to Sec. 1005.18(b)(2)(vi), the
financial institution must disclose both its IVR and live agent
customer service fees on the short form disclosure. The financial
institution would disclose the IVR fee as $0 and the live agent
customer service fee as $0.50, followed by an asterisk (or other
symbol) linked to a statement explaining that the fee can be lower
depending on how and where the prepaid account is used. Except as
described in Sec. 1005.18(b)(3)(ii), Sec. 1005.18(b)(3)(i) does
not permit a financial institution to describe in the short form
disclosure the specific conditions under which a fee may be reduced
or waived, but the financial institution could use, for example, any
other part of the prepaid account's packaging or other printed
materials to disclose that information. The conditions under which a
fee may be lower
[[Page 84357]]
are required to be disclosed in the long form disclosure pursuant to
Sec. 1005.18(b)(4)(ii).
18(b)(3)(ii) Disclosure of Variable Periodic Fee
1. Periodic fee variation alternative. If the amount of the
periodic fee disclosed in the short form pursuant to Sec.
1005.18(b)(2)(i) could vary, a financial institution has two
alternatives for disclosing the variation, as set forth in Sec.
1005.18(b)(3)(i) and (ii). For example, a financial institution
charges a monthly fee of $4.95, but waives this fee if a consumer
receives direct deposit into the prepaid account or conducts 30 or
more transactions during that month. Pursuant to Sec.
1005.18(b)(3)(ii), the financial institution could list its monthly
fee of $4.95 on the short form disclosure followed by a dagger
symbol that links to a statement that states, for example, ``No
monthly fee with direct deposit or 30 transactions per month.'' This
statement may take up no more than one line of text in the short
form disclosure and must be located directly above or in place of
the linked statement required by Sec. 1005.18(b)(3)(i).
Alternatively, pursuant to Sec. 1005.18(b)(3)(i), the financial
institution could list its monthly fee of $4.95 on the short form
disclosure followed by an asterisk that links to a statement that
states, ``This fee can be lower depending on how and where this card
is used.''
18(b)(3)(iii) Single Disclosure for Like Fees
1. Alternative for two-tier fees in the short form disclosure.
Pursuant to Sec. 1005.18(b)(3)(iii), a financial institution may
opt to disclose one fee instead of the two fees required by Sec.
1005.18(b)(2)(iii), (v), and (vi) and any two-tier fee required by
Sec. 1005.18(b)(2)(ix), when the amount is the same for both fees.
The following examples illustrate how to provide a single disclosure
for like fees on both the short form disclosure and the multiple
service plan short form disclosure:
i. A financial institution charges $1 for both in-network and
out-of-network automated teller machine withdrawals in the United
States. The financial institution may list the $1 fee once under the
general heading ``ATM withdrawal'' required by Sec.
1005.18(b)(2)(iii); in that case, it need not disclose the terms
``in-network'' or ``out-of-network.''
ii. A financial institution using the multiple service plan
short form disclosure pursuant to Sec. 1005.18(b)(6)(iii)(B)(2)
charges $1 under each of its service plans for both in-network and
out-of-network automated teller machine withdrawals in the United
States. The financial institution may disclose the ATM withdrawal
fee on one line, instead of two, using the general heading ``ATM
withdrawal'' required by Sec. 1005.18(b)(2)(iii); in that case, it
need not disclose the terms ``in-network'' or ``out-of-network.''
18(b)(3)(iv) Third-Party Fees in General
1. General prohibition on disclosure of third-party fees in the
short form. Section 1005.18(b)(3)(iv) states that a financial
institution may not include any third-party fees in a disclosure
made pursuant to Sec. 1005.18(b)(2), except for, as provided by
Sec. 1005.18(b)(3)(v), the cash reload fee required to be disclosed
by Sec. 1005.18(b)(2)(iv). Fees imposed by another party, such as a
program manager, for services performed on behalf of the financial
institution are not third-party fees and therefore must be disclosed
pursuant to Sec. 1005.18(b)(3)(iv). For example, if a program
manager performs customer service functions for a financial
institution's prepaid account program, and charges a fee for live
agent customer service, that fee must be disclosed pursuant to Sec.
1005.18(b)(2)(iv).
18(b)(3)(v) Third-Party Cash Reload Fees
1. Updating third-party fees. Section 1005.18(b)(3)(v) provides
that a financial institution is not required to revise its short
form disclosure to reflect a cash reload fee change by a third party
until such time that the financial institution manufactures, prints,
or otherwise produces new prepaid account packaging materials or
otherwise updates the short form disclosure. For example, at the
time a financial institution first prints packaging material for its
prepaid account program, it discloses on the short form the $3.99
fee charged by the third-party reload network with which it
contracts to provide cash reloads. Ten months later, the third-party
reload network raises its cash reload fee to $4.25. The financial
institution is not required to update its on-package disclosures to
reflect the change in the cash reload fee until the financial
institution next prints packaging materials for that prepaid account
program. With respect to that financial institution's electronic and
oral disclosures for that prepaid account program, the financial
institution may, but is not required to, update its short form
disclosure immediately upon learning of the third-party reload
network's change to its cash reload fee. Alternatively, the
financial institution may wait to update its electronic and oral
short form disclosures to reflect the change in the cash reload fee
until it otherwise updates those disclosures.
18(b)(3)(vi) Prohibition on Disclosure of Finance Charges
1. No disclosure of finance charges in the short form. Section
1005.18(b)(3)(vi) provides that a financial institution may not
include in a disclosure made pursuant to Sec. 1005.18(b)(2)(i)
through (ix) any finance charges as described in Regulation Z, 12
CFR 1026.4(b)(11), imposed in connection with a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined
in 12 CFR 1026.61. If a financial institution imposes a higher fee
or charge on the asset feature of a prepaid account with a covered
separate credit feature accessible by a hybrid prepaid-credit card
than the amount of a comparable fee or charge it imposes on any
prepaid account in the same prepaid account program that does not
have such a credit feature, it must disclose on the short form for
purposes of Sec. 1005.18(b)(2)(i) through (vii) and (ix) the amount
of the comparable fee rather than the higher fee. See, e.g., Sec.
1005.18(g)(2) and related commentary.
18(b)(4) Long Form Disclosure Content
18(b)(4)(ii) Fees
1. Disclosure of all fees. Section 1005.18(b)(4)(ii) requires a
financial institution to disclose in the long form all fees that may
be imposed in connection with a prepaid account, not just fees for
electronic fund transfers or the right to make transfers. The
requirement to disclose all fees in the long form includes any
finance charges imposed on the prepaid account as described in
Regulation Z, 12 CFR 1026.4(b)(11)(ii), in connection with a covered
separate credit feature accessible by a hybrid prepaid-credit card
as defined in 12 CFR 1026.61 but does not include finance charges
imposed on the covered separate credit feature as described in 12
CFR 1026.4(b)(11)(i). See comment 18(b)(7)(i)(B)-2 for guidance on
disclosure of finance charges as part of the Sec. 1005.18(b)(4)(ii)
fee disclosure in the long form. A financial institution may also be
required to include finance charges in the Regulation Z disclosures
required pursuant to Sec. 1005.18(b)(4)(vii).
2. Disclosure of conditions. Section 1005.18(b)(4)(ii) requires
a financial institution to disclose the amount of each fee and the
conditions, if any, under which the fee may be imposed, waived, or
reduced. 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 can qualify for a lower fee. Similarly, if a financial
institution discloses both a periodic fee and an inactivity fee, it
must indicate whether the inactivity fee will be charged in addition
to, or instead of, the periodic fee. A financial institution may,
but is not required to, also include on the long form disclosure
additional information or limitations related to the service or
feature for which a fee is charged, such as, for cash reloads, any
limit on the amount of cash a consumer may load into the prepaid
account in a single transaction or during a particular time period.
The general requirement in Sec. 1005.18(b)(4)(ii) does not apply to
individual fee waivers or reductions granted to a particular
consumer or group of consumers on a discretionary or case-by-case
basis.
3. Disclosure of a service or feature without a charge. Pursuant
to Sec. 1005.18(b)(4)(ii), a financial institution may, but is not
required to, list in the long form disclosure any service or feature
it provides or offers at no charge to the consumer. For example, a
financial institution may list ``online bill pay'' in its long form
disclosure and indicate a fee amount of ``$0'' when the financial
institution does not charge consumers a fee for that feature. By
contrast, where a fee is waived or reduced under certain
circumstances or where a service or feature is available for an
introductory period without a fee, the financial institution may not
list the fee amount as ``$0''. Rather, the financial institution
must list the highest fee, accompanied by an explanation of the
waived or reduced fee amount and any conditions for the waiver or
discount. For example, if a financial institution waives its monthly
fee for any consumer who receives direct deposit payments into the
prepaid account or conducts 30 or more transactions in a given
month, the long form disclosure must list the regular monthly fee
amount along with an explanation that the monthly
[[Page 84358]]
fee is waived if the consumer receives direct deposit or conducts 30
or more transactions each month. Similarly, for an introductory fee,
the financial institution would list the highest fee, and explain
the introductory fee amount, the duration of the introductory
period, and any conditions that apply during the introductory
period.
4. Third-party fees. Section 1005.18(b)(4)(ii) requires
disclosure in the long form of any third-party fee amounts known to
the financial institution that may apply. Fees imposed by another
party, such as a program manager, for services performed on behalf
of the financial institution are not third-party fees and therefore
must be disclosed on the long form pursuant to Sec.
1005.18(b)(4)(ii). Also pursuant to Sec. 1005.18(b)(4)(ii), for any
third-party fee disclosed, a financial institution may, but is not
required to, include either or both a statement that the fee is
accurate as of or through a specific date or that the third-party
fee is subject to change. For example, a financial institution that
contracts with a third-party remote deposit capture service must
include in the long form disclosure the amount of the fee known to
the financial institution that is charged by the third party for
remote deposit capture services. The financial institution may, but
is not required to, also state that the third-party remote deposit
capture fee is accurate as of or through a specific date, such as
the date the financial institution prints the long form disclosure.
The financial institution may also state that the fee is subject to
change. Section 1005.18(b)(4)(ii) also provides that, if a third-
party fee may apply but the amount of the fee is not known by the
financial institution, it must include a statement indicating that a
third-party fee may apply without specifying the fee amount. For
example, a financial institution that permits out-of-network ATM
withdrawals would disclose that, for ATM withdrawals that occur
outside the financial institution's network, the ATM operator may
charge the consumer a fee for the withdrawal, but the financial
institution is not required to disclose the out-of-network ATM
operator's fee amount if it does not know the amount of the fee.
18(b)(4)(iii) Statement Regarding Registration and FDIC or NCUA
Insurance
1. Statement regarding registration and FDIC or NCUA insurance,
including implications thereof. Section 1005.18(b)(4)(iii) requires
that the long form disclosure include the same statement regarding
prepaid account registration and FDIC or NCUA insurance eligibility
required by Sec. 1005.18(b)(2)(xi) in the short form disclosure,
together with an explanation of FDIC or NCUA insurance coverage and
the benefit of such coverage or the consequence of the lack of such
coverage, as applicable.
i. Bank disclosure of FDIC insurance. For example, XYZ Bank
offers a prepaid account program for sale at retail locations that
is set up to be eligible for FDIC deposit insurance, but does not
conduct customer identification and verification before consumers
purchase the prepaid account. XYZ Bank may disclose the required
statements as ``Register your card for FDIC insurance eligibility
and other protections. Your funds will be held at or transferred to
XYZ Bank, an FDIC-insured institution. Once there, your funds are
insured up to $250,000 by the FDIC in the event XYZ Bank fails, if
specific deposit insurance requirements are met and your card is
registered. See fdic.gov/deposit/deposits/prepaid.html for
details.'' Conversely, if XYZ Bank offers another prepaid account
program for sale at retail locations for which it conducts customer
identification and verification after purchase of the prepaid
account, but the program is not set up to be eligible for FDIC
insurance, XYZ Bank may disclose the required statements as ``Not
FDIC insured. Your funds will be held at or transferred to XYZ Bank.
If XYZ Bank fails, you are not protected by FDIC deposit insurance
and could lose some or all of your money. Register your card for
other protections.''
ii. Credit union disclosure of NCUA insurance. For example, ABC
Credit Union offers a prepaid account program for sale at its own
branches that is set up to be eligible for NCUA share insurance, but
does not conduct customer identification and verification before
consumers purchase the prepaid account. ABC Credit Union may
disclose the requirement statements as ``Register your card for NCUA
insurance, if eligible, and other protections. Your funds will be
held at or transferred to ABC Credit Union, an NCUA-insured
institution. Once there, if specific share insurance requirements
are met and your card is registered, your funds are insured up to
$250,000 by the NCUA in the event ABC Credit Union fails.'' See
comment 18(b)(2)(xi)-1 for guidance as to when NCUA insurance
coverage should be disclosed instead of FDIC insurance coverage.
18(b)(4)(vii) Regulation Z Disclosures for Overdraft Credit Features
1. Long form Regulation Z disclosure of overdraft credit
features. Section 1005.18(b)(4)(vii) requires that the long form
include the disclosures described in Regulation Z, 12 CFR
1026.60(e)(1), in accordance with the requirements for such
disclosures in 12 CFR 1026.60, if, at any point, a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined
in Regulation Z, 12 CFR 1026.61, may be offered to a consumer in
connection with the prepaid account. If the financial institution
includes the disclosures described in Regulation Z, 12 CFR
1026.60(e)(1), pursuant to Sec. 1005.18(b)(7)(i)(B), such
disclosures must appear below the disclosures required by Sec.
1005.18(b)(4)(vi). If the disclosures provided pursuant to
Regulation Z, 12 CFR 1026.60(e)(1), are provided in writing, these
disclosures must be provided in the form required by 12 CFR
1026.60(a)(2), and to the extent possible, on the same page as the
other disclosures required by Sec. 1005.18(b)(4).
2. Updates to the long form for changes to the Regulation Z
disclosures. Pursuant to Sec. 1005.18(b)(4)(vii), a financial
institution is not required to revise the disclosure required by
that paragraph to reflect a change in the fees or other terms
disclosed therein until such time as the financial institution
manufactures, prints, or otherwise produces new prepaid account
packaging materials or otherwise updates the long form disclosure.
This exception does not extend to any finance charges imposed on the
prepaid account as described in Regulation Z, 12 CFR
1026.4(b)(11)(ii), in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12
CFR 1026.61 that are required to be disclosed on the long form
pursuant to Sec. 1005.18(b)(4)(ii). See comment 18(b)(4)(ii)-1.
18(b)(5) Disclosure Requirements Outside the Short Form Disclosure
1. Content of disclosure. Section 1005.18(b)(5) requires that
the name of the financial institution, the name of the prepaid
account program, and any purchase price or activation fee for the
prepaid account be disclosed outside the short form disclosure. A
financial institution may, but is not required to, also disclose the
name of the program manager or other service provider involved in
the prepaid account program.
2. Location of disclosure. In addition to setting forth the
required content for disclosures outside the short form disclosure,
Sec. 1005.18(b)(5) requires that, in a setting other than a retail
location, the information required by Sec. 1005.18(b)(5) must be
disclosed in close proximity to the short form. For example, if the
financial institution provides the short form disclosure online, the
information required by Sec. 1005.18(b)(5) is deemed disclosed in
close proximity to the short form if it appears on the same Web page
as the short form disclosure. If the financial institution offers
the prepaid account in its own branch locations and provides the
short form disclosure on the exterior of its preprinted packaging
materials, the information required by Sec. 1005.18(b)(5) is deemed
disclosed in close proximity to the short form disclosure if it
appears on the exterior of the packaging. If the financial
institution provides written short form disclosures in a manner
other than on preprinted packaging materials, such as on paper, the
information required by Sec. 1005.18(b)(5) is deemed disclosed in
close proximity if it appears on the same piece of paper as the
short form disclosure. If the financial institution provides the
short form disclosure orally, the information required by Sec.
1005.18(b)(5) is deemed disclosed in close proximity to the short
form disclosure if it is provided immediately before or after
disclosing the fees and information required pursuant to Sec.
1005.18(b)(2). For prepaid accounts sold in a retail location
pursuant to the retail location exception in Sec.
1005.18(b)(1)(ii), Sec. 1005.18(b)(5) requires the information
other than purchase price be disclosed on the exterior of the access
device's packaging material. If the purchase price, if any, is not
also disclosed on the exterior of the packaging, disclosure of the
purchase price on or near the sales rack or display for the
packaging material is deemed in close proximity to the short form
disclosure.
[[Page 84359]]
18(b)(6) Form of Pre-Acquisition Disclosures
18(b)(6)(i) General
18(b)(6)(i)(B) Electronic Disclosures
1. Providing pre-acquisition disclosures electronically. Section
1005.18(b)(6)(i)(B) requires electronic delivery of the disclosures
required by Sec. 1005.18(b) when a consumer acquires a prepaid
account through electronic means, including via a Web site or mobile
application, and, among other things, in a manner which is
reasonably expected to be accessible in light of how a consumer is
acquiring the prepaid account. For example, if a consumer is
acquiring a prepaid account via a Web site or mobile application, it
would be reasonable to expect that a consumer would be able to
access the disclosures required by Sec. 1005.18(b) on the first
page or via a direct link from the first page of the Web site or
mobile application or on the first page that discloses the details
about the specific prepaid account program. See comment 18(b)(1)(i)-
2 for additional guidance on placement of the short form and long
form disclosures on a Web page.
2. Disclosures responsive to smaller screens. In accordance with
the requirement in Sec. 1005.18(b)(6)(i)(B) that electronic
disclosures be provided in a responsive form, electronic disclosures
provided pursuant to Sec. 1005.18(b) must be provided in a way that
responds to different screen sizes, for example, by stacking
elements of the disclosures in a manner that accommodates consumer
viewing on smaller screens, while still meeting the other formatting
requirements set forth in Sec. 1005.18(b)(7). For example, the
disclosures permitted by Sec. 1005.18(b)(2)(xiv)(B) or (b)(3)(ii)
must take up no more than one additional line of text in the short
form disclosure. If a consumer is acquiring a prepaid account using
a mobile device with a screen too small to accommodate these
disclosures on one line of text in accordance with the size
requirements set forth in Sec. 1005.18(b)(7)(ii)(B), a financial
institution is permitted to display the disclosures permitted by
Sec. 1005.18(b)(2)(xiv)(B) and (b)(3)(ii), for example, by stacking
those disclosures in a way that responds to smaller screen sizes,
while still meeting the other formatting requirements in Sec.
1005.18(b)(7).
3. Machine-readable text. Section 1005.18(b)(6)(i)(B) requires
that electronic disclosures must be provided using machine-readable
text that is accessible via both Web browsers (or mobile
applications, as applicable) and screen readers. A disclosure would
not be deemed to comply with this requirement if it was not provided
in a form that can be read automatically by Internet search engines
or other computer systems.
18(b)(6)(ii) Retainable Form
1. Retainable disclosures. Section 1005.18(b)(6)(ii) requires
that, except for disclosures provided orally pursuant to Sec.
1005.18(b)(1)(ii) or (iii), long form disclosures provided via SMS
as permitted by Sec. 1005.18(b)(2)(xiii) for a prepaid account sold
at retail locations pursuant to the retail location exception in
Sec. 1005.18(b)(1)(ii), and the disclosure of a purchase price
pursuant to Sec. 1005.18(b)(5) that is not disclosed on the
exterior of the packaging material for a prepaid account sold at a
retail location pursuant to the retail location exception in Sec.
1005.18(b)(1)(ii), disclosures provided pursuant to Sec. 1005.18(b)
must be made in a form that a consumer may keep. For example, a
short form disclosure with a tear strip running though it would not
be deemed retainable because use of the tear strip to gain access to
the prepaid account access device inside the packaging would destroy
part of the short form disclosure. Electronic disclosures are deemed
retainable if the consumer is able to print, save, and email the
disclosures from the Web site or mobile application on which they
are displayed.
18(b)(6)(iii) Tabular Format
18(b)(6)(iii)(B) Multiple Service Plans
18(b)(6)(iii)(B)(1) Short Form Disclosure for Default Service Plan
1. Disclosure of default service plan excludes short-term or
promotional service plans. Section 1005.18(b)(6)(iii)(B)(1) provides
that when a financial institution offers multiple service plans
within a particular prepaid account program and each plan has a
different fee schedule, the information required by final Sec.
1005.18(b)(2)(i) through (ix) may be provided in the tabular format
described in final Sec. 1005.18(b)(6)(iii)(A) for the service plan
in which a consumer is initially enrolled by default upon acquiring
a prepaid account. Pursuant to the requirement in Sec.
1005.18(b)(3)(i) to disclose the highest amount a financial
institution may impose for a fee disclosed pursuant to Sec.
1005.18(b)(2)(i) through (vii) and (ix), a financial institution
would not be permitted to disclose any short-term or promotional
service plans as a default service plan.
18(b)(6)(iii)(B)(2) Short Form Disclosure for Multiple Service Plans
1. Disclosure of multiple service plans. The multiple service
plan disclosure requirements in Sec. 1005.18(b)(6)(iii)(B)(2) apply
when a financial institution offers more than one service plan
within a particular prepaid account program, each plan has a
different fee schedule, and the financial institution opts not to
disclose the default service plan pursuant to Sec.
1005.18(b)(6)(iii)(B)(1). See Model Form A-10(e). For example, a
financial institution that offers a prepaid account program with one
service plan for which 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 may use the short form
disclosure for multiple service plans pursuant to Sec.
1005.18(b)(6)(iii)(B)(2). Similarly, a financial institution that
offers a prepaid account program with preferred rates or fees for
the prepaid accounts of consumers who also use another non-prepaid
service (e.g., a mobile phone service), often referred to as
``loyalty plans,'' may also use the short form disclosure for
multiple service plans pursuant to Sec. 1005.18(b)(6)(iii)(B)(2).
Pricing variations based on whether a consumer elects to use a
specific feature of a prepaid account, such as waiver of the monthly
fee for consumers electing to receive direct deposit, does not
constitute multiple service plans or a loyalty plan. See comment
18(b)(3)(iii)-1.ii for guidance on providing a single disclosure for
like fees for multiple service plan short form disclosures.
18(b)(7) Specific Formatting Requirements for Pre-Acquisition
Disclosures
18(b)(7)(i) Grouping
18(b)(7)(i)(B) Long Form Disclosure
1. Conditions must be in close proximity to fee amount. Pursuant
to Sec. 1005.18(b)(4)(ii), the long form disclosure generally must
disclose all fees that may be imposed in connection with a prepaid
account, including the amount of the fee and any conditions under
which the fee may be imposed, waived, or reduced. Pursuant to Sec.
1005.18(b)(7)(i)(B), text describing the conditions under which a
fee may be imposed must appear in the table in the long form
disclosure in close proximity to the fee amount disclosed pursuant
to Sec. 1005.18(b)(4)(ii). For example, a financial institution is
deemed to comply with this requirement if the text describing the
conditions is located directly to the right of the fee amount in the
long form disclosure, as illustrated in Sample Form A-10(f). See
comment 18(b)(6)(i)(B)-2 regarding stacking of electronic
disclosures for display on smaller screen sizes.
2. Category of function for finance charges. Section
1005.18(b)(7)(i)(B) requires that the information required by Sec.
1005.18(b)(4)(ii) must be generally grouped together and organized
under subheadings by the categories of function for which a
financial institution may impose the fee. If any finance charges may
be imposed on the prepaid account as described in Regulation Z, 12
CFR 1026.4(b)(11)(ii), in connection with a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined in 12
CFR 1026.61, the financial institution may, but is not required to,
group all finance charges together under a single subheading. This
includes situations where the financial institution imposes a higher
fee or charge on the asset feature of a prepaid account with a
covered separate credit feature accessible by a hybrid prepaid-
credit card than the amount of a comparable fee or charge it imposes
on any prepaid account in the same prepaid account program that does
not have such a credit feature. For example, if a financial
institution charges on the prepaid account a $0.50 per transaction
fee for each transaction that accesses funds in the asset feature of
a prepaid account and a $1.25 per transaction fee for each
transaction where the hybrid prepaid-credit card accesses credit
from the covered separate credit feature in the course of the
transaction, the financial institution is permitted to disclose the
$0.50 per transaction fee under a general transactional subheading
and disclose the additional $0.75 per transaction fee under a
separate subheading together with any other finance charges that may
be imposed on the prepaid account.
18(b)(7)(ii) Prominence and Size
1. Minimum type size. Section 1005.18(b)(7)(ii) sets forth
minimum type/
[[Page 84360]]
pixel size requirements for each element of the disclosures required
by Sec. 1005.18(b)(2), (b)(3)(i) and (ii), and (b)(4). A financial
institution may provide disclosures in a type size larger than the
required minimum to enhance consumer comprehension in any
acquisition scenario, as long as the financial institution complies
with the type/pixel size hierarchy set forth in Sec.
1005.18(b)(7)(ii).
2. ``Point'' refers to printed disclosures and ``pixel'' refers
to electronic disclosures. References in Sec. 1005.18(b)(7)(ii) to
``point'' size correspond to printed disclosures and references to
``pixel'' size correspond to disclosures provided via electronic
means.
18(b)(7)(ii)(A) General
1. Contrast required between type color and background of
disclosures. Section Sec. 1005.18(b)(7)(ii)(A) requires that all
text used to disclose information in the short form or in the long
form disclosure pursuant to Sec. 1005.18(b)(2), (b)(3)(i) and (ii),
and (b)(4) must be in a single, easy-to-read type that is all black
or one color and printed on a background that provides a clear
contrast. A financial institution complies with the color
requirements if, for example, it provides the disclosures required
by Sec. 1005.18(b)(2), (b)(3)(i) and (ii), and (b)(4) printed in
black type on a white background or white type on a black
background. Also, pursuant to Sec. 1005.18(b)(7)(ii)(A), the type
and color may differ between the short form disclosure and the long
form disclosure provided for a particular prepaid account program.
For example, a financial institution may use one font/type style for
the short form disclosure for a particular prepaid account program
and use a different font/type style for the long form disclosure for
that same prepaid account program. Similarly, a financial
institution may use black type for the short form disclosure for a
particular prepaid account program and use blue type for the long
form disclosure for that same prepaid account program.
18(b)(7)(iii) Segregation
1. Permitted information outside the short form and long form
disclosures. Section 1005.18(b)(7)(iii) requires that the short form
and long form disclosures required by Sec. 1005.18(b)(2) and (4) be
segregated from other information and contain only information that
is required or permitted for those disclosures by Sec. 1005.18(b).
This segregation requirement does not prohibit the financial
institution from providing information elsewhere on the same page as
the short form disclosure, such as the information required by Sec.
1005.18(b)(5), additional disclosures required by state law for
payroll card accounts, or any other information the financial
institution wishes to provide about the prepaid account. Similarly,
the segregation requirement does not prohibit a financial
institution from providing the long form disclosure on the same page
as other disclosures or information, or as part of a larger
document, such as the prepaid account agreement. See also Sec.
1005.18(b)(1) and (f)(1).
18(b)(8) Terminology of Pre-Acquisition Disclosures
1. Consistent terminology. Section 1005.18(b)(8) requires that
fee names and other terms be used consistently within and across the
disclosures required by Sec. 1005.18(b). For example, a financial
institution may not name the fee required to be disclosed by Sec.
1005.18(b)(2)(vii) an ``inactivity fee'' in the short form
disclosure and a ``dormancy fee'' in the long form disclosure.
However, a financial institution may substitute the term prepaid
``account'' for the term prepaid ``card,'' as appropriate, wherever
it is used in Sec. 1005.18(b).
18(b)(9) Prepaid Accounts Acquired in Foreign Languages
1. Prepaid accounts acquired in foreign languages. Section
1005.18(b)(9)(i) requires a financial institution to provide the
pre-acquisition disclosures required by Sec. 1005.18(b)(2) of this
section in a foreign language in certain circumstances.
i. Examples of situations in which foreign language disclosures
are required. The following examples illustrate situations in which
a financial institution must provide the pre-acquisition disclosures
in a foreign language in connection with the acquisition of that
prepaid account:
A. The financial institution principally uses a foreign language
on the packaging material of a prepaid account sold in a retail
location or distributed at a bank or credit union branch, even
though a few words appear in English on the packaging.
B. The financial institution principally uses a foreign language
in a television advertisement for a prepaid account. That
advertisement includes a telephone number a consumer can call to
acquire the prepaid account, whether by speaking to a customer
service representative or interacting with an interactive voice
response (IVR) system.
C. The financial institution principally uses a foreign language
in an online advertisement for a prepaid account. That advertisement
includes a Web site URL through which a consumer can acquire the
prepaid account.
D. The financial institution principally uses a foreign language
on a printed advertisement for a prepaid account. That advertisement
includes a telephone number or a Web site URL a consumer can call or
visit to acquire the prepaid account. The pre-acquisition
disclosures must be provided to the consumer in that same foreign
language prior to the consumer acquiring the prepaid account.
E. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it
principally use a foreign language to advertise, solicit, or market
a prepaid account. A consumer calls the financial institution and
has the option to proceed with the prepaid account acquisition
process in a foreign language, whether by speaking to a customer
service representative or interacting with an IVR system.
F. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it
principally use a foreign language to advertise, solicit, or market
a prepaid account. A consumer visits the financial institution's Web
site. On that Web site, the consumer has the option to proceed with
the prepaid account acquisition process in a foreign language.
ii. Examples of situations in which foreign language disclosures
are not required. The following examples illustrate situations in
which a financial institution is not required to provide the pre-
acquisition disclosures in a foreign language:
A. A consumer visits the financial institution's branch location
in person and speaks to an employee in a foreign language about
acquiring a prepaid account. The consumer proceeds with the
acquisition process in that foreign language.
B. The financial institution does not principally use a foreign
language on prepaid account packaging material nor does it
principally use a foreign language to advertise, solicit, or market
a prepaid account. A consumer calls the financial institution's
customer service line and speaks to a customer service
representative in a foreign language. However, if the customer
service representative proceeds with the prepaid account acquisition
process over the telephone, the financial institution would be
required to provide the pre-acquisition disclosures in that foreign
language.
C. The financial institution principally uses a foreign language
in an advertisement for a prepaid account. That advertisement
includes a telephone number a consumer can call to acquire the
prepaid account. The consumer calls the telephone number provided on
the advertisement and has the option to proceed with the prepaid
account acquisition process in English or in a foreign language. The
consumer chooses to proceed with the acquisition process in English.
2. Principally used. All relevant facts and circumstances
determine whether a foreign language is principally used by the
financial institution to advertise, solicit, or market under Sec.
1005.18(b)(9). Whether a foreign language is principally used is
determined at the packaging material, advertisement, solicitation,
or marketing communication level, not at the prepaid account program
level or across the financial institution's activities as a whole. A
financial institution that advertises a prepaid account program in
multiple languages would evaluate its use of foreign language in
each advertisement to determine whether it has principally used a
foreign language therein.
3. Advertise, solicit, or market a prepaid account. Any
commercial message, appearing in any medium, that promotes directly
or indirectly the availability of prepaid accounts constitutes
advertising, soliciting, or marketing for purposes of Sec.
1005.18(b)(9). Examples illustrating advertising, soliciting, or
marketing include, but are not limited to:
i. Messages in a leaflet, promotional flyer, newspaper, or
magazine.
ii. Electronic messages, such as on a Web site or mobile
application.
iii. Telephone solicitations.
iv. Solicitations sent to the consumer by mail or email.
v. Television or radio commercials.
4. Information in the long form disclosure in English. Section
1005.18(b)(9)(ii) states that a financial institution required to
provide pre-acquisition disclosures in a foreign language pursuant
to
[[Page 84361]]
Sec. 1005.18(b)(9)(i) must also provide the information required to
be disclosed in its pre-acquisition long form disclosure pursuant to
Sec. 1005.18(b)(4) in English upon a consumer's request and on any
part of the Web site where it discloses this information in a
foreign language. A financial institution may, but is not required
to, provide the English version of the information required by Sec.
1005.18(b)(4) in accordance with the formatting, grouping, size and
other requirements set forth in Sec. 1005.18(b) for the long form
disclosure.
18(c) Access to Prepaid Account Information
1. Posted transactions. The electronic and written history of
the consumer's account transactions provided under Sec.
1005.18(c)(1)(ii) and (iii), respectively, shall reflect transfers
once they have been posted to the account. Thus, a financial
institution does not need to include transactions that have been
authorized but that have not yet posted to the account.
2. Electronic history. The electronic history required under
Sec. 1005.18(c)(1)(ii) must be made available in a form that the
consumer may keep, as required under Sec. 1005.4(a)(1). Financial
institutions may satisfy this requirement if they make the
electronic history available in a format that is capable of being
retained. For example, a financial institution satisfies the
requirement if it provides electronic history on a Web site in a
format that is capable of being printed or stored electronically
using a web browser.
3. Written history. Requests that exceed the requirements of
Sec. 1005.18(c)(1)(iii) for providing written account transaction
history, and which therefore a financial institution may charge a
fee, include the following:
i. A financial institution may assess a fee or charge to a
consumer for responding to subsequent requests for written account
transaction history made in a single calendar month. For example, if
a consumer requests written account transaction history on June 1
and makes another request 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 written account
transaction history on June 1 and then makes another 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 response in the same month.
ii. If a financial institution maintains more than 24 months of
written account transaction history, it may assess a fee or charge
to the consumer for providing a written history for transactions
occurring more than 24 months preceding the date the financial
institution receives the consumer's request, provided the consumer
specifically requests the written account transaction history for
that time period.
iii. If a financial institution offers a consumer the ability to
request automatic mailings of written account transaction history on
a monthly or other periodic basis, it may assess a fee or charge for
such automatic mailings but not for the written account transaction
history requested pursuant to Sec. 1005.18(c)(1)(iii). See comment
18(c)-6.
4. 12 months of electronic account transaction history. Section
1005.18(c)(1)(ii) requires a financial institution to make available
at least 12 months of account transaction history electronically. If
a prepaid account has been opened for fewer than 12 months, the
financial institution need only provide electronic account
transaction history pursuant to Sec. 1005.18(c)(1)(ii) since the
time of account opening. If a prepaid account is closed or becomes
inactive, as defined by the financial institution, the financial
institution need not make available electronic account transaction
history. See comment 9(b)-3. If an inactive account becomes active,
the financial institution must again make available 12 months of
electronic account transaction history.
5. 24 months of written account transaction history. Section
1005.18(c)(1)(iii) requires a financial institution to provide at
least 24 months of account transaction history in writing upon the
consumer's request. A financial institution may provide fewer than
24 months of written account transaction history if the consumer
requests a shorter period of time. If a prepaid account has been
opened for fewer than 24 months, the financial institution need only
provide written account transaction history pursuant to Sec.
1005.18(c)(1)(iii) since the time of account opening. Even if a
prepaid account is closed or becomes inactive, the financial
institution must continue to provide upon request at least 24 months
of written account transaction history preceding the date the
request is received. When a prepaid account has been closed or
inactive for 24 months or longer, the financial institution is no
longer required to make available any written account transaction
history pursuant to Sec. 1005.18(c)(1)(iii).
6. Periodic statement alternative for unverified prepaid
accounts. For prepaid accounts that are not payroll card accounts or
government benefit accounts, a financial institution is not required
to provide a written history of the consumer's account transactions
for any prepaid account for which the financial institution has not
completed its consumer identification and verification process as
described in Sec. 1005.18(e)(3)(i)(A) through (C). If a prepaid
account is verified, a financial institution must provide written
account transaction history upon the consumer's request that
includes the period during which the account was not verified,
provided that the period is within the 24-month time frame specified
in Sec. 1005.18(c)(1)(iii).
7. Inclusion of all fees charged. A financial institution that
furnishes a periodic statement pursuant to Sec. 1005.9(b) for a
prepaid account must disclose the amount of any fees assessed
against the account, whether for electronic fund transfers or
otherwise, on the periodic statement as well as on any electronic or
written account transaction history the financial institution makes
available or provides to the consumer. For example, if a financial
institution sends periodic statements and also makes available the
consumer's electronic account transaction history on its Web site,
the financial institution must disclose the amount of any fees
assessed against the account, whether for electronic fund transfers
or otherwise, on the periodic statement and on the consumer's
electronic account transaction history made available on its Web
site. Likewise, a financial institution that follows the periodic
statement alternative in Sec. 1005.18(c)(1) must disclose the
amount of any fees assessed against the account, whether for
electronic fund transfers or otherwise, on the electronic history of
the consumer's account transactions made available pursuant to Sec.
1005.18(c)(1)(ii) and any written history of the consumer's account
transactions provided pursuant to Sec. 1005.18(c)(1)(iii).
8. Summary totals of fees. Section 1005.18(c)(5) requires a
financial institution to disclose a summary total of the amount of
all fees assessed by the financial institution against a prepaid
account for the prior calendar month and for the calendar year to
date.
i. Generally. A financial institution that furnishes a periodic
statement pursuant to Sec. 1005.9(b) for a prepaid account must
display the monthly and annual fee totals on the periodic statement
as well as on any electronic or written account transaction history
the financial institution makes available or provides to the
consumer. For example, if a financial institution sends periodic
statements and also makes available the consumer's electronic
account transaction history on its Web site, the financial
institution must display the monthly and annual fee totals on the
periodic statement and on the consumer's electronic account
transaction history made available on its Web site. Likewise, a
financial institution that follows the periodic statement
alternative in Sec. 1005.18(c)(1) must display the monthly and
annual fee totals on the electronic history of the consumer's
account transactions made available pursuant to Sec.
1005.18(c)(1)(ii) and any written history of the consumer's account
transactions provided pursuant to Sec. 1005.18(c)(1)(iii). If a
financial institution provides periodic statements pursuant to Sec.
1005.9(b), fee totals may be disclosed for each statement period
rather than each calendar month, if different. The summary totals of
fees should be net of any fee reversals.
ii. Third-party fees. A financial institution may, but is not
required to, include third-party fees in its summary totals of fees
provided pursuant to Sec. 1005.18(c)(5). For example, a financial
institution must include in the summary totals of fees the fee it
charges a consumer for using an out-of-network ATM, but it need not
include any fee charged by an ATM operator, with whom the financial
institution has no relationship, for the consumer's use of that
operator's ATM. Similarly, a financial institution need not include
in the summary totals of fees the fee charged by a third-party
reload network for the service of adding cash to a prepaid account
at a point-of-sale terminal. A financial institution may, but is not
required to, inform consumers of third-party fees such as by
providing a disclaimer to indicate that the summary totals do not
include certain third-party fees or to explain when third-
[[Page 84362]]
party fees may occur or through some other method.
9. Display of summary totals of fees. A financial institution
may, but is not required to, also include sub-totals of the types of
fees that make up the summary totals of fees as required by Sec.
1005.18(c)(5). For example, if a financial institution distinguishes
optional fees (e.g., custom card design fees) from fees to use the
account, in displaying the summary totals of fees, the financial
institution may include sub-totals of those fees, provided the
financial institution also presents the combined totals of all fees.
18(e) Modified Limitations on Liability and Error Resolution
Requirements
1. Error resolution safe harbor provision. Institutions that
choose to investigate notices of error provided up to 120 days from
the date a transaction has posted to a consumer's account may still
disclose the error resolution time period required by the regulation
(as set forth in the model clause in paragraph (b) of appendix A-7
of this part). Specifically, an institution may disclose to prepaid
account holders that the institution will investigate any notice of
error provided within 60 days of the consumer electronically
accessing an account or receiving a written history upon request
that reflects the error, even if, for some or all transactions, the
institution investigates any notice of error provided up to 120 days
from the date that the transaction alleged to be in error has posted
to the consumer's account. Similarly, an institution's summary of
the consumer's liability (as required under Sec. 1005.7(b)(1)) may
disclose that liability is based on the consumer providing notice of
error within 60 days of the consumer electronically accessing an
account or receiving a written history reflecting the error, even
if, for some or all transactions, the institution allows a consumer
to assert a notice of error up to 120 days from the date of posting
of the alleged error.
2. Electronic access. A consumer is deemed to have accessed a
prepaid 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 and to provide access to a Web site or mobile application
through which account information can be viewed. 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. 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.
3. Untimely notice of error. An institution that provides a
transaction history under Sec. 1005.18(c)(1) is not required to
comply with the requirements of Sec. 1005.11 for any notice of
error from the consumer received more than 60 days after the earlier
of the date the consumer electronically accesses the account
transaction history or the date the financial institution sends a
written account transaction history upon the consumer's request.
(Alternatively, as provided in Sec. 1005.18(e)(2)(ii), an
institution need not comply with the requirements of Sec. 1005.11
with respect to any notice of error received from the consumer more
than 120 days after the date of posting of the transfer allegedly in
error.) Where the consumer's assertion of error involves an
unauthorized EFT, however, the institution must comply with Sec.
1005.6 (including the extension of time limits in Sec.
1005.6(b)(4)) before it may impose any liability on the consumer.
4. Verification of accounts. Section 1005.18(e)(3) provides that
for prepaid accounts that are not payroll card accounts or
government benefit accounts, a financial institution need not extend
provisional credit for any prepaid account for which it has not
completed its collection of consumer identification and verification
process. Consumer identifying information may include the consumer's
full name, address, date of birth, and Social Security number or
other government-issued identification number.
5. Financial institution has not completed verification. Section
1005.18(e)(3)(ii)(A) states that, provided it discloses to the
consumer the risks of not registering a prepaid account, a financial
institution has not completed its consumer identification and
verification process where it has not concluded the process with
respect to a particular consumer. For example, a financial
institution initiates the identification and verification process by
collecting identifying information about a consumer and informing
the consumer of the nature of the outstanding information, but
despite efforts to obtain additional information from the consumer,
the financial institution is unable to conclude the process because
of conflicting information about the consumer's current address. As
long as the information needed to complete the verification process
remains outstanding, the financial institution has not concluded its
consumer identification and verification process with respect to
that consumer. 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.
6. Account verification prior to acquisition. A financial
institution that collects and verifies consumer identifying
information, or that obtains such information after it has been
collected and verified by a third party, prior to or as part of the
account acquisition process, is deemed to have completed its
consumer identification and verification process with respect to
that account. For example, a university contracts with a financial
institution to disburse financial aid to students via the financial
institution's prepaid accounts. To facilitate the accurate disbursal
of aid awards, the university provides the financial institution
with identifying information about the university's students, whose
identities the university had previously verified. The financial
institution is deemed to have completed its consumer identification
and verification process with respect to those accounts.
18(f) Disclosure of Fees and Other Information
1. Initial disclosure of fees and other information. Section
1005.18(f)(1) requires a financial institution to include, as part
of the initial disclosures given pursuant to Sec. 1005.7, all of
the information required to be disclosed in its pre-acquisition long
form disclosure pursuant to Sec. 1005.18(b)(4). Section
1005.18(b)(4)(ii) requires a financial institution to disclose in
its pre-acquisition long form disclosure all fees imposed in
connection with a prepaid account. Section 1005.18(b)(4) also
contains several specific statements that must be provided as part
of the long form disclosure. A financial institution may, but is not
required to, disclose the information required by Sec.
1005.18(b)(4) in accordance with the formatting, grouping, size and
other requirements set forth in Sec. 1005.18(b) for the long form
disclosure as part of its initial disclosures provided pursuant to
Sec. 1005.7; a financial institution may choose to do so, however,
in order to satisfy other requirements in Sec. 1005.18. See, e.g.,
Sec. 1005.18(b)(1)(ii) regarding the retail location exception.
2. Changes to the Regulation Z disclosures for overdraft credit
features. Pursuant to Sec. 1005.18(f)(2), if a financial
institution provides pursuant Sec. 1005.18(f)(1) the Regulation Z
disclosures required by Sec. 1005.18(b)(4)(vii) for an overdraft
credit feature, the financial institution is not required to provide
a change-in-terms notice solely to reflect a change in the fees or
other terms disclosed therein. This exception does not extend to any
finance charges imposed on the prepaid account as described in
Regulation Z, 12 CFR 1026.4(b)(11)(ii), in connection with a covered
separate credit feature accessible by a hybrid prepaid-credit card
as defined in 12 CFR 1026.61 that are required to be disclosed
pursuant to Sec. 1005.18(b)(4)(ii). See comment 18(b)(4)(ii)-1.
3. Web site and telephone number on a prepaid account access
device. Section 1005.18(f)(3) requires that the name of a financial
institution and the Web site URL and a telephone number that a
consumer can use to contact the financial institution about the
prepaid account must be disclosed on the prepaid account access
device. A 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 does not constitute a disclosure on the access device. The
financial institution must provide this information to allow
consumers to, for example, contact the financial institution to
learn about the terms and conditions of the prepaid account, obtain
prepaid account balance information, request a copy of transaction
history pursuant to Sec. 1005.18(c)(1)(iii) if the financial
institution does not provide periodic statements pursuant to Sec.
1005.9(b), or to notify the financial institution when the consumer
believes that an unauthorized electronic fund transfer has occurred
as required by Sec. Sec. 1005.7(b)(2) and 1005.18(d)(1)(ii).
[[Page 84363]]
18(g) Prepaid Accounts Accessible by Hybrid Prepaid-Credit Cards
1. Covered separate credit feature accessible by a hybrid
prepaid-credit card. Regulation Z, 12 CFR 1026.61, defines the term
covered separate credit feature accessible by a hybrid prepaid-
credit card.
2. Asset feature. i. Regulation Z, 12 CFR 1026.61(a)(5)(ii),
defines the term asset feature.
ii. Section 1005.18(g) applies to account terms, conditions, and
features that apply to the asset feature of the prepaid account.
Section 1005.18(g) does not apply to the account terms, conditions,
or features that apply to the covered separate credit feature,
regardless of whether it is structured as a separate credit account
or as a credit subaccount of the prepaid account that is separate
from the asset feature of the prepaid account.
3. Scope of Sec. 1005.18(g). Under Sec. 1005.18(g), a
financial institution may offer different terms on different prepaid
account programs. For example, the terms may differ between a
prepaid account program where a covered separate credit feature
accessible by a hybrid prepaid-credit card is not offered in
connection with any prepaid accounts within the prepaid account
program, and a prepaid account program where a covered separate
credit feature accessible by a hybrid prepaid-credit card may be
offered to some consumers in connection with their prepaid accounts.
4. Variation in account terms, conditions, or features. i.
Account terms, conditions, and features subject to Sec. 1005.18(g)
include, but are not limited to:
A. Interest paid on funds deposited into the asset feature of
the prepaid account, if any;
B. Fees or charges imposed on the asset feature of the prepaid
account. See comment 18(g)-5 for additional guidance on how Sec.
1005.18(g) applies to fees or charges imposed on the asset feature
of the prepaid account.
C. The type of access device provided to the consumer. For
instance, an institution may not provide a PIN-only card on prepaid
accounts without a covered separate credit feature that is
accessible by a hybrid prepaid-credit card, while providing a
prepaid card with both PIN and signature-debit functionality for
prepaid accounts in the same prepaid account program with such a
credit feature;
D. Minimum balance requirements on the asset feature of the
prepaid account; or
E. Account features offered in connection with the asset feature
of the prepaid account, such as online bill payment services.
5. Fees. i. With respect to a prepaid account program where
consumers may be offered a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined by Regulation
Z, 12 CFR 1026.61, Sec. 1005.18(g) only permits a financial
institution to charge the same or higher fees on the asset feature
of a prepaid account with a covered separate credit feature than the
amount of a comparable fee it charges on prepaid accounts in the
same prepaid account program that do not have a such a credit
feature. Section 1005.18(g) prohibits a financial institution from
imposing a lower fee or charge on prepaid accounts with a covered
separate credit feature than the amount of a comparable fee or
charge it charges on prepaid accounts in the same prepaid account
program without such a credit feature. With regard to a covered
separate credit feature and an asset feature of a prepaid account
that are both accessible by a hybrid prepaid-credit card as defined
in Regulation Z, 12 CFR 1026.61, a fee or charge imposed on the
asset feature of the prepaid account generally is a finance charge
under Regulation Z (12 CFR part 1026) to the extent that the amount
of the fee or charge exceeds the amount of a comparable fee or
charge imposed on prepaid accounts in the same prepaid account
program that do not have such a credit feature. See Regulation Z, 12
CFR 1026.4(b)(11)(ii). With regard to a covered separate credit
feature and an asset feature of a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in Regulation
Z, 12 CFR 1026.61, this comment below provides illustrations of how
Sec. 1005.18(g) applies to fees or charges imposed on the asset
feature of a prepaid account. The term ``non-covered separate credit
feature'' refers to a separate credit feature that is not accessible
by a hybrid prepaid-credit card as defined in Regulation Z, 12 CFR
1026.61.
ii. The following examples illustrate how Sec. 1005.18(g)
applies to per transaction fees for each transaction to access funds
available in the asset feature of the prepaid account.
A. Assume that a consumer has selected a prepaid account program
where a covered separate credit feature accessible by a hybrid
prepaid-credit card may be offered. For prepaid accounts without
such a credit feature, the financial institution charges $0.50 for
each transaction conducted that accesses funds available in the
prepaid account. For prepaid accounts with a credit feature, the
financial institution also charges $0.50 on the asset feature for
each transaction conducted that accesses funds available in the
asset feature of the prepaid account. In this case, for purposes of
Sec. 1005.18(g), the financial institution is imposing the same fee
for each transaction that accesses funds in the asset feature of the
prepaid account, regardless of whether the prepaid account has a
covered separate credit feature accessible by a hybrid prepaid-
credit card. Also, with regard to a covered separate credit feature
and an asset feature of a prepaid account that are both accessible
by a hybrid prepaid-credit card as those terms are defined in
Regulation Z, 12 CFR 1026.61, the $0.50 per transaction fee imposed
on the asset feature for each transaction that accesses funds
available in the asset feature of the prepaid account is not a
finance charge under 12 CFR 1026.4(b)(11)(ii). See Regulation Z, 12
CFR 1026.4(b)(11)(ii) and comment 4(b)(11)(ii)-1, for a discussion
of the definition of finance charge with respect to fees or charges
imposed on the asset feature of a prepaid account with regard to a
covered separate credit feature and an asset feature of a prepaid
account that are both accessible by a hybrid prepaid-credit card as
defined in 12 CFR 1026.61.
B. Same facts as in paragraph A, except that for prepaid
accounts with a covered separate credit feature, the financial
institution imposes a $1.25 fee for each transaction conducted that
accesses funds available in the asset feature of the prepaid
account. In this case, the financial institution is permitted to
charge a higher fee under Sec. 1005.18(g)(2) on prepaid accounts
with a covered separate credit feature than it charges on prepaid
accounts without such a credit feature. The $0.75 excess is a
finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
C. Same facts as in paragraph A, except that for prepaid
accounts with a covered separate credit feature, the financial
institution imposes a $0.25 fee for each transaction conducted that
accesses funds available in the asset feature of the prepaid
account. In this case, the financial institution is in violation of
Sec. 1005.18(g) because it is imposing a lower fee on the asset
feature of a prepaid account with a covered separate credit feature
than it imposes on prepaid accounts in the same program without such
a credit feature.
iii. Where the hybrid prepaid-credit card accesses credit from a
covered separate credit feature in the course of authorizing,
settling, or otherwise completing a transaction conducted with the
card to obtain goods or services, obtain cash, or conduct person-to-
person transfers, any per transaction fees imposed on the asset
feature of prepaid accounts, including load and transfer fees, with
such a credit feature are comparable only to per transaction fees
for each transaction to access funds in the asset feature of a
prepaid account that are imposed on prepaid accounts in the same
prepaid account program that does not have such a credit feature.
Per transaction fees for a transaction that is conducted to load or
draw funds into a prepaid account from a source other than the funds
in the asset feature are not comparable for purposes of Sec.
1005.18(g). To illustrate:
A. Assume a financial institution charges $0.50 on prepaid
accounts for each transaction that accesses funds in the asset
feature of the prepaid accounts without a covered separate credit
feature. Also, assume that the financial institution charges $0.50
per transaction on the asset feature of prepaid accounts in the same
prepaid program where the hybrid prepaid-credit card accesses credit
from a covered separate credit feature in the course of a
transaction. In this case, for purposes of Sec. 1005.18(g), the
financial institution is imposing the same fee for each transaction
it pays, regardless of whether the transaction accesses funds
available in the asset feature of the prepaid accounts without a
covered separate credit feature, or is paid from credit from a
covered separate credit feature in the course of authorizing,
settling, or otherwise completing a transaction conducted with the
card to obtain goods or services, obtain cash, or conduct person-to-
person transfers. Also, for purposes of Regulation Z, 12 CFR
1026.4(b)(11)(ii), the $0.50 per transaction fee imposed on the
asset feature of the prepaid account with a covered separate credit
feature is not a finance charge.
B. Assume same facts as in paragraph A above, except that assume
the financial
[[Page 84364]]
institution charges $1.25 on the asset feature of a prepaid account
for each transaction where the hybrid prepaid-credit card accesses
credit from the covered separate credit feature in the course of the
transaction. The financial institution is permitted to charge the
higher fee under Sec. 1005.18(g) for transactions that access the
covered separate credit feature in the course of the transaction
than the amount of the comparable fee it charges for each
transaction that accesses funds available in the asset feature of
the prepaid accounts without such a credit feature. The $0.75 excess
is a finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
C. Same facts as in paragraph A, except that the financial
institution imposes $0.25 on the asset feature of the prepaid
account for each transaction conducted where the hybrid prepaid-
credit card accesses credit from the covered separate credit feature
in the course of the transaction. In this case, the financial
institution is in violation of Sec. 1005.18(g) because it is
imposing a lower fee on the asset feature of a prepaid account with
a covered separate credit feature than the amount of the comparable
fee it imposes on prepaid accounts in the same program without such
a credit feature.
D. Assume a financial institution charges $0.50 on prepaid
accounts for each transaction that accesses funds in the asset
feature of the prepaid accounts without a covered separate credit
feature. Assume also that the financial institution charges both a
$0.50 per transaction fee and a $1.25 transfer fee on the asset
feature of prepaid accounts in the same prepaid program where the
hybrid prepaid-credit card accesses credit from a covered separate
credit feature in the course of a transaction. In this case, both
fees charged on a per-transaction basis for the credit transaction
(i.e., a combined fee of $1.75 per transaction) must be compared to
the $0.50 per transaction fee to access funds in the asset feature
of the prepaid account without a covered separate credit feature.
The financial institution is permitted to charge a higher fee under
Sec. 1005.18(g) for transactions that access the covered separate
credit feature in the course of the transaction than the amount of
the comparable fee it charges for each transaction that accesses
funds available in the asset feature of the prepaid accounts without
such a credit feature. The $1.25 excess is a finance charge under
Regulation Z, 12 CFR 1026.4(b)(11)(ii).
E. Assume same facts as in paragraph D above, except that assume
the financial institution also charges a load fee of $1.25 whenever
funds are transferred or loaded from a separate asset account, such
as from a deposit account via a debit card, in the course of a
transaction on prepaid accounts without a covered separate credit
feature, in addition to charging a $0.50 per transaction fee. In
this case, both fees charged on a per-transaction basis for the
credit transaction (i.e., a combined fee of $1.75 per transaction)
must be compared to the per transaction fee (i.e., the fee of $0.50)
to access funds available in the asset feature of the prepaid
accounts on a prepaid account without a covered separate credit
feature. Per transaction fees for a transaction that is conducted by
drawing funds into a prepaid account from some other source (i.e.,
the fee of $1.25) are not comparable for purposes of Sec.
1005.18(g). The financial institution is permitted to charge a
higher fee under Sec. 1005.18(g) for transactions that access the
covered separate credit feature in the course of the transaction
than the amount of the comparable fee it charges for each
transaction to access funds available in the asset feature of the
prepaid accounts without such a credit feature. The $1.25 excess is
a finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
iv. A consumer may choose in a particular circumstance to draw
or transfer credit from the covered separate credit feature outside
the course of a transaction conducted with the card to obtain goods
or service, obtain cash, or conduct person-to-person transfers. For
example, a consumer may use the prepaid card at the financial
institution's Web site to load funds from the covered separate
credit feature outside the course of a transaction conducted with
the card to obtain goods or services, obtain cash, or conduct
person-to-person transfers. See Regulation Z, 12 CFR
1026.61(a)(2)(i)(B) and comment 61(a)(2)-4.ii. In these situations,
load or transfer fees imposed for draws or transfers of credit from
the covered separate credit feature outside the course of a
transaction are compared only with fees, if any, to load funds as a
direct deposit of salary from an employer or a direct deposit of
government benefits that are charged on prepaid accounts without a
covered separate credit feature. Fees imposed on prepaid accounts
without a covered separate credit feature for a one-time load or
transfer of funds from a separate asset account or from a non-
covered separate credit feature are not comparable for purposes of
Sec. 1005.18(g). To illustrate:
A. Assume a financial institution charges a $1.25 load fee to
transfer funds from a non-covered separate credit feature, such as a
non-covered separate credit card account, into prepaid accounts that
do not have a covered separate credit feature and does not charge a
fee for a direct deposit of salary from an employer or a direct
deposit of government benefits on those prepaid accounts. Assume the
financial institution charges $1.25 on the asset feature of a
prepaid account with a covered separate credit feature to load funds
from the covered separate credit feature outside the course of a
transaction. In this case, the load or transfer fees imposed for
draws or transfers of credit from the covered separate credit
feature outside the course of a transaction (i.e., the fee of $1.25)
is compared with the fees to load funds as a direct deposit of
salary from an employer or a direct deposit of government benefits
that are charged on prepaid accounts without a covered separate
credit feature (i.e., the fee of $0). Fees imposed on prepaid
accounts without a covered separate credit feature for a one-time
load or transfer of funds from a separate asset account (i.e., the
fee of $1.25) is not comparable for purposes of Sec. 1005.18(g). In
this case, the financial institution is permitted to charge a higher
fee under Sec. 1005.18(g) for transactions that access the covered
separate credit feature on prepaid accounts with a credit feature
than the amount of the comparable fee it charges on prepaid accounts
in the same program without such a credit feature. The $1.25 fee
imposed on the asset feature of the prepaid account with a separate
credit feature is a finance charge under Regulation Z, 12 CFR
1026.4(b)(11)(ii).
B. Assume that a financial institution charges a $1.25 load fee
for a one-time transfer of funds from a separate asset account, such
as from a deposit account via a debit card, to a prepaid account
without a covered separate credit feature and does not charge a fee
for a direct deposit of salary from an employer or a direct deposit
of government benefits on those prepaid accounts. Assume the
financial institution charges $1.25 on the asset feature of a
prepaid account with a covered separate credit feature to load funds
from the covered separate credit feature outside the course of a
transaction. In this case, the load or transfer fees imposed for
draws or transfers of credit from the covered separate credit
feature outside the course of a transaction (i.e., the fee of $1.25)
is compared with the fees to load funds as a direct deposit of
salary from an employer or a direct deposit of government benefits
that are charged on prepaid accounts without a covered separate
credit feature (i.e., the fee of $0). Fees imposed on prepaid
accounts without a covered separate credit feature for a one-time
load or transfer of funds from a separate asset account (i.e., the
fee of $1.25) is not comparable for purposes of Sec. 1005.18(g). In
this case, the financial institution is permitted to charge a higher
fee under Sec. 1005.18(g) for transactions that access the covered
separate credit feature on prepaid accounts with a credit feature
than the amount of the comparable fee it charges on prepaid accounts
in the same program without such a credit feature. The $1.25 fee
imposed on the asset feature of the prepaid account with a covered
separate credit feature is a finance charge under Regulation Z, 12
CFR 1026.4(b)(11)(ii).
18(h) Effective Date and Special Transition Rules for Disclosure
Provisions
1. Disclosures not on prepaid account access devices and prepaid
account packaging materials. Section 1005.18(h)(1) provides that,
except as provided in Sec. 1005.18(h)(2) and (3), the disclosure
requirements of subpart A, as modified by Sec. 1005.18, apply to
prepaid accounts as defined in Sec. 1005.2(b)(3), including
government benefit accounts subject to Sec. 1005.15, beginning
October 1, 2017. This effective date applies to disclosures made
available or provided to consumers electronically, orally by
telephone, or in a form other than on pre-printed materials, such as
disclosures printed on paper by a financial institution upon a
consumer's request.
2. Disclosures on prepaid account access devices and prepaid
account packaging materials. Section 1005.18(h)(2)(i) provides that
the disclosure requirements of subpart A, as modified by Sec.
1005.18, do not apply to any disclosures that are provided, or that
would otherwise be required to be provided, on prepaid account
access devices, or on, in, or with prepaid account packaging
materials
[[Page 84365]]
that were manufactured, printed, or otherwise produced in the normal
course of business prior to October 1, 2017. This includes, for
example, disclosures contained on or in packages for prepaid
accounts sold at retail, or disclosures for payroll card accounts or
government benefit accounts that are distributed to employees or
benefits recipients in packages or envelopes. Disclosures and access
devices that are manufactured, printed, or otherwise produced on or
after October 1, 2017 must comply with all the requirements of
subpart A.
3. Form of notice to consumers. A financial institution that is
required to notify consumers of a change in terms and conditions
pursuant to Sec. 1005.18(h)(2)(ii) or (iii), or that otherwise
provides updated initial disclosures as a result of Sec.
1005.18(h)(1) taking effect, may provide the notice or disclosures
either as a separate document or included in another notice or
mailing that the consumer receives regarding the prepaid account to
the extent permitted by other laws and regulations.
4. Ability to contact the consumer. A financial institution that
has not obtained the consumer's contact information is not required
to comply with the requirements set forth in Sec. 1005.18(h)(2)(ii)
or (iii). A financial institution is able to contact the consumer
when, for example, it has the consumer's mailing address or email
address.
5. Closed and inactive prepaid accounts. The requirements of
Sec. 1005.18(h)(2)(iii) do not apply to prepaid accounts that are
closed or inactive, as defined by the financial institution.
However, if an inactive account becomes active, the financial
institution must comply with the applicable portions of those
provisions within 30 days of the account becoming active again in
order to avail itself of the timing requirements and accommodations
set forth inSec. 1005.18(h)(2)(iii) and (iv).
6. Account information not available on October 1, 2017. i.
Electronic and written account transaction history. A financial
institution following the periodic statement alternative in Sec.
1005.18(c) must make available 12 months of electronic account
transaction history pursuant to Sec. 1005.18(c)(1)(ii) and must
provide 24 months of written account transaction history upon
request pursuant to Sec. 1005.18(c)(1)(iii) beginning October 1,
2017. If, on October 1, 2017, the financial institution does not
have readily accessible the data necessary to make available or
provide the account histories for the required time periods, the
financial institution may make available or provide such histories
using the data for the time period it has until the financial
institution has accumulated the data necessary to comply in full
with the requirements set forth in Sec. 1005.18(c)(1)(ii) and
(iii). For example, a financial institution that had been retaining
only 60 days of account history before October 1, 2017 would provide
60 days of written account transaction history upon a consumer's
request on October 1, 2017. If, on November 1, 2017, the consumer
made another request for written account transaction history, the
financial institution would be required to provide three months of
account history. The financial institution must continue to provide
as much account history as it has accumulated at the time of a
consumer's request until it has accumulated 24 months of account
history. Thus, all financial institutions must fully comply with the
electronic account transaction history requirement set forth in
Sec. 1005.18(c)(1)(ii) no later than October 1, 2018 and must fully
comply with the written account transaction history requirement set
forth in Sec. 1005.18(c)(1)(iii) no later than October 1, 2019.
ii. Summary totals of fees. A financial institution must display
a summary total of the amount of all fees assessed by the financial
institution on the consumer's prepaid account for the prior calendar
month and for the calendar year to date pursuant to Sec.
1005.18(c)(5) beginning October 1, 2017. If, on October 1, 2017, the
financial institution does not have readily accessible the data
necessary to calculate the summary totals of fees for the prior
calendar month or the calendar year to date, the financial
institution may provide the summary totals using the data it has
until the financial institution has accumulated the data necessary
to display the summary totals as required by Sec. 1005.18(c)(5).
That is, the financial institution would first display the monthly
fee total beginning on November 1, 2017 for the month of October,
and the year-to-date fee total beginning on October 1, 2017,
provided the financial institution discloses that it is displaying
the year-to-date total beginning on October 1, 2017 rather than for
the entire calendar year 2017. On January 1, 2018, financial
institutions must begin displaying year-to-date fee totals for
calendar year 2018.
Section 1005.19 Internet Posting of Prepaid Account Agreements
19(a) Definitions
19(a)(1) Agreement
1. Provisions contained in separate documents included. Section
1005.19(a)(1) defines a prepaid account agreement, for purposes of
Sec. 1005.19, as the written document or documents evidencing the
terms of the legal obligation, or the prospective legal obligation,
between a prepaid account issuer and a consumer for a prepaid
account. An agreement may consist of several documents that, taken
together, define the legal obligation between the issuer and
consumer.
19(a)(2) Amends
1. Substantive changes. A change to an agreement is substantive,
and therefore is deemed an amendment of the agreement, if it alters
the rights or obligations of the parties. Section 1005.19(a)(2)
provides that any change in the fee information, as defined in Sec.
1005.19(a)(3), is deemed to be substantive. Examples of other
changes that generally would be considered substantive include:
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 to a choice of law provision.
v. Changes that may affect the parties to whom the agreement may
apply, such as changes to provisions regarding authorized users or
assignment of the agreement.
vi. Changes to the corporate name of the issuer or program
manager, or to the issuer's address or identifying number, such as
its RSSD ID number or tax identification number.
vii. Changes to the names of other relevant parties, such as the
employer for a payroll card program or the agency for a government
benefit program.
viii. Changes to the name of the prepaid account program to
which the agreement applies.
2. Non-substantive changes. Changes that generally would not be
considered substantive include, for example:
i. Correction of typographical errors that do not affect the
meaning of any terms of the agreement.
ii. Changes to the issuer's corporate 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. Reordering sections of the agreement without affecting the
meaning of any terms of the agreement.
v. Adding, removing, or modifying a table of contents or index.
vi. Changes to titles, headings, section numbers, or captions.
19(a)(4) Issuer
1. Issuer. Section 1005.19(a)(4) provides that, for purposes of
Sec. 1005.19, issuer or prepaid account issuer means the entity to
which a consumer is legally obligated, or would be legally
obligated, under the terms of a prepaid account agreement. For
example, 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.
2. Use of third-party service providers. An issuer has a legal
obligation to comply with the requirements of Sec. 1005.19.
However, an issuer generally may use a third-party service provider
to satisfy its obligations under
[[Page 84366]]
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 Sec. 1005.19 on the
issuer's behalf. For example, Program Manager and Bank work together
to issue prepaid accounts. Under the Sec. 1005.19(a)(4) definition
of issuer, Bank is the issuer of these prepaid accounts for purposes
of Sec. 1005.19. However, Program Manager services the prepaid
accounts, including mailing to consumers account opening materials
and making available to consumers their electronic account
transaction history, pursuant to Sec. 1005.18(c)(1)(ii). While Bank
is responsible for ensuring compliance with 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 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.
3. Third-party Web sites. As explained in comment 19(c)-2, if an
issuer provides consumers with access to specific information about
their individual accounts, such as making available to consumers
their electronic account transaction history, 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 Sec. 1005.19. Such
a Web site is deemed to be maintained by the issuer for purposes of
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 Sec. 1005.19. For example, Program Manager
and Bank work together to issue prepaid accounts. Under the Sec.
1005.19(a)(4) definition of issuer, Bank is the issuer of these
prepaid accounts for purposes of Sec. 1005.19. Bank does not
maintain a Web site specifically related to prepaid accounts.
However, consumers can access information about their individual
accounts, such as an electronic account transaction history, 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 Sec. 1005.19. Bank therefore may comply with
Sec. 1005.19(c) or (d)(1) by ensuring that agreements offered by
Bank are posted on Program Manager's Web site in accordance with
Sec. 1005.19(c) or (d)(1), 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 Sec. 1005.19(c) and (d) as long as
Bank ensures that Program Manager's Web site complies with these
sections.
19(a)(6) Offers to the General Public
1. Prepaid accounts offered to limited groups. An issuer is
deemed to offer a prepaid account agreement to the general public
even if the issuer markets, solicits applications for, or otherwise
makes available prepaid accounts only to a limited group of persons.
For example, an issuer may solicit only residents of a specific
geographic location for a particular prepaid account; in this case,
the agreement would be considered to be offered to the general
public. Similarly, agreements for prepaid accounts issued by a
credit union are considered to be offered to the general public even
though such prepaid accounts are available only to credit union
members.
2. Prepaid account agreements not offered to the general public.
A prepaid account agreement is not offered to the general public
when a consumer is offered the agreement only by virtue of the
consumer's relationship with a third party. Examples of agreements
not offered to the general public include 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.
19(a)(7) Open Account
1. Open account. A prepaid account is an open account if (i)
there is an outstanding balance in the account; (ii) the consumer
can load more funds to the account even if the account does not
currently hold a balance; or (iii) the consumer can access credit
from a covered separate credit feature accessible by a hybrid
prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61, in
connection with a prepaid account. Under this definition, an account
that meets any of these criteria is considered to be open even if
the account is deemed inactive by the issuer.
19(a)(8) Prepaid Account
1. Prepaid account. Section 1005.19(a)(7) provides that, for
purposes of Sec. 1005.19, the term prepaid account means a prepaid
account as defined in Sec. 1005.2(b)(3). Therefore, for purposes of
Sec. 1005.19, a prepaid account includes, among other things, a
payroll card account as defined in Sec. 1005.2(b)(3)(iii) and a
government benefit account as defined in Sec. Sec.
1005.2(b)(3)(iii) and 1005.15(a)(2).
19(b) Submission of Agreements to the Bureau
19(b)(1) Submissions on a Rolling Basis
1. Rolling submission requirement. Section 1005.19(b)(1)
requires issuers to send submissions to the Bureau no later than 30
days after offering, amending, or ceasing to offer any prepaid
account agreement, as described in Sec. 1005.19(b)(1)(ii) through
(iv). For example, if on July 1 an issuer offers a prepaid account
agreement that has not been previously submitted to the Bureau, it
must submit that agreement to the Bureau by July 31 of the same
year. Similarly, if on August 1 an issuer amends a prepaid account
agreement previously submitted to the Bureau, and the change becomes
effective on September 15, the issuer must submit the entire amended
agreement as required by Sec. 1005.19(b)(2) by October 15 of the
same year. Furthermore, if on December 31 an issuer ceases to offer
a prepaid account agreement that was previously submitted to the
Bureau, it must submit notification to the Bureau that it is
withdrawing that agreement as required by Sec. 1005.19(b)(3) by
January 30 of the following year.
2. Prepaid accounts offered in conjunction with multiple
issuers. If a program manager offers prepaid account agreements in
conjunction with multiple issuers, each issuer must submit its own
agreement to the Bureau. Alternatively, each issuer may use the
program manager to submit the agreement on its behalf, in accordance
with comment 19(a)(4)-2.
19(b)(2) Amended Agreements
1. Change-in-terms notices not permissible. Section
1005.19(b)(2) requires that if an agreement previously submitted to
the Bureau is amended, the issuer must submit the entire revised
agreement to the Bureau. An issuer may not fulfill this requirement
by submitting a change-in-terms or similar notice covering only the
terms that have changed. Amendments must be integrated into the text
of the agreement (or the optional addendum described in Sec.
1005.19(b)(6)), not provided as separate riders.
19(b)(3) Withdrawal of Agreements No Longer Offered
1. No longer offers agreement. Section 1005.19(b)(3) provides
that, if an issuer no longer offers an agreement that was previously
submitted to the Bureau, the issuer must notify the Bureau no later
than 30 days after the issuer ceases to offer the agreement that it
is withdrawing the agreement. An issuer no longer offers an
agreement when it no longer allows a consumer to activate or
register a new account in connection with that agreement.
19(b)(4) De Minimis Exception
1. Relationship to other exceptions. The de minimis exception in
Sec. 1005.19(b)(4) is distinct from the product testing exception
under 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 issuer's total number of
open accounts.
2. De minimis exception. Under Sec. 1005.19(b)(4), an issuer is
not required to submit any prepaid account agreements to the Bureau
under Sec. 1005.19(b)(1) if the issuer has fewer than 3,000 open
prepaid accounts. For example, an issuer has 2,000 open
[[Page 84367]]
prepaid accounts. The issuer is not required to submit any
agreements to the Bureau because the issuer qualifies for the de
minimis exception.
3. Date for determining whether issuer qualifies. Whether an
issuer qualifies for the de minimis exception is determined as of
the last day of each calendar quarter. For example, an issuer has
2,500 open prepaid accounts as of December 31, the last day of the
calendar quarter. As of January 30, the issuer has 3,100 open
prepaid accounts. As of March 31, the last day of the following
calendar quarter, the issuer has 2,700 open prepaid accounts. Even
though the issuer had 3,100 open prepaid accounts at one time during
the calendar quarter, the issuer qualifies for the de minimis
exception because the number of open prepaid accounts was less than
3,000 as of March 31. The issuer therefore is not required to submit
any agreements to the Bureau under Sec. 1005.19(b)(1).
4. Date for determining whether issuer ceases to qualify.
Whether an issuer ceases to qualify for the de minimis exception
under Sec. 1005.19(b)(4) is determined as of the last day of the
calendar quarter. For example, an issuer has 2,500 open prepaid
accounts as of June 30, the last day of the calendar quarter. The
issuer is not required to submit any agreements to the Bureau under
Sec. 1005.19(b) by July 30 (the 30th day after June 30) because the
issuer qualifies for the de minimis exception. As of July 15, the
issuer has 3,100 open prepaid accounts. The issuer is not required
to take any action at this time, because whether an issuer qualifies
for the de minimis exception under Sec. 1005.19(b)(4) is determined
as of the last day of the calendar quarter. The issuer still has
3,100 open prepaid accounts as of September 30. Because the issuer
had 3,100 open prepaid accounts as of September 30, the issuer
ceases to qualify for the de minimis exception and must submit its
agreements to the Bureau by October 30, the 30th day after the last
day of the calendar quarter.
5. Option to withdraw agreements. Section 1005.19(b)(4) provides
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 rolling submissions to the Bureau as required
by Sec. 1005.19(b)(1) until the issuer notifies the Bureau that the
issuer is withdrawing all agreements it previously submitted to the
Bureau. For example, an issuer offers three agreements and has 3,001
open accounts as of December 31. The issuer submitted each of the
three agreements to the Bureau by January 30 as required under Sec.
1005.19(b). As of March 31, the issuer has only 2,999 open accounts.
The issuer has two options. First, the issuer may notify the Bureau
that the issuer is withdrawing each of the three agreements it
previously submitted. Once the issuer has notified the Bureau, the
issuer is no longer required to make rolling submissions to the
Bureau under Sec. 1005.19(b) unless it later ceases to qualify for
the de minimis exception. Alternatively, the issuer may choose not
to notify the Bureau that it is withdrawing its agreements. In this
case, the issuer must continue making rolling submissions to the
Bureau as required by Sec. 1005.19(b). The issuer might choose not
to withdraw its agreements if, for example, the issuer believes it
will likely cease to qualify for the de minimis exception again in
the near future.
19(b)(6) Form and Content of Agreements Submitted to the Bureau
1. Agreements currently in effect. Agreements submitted to the
Bureau must contain the provisions of the agreement and fee
information currently in effect. For example, on June 1, an issuer
decides to decrease the out-of-network ATM withdrawal fee associated
with one of the agreements it offers. The change in that fee will
become effective on August 1. The issuer must submit and post the
amended agreement with the decreased out-of-network ATM withdrawal
fee to the Bureau by August 31 as required by Sec. 1005.19(b)(2)
and (c).
2. Fee information 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. For example, an issuer offers a prepaid account with a
monthly fee of $4.95 or $0 if the consumer regularly receives direct
deposit to the prepaid account. The issuer must submit to the Bureau
one agreement with fee information listing the possible monthly fees
of $4.95 or $0 and including the explanation that the latter fee is
dependent upon the consumer regularly receiving direct deposit.
3. Integrated agreement requirement. Issuers may not submit
provisions of the agreement or fee information in the form of
change-in-terms notices or riders. The only addendum that may be
submitted as part of an agreement is the optional fee information
addendum described in Sec. 1005.19(b)(6)(ii). Changes in provisions
or fee information must be integrated into the body of the agreement
or the optional fee information addendum described in Sec.
1005.19(b)(6)(ii). For example, it would be impermissible for an
issuer to submit to the Bureau an agreement in the form of a terms
and conditions document on January 1 and subsequently submit a
change-in-terms notice or an addendum to indicate amendments to the
previously submitted agreement. 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.
19(c) Posting of Agreements Offered to the General Public
1. Requirement applies only to agreements offered to the general
public. An issuer is only required to post and maintain on its
publicly available Web site the prepaid account agreements that the
issuer offers to the general public as defined by Sec.
1005.19(a)(6) and must submit to the Bureau under Sec. 1005.19(b).
For agreements not offered to the general public, the issuer is not
required to post and maintain the agreements on its publicly
available Web site, but is still required to provide each individual
consumer with access to his or her specific prepaid account
agreement under Sec. 1005.19(d). This posting requirement is
distinct from that of Sec. 1005.7, as modified by Sec.
1005.18(f)(1), 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, and the change-in-terms
notice required under Sec. 1005.8(a), as modified by Sec.
1005.18(f)(2). This requirement is also distinct from that of Sec.
1005.18(b)(4), which requires 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. Additionally, if an issuer is
not required to submit any agreements to the Bureau because the
issuer qualifies for the de minimis exception under Sec.
1005.19(b)(4) or the agreement qualifies for the product testing
exception under Sec. 1005.19(b)(5), the issuer is not required to
post and maintain any agreements on its Web site under Sec.
1005.19(c). The issuer is still required to provide each individual
consumer with access to his or her specific prepaid account
agreement under Sec. 1005.19(d) 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.
2. Issuers that do not otherwise maintain Web sites. If an
issuer offers an agreement to the general public as defined by Sec.
1005.19(a)(6), that issuer must post that agreement on a publicly
available Web site it maintains. 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 Sec. 1005.19. Such a third-party Web site is
deemed to be maintained by the issuer for purposes of 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 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 Sec. 1005.19(c).
19(d) Agreements for All Open Accounts
1. Requirement applies to all open accounts. The requirement to
provide access to prepaid account agreements under Sec. 1005.19(d)
applies to all open prepaid accounts. For example, an issuer that is
not required to post agreements on its Web site because it qualifies
for the de minimis exception under Sec. 1005.19(b)(4) would still
be required to provide consumers with access to their specific
agreements under Sec. 1005.19(d). Similarly, an agreement that is
[[Page 84368]]
no longer offered would not be required to be posted on the issuer's
Web site, but would still need to be provided to the consumer to
whom it applies under Sec. 1005.19(d). Additionally, an issuer is
not required to post on its Web site agreements not offered to the
general public, such as agreements for payroll card accounts and
government benefit accounts, as explained in comment 19(c)-1, but
the issuer must still provide consumers with access to their
specific agreements under Sec. 1005.19(d).
2. Agreements sent to consumers. Section 1005.19(d)(1)(ii)
provides, in part, that if an issuer makes an agreement available
upon request, the issuer must send the consumer a copy of the
consumer's prepaid account agreement no later than five business
days after the issuer receives the consumer's request. If the issuer
mails the agreement, the agreement must be posted in the mail five
business days after the issuer receives the consumer's request. If
the issuer hand delivers or provides the agreement electronically,
the agreement must be hand delivered or provided electronically five
business days after the issuer receives the consumer's request. For
example, if the issuer emails the agreement, the email with the
attached agreement must be sent no later than five business days
after the issuer receives the consumer's request.
19(f) Effective Date
1. Delayed effective date for the agreement submission
requirement. Section 1005.19(f)(2) provides that the requirement to
submit prepaid account agreements to the Bureau on a rolling basis
pursuant to Sec. 1005.19(b) is delayed until October 1, 2018. An
issuer must submit to the Bureau no later than October 31, 2018 all
prepaid account agreements it offers as of October 1, 2018. After
October 1, 2018, issuers must submit on a rolling basis prepaid
account agreements or notifications of withdrawn agreements to the
Bureau within 30 days after offering, amending, or ceasing to offer
the agreements.
2. Continuing obligation to post and provide consumer
agreements. Pursuant to Sec. 1005.19(f)(3), during the delayed
agreement submission period set forth in Sec. 1005.19(f)(2), an
issuer must post agreements on its Web site as required by Sec.
1005.19(c) and (d)(1)(i) using the agreements it would have
otherwise submitted to the Bureau under Sec. 1005.19(b) and must
provide a copy of the consumer's agreement to the consumer upon
request pursuant to Sec. 1005.19(d)(1)(ii). For purposes of Sec.
1005.19(c)(2) and (d)(2), agreements posted by an issuer on its Web
site must conform to the form and content requirements set forth in
Sec. 1005.19(b)(6). For purposes of Sec. 1005.19(c)(3) and
(d)(2)(v), amended agreements must be posted to the issuer's Web
site no later than 30 days after the change becomes effective as
required by Sec. 1005.19(b)(2).
* * * * *
Section 1005.30 Remittance Transfer Definitions
* * * * *
30(c) Designated Recipient
* * * * *
2. * * *
ii. For transfers to a prepaid account (other than a prepaid
account that is a payroll card account or a government benefit
account), where the funds are to be received in a location
physically outside of any State depends on whether the provider at
the time the transfer is requested has information indicating that
funds are to be received in a foreign country. See comments 30(c)-
2.iii and 30(e)-3.i.C for illustrations of when a remittance
transfer provider would have such information and when the provider
would not. For transfers to all other accounts, whether funds are to
be received at a location physically outside of any State depends on
where the account is located. If the account is located in a State,
the funds will not be received at a location in a foreign country.
Further, for these accounts, if they are located on a U.S. military
installation that is physically located in a foreign country, then
these accounts are located in a State.
* * * * *
30(g) Sender
1. Determining whether a consumer is located in a State. Under
Sec. 1005.30(g), the definition of ``sender'' means a consumer in a
State who, primarily for personal, family, or household purposes,
requests a remittance transfer provider to send a remittance
transfer to a designated recipient. A sender located on a U.S.
military installation that is physically located in a foreign
country is located in a State. For transfers sent from a prepaid
account (other than a prepaid account that is a payroll card account
or a government benefit account), whether the consumer is located in
a State depends on the location of the consumer. If the provider
does not know where the consumer is at the time the consumer
requests the transfer from the consumer's prepaid account (other
than a prepaid account that is a payroll card account or a
government benefit account) the provider may make the determination
of whether a consumer is located in a State based on information
that is provided by the consumer and on any records associated with
the consumer that the provider may have, such as an address provided
by the consumer. For transfers from all other accounts belonging to
a consumer, whether a consumer is located in a State depends on
where the consumer's account is located. If the account is located
in a State, the consumer will be located in a State for purposes of
the definition of ``sender'' in Sec. 1005.30(g), notwithstanding
comment 3(a)-3. For these accounts, if they are located on a U.S.
military installation that is physically located in a foreign
country, then these accounts are located in a State. Where a
transfer is requested electronically or by telephone and the
transfer is not from an account, the provider may make the
determination of whether a consumer is located in a State based on
information that is provided by the consumer and on any records
associated with the consumer that the provider may have, such as an
address provided by the consumer.
* * * * *
3. Non-consumer accounts. A transfer that is requested to be
sent from an account that was not established primarily for
personal, family, or household purposes, such as an account that was
established as a business or commercial account or an account held
by a business entity such as a corporation, not-for-profit
corporation, professional corporation, limited liability company,
partnership, or sole proprietorship, is not requested primarily for
personal, family, or household purposes. A consumer requesting a
transfer from such an account therefore is not a sender under Sec.
1005.30(g). Additionally, a transfer that is requested to be sent
from an account held by a financial institution under a bona fide
trust agreement pursuant to Sec. 1005.2(b)(2) is not requested
primarily for personal, family, or household purposes, and a
consumer requesting a transfer from such an account is therefore not
a sender under Sec. 1005.30(g).
* * * * *
Appendix A--Model Disclosure Clauses and Forms
* * * * *
2. Use of forms. The appendix contains model disclosure clauses
for optional use by financial institutions and remittance transfer
providers to facilitate compliance with the disclosure requirements
of Sec. Sec. 1005.5(b)(2) and (3), 1005.6(a), 1005.7, 1005.8(b),
1005.14(b)(1)(ii), 1005.15(c), 1005.15(e)(1) and (2), 1005.18(b)(2),
(3), (6) and (7), 1005.18(d)(1) and (2), 1005.31, 1005.32 and
1005.36. The use of appropriate clauses in making disclosures will
protect a financial institution and a remittance transfer provider
from liability under sections 916 and 917 of the act provided the
clauses accurately reflect the institution's EFT services and the
provider's remittance transfer services, respectively.
3. Altering the clauses. Unless otherwise expressly addressed in
the rule, the following applies. Financial institutions may use
clauses of their own design in conjunction with the Bureau's model
clauses. The inapplicable words or portions of phrases in
parentheses should be deleted. The catchlines are not part of the
clauses and need not be used. Financial institutions may make
alterations, substitutions, or additions in the clauses to reflect
the services offered, such as technical changes (including the
substitution of a trade name for the word ``card,'' deletion of
inapplicable services, or substitution of lesser liability limits).
Several of the model clauses include references to a telephone
number and address. Where two or more of these clauses are used in a
disclosure, the telephone number and address may be referenced and
need not be repeated.
* * * * *
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
13. The authority citation for part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353,
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.
[[Page 84369]]
Subpart A--General
0
14. Section 1026.2 is amended by revising paragraphs (a)(15)(i),
(a)(15)(ii)(A), and (a)(15)(ii)(B), and by adding paragraphs
(a)(15)(ii)(C) and (a)(15)(iv) to read as follows:
Sec. 1026.2 Definitions and rules of construction.
(a) * * *
(15)(i) Credit card means any card, plate, or other single credit
device that may be used from time to time to obtain credit. The term
credit card includes a hybrid prepaid-credit card as defined in Sec.
1026.61.
(ii) * * *
(A) A home-equity plan subject to the requirements of Sec. 1026.40
that is accessed by a credit card;
(B) An overdraft line of credit that is accessed by a debit card;
or
(C) An overdraft line of credit that is accessed by an account
number, except if the account number is a hybrid prepaid-credit card
that can access a covered separate credit feature as defined in Sec.
1026.61.
* * * * *
(iv) Debit card means 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 as defined in Sec. 1026.61. The term debit card does
not include a prepaid card as defined in Sec. 1026.61.
* * * * *
0
15. Section 1026.4 is amended by revising paragraphs (b)(2), (c)(3),
and (c)(4), and by adding paragraph (b)(11) to read as follows:
Sec. 1026.4 Finance charge.
* * * * *
(b) * * *
(2) Service, transaction, activity, and carrying charges, including
any charge imposed on a checking or other transaction account (except a
prepaid account as defined in Sec. 1026.61) to the extent that the
charge exceeds the charge for a similar account without a credit
feature.
* * * * *
(11) With regard to a covered separate credit feature and an asset
feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card as defined in Sec. 1026.61:
(i) Any fee or charge described in paragraphs (b)(1) through (10)
of this section imposed on the covered separate credit feature, whether
it is structured as a credit subaccount of the prepaid account or a
separate credit account.
(ii) Any fee or charge imposed on the asset feature of the prepaid
account to the extent that the amount of the fee or charge exceeds
comparable fees or charges imposed on prepaid accounts in the same
prepaid account program that do not have a covered separate credit
feature accessible by a hybrid prepaid-credit card.
(c) * * *
(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. This
paragraph does not apply to credit offered in connection with a prepaid
account as defined in Sec. 1026.61.
(4) Fees charged for participation in a credit plan, whether
assessed on an annual or other periodic basis. This paragraph does not
apply to a fee to participate in a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Sec. 1026.61,
regardless of whether this fee is imposed on the credit feature or on
the asset feature of the prepaid account.
* * * * *
Subpart B--Open-End Credit
* * * * *
0
16. Section 1026.6 is amended by adding paragraphs (b)(3)(iii)(D) and
(E) to read as follows:
Sec. 1026.6 Account-opening disclosures.
* * * * *
(b) * * *
(3) * * *
(iii) * * *
(D) With regard to a covered separate credit feature and an asset
feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card as defined in Sec. 1026.61, any fee or charge
imposed on the asset feature of the prepaid account to the extent that
the amount of the fee or charge does not exceed comparable fees or
charges imposed on prepaid accounts in the same prepaid account program
that do not have a covered separate credit feature accessible by a
hybrid prepaid-credit card.
(E) With regard to a non-covered separate credit feature accessible
by a prepaid card as defined in Sec. 1026.61, any fee or charge
imposed on the asset feature of the prepaid account.
* * * * *
0
17. Section 1026.7 is amended by revising paragraph (b)(11)(ii)(A) to
read as follows:
Sec. 1026.7 Periodic statement.
* * * * *
(b) * * *
(11) * * *
(ii) * * *
(A) Periodic statements provided solely for charge card accounts,
other than covered separate credit features that are charge card
accounts accessible by hybrid prepaid-credit cards as defined in Sec.
1026.61; and
* * * * *
0
18. Section 1026.12 is amended by revising paragraph (d) to read as
follows:
Sec. 1026.12 Special credit card provisions.
* * * * *
(d) Offsets by card issuer prohibited--(1) General rule. 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.
(2) Rights of the card issuer. This paragraph (d) does not alter or
affect the right of a card issuer acting under state or Federal law to
do any of the following with regard to funds of a cardholder held on
deposit with the card issuer if the same procedure is constitutionally
available to creditors generally: Obtain or enforce a consensual
security interest in the funds; attach or otherwise levy upon the
funds; or obtain or enforce a court order relating to the funds.
(3) Periodic deductions. (i) This paragraph (d) does not prohibit a
plan, if authorized in writing by the cardholder, under which the card
issuer may periodically deduct all or part of the cardholder's credit
card debt from a deposit account held with the card issuer (subject to
the limitations in Sec. 1026.13(d)(1)).
(ii) With respect to a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in Sec. 1026.61, for
purposes of this paragraph (d)(3), ``periodically'' means no more
frequently than once per calendar month, such as on a monthly due date
disclosed on the applicable periodic statement in accordance with the
requirements of Sec. 1026.7(b)(11)(i)(A) or on an earlier date in each
calendar month in accordance with a written authorization signed by the
consumer.
* * * * *
0
19. Section 1026.13 is amended by revising paragraph (i) to read as
follows:
Sec. 1026.13 Billing error resolution.
* * * * *
(i) Relation to Electronic Fund Transfer Act and Regulation E. A
creditor shall comply with the
[[Page 84370]]
requirements of Regulation E, 12 CFR 1005.11, and 1005.18(e) as
applicable, governing error resolution rather than those of paragraphs
(a), (b), (c), (e), (f), and (h) of this section if:
(1) Except with respect to a prepaid account as defined in Sec.
1026.61, an extension of credit that is incident to an electronic fund
transfer 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;
or
(2) With regard to a covered separate credit feature and an asset
feature of a prepaid account where both are accessible by a hybrid
prepaid-credit card as defined in Sec. 1026.61, an extension of credit
that is incident to an electronic fund transfer occurs when the hybrid
prepaid-credit card accesses both funds in the asset feature of the
prepaid account and a credit extension from the credit feature with
respect to a particular transaction.
* * * * *
Subpart G--Special Rules Applicable to Credit Card Accounts and
Open-End Credit Offered to College Students
* * * * *
0
20. Section 1026.52 is amended by revising the heading for paragraph
(a) to read as follows:
Sec. 1026.52 Limitations on fees.
(a) Limitations during first year after account opening--* * *
* * * * *
0
21. Section 1026.60 is amended by revising paragraph (a)(5)(iv) and
paragraph (b) introductory text to read as follows:
Sec. 1026.60 Credit and charge card applications and solicitations.
(a) * * *
(5) * * *
(iv) Lines of credit accessed solely by account numbers except for
a covered separate credit feature solely accessible by an account
number that is a hybrid prepaid-credit card as defined in Sec.
1026.61;
* * * * *
(b) Required disclosures. The card issuer shall disclose the items
in this paragraph on or with an application or a solicitation in
accordance with the requirements of paragraphs (c), (d), (e)(1), or (f)
of this section. A credit card issuer shall disclose all applicable
items in this paragraph except for paragraph (b)(7) of this section. A
charge card issuer shall disclose the applicable items in paragraphs
(b)(2), (4), (7) through (12), and (15) of this section. With respect
to a covered separate credit feature that is a charge card account
accessible by a hybrid prepaid-credit card as defined in Sec. 1026.61,
a charge card issuer also shall disclose the applicable items in
paragraphs (b)(3), (13), and (14) of this section.
* * * * *
0
22. Section 1026.61 is added to read as follows:
Sec. 1026.61 Hybrid prepaid-credit cards.
(a) Hybrid prepaid-credit card--(1) In general. (i) Credit offered
in connection with a prepaid account is subject to this section and
this regulation as specified below.
(ii) For purposes of this regulation, except as provided in
paragraph (a)(4) of this section, a prepaid card is a hybrid prepaid-
credit card with respect to a separate credit feature as described in
paragraph (a)(2)(i) of this section when it can access credit from that
credit feature, or with respect to a credit feature structured as a
negative balance on the asset feature of the prepaid account as
described in paragraph (a)(3) of this section when it can access credit
from that credit feature. A hybrid prepaid-credit card is a credit card
for purposes of this regulation with respect to those credit features.
(iii) A prepaid card is not a hybrid prepaid-credit card or a
credit card for purposes of this regulation if the only credit offered
in connection with the prepaid account meets the conditions set forth
in paragraph (a)(4) of this section.
(2) Prepaid card can access credit from a covered separate credit
feature--(i) Covered separate credit feature. (A) A separate credit
feature that can be accessed by a hybrid prepaid-credit card as
described in this paragraph (a)(2)(i) is defined as a covered separate
credit feature. A prepaid card is a hybrid prepaid-credit card with
respect to a separate credit feature when it is a single device that
can be used from time to time to access the separate credit feature
where the following two conditions are both satisfied:
(1) The card can be used to draw, transfer, or authorize the draw
or transfer of credit from the separate credit feature in the course of
authorizing, settling, or otherwise completing transactions conducted
with the card to obtain goods or services, obtain cash, or conduct
person-to-person transfers; and
(2) The separate credit feature is offered by the prepaid account
issuer, its affiliate, or its business partner.
(B) A separate credit feature that meets the conditions set forth
in paragraph (a)(2)(i)(A) of this section is a covered separate credit
feature accessible by a hybrid prepaid-credit card even with respect to
credit that is drawn or transferred, or authorized to be drawn or
transferred, from the credit feature outside the course of a
transaction conducted with the card to obtain goods or services, obtain
cash, or conduct person-to-person transfers.
(ii) Non-covered separate credit feature. A separate credit feature
that does not meet the two conditions set forth in paragraph (a)(2)(i)
of this section is defined as a non-covered separate credit feature. A
prepaid card is not a hybrid prepaid-credit card with respect to a non-
covered separate credit feature, even if the prepaid card is a hybrid
prepaid-credit card with respect to a covered separate credit feature
as described in paragraph (a)(2)(i) of this section. A non-covered
separate credit feature is not subject to the rules applicable to
hybrid prepaid-credit cards; however, it may be subject to this
regulation depending on its own terms and conditions, independent of
the connection to the prepaid account.
(3) Prepaid card can access credit extended through a negative
balance on the asset feature of the prepaid account--(i) In general.
Except as provided in paragraph (a)(4) of this section, a prepaid card
is a hybrid prepaid-credit card when it is a single device that can be
used from time to time to access credit extended through a negative
balance on the asset feature of the prepaid account.
(ii) Negative asset balances. Notwithstanding paragraph (a)(3)(i)
of this section with regard to coverage under this regulation,
structuring a hybrid prepaid-credit card to access credit through a
negative balance on the asset feature violates paragraph (b) of this
section. A prepaid account issuer can use a negative asset balance
structure to extend credit on an asset feature of a prepaid account
only if the prepaid card is not a hybrid prepaid-credit card as
described in paragraph (a)(4) of this section.
(4) Exception. A prepaid card is not a hybrid prepaid-credit card
and is not a credit card for purposes of this regulation where:
(i) The prepaid card cannot access credit from a covered separate
credit feature as described in paragraph (a)(2)(i) of this section; and
(ii) The prepaid card only can access credit extended through a
negative balance on the asset feature of the prepaid account where both
paragraphs (a)(4)(ii)(A) and (B) of this section are satisfied.
[[Page 84371]]
(A) The prepaid account issuer has an established policy and
practice of either declining to authorize any transaction for which it
reasonably believes the consumer has insufficient or unavailable funds
in the asset feature of the prepaid account at the time the transaction
is authorized to cover the amount of the transaction, or declining to
authorize any such transactions except in one or more of the following
circumstances:
(1) The amount of the transaction will not cause the asset feature
balance to become negative by more than $10 at the time of the
authorization; or
(2) In cases where the prepaid account issuer has received an
instruction or confirmation for an incoming electronic fund transfer
originated from a separate asset account to load funds to the prepaid
account or where the prepaid account issuer has received a request from
the consumer to load funds to the prepaid account from a separate asset
account but in either case the funds from the separate asset account
have not yet settled, the amount of the transaction will not cause the
asset feature balance to become negative at the time of the
authorization by more than the incoming or requested load amount, as
applicable.
(B) The following fees or charges are not imposed on the asset
feature of the prepaid account:
(1) Any fees or charges for opening, issuing, or holding a negative
balance on the asset feature, or for the availability of credit,
whether imposed on a one-time or periodic basis. This paragraph does
not include fees or charges to open, issue, or hold the prepaid account
where the amount of the fee or charge imposed on the asset feature is
not higher based on whether credit might be offered or has been
accepted, whether or how much credit the consumer has accessed, or the
amount of credit available;
(2) Any fees or charges that will be imposed only when credit is
extended on the asset feature or when there is a negative balance on
the asset feature, except that a prepaid account issuer may impose fees
or charges for the actual costs of collecting the credit extended if
otherwise permitted by law; or
(3) Any fees or charges where the amount of the fee or charge is
higher when credit is extended on the asset feature or when there is a
negative balance on the asset feature.
(C) A prepaid account issuer may still satisfy the exception in
paragraph (a)(4) of this section even if it debits fees or charges from
the asset feature when there are insufficient or unavailable funds in
the asset feature to cover those fees or charges at the time they are
imposed, so long as those fees or charges are not the type of fees or
charges enumerated in paragraph (a)(4)(ii)(B) of this section.
(5) Definitions. For purposes of this section and other provisions
in the regulation that relate to hybrid prepaid-credit cards:
(i) Affiliate means any company that controls, is controlled by, or
is under common control with another company, as set forth in the Bank
Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).
(ii) Asset feature means an asset account that is a prepaid
account, or an asset subaccount of a prepaid account.
(iii) Business partner means a person (other than the prepaid
account issuer or its affiliates) that can extend credit through a
separate credit feature where the person or its affiliate has an
arrangement with a prepaid account issuer or its affiliate.
(iv) Credit feature means a separate credit account or a credit
subaccount of a prepaid account through which credit can be extended in
connection with a prepaid card, or a negative balance on an asset
feature of a prepaid account through which credit can be extended in
connection with a prepaid card.
(v) Prepaid account means a prepaid account as defined in
Regulation E, 12 CFR 1005.2(b)(3).
(vi) Prepaid account issuer means a financial institution as
defined in Regulation E, 12 CFR 1005.2(i), with respect to a prepaid
account.
(vii) Prepaid card means any card, code, or other device that can
be used to access a prepaid account.
(viii) Separate credit feature means a credit account or a credit
subaccount of a prepaid account through which credit can be extended in
connection with a prepaid card that is separate from the asset feature
of the prepaid account. This term does not include a negative balance
on an asset feature of a prepaid account.
(b) Structure of credit features accessible by hybrid prepaid-
credit cards. With respect to a credit feature that is accessible by a
hybrid prepaid-credit card, a card issuer shall not structure the
credit feature as a negative balance on the asset feature of a prepaid
account. A card issuer shall structure the credit feature as a separate
credit feature, either as a separate credit account, or as a credit
subaccount of a prepaid account that is separate from the asset feature
of the prepaid account. The separate credit feature is a covered
separate credit feature accessible by a hybrid prepaid-credit card
under Sec. 1026.61(a)(2)(i).
(c) Timing requirement for credit card solicitation or application
with respect to hybrid prepaid-credit cards. (1) With respect to a
covered separate credit feature that could be accessible by a hybrid
prepaid-credit card at any point, a card issuer must not do any of the
following until 30 days after the prepaid account has been registered:
(i) Open a covered separate credit feature that could be accessible
by the hybrid prepaid-credit card;
(ii) Make a solicitation or provide an application to open a
covered separate credit feature that could be accessible by the hybrid
prepaid-credit card; or
(iii) Allow an existing credit feature that was opened prior to the
consumer obtaining the prepaid account to become a covered separate
credit feature accessible by the hybrid prepaid-credit card.
(2) For purposes of paragraph (c) of this section, the term
solicitation has the meaning set forth in Sec. 1026.60(a)(1).
* * * * *
0
23. In Supplement I to part 1026--Official Interpretations:
0
a. Under Section 1026.2--Definitions and Rules of Construction:
0
i. In subsection 2(a)(7) Card Issuer, paragraph 1 is revised and
paragraph 2 is added.
0
ii. In subsection 2(a)(14) Credit, paragraph 3 is added.
0
iii. In subsection Paragraph 2(a)(15):
0
A. Paragraph 2.i.B is revised.
0
B. Paragraph 2.i.F is added.
0
C. Paragraph 2.ii.C is revised.
0
D. Paragraph 2.ii.D is added.
0
E. Paragraphs 3 and 4 are revised.
0
iv. In subsection Paragraph 2(a)(17)(i), paragraph 8 is added.
0
v. In subsection Paragraph 2(a)(17)(iii), paragraph 2 is added.
0
vi. In subsection 2(a)(20) Open-End Credit, paragraphs 2 and 4 are
revised.
0
b. Under Section 1026.4--Finance Charge:
0
i. In subsection 4(a) Definition, paragraph 4 introductory text is
revised.
0
ii. In subsection Paragraph 4(b)(2), paragraph 1 is revised and
paragraph 2 is added.
0
iii. Subsection Paragraph 4(b)(11) is added.
0
iv. In subsection Paragraph 4(c)(3), paragraph 1 is revised and
paragraph 2 is added.
0
iv. In subsection Paragraph 4(c)(4), paragraph 1 is revised and
paragraph 3 is added.
0
c. Under Section 1026.5--General Disclosure Requirements:
0
i. In subsection 5(b)(2)(ii) Timing Requirements, paragraph 4.i is
revised.
[[Page 84372]]
0
d. Under Section 1026.6--Account-Opening Disclosures:
0
i. In subsection 6(b)(2) Required Disclosures for Account-Opening Table
for Open-End (Not Home-Secured) Plans, paragraphs 1 and 2 are added.
0
ii. Subheading Paragraph 6(b)(3)(iii) and subsections Paragraph
6(b)(3)(iii)(D) and Paragraph 6(b)(3)(iii)(E) are added.
0
e. Under Section 1026.7--Periodic Statement:
0
i. In subsection 7(b)(13) Format Requirements, paragraph 1 is revised.
0
f. Under Section 1026.8--Identifying Transactions on Periodic
Statements:
0
i. In subsection 8(a) Sale Credit, paragraph 1 introductory text is
revised and paragraph 9 is added.
0
ii. In subsection 8(b) Nonsale credit, the subheading is revised,
paragraph 1.ii is revised, paragraphs 1.v and 1.vi are added, and 2
introductory text is revised.
0
g. Under Section 1026.10--Payments:
0
i. In subsection 10(a) General Rule., the subheading is revised, and
paragraph 2.ii is revised.
0
ii. In subsection 10(b) Specific Requirements for Payments, paragraph 1
is revised.
0
h. Under Section 1026.12--Special Credit Card Provisions:
0
i. In subsection Paragraph 12(a)(1), paragraphs 2 and 7 are revised.
0
ii. In subsection Paragraph 12(a)(2), paragraph 6.i is revised,
paragraph 6.ii is redesignated as 6.iii, and new paragraph 6.ii is
added.
0
iii. In subsection 12(c) Right of Cardholder to Assert Claims or
Defenses Against Card Issuer, paragraph 5 is added.
0
iv. In subsection 12(c)(1) General Rule, paragraphs 1 introductory text
and 1.ii are revised.
0
v. In subsection 12(d) Offsets by Card Issuer Prohibited, paragraph 1
is added.
0
vi. In subsection Paragraph 12(d)(1), paragraph 2 is revised.
0
vii. In subsection Paragraph 12(d)(2), paragraph 1.i is revised,
paragraph 1.ii is redesignated as 1.iv, and new paragraph 1.ii and
paragraph 1.iii are added.
0
viii. In subsection Paragraph 12(d)(3), paragraph 1.iii is revised and
paragraphs 2.iii and 3 are added.
0
i. Under Section 1026.13--Billing Error Resolution:
0
i. In subsection 13(i) Relation to Electronic Fund Transfer Act and
Regulation E, paragraphs 2, 3 introductory text, 3.i, and 3.iv are
revised and paragraphs 4 and 5 is added.
0
j. Under Section 1026.52--Limitations on Fees:
0
i. In subsection 52(a)(1) General rule, paragraph 1 introductory text
is revised and paragraphs 1.iii and 1.iv are added.
0
ii. In subsection 52(a)(2) Fees Not Subject to Limitations, paragraph 1
introductory text is revised, paragraphs 2 and 3 are redesignated as
paragraphs 4 and 5, and new paragraphs 2 and 3 are added.
0
iii. In subsection 52(b) Limitations on Penalty Fees, paragraphs 3 and
4 are added.
0
iv. In subsection 52(b)(2)(i) Fees That Exceed Dollar Amount Associated
with Violation, paragraph 7 is added.
0
k. Under Section 1026.55--Limitations on Increasing Annual Percentage
Rates, Fees, and Charges:
0
i. In subsection 55(a) General Rule, paragraphs 3 and 4 are added.
0
l. Under Section 1026.57--Reporting and Marketing Rules for College
Student Open-End Credit:
0
i. In subsection 57(a)(1) College student credit card, paragraph 1 is
revised.
0
ii. In subsection 57(a)(5) College credit card agreement, paragraph 1
is revised.
0
iii. In subsection 57(b) Public disclosure of agreements, paragraph 3
is added.
0
iv. In subsection 57(c) Prohibited inducements, paragraph 7 is added.
0
m. Under Section 1026.60--Credit and Charge Card Applications and
Solicitations:
0
i. Paragraph 1 is revised.
0
ii. In subsection 60(b) Required Disclosures, paragraphs 3 and 4 are
added.
0
iii. In subsection 60(b)(4) Transaction Charges, paragraph 3 is added.
0
iv. In subsection 60(b)(8) Cash Advance Fee, paragraph 4 is added.
0
n. Section 1026.61--Hybrid Prepaid-Credit Cards is added.
The revisions, additions, and removals read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Subpart A--General
* * * * *
Section 1026.2 Definitions and Rules of Construction
* * * * *
2(a)(7) Card Issuer
1. Agent. i. An agent of a card issuer is considered a card
issuer. Except as provided in comment 2(a)(7)-1.ii, because agency
relationships are traditionally defined by contract and by state or
other applicable law, the regulation does not define agent. Merely
providing services relating to the production of credit cards or
data processing for others, however, does not make one the agent of
the card issuer. In contrast, 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.
ii. Under Sec. 1026.2(a)(7), with respect to a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined
in Sec. 1026.61 where that credit feature is offered by an
affiliate or business partner of the prepaid account issuer as those
terms are defined in Sec. 1026.61, the affiliate or business
partner offering the credit feature is an agent of the prepaid
account issuer and thus, is itself a card issuer with respect to the
hybrid prepaid-credit card.
2. Prepaid cards that are not hybrid prepaid-credit cards. See
Sec. 1026.61(a) and comments 61(a)(2)-5.iii and 61(a)(4)-1.iv for
guidance on the applicability of this regulation in connection with
credit accessible by prepaid cards that are not hybrid prepaid-
credit cards.
* * * * *
2(a)(14) Credit
* * * * *
3. Transactions on the asset features of prepaid accounts when
there are insufficient or unavailable funds. Credit includes
authorization of a transaction on the asset feature of a prepaid
account as defined in Sec. 1026.61 where the consumer has
insufficient or unavailable funds in the asset feature of the
prepaid account at the time the transaction is authorized to cover
the amount of the transaction. It also includes settlement of a
transaction on the asset feature of a prepaid account where the
consumer has insufficient or unavailable funds in the asset feature
of the prepaid account at the time the transaction is settled to
cover the amount of the transaction. This includes a transaction
where the consumer has sufficient or available funds in the asset
feature of a prepaid account to cover the amount of the transaction
at the time the transaction is authorized but insufficient or
unavailable funds in the asset feature of the prepaid account to
cover the transaction amount at the time the transaction is settled.
See Sec. 1026.61 and related commentary on the applicability of
this regulation to credit that is extended in connection with a
prepaid account.
Paragraph 2(a)(15)
* * * * *
2. * * *
i. * * *
B. A debit card (other than a debit card that is solely an
account number) that also accesses a credit account (that is, a
debit-credit card). See comment 2(a)(15)-2.ii.C for guidance on
whether a debit card that is solely an account number is a credit
card.
* * * * *
F. A prepaid card that is a hybrid prepaid-credit card as
defined in Sec. 1026.61.
ii. * * *
C. 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 or as provided in Sec. 1026.61 with respect to a
hybrid prepaid-credit card. 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
[[Page 84373]]
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).
D. A prepaid card that is not a hybrid prepaid-credit card as
defined in Sec. 1026.61.
3. Charge card. i. Charge cards are credit cards where no
periodic rate is used to compute the finance charge. 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.
1026.6(b)(2)(xiv), 1026.7(b)(11) (except as described in comment
2(a)(15)-3.ii below), 1026.7(b)(12), 1026.9(e), 1026.9(f),
1026.28(d), 1026.52(b)(1)(ii)(C), 1026.60, and appendices G-10
through G-13.
ii. A hybrid prepaid-credit card as defined in Sec. 1026.61 is
a charge card with respect to a covered separate credit feature if
no periodic rate is used to compute the finance charge in connection
with the covered separate credit feature. Unlike other charge card
accounts, the requirements in Sec. 1026.7(b)(11) apply to a covered
separate credit feature accessible by a hybrid prepaid-credit card
that is a charge card when that covered separate credit feature is a
credit card account under an open-end (not home-secured) consumer
credit plan. Thus, under Sec. 1026.5(b)(2)(ii)(A), with respect to
a covered separate credit feature that is a credit card account
under an open-end (not home-secured) consumer credit plan, a card
issuer of a hybrid prepaid-credit card that meets the definition of
a charge card because no periodic rate is used to compute a finance
charge in connection with the covered separate credit feature must
adopt reasonable procedures for the covered separate credit feature
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.
4. Credit card account under an open-end (not home-secured)
consumer credit plan. i. An open-end consumer credit account is a
credit card account under an open-end (not home-secured) consumer
credit plan for purposes of Sec. 1026.2(a)(15)(ii) if:
A. The account is accessed by a credit card, as defined in Sec.
1026.2(a)(15)(i); and
B. The account is not excluded under Sec. 1026.2(a)(15)(ii)(A)
through (C).
ii. As noted in Sec. 1026.2(a)(15)(ii)(C), the exclusion from
credit card account under an open-end (not home-secured) consumer
credit plan provided by that paragraph for an overdraft line of
credit that is accessed by an account number does not apply to a
covered separate credit feature accessible by a hybrid prepaid-
credit card (including a hybrid prepaid-credit card that is solely
an account number) as defined in Sec. 1026.61.
* * * * *
2(a)(17) Creditor
* * * * *
Paragraph 2(a)(17)(i)
* * * * *
8. Prepaid cards that are not hybrid prepaid-credit cards. See
Sec. 1026.61(a) and comments 61(a)(2)-5.iii and 61(a)(4)-1.iv for
guidance on the applicability of this regulation in connection with
credit accessible by prepaid cards that are not hybrid prepaid-
credit cards.
* * * * *
Paragraph 2(a)(17)(iii)
* * * * *
2. Prepaid cards that are not hybrid prepaid-credit cards. See
Sec. 1026.61(a) and comments 61(a)(2)-5.iii and 61(a)(4)-1.iv for
guidance on the applicability of this regulation in connection with
credit accessible by prepaid cards that are not hybrid prepaid-
credit cards.
* * * * *
2(a)(20) Open-End Credit
* * * * *
2. Existence of a plan. i. The definition requires that there be
a plan, which connotes a contractual arrangement between the
creditor and the consumer.
ii. With respect to a covered separate credit feature accessible
by a hybrid prepaid-credit card as defined in Sec. 1026.61, 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 extends credit
from a covered separate credit feature offered by the prepaid
account issuer, its affiliate, or its business partner where the
prepaid card can be used from time to time to draw, transfer, or
authorize the draw or transfer of credit from the covered separate
credit feature in the course of authorizing, settling, or otherwise
completing transactions conducted with the card to obtain goods or
services, obtain cash, or conduct person-to-person transfers, and
the consumer is obligated contractually to repay those credit
transactions. Such a program constitutes a plan notwithstanding
that, for example, the creditor has not agreed in writing to extend
credit for those transactions, the creditor retains discretion not
to extend credit for those transactions, or the creditor does not
extend credit for those transactions once the consumer has exceeded
a certain amount of credit. See Sec. 1026.61(a) and related
commentary for guidance on the applicability of this regulation to
credit accessible by hybrid prepaid-credit cards.
iii. Some creditors offer programs containing a number of
different credit features. The consumer has a single account with
the institution that can be accessed repeatedly via a number of sub-
accounts established for the different program features and rate
structures. Some features of the program might be used repeatedly
(for example, an overdraft line) while others might be used
infrequently (such as the part of the credit line available for
secured credit). If the program as a whole is subject to prescribed
terms and otherwise meets the definition of open-end credit, such a
program would be considered a single, multifeatured plan.
* * * * *
4. Finance charge on an outstanding balance. i. 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. 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 example, in some plans, a finance charge is
not imposed if the consumer pays all or a specified portion of the
outstanding balance within a given time period. Such a plan could
meet the finance charge criterion, if the creditor has the right to
impose a finance charge, even though the consumer actually pays no
finance charges during the existence of the plan because the
consumer takes advantage of the option to pay the balance (either in
full or in installments) within the time necessary to avoid finance
charges.
ii. With regard to a covered separate credit feature and an
asset feature on a prepaid account that are both accessible by a
hybrid prepaid-credit card as defined in Sec. 1026.61, any service,
transaction, activity, or carrying charges imposed on the covered
separate credit feature, and any such charges imposed on the asset
feature of the prepaid account to the extent that the amount of the
charge exceeds comparable charges imposed on prepaid accounts in the
same prepaid account program that do not have a covered separate
credit feature accessible by a hybrid prepaid-credit card, generally
is a finance charge. See Sec. 1026.4(a) and (b)(11). Such charges
include a periodic fee to participate in the covered separate credit
feature, regardless of whether this fee is imposed on the credit
feature or on the asset feature of the prepaid account. With respect
to credit from a covered separate credit feature accessible by a
hybrid prepaid-credit card, any service, transaction, activity, or
carrying charges that are finance charges under Sec. 1026.4
constitute finance charges imposed from time to time on an
outstanding unpaid balance as described in Sec. 1026.2(a)(20) if
there is no specific amount financed for the credit feature for
which the finance charge, total of payments, and payment schedule
can be calculated.
* * * * *
[[Page 84374]]
Section 1026.4 Finance Charge
4(a) Definition
* * * * *
4. Treatment of transaction fees on credit card plans. Except
with regard to a covered separate credit feature and an asset
feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card as defined in Sec. 1026.61, which are addressed
in more detail in Sec. Sec. 1026.4(b)(11) and 1026.61, 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:
* * * * *
4(b) Examples of Finance Charges
* * * * *
Paragraph 4(b)(2)
1. Checking or transaction account charges. A charge imposed in
connection with a credit feature on a checking or transaction
account (other than a prepaid account as defined in Sec. 1026.61)
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 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 under Sec. 1026.4(b)(2). To
illustrate:
i. A $5 service charge is imposed on an 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).)
ii. A $5 service charge is imposed for each item that results in
an overdraft on an 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.
2. Prepaid accounts. Fee or charges related to credit offered in
connection with prepaid accounts as defined in Sec. 1026.61 are
discussed in Sec. Sec. 1026.4(b)(11) and 1026.61 and related
commentary.
* * * * *
Paragraph 4(b)(11)
1. Credit in connection with a prepaid card. Section 1026.61
governs credit offered in connection with a prepaid card.
i. A separate credit feature that meets the conditions of Sec.
1026.61(a)(2)(i) is defined as a covered separate credit feature
accessible by a hybrid prepaid-credit card. See Sec.
1026.61(a)(2)(i) and comment 61(a)(2)-4. In this case, the hybrid
prepaid-credit card can access both the covered separate credit
feature and the asset feature of the prepaid account. The rules for
classification of fees or charges as finance charges in connection
with this account structure are specified in Sec. 1026.4(b)(11) and
related commentary.
ii. If a prepaid card can access a non-covered separate credit
feature as described in Sec. 1026.61(a)(2)(ii), the card is not a
hybrid prepaid-credit card with respect to that credit feature. In
that case:
A. Section 1026.4(b)(11) and related commentary do not apply to
fees or charges imposed on the non-covered separate credit feature;
instead, the general rules set forth in Sec. 1026.4 determine
whether these fees or charges are finance charges; and
B. Fees or charges on the asset feature of the prepaid account
are not finance charges under Sec. 1026.4 with respect to the non-
covered separate credit feature. See comment 61(a)(2)-5.iii for
guidance on the applicability of this regulation in connection with
non-covered credit features accessible by prepaid cards.
iii. If the prepaid card is not a hybrid prepaid-credit card
because the only credit extended through a negative balance on the
asset feature of the prepaid account is pursuant to Sec.
1026.61(a)(4), fees charged on the asset feature of the prepaid
account in accordance with Sec. 1026.61(a)(4)(ii)(B) are not
finance charges.
Paragraph 4(b)(11)(i)
1. Transaction fees imposed on the covered separate credit
feature. Consistent with comment 4(a)-4, any transaction charge
imposed on a cardholder by a card issuer on a covered separate
credit feature accessible by a hybrid prepaid-credit card is a
finance charge. Transaction charges that are imposed on the asset
feature of a prepaid account are subject to Sec. 1026.4(b)(11)(ii)
and related commentary, instead of Sec. 1026.4(b)(11)(i).
Paragraph 4(b)(11)(ii)
1. Fees or charges imposed on the asset feature of a prepaid
account. i. Under Sec. 1026.4(b)(11)(ii), with regard to a covered
separate credit feature and an asset feature of a prepaid account
that are both accessible by a hybrid prepaid-credit card as defined
Sec. 1026.61, any fee or charge imposed on the asset feature of the
prepaid account is a finance charge to the extent that the amount of
the fee or charge exceeds comparable fees or charges imposed on
prepaid accounts in the same prepaid account program that do not
have a covered separate credit feature accessible by a hybrid
prepaid-credit card. This comment provides guidance with respect to
comparable fees under Sec. 1026.4(b)(11)(ii) for the two types of
credit extensions on a covered separate credit feature. See Sec.
1026.61(a)(2)(i)(B) and comment 61(a)(2)-4.ii. Comment 4(b)(11)(ii)-
1.ii provides guidance for credit extensions where the hybrid
prepaid-credit card accesses credit from the covered separate credit
feature in the course of authorizing, settling, or otherwise
completing a transaction conducted with the card to obtain goods or
services, obtain cash, or conduct person-to-person transfers.
Comment 4(b)(11)(ii)-1.iii provides guidance for credit extensions
where a consumer draws or transfers credit from the covered separate
credit feature outside the course of a transaction conducted with
the card to obtain goods or services, obtain cash, or conduct
person-to-person transfers.
ii. Where the hybrid prepaid-credit card accesses credit from a
covered separate credit feature in the course of authorizing,
settling, or otherwise completing a transaction conducted with the
card to obtain goods or services, obtain cash, or conduct person-to-
person transfers, any per transaction fees imposed on the asset
feature of prepaid accounts, including load and transfer fees, for
such credit from the credit feature are comparable only to per
transaction fees for each transaction to access funds in the asset
feature of a prepaid account that are imposed on prepaid accounts in
the same prepaid account program that does not have such a credit
feature. Per transaction fees for a transaction that is conducted to
load or draw funds into a prepaid account from some other source are
not comparable for purposes of Sec. 1026.4(b)(11)(ii). To
illustrate:
A. Assume a prepaid account issuer charges $0.50 on prepaid
accounts without a covered separate credit feature for each
transaction that accesses funds in the asset feature of the prepaid
accounts. Also, assume that the prepaid account issuer charges $0.50
per transaction on the asset feature of prepaid accounts in the same
prepaid program where the hybrid prepaid-credit card accesses credit
from a covered separate credit feature in the course of a
transaction. In this case, the $0.50 per transaction fee imposed on
the asset feature of the prepaid account with a covered separate
credit feature is not a finance charge.
B. Assume same facts as in paragraph A above, except that assume
the prepaid account issuer charges $1.25 on the asset feature of a
prepaid account for each transaction where the hybrid prepaid-credit
card accesses credit from the covered separate credit feature in the
course of the transaction. In this case, the additional $0.75 is a
finance charge.
C. Assume a prepaid account issuer charges $0.50 on prepaid
accounts without a covered separate credit feature for each
transaction that accesses funds in the asset feature of the prepaid
accounts. Assume also that the prepaid account issuer charges both a
$0.50 per transaction fee and a $1.25 transfer fee on the asset
feature of prepaid accounts in the same prepaid program where the
hybrid prepaid-credit card accesses credit from a covered separate
credit feature in the course of a transaction. In this case, both
fees charged on a per-transaction basis for the credit transaction
(i.e., a combined fee of $1.75 per transaction) must be compared to
the $0.50 per transaction fee to access funds in the asset feature
of the prepaid account without a covered separate credit feature.
Accordingly, the $1.25 excess is a finance charge.
D. Assume same facts as in paragraph C above, except that assume
the prepaid account issuer also charges a load fee of $1.25 whenever
funds are transferred or loaded from a separate asset account, such
as from a deposit account via a debit card, in the course of a
transaction on prepaid accounts without a covered separate credit
feature, in addition to charging a $0.50 per transaction fee. The
$1.25 excess in paragraph C is still a finance charge because load
or transfer fees that are charged on the asset feature of prepaid
account for credit from the covered separate credit feature are
compared only to per transaction fees
[[Page 84375]]
imposed for accessing funds in the asset feature of the prepaid
account for prepaid accounts without such a credit feature. Per
transaction fees for a transaction that is conducted to load or draw
funds into a prepaid account from some other source are not
comparable for purposes of Sec. 1026.4(b)(11)(ii).
iii. A consumer may choose in a particular circumstance to draw
or transfer credit from the covered separate credit feature outside
the course of a transaction conducted with the card to obtain goods
or services, obtain cash, or conduct person-to-person transfers. For
example, a consumer may use the prepaid card at the prepaid account
issuer's Web site to load funds from the covered separate credit
feature outside the course of a transaction conducted with the card
to obtain goods or services, obtain cash, or conduct person-to-
person transfers. See Sec. 1026.61(a)(2)(i)(B) and comment
61(a)(2)-4.ii. In these situations, load or transfer fees imposed
for draws or transfers of credit from the covered separate credit
feature outside the course of a transaction are compared only with
fees, if any, to load funds as a direct deposit of salary from an
employer or a direct deposit of government benefits that are charged
on prepaid accounts without a covered separate credit feature. Fees
imposed on prepaid accounts without a covered separate credit
feature for a one-time load or transfer of funds from a separate
asset account or from a non-covered separate credit feature are not
comparable for purposes of Sec. 1026.4(b)(11)(ii). To illustrate:
A. Assume a prepaid account issuer charges a $1.25 load fee to
transfer funds from a non-covered separate credit feature, such as a
non-covered separate credit card account, into prepaid accounts that
do not have a covered separate credit feature and does not charge a
fee for a direct deposit of salary from an employer or a direct
deposit of government benefits on those prepaid accounts. Assume the
prepaid account issuer charges $1.25 on the asset feature of a
prepaid account with a covered separate credit feature to load funds
from the covered separate credit feature outside the course of a
transaction. In this case, the $1.25 fee imposed on the asset
feature of the prepaid account with a covered separate credit
feature is a finance charge because no fee is charged for a direct
deposit of salary from an employer or a direct deposit of government
benefits on prepaid accounts without such a credit feature. Fees
imposed on prepaid accounts without a covered separate credit
feature for a one-time load or transfer of funds from a non-covered
separate credit feature are not comparable for purposes of Sec.
1026.4(b)(11)(ii).
B. Assume that a prepaid account issuer charges a $1.25 load fee
for a one-time transfer of funds from a separate asset account, such
as from a deposit account via a debit card, to a prepaid account
without a covered separate credit feature and does not charge a fee
for a direct deposit of salary from an employer or a direct deposit
of government benefits on those prepaid accounts. Assume the prepaid
account issuer charges $1.25 on the asset feature of a prepaid
account with a covered separate credit feature to load funds from
the covered separate credit feature outside the course of a
transaction. In this case, the $1.25 fee imposed on the asset
feature of the prepaid account with a covered separate credit
feature is a finance charge because no fee is charged for a direct
deposit of salary from an employer or a direct deposit of government
benefits on prepaid accounts without a covered separate credit
feature. Fees imposed on prepaid accounts without a covered separate
credit feature for a one-time load or transfer of funds from a
separate asset account are not comparable for purposes of Sec.
1026.4(b)(11)(ii).
2. Relation to Regulation E. See Regulation E, 12 CFR
1005.18(g), which only permits a financial institution to charge the
same or higher fees on the asset feature of a prepaid account with a
covered separate credit feature accessible by a hybrid prepaid-
credit card than the amount of a comparable fee it charges on
prepaid accounts in the same prepaid account program without such a
credit feature. Under that provision, a financial institution cannot
charge a lower fee on the asset feature of a prepaid account with a
covered separate credit feature accessible by a hybrid prepaid-
credit card than the amount of a comparable fee it charges on
prepaid accounts without such a credit feature in the same prepaid
account program.
4(c) Charges Excluded From the Finance Charge
* * * * *
Paragraph 4(c)(3)
1. Assessing interest on an overdraft balance. Except with
respect to credit offered in connection with a prepaid account as
defined in Sec. 1026.61, a charge on an overdraft balance computed
by applying a rate of interest to the amount of the overdraft is not
a finance charge, even though the consumer agrees to the charge in
the account agreement, unless the financial institution agrees in
writing that it will pay such items.
2. Credit accessed in connection with a prepaid account. See
comment 4(b)(11)-1 for guidance on when fees imposed with regard to
credit accessed in connection with a prepaid account as defined in
Sec. 1026.61 are finance charges.
Paragraph 4(c)(4)
1. Participation fees--periodic basis. 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. Except
as provided in Sec. 1026.4(c)(4) for covered separate credit
features accessible by hybrid prepaid-credit cards as defined in
Sec. 1026.61, 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.
* * * * *
3. Credit accessed in connection with by a prepaid account. See
comment 4(b)(11)-1 for guidance on when fees imposed with regard to
credit accessed in connection with a prepaid account as defined in
Sec. 1026.61 are finance charges.
* * * * *
Subpart B--Open-End Credit
Section 1026.5--General Disclosure Requirements
* * * * *
5(b) Time of Disclosures
* * * * *
5(b)(2) Periodic Statements
* * * * *
5(b)(2)(ii) Timing Requirements
* * * * *
4. * * *
i. Charge card accounts. For purposes of Sec.
1026.5(b)(2)(ii)(A)(1), the payment due date for a credit card
account under an open-end (not home-secured) consumer credit plan is
the date the card issuer is required to disclose on the periodic
statement pursuant to Sec. 1026.7(b)(11)(i)(A). Because Sec.
1026.7(b)(11)(ii) provides that Sec. 1026.7(b)(11)(i) does not
apply to periodic statements provided solely for charge card
accounts other than covered separate credit features that are charge
card accounts accessible by hybrid prepaid-credit cards as defined
in Sec. 1026.61, Sec. 1026.5(b)(2)(ii)(A)(1) also does not apply
to the mailing or delivery of periodic statements provided solely
for such accounts. However, in these circumstances, Sec.
1026.5(b)(2)(ii)(A)(2) requires the card issuer to have reasonable
procedures designed to ensure that a payment is not treated as late
for any purpose during the 21-day period following mailing or
delivery of the statement. A card issuer that complies with Sec.
1026.5(b)(2)(ii)(A) as discussed above with respect to a charge card
account has also complied with Sec. 1026.5(b)(2)(ii)(B)(2). Section
1026.5(b)(2)(ii)(B)(1) does not apply to charge card accounts
because, for purposes of Sec. 1026.5(b)(2)(ii)(B), a grace period
is a period within which any credit extended may be repaid without
incurring a finance charge due to a periodic interest rate and,
consistent with Sec. 1026.2(a)(15)(iii), charge card accounts do
not impose a finance charge based on a periodic rate.
* * * * *
Section 1026.6--Account-Opening Disclosures
* * * * *
6(b) Rules Affecting Open-End (Not Home-Secured) Plans
* * * * *
6(b)(2) Required Disclosures for Account-Opening Table for Open-End
(Not Home-Secured) Plans
1. Fees imposed on the asset feature of a prepaid account in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card. With regard to a covered separate credit
feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in Sec.
1026.61, a creditor is required to
[[Page 84376]]
disclose under Sec. 1026.6(b)(2) any fees or charges imposed on the
asset feature that are charges imposed as part of the plan under
Sec. 1026.6(b)(3) to the extent those fees fall within the
categories of fees or charges required to be disclosed under Sec.
1026.6(b)(2). For example, assume that a creditor imposes a $1.25
per transaction fee on an asset feature of the prepaid account for
purchases when a hybrid prepaid-credit card accesses a covered
separate credit feature in the course of authorizing, settling, or
otherwise completing purchase transactions conducted with the card,
and a $0.50 transaction fee for purchases that access funds in the
asset feature of a prepaid account in the same program without such
a credit feature. In this case, the $0.75 excess is a charge imposed
as part of the plan under Sec. 1026.6(b)(3) and must be disclosed
under Sec. 1026.6(b)(2)(iv).
2. Fees imposed on the asset feature of a prepaid account that
are not charges imposed as part of the plan. A creditor is not
required to disclose under Sec. 1026.6(b)(2) any fee or charge
imposed on the asset feature of a prepaid account that is not a
charge imposed as part of the plan under Sec. 1026.6(b)(3). See
Sec. 1026.6(b)(3)(iii)(D) and (E) and related commentary regarding
fees imposed on the asset feature of the prepaid account that are
not charges imposed as part of the plan under Sec. 1026.6(b)(3).
* * * * *
6(b)(3) Disclosure of Charges Imposed as Part of Open-End (Not Home-
Secured) Plans
* * * * *
Paragraph 6(b)(3)(iii)
* * * * *
Paragraph 6(b)(3)(iii)(D)
1. Fees imposed on the asset feature of the prepaid account in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card. Under Sec. 1026.6(b)(3)(iii)(D), with
regard to a covered separate credit feature and an asset feature on
a prepaid account that are both accessible by a hybrid prepaid-
credit card as defined in Sec. 1026.61, a fee or charge imposed on
the asset feature of the prepaid account is not a charge imposed as
part of the plan under Sec. 1026.6(b)(3) with respect to a covered
separate credit feature to the extent that the amount of the fee or
charge does not exceed comparable fees or charges imposed on prepaid
accounts in the same prepaid account program that do not have a
covered separate credit feature assessed by a hybrid prepaid-credit
card. To illustrate:
i. Assume a prepaid account issuer charges a $0.50 per
transaction fee on an asset feature of the prepaid account for
purchases when a hybrid prepaid-credit card accesses a covered
separate credit feature in the course of authorizing, settling, or
otherwise completing purchase transactions conducted with the card
and a $0.50 transaction fee for purchases that access funds in the
asset feature of a prepaid account in the same program without such
a credit feature. The $0.50 fees are comparable fees and the $0.50
fee for purchases when a hybrid prepaid-credit card accesses a
covered separate credit feature in the course of authorizing,
settling, or otherwise completing purchase transactions conducted
with the card is not a charge imposed as part of the plan. However,
if in this example, the prepaid account issuer imposes a $1.25 per
transaction fee on an asset feature of the prepaid account for
purchases when a hybrid prepaid-credit card accesses a covered
separate credit feature in the course of authorizing, settling, or
otherwise completing purchase transactions conducted with the card,
the $0.75 excess is a charge imposed as part of the plan. This $0.75
excess also is a finance charge under Sec. 1026.4(b)(11)(ii).
ii. See comment 4(b)(11)(ii)-1 for additional illustrations of
when a prepaid account issuer is charging comparable per transaction
fees or load or transfer fees on the prepaid account.
Paragraph 6(b)(3)(iii)(E)
1. Fees imposed on the asset feature of a prepaid account in
connection with a non-covered separate credit feature. With regard
to a non-covered separate credit feature accessible by a prepaid
card as defined in Sec. 1026.61, under Sec. 1026.6(b)(3)(iii)(E),
none of the fees or charges imposed on the asset balance of the
prepaid account are charges imposed as part of the plan under Sec.
1026.6(b)(3) with respect to the non-covered separate credit
feature. In addition, none of these fees or charges imposed on the
asset feature of the prepaid account are finance charges with
respect to the non-covered separate credit feature as discussed in
comment 4(b)(11)-1.ii.B.
* * * * *
Section 1026.7--Periodic Statement
* * * * *
7(b) Rules Affecting Open-End (Not Home-Secured) Plans
* * * * *
7(b)(13) Format Requirements
1. Combined asset account and credit account statements. Some
financial institutions provide information about deposit account and
open-end credit account activity on one periodic statement. For
purposes of providing disclosures on the front of the first page of
the periodic statement pursuant to Sec. 1026.7(b)(13), the first
page of such a combined statement shall be the page on which credit
transactions first appear. This guidance also applies to financial
institutions that provide information about prepaid accounts and
account activity in connection with covered separate credit features
accessible by hybrid prepaid-credit cards as defined in Sec.
1026.61 on one periodic statement.
Section 1026.8 Identifying Transactions on Periodic Statements
8(a) Sale Credit
1. Sale credit. The term ``sale credit'' refers to a purchase in
which the consumer uses a credit card or otherwise directly accesses
an open-end line of credit (see comment 8(b)-1 if access is by means
of a check) to obtain goods or services from a merchant, whether or
not the merchant is the card issuer or creditor. See comment 8(a)-9
for guidance on when credit accessed by a hybrid prepaid-credit card
from a covered separate credit feature is ``sale credit' or
``nonsale credit.'' ``Sale credit'' includes:
* * * * *
9. Covered separate credit feature accessible by hybrid prepaid-
credit card. i. A transaction will be treated as a ``sale credit''
under Sec. 1026.8(a) in cases where a consumer uses a hybrid
prepaid-credit card as defined in Sec. 1026.61 to make a purchase
to obtain goods or services from a merchant with credit from a
covered separate credit feature and the credit is drawn directly
from the covered separate credit feature without transferring funds
into the asset feature of the prepaid account to cover the amount of
the purchase. For example, assume that the consumer has $10 of funds
in the asset feature of the prepaid account and initiates a
transaction with a merchant to obtain goods or services with the
hybrid prepaid-credit card for $25. In this case, $10 is debited
from the asset feature, and $15 of credit is drawn directly from the
covered separate credit feature accessed by the hybrid prepaid-
credit card without any transfer of funds into the asset feature of
the prepaid account to cover the amount of the purchase. The $15
credit transaction will be treated as ``sale credit'' under Sec.
1026.8(a).
ii. On the other hand, a transaction will be treated as
``nonsale credit'' for purposes of Sec. 1026.8(b) in cases where a
consumer uses a hybrid prepaid-credit card as defined in Sec.
1026.61 to make a purchase to obtain goods or services from a
merchant and credit is transferred from a covered separate credit
feature accessed by the hybrid prepaid-credit card into the asset
feature of the prepaid account to cover the amount of the purchase.
For example, assume the same facts as above, except that the $15
will be transferred from the credit feature to the asset feature,
and a transaction of $25 is debited from the asset feature of the
prepaid account. In this case, the $15 credit transaction is treated
as ``nonsale credit'' under Sec. 1026.8(b). See comment 8(b)-1.vi
below.
iii. If a transaction is ``sale credit'' as described above in
comment 8(a)-9.i, the following applies:
A. If a hybrid prepaid-credit card is used to obtain goods or
services from a merchant and the transaction is partially paid with
funds in the asset feature of the prepaid account, and partially
paid with credit from a covered separate credit feature, the amount
to be disclosed under Sec. 1026.8(a) is the amount of the credit
extension, not the total amount of the purchase transaction.
B. For a transaction at point of sale where credit from a
covered separate credit feature is accessed by a hybrid prepaid-
credit card, and that transaction partially involves the purchase of
goods or services and partially involves other credit such as cash
back given to the cardholder, the creditor must disclose the entire
amount of the credit transaction as sale credit, including the part
of the transaction that does not relate to the purchase of goods or
services.
8(b) Nonsale Credit
1. * * *
ii. An advance on a credit plan that is accessed by overdrafts
on an asset account
[[Page 84377]]
other than a prepaid account as defined in Sec. 1026.61.
* * * * *
v. An advance at an ATM on a covered separate credit feature
accessed by a hybrid prepaid-credit card as defined in Sec.
1026.61. If a hybrid prepaid-credit card is used to obtain an
advance at an ATM and the transaction is partially paid with funds
from the asset feature of the prepaid account, and partially paid
with a credit extension from the covered separate credit feature,
the amount to be disclosed under Sec. 1026.8(b) is the amount of
the credit extension, not the total amount of the ATM transaction.
vi. A transaction where a consumer uses a hybrid prepaid-credit
card as defined in Sec. 1026.61 to make a purchase to obtain goods
or services from a merchant and credit is transferred from a covered
separate credit feature accessed by the hybrid prepaid-credit card
into the asset feature of the prepaid account to cover the amount of
the purchase, as described in comment 8(a)-9.ii. In this scenario,
the amount to be disclosed under Sec. 1026.8(b) is the amount of
the credit extension, not the total amount of the purchase
transaction.
2. Amount--overdraft credit plans. If credit is extended under
an overdraft credit plan tied to an asset account other than a
prepaid account as defined in Sec. 1026.61 or by means of a debit
card tied to an overdraft credit plan:
* * * * *
Section 1026.10--Payments
10(a) General Rule
* * * * *
2. * * *
ii. In a payroll deduction plan in which funds are deposited to
an asset account held by the creditor, and from which payments are
made periodically to an open-end credit account, payment is received
on the date when it is debited to the asset account (rather than on
the date of the deposit), provided the payroll deduction method is
voluntary and the consumer retains use of the funds until the
contractual payment date. Section 1026.12(d)(3)(ii) defines
``periodically'' to mean no more frequently than once per calendar
month for payments made periodically from a deposit account,
including a prepaid account, held by a card issuer to pay credit
card debt in a covered separate credit feature accessible by a
hybrid prepaid-credit card as defined in Sec. 1026.61 held by the
card issuer. In a payroll deduction plan in which funds are
deposited to a prepaid account held by the card issuer, and from
which payments are made on a monthly basis to a covered separate
credit feature accessible by a hybrid prepaid-credit card that is
held by the card issuer, payment is received on the date when it is
debited to the prepaid account (rather than on the date of the
deposit), provided the payroll deduction method is voluntary and the
consumer retains use of the funds until the contractual payment
date.
* * * * *
10(b) Specific Requirements for Payments
1. Payment by electronic fund transfer. A creditor may be
prohibited from specifying payment by preauthorized electronic fund
transfer. See section 913 of the Electronic Fund Transfer Act and
Regulation E, 12 CFR 1005.10(e).
* * * * *
Section 1026.12--Special Credit Card Provisions
* * * * *
12(a) Issuance of Credit Cards
Paragraph 12(a)(1)
* * * * *
2. Addition of credit features. If the consumer has a non-credit
card, including a prepaid card, the addition of a credit feature or
plan to the card that would make the card into a credit card under
Sec. 1026.2(a)(15)(i) constitutes issuance of a credit card. For
example, the following constitute issuance of a credit card:
i. Granting overdraft privileges on a checking account when the
consumer already has a check guarantee card; or
ii. Allowing a prepaid card to access a covered separate credit
feature that would make the card into a hybrid prepaid-credit card
as defined in Sec. 1026.61 with respect to the covered separate
credit feature.
* * * * *
7. Issuance of non-credit cards. i. Issuance of non-credit cards
other than prepaid cards. A. Under Sec. 1026.12(a)(1), a credit
card cannot be issued except in response to a request or an
application. (See comment 2(a)(15)-2 for examples of cards or
devices that are and are not credit cards.) A non-credit card other
than a prepaid card may be sent on an unsolicited basis by an issuer
that does not propose to connect the card to any credit plan; a
credit feature may be added to a previously issued non-credit card
other than a prepaid card only upon the consumer's specific request.
B. Examples. A purchase-price discount card may be sent on an
unsolicited basis by an issuer that does not propose to connect the
card to any credit plan. An issuer demonstrates that it proposes to
connect the card to a credit plan by, for example, including
promotional materials about credit features or account agreements
and disclosures required by Sec. 1026.6. The issuer will violate
the rule against unsolicited issuance if, for example, at the time
the card is sent a credit plan can be accessed by the card or the
recipient of the unsolicited card has been preapproved for credit
that the recipient can access by contacting the issuer and
activating the card.
ii. Issuance of a prepaid card. Section 1026.12(a)(1) does not
apply to the issuance of a prepaid card where an issuer does not
connect the card to any covered separate credit feature that would
make the prepaid card into a hybrid prepaid-credit card as defined
in Sec. 1026.61 at the time the card is issued and only opens a
covered separate credit feature, or provides an application or
solicitation to open a covered separate credit feature, or allows an
existing credit feature to become a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Sec.
1026.61 in compliance with Sec. 1026.61(c). A covered separate
credit feature may be added to a previously issued prepaid card only
upon the consumer's application or specific request and only in
compliance with Sec. 1026.61(c). An issuer does not connect a
prepaid card to a covered separate credit feature that would make
the card into a credit card simply by providing the disclosures
required by Regulation E, 12 CFR 1005.18(b)(2)(x), (b)(4)(iv), and
(vii), with the prepaid card. See Sec. 1026.12(a)(2) and related
commentary for when a hybrid prepaid-credit card as defined in Sec.
1026.61 may be issued as a replacement or substitution for another
hybrid prepaid-credit card. See also Regulation E, 12 CFR 1005.5 and
1005.18(a), and related commentary, governing issuance of access
devices under Regulation E.
* * * * *
Paragraph 12(a)(2)
* * * * *
6. * * *
i. Replacing a single card that is both a debit card and a
credit card with a credit card and a separate debit card with only
debit functions (or debit functions plus an associated overdraft
capability), since the latter card could be issued on an unsolicited
basis under Regulation E.
ii. Replacing a single card that is both a prepaid card and a
credit card with a credit card and a separate prepaid card where the
latter card is not a hybrid prepaid-credit card as defined in Sec.
1026.61.
* * * * *
12(c) Right of Cardholder To Assert Claims or Defenses Against Card
Issuer
* * * * *
5. Prepaid cards. i. Section 1026.12(c) applies to property or
services purchased with the hybrid prepaid-credit card that accesses
a covered separate credit feature as defined in Sec. 1026.61. The
following examples illustrate when a hybrid prepaid-credit card is
used to purchase property or services:
A. A consumer uses a hybrid prepaid-credit card as defined in
Sec. 1026.61 to make a purchase to obtain goods or services from a
merchant and credit is drawn directly from a covered separate credit
feature accessed by the hybrid prepaid-credit card without
transferring funds into the asset feature of the prepaid account to
cover the amount of the purchase. For example, assume that the
consumer has $10 of funds in the asset feature of the prepaid
account and initiates a transaction with a merchant to obtain goods
or services with the hybrid prepaid-credit card for $25. In this
case, $10 is debited from the asset feature and $15 of credit is
drawn directly from the covered separate credit feature accessed by
the hybrid prepaid-credit card without any transfer of funds into
the asset feature of the prepaid account to cover the amount of the
purchase. In this case, the consumer is using credit accessed by the
hybrid prepaid-credit card to purchase property or services where
credit is drawn directly from the covered separate credit feature
accessed by the hybrid prepaid-credit card to cover the amount of
the purchase.
B. A consumer uses a hybrid prepaid-credit card as defined in
Sec. 1026.61 to make a purchase to obtain goods or services from a
merchant and credit is transferred from a
[[Page 84378]]
covered separate credit feature accessed by the hybrid prepaid-
credit card into the asset feature of the prepaid account to cover
the amount of the purchase. For example, assume the same facts as
above, except that the $15 will be transferred from a covered
separate credit feature to the asset feature, and a transaction of
$25 is debited from the asset feature of the prepaid account. In
this case, the consumer is using credit accessed by the hybrid
prepaid-credit card to purchase property or services because credit
is transferred to the asset feature of the prepaid account to cover
the amount of a purchase made with the card. This is true even
though the $15 credit transaction is treated as ``nonsale credit''
under Sec. 1026.8(b). See comments 8(a)-9.ii and 8(b)-1.vi.
ii. For a transaction at point of sale where a hybrid prepaid-
credit card is used to obtain goods or services from a merchant and
the transaction is partially paid with funds from the asset feature
of the prepaid account, and partially paid with credit from the
covered separate credit feature, the amount of the purchase
transaction that is funded by credit generally would be subject to
the requirements of Sec. 1026.12(c). The amount of the transaction
funded from the prepaid account would not be subject to the
requirements of Sec. 1026.12(c).
12(c)(1) General Rule
1. Situations excluded and included. The consumer may assert
claims or defenses only when the goods or services are ``purchased
with the credit card.'' This would include when the goods or
services are purchased by a consumer using a hybrid prepaid-credit
card to access a covered separate credit feature as defined in Sec.
1026.61. This could include mail, the Internet or telephone orders,
if the purchase is charged to the credit card account. But it would
exclude:
* * * * *
ii. The purchase of goods or services by use of a check
accessing an overdraft account and a credit card used solely for
identification of the consumer. (On the other hand, if the credit
card is used to make partial payment for the purchase and not merely
for identification, the right to assert claims or defenses would
apply to credit extended via the credit card, although not to credit
extended by the overdraft line other than a covered separate credit
feature accessible by a hybrid prepaid-credit card.)
* * * * *
12(d) Offsets by Card Issuer Prohibited
1. Meaning of funds on deposit. For purposes of Sec.
1026.12(d), funds of the cardholder held on deposit include funds in
a consumer's prepaid account as defined in Sec. 1026.61. In
addition, for purposes of Sec. 1026.12(d), deposit account includes
a prepaid account.
Paragraph 12(d)(1)
* * * * *
2. Funds intended as deposits. If the consumer tenders funds as
a deposit (to a checking account, for example) or if the card issuer
receives funds designated for the consumer's prepaid account as
defined in Sec. 1026.61 with the issuer, such as by means of an ACH
deposit or an electronic transmittal of funds the consumer submits
as cash at a non-bank location, the card issuer may not apply the
funds to repay indebtedness on the consumer's credit card account.
* * * * *
Paragraph 12(d)(2)
1. * * *
i. The consumer must be aware that granting a security interest
is a condition for the credit card account (or for more favorable
account terms) and must specifically intend to grant a security
interest in a deposit account.
ii. With respect to a credit card account other than a covered
separate credit feature accessible by a hybrid prepaid-credit card
as defined in Sec. 1026.61, indicia of the consumer's awareness and
intent to grant a security interest in a deposit account include at
least one of the following (or a substantially similar procedure
that evidences the consumer's awareness and intent):
A. Separate signature or initials on the agreement indicating
that a security interest is being given.
B. Placement of the security agreement on a separate page, or
otherwise separating the security interest provisions from other
contract and disclosure provisions.
C. Reference to a specific amount of deposited funds or to a
specific deposit account number.
iii. With respect to a covered separate credit feature
accessible by a hybrid prepaid-credit card as defined in Sec.
1026.61, in order for a consumer to show awareness and intent to
grant a security interest in a deposit account, including a prepaid
account, all of the following conditions must be met:
A. In addition to being disclosed in the issuer's account-
opening disclosures under Sec. 1026.6, the security agreement must
be provided to the consumer in a document separate from the deposit
account agreement and the credit card account agreement;
B. The separate document setting forth the security agreement
must be signed by the consumer;
C. The separate document setting forth the security agreement
must refer to the deposit account number and to a specific amount of
funds in the deposit account in which the card issuer is taking a
security interest and these two elements of the document must be
separately signed or initialed by the consumer;
D. The separate document setting forth the security agreement
must specifically enumerate the conditions under which the card
issuer will enforce the security interest and each of those
conditions must be separately signed or initialed by the consumer.
* * * * *
Paragraph 12(d)(3)
1. * * *
iii. If the cardholder has the option to accept or reject the
automatic debit feature (such option may be required under section
913 of the Electronic Fund Transfer Act and Regulation E, 12 CFR
1005.10(e)), the fact that the option exists should be clearly
indicated.
2. * * *
iii. Automatically deducting from the consumer's deposit account
any fee or charge imposed on the asset feature of the prepaid
account that is not a charge imposed as part of the plan under Sec.
1026.6(b)(3). See Sec. 1026.6(b)(3)(iii)(D) and (E) and related
commentary regarding fees imposed on the asset feature of a prepaid
account that are not charges imposed as part of the plan under Sec.
1026.6(b)(3) with respect to covered separate credit features
accessible by hybrid prepaid-credit cards and non-covered separate
credit features as those terms are defined in Sec. 1026.61.
3. Prepaid accounts. With respect to covered separate credit
features accessible by hybrid prepaid-credit cards as defined in
Sec. 1026.61, a card issuer is not prohibited under Sec.
1026.12(d) from periodically deducting all or part of the
cardholder's credit card debt from a deposit account (including the
prepaid account) held with the card issuer (subject to the
limitations of 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 more frequently than once per calendar month,
pursuant to such a plan. To illustrate, with respect to a covered
separate credit feature accessible by a hybrid prepaid-credit card,
assume that a periodic statement is sent out each month to a
cardholder on the first day of the month and the payment due date
for the amount due on that statement is the 25th day of each month.
In this case:
i. The card issuer is not prohibited under Sec. 1026.12(d) from
automatically deducting the amount due on the periodic statement on
the 25th of each month, or on an earlier date in each calendar
month, from a deposit account held by the card issuer, if the
deductions are pursuant to a plan that is authorized in writing by
the cardholder (as discussed in comment 12(d)(3)-1) and comply with
the limitations in Sec. 1026.13(d)(1).
ii. The card issuer is prohibited under Sec. 1026.12(d) from
automatically deducting all or part of the cardholder's credit card
debt from a deposit account (including the 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 or
expected to be made to the deposit account.
* * * * *
Section 1026.13--Billing Error Resolution
* * * * *
13(i) Relation to Electronic Fund Transfer Act and Regulation E
* * * * *
2. Incidental credit under an agreement with respect to an
account other than a prepaid account. Except with respect to a
prepaid account as defined in Sec. 1026.61, for credit extended
incident to an electronic fund transfer under an agreement between
the consumer and the financial institution, Sec. 1026.13(i)(1)
provides that certain error resolution procedures in both this part
and Regulation E apply. Except with respect to a prepaid account,
incidental credit that is not
[[Page 84379]]
extended under an agreement between the consumer and the financial
institution is governed solely by the error resolution procedures in
Regulation E. For example, credit inadvertently extended incident to
an electronic fund transfer using a debit card, such as under an
overdraft service not subject to Regulation Z, is governed solely by
the Regulation E error resolution procedures, if the bank and the
consumer do not have an agreement to extend credit when the
consumer's account is overdrawn.
3. Application to debit/credit transactions--examples. If a
consumer uses a debit card to withdraw money at an automated teller
machine and activates an overdraft credit feature on the checking
account:
i. An error asserted with respect to the transaction is subject,
for error resolution purposes, to the applicable Regulation E (12
CFR part 1005) provisions (such as timing and notice) for the entire
transaction.
* * * * *
iv. The provisions of Sec. 1026.13(d) and (g) apply only to the
credit portion of the transaction.
4. Credit under a covered separate credit feature accessible by
a hybrid prepaid-credit card. For transactions involving a covered
separate credit feature accessible by a hybrid prepaid-credit card
as defined in Sec. 1026.61, whether Regulation E (12 CFR part 1005)
or Regulation Z applies depends on the nature of the transaction.
For example:
i. If the transaction solely involves an extension of credit
under a covered separate credit feature and does not access funds
from the asset feature of the prepaid account, the error resolution
requirements of Regulation Z apply. To illustrate, assume that there
is $0 in the asset feature of the prepaid account, and the consumer
makes a $25 transaction with the card. The error resolution
requirements of Regulation Z apply to the transaction. This is true
regardless of whether the $25 of credit is drawn directly from the
covered separate credit feature without a transfer to the asset
feature of the prepaid account to cover the amount of the
transaction, or whether the $25 of credit is transferred from the
covered separate credit feature to the asset feature of the prepaid
account to cover the amount of the transaction.
ii. If the transaction accesses funds from the asset feature of
a prepaid account only (with no credit extended under the credit
feature), the provisions of Regulation E apply.
iii. If the transaction accesses funds from the asset feature of
a prepaid account but also involves an extension of credit under the
covered separate credit feature, a creditor must comply with the
requirements of Regulation E, 12 CFR 1005.11, and 1005.18(e) as
applicable, governing error resolution rather than those of Sec.
1026.13(a), (b), (c), (e), (f), and (h). To illustrate, assume that
there is $10 in the asset feature of the prepaid account, and the
consumer makes a $25 transaction with the card. The error resolution
requirements of Regulations E and Z apply as described above to the
transaction. This is true regardless of whether $10 is debited from
the asset feature and $15 of credit is drawn directly from the
covered separate credit feature without a transfer to the asset
feature of the prepaid account to cover the amount of the
transaction, or whether $15 of credit is transferred from the
covered separate credit feature to the asset feature of the prepaid
account and a $25 transaction is debited from the asset feature to
cover the amount of the transaction. When this paragraph applies:
A. An error asserted with respect to the transaction is subject,
for error resolution purposes, to the applicable Regulation E (12
CFR part 1005) provisions (such as timing and notice) for the entire
transaction.
B. The creditor need not provisionally credit the consumer's
account, under Regulation E, 12 CFR 1005.11(c)(2)(i), for any
portion of the unpaid extension of credit.
C. The creditor must credit the consumer's account under Sec.
1005.11(c) with any finance or other charges incurred as a result of
the alleged error.
D. The provisions of Sec. 1026.13(d) and (g) apply only to the
credit portion of the transaction.
5. Prepaid cards that are not hybrid prepaid-credit cards.
Regulation E, 12 CFR 1005.12(a)(1)(iv)(C) and (D), and (a)(2)(iii)
provide guidance on whether error resolution procedures in
Regulations E or Z apply to transactions involving credit features
that are accessed by prepaid cards that are not hybrid prepaid-
credit cards as defined in Sec. 1026.61. Regulation E 12 CFR
1005.12(a)(1)(iv)(C) provides that with respect to transactions that
involve credit extended through a negative balance to the asset
feature of a prepaid account that meets the conditions set forth in
Sec. 1026.61(a)(4), these transactions are governed solely by error
resolution procedures in Regulation E, and Regulation Z does not
apply. Regulation E 12 CFR 1005.12(a)(1)(iv)(D) and (a)(2)(iii),
taken together, provide that with respect to transactions involving
a prepaid account and a non-covered separate credit feature as
defined in Sec. 1026.61, a financial institution must comply with
Regulation E's error resolution procedures with respect to
transactions that access the prepaid account as applicable, and the
creditor must comply with Regulation Z's error resolution procedures
with respect to transactions that access the non-covered separate
credit feature, as applicable.
* * * * *
Subpart G--Special Rules Applicable to Credit Card Accounts and
Open-End Credit Offered to College Students
* * * * *
Section 1026.52--Limitations on Fees
52(a) Limitations During First Year After Account Opening
52(a)(1) General Rule
1. Application. The 25 percent limit in Sec. 1026.52(a)(1)
applies to fees that the card issuer charges to the account as well
as to fees that the card issuer requires the consumer to pay with
respect to the account through other means (such as through a
payment from the consumer's asset account, including a prepaid
account as defined in Sec. 1026.61, to the card issuer or from
another credit account provided by the card issuer). For example:
* * * * *
iii. Assume that a consumer opens a prepaid account accessed by
a prepaid card on January 1 of year one and opens a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined
by Sec. 1026.61 that is a credit card account under an open-end
(not home-secured) consumer credit plan on March 1 of year one.
Assume that, under the terms of the covered separate credit feature
accessible by the hybrid prepaid-credit card, a consumer is required
to pay $50 in fees for the issuance or availability of credit at
account opening. At credit account opening on March 1 of year one,
the credit limit for the account is $200. Section 1026.52(a)(1)
permits the card issuer to charge the $50 in fees to the credit
account. However, Sec. 1026.52(a)(1) prohibits the card issuer from
requiring the consumer to make payments to the card issuer for
additional non-exempt fees with respect to the credit account during
the first year after account opening. Section 1026.52(a)(1) also
prohibits the card issuer from requiring the consumer to open an
additional credit feature with the card issuer to fund the payment
of additional non-exempt fees during the first year after the
covered separate credit feature is opened.
iv. Assume that a consumer opens a prepaid account accessed by a
prepaid card on January 1 of year one and opens a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined
in Sec. 1026.61 that is a credit card account under an open-end
(not home-secured) consumer credit plan on March 1 of year one.
Assume that, under the terms of the covered separate credit feature
accessible by the hybrid prepaid-credit card, a consumer is required
to pay $120 in fees for the issuance or availability of credit at
account opening. The consumer is also required to pay a cash advance
fee that is equal to 5 percent of any cash advance and a late
payment fee of $15 if the required minimum periodic payment is not
received by the payment due date (which is the 25th of the month).
At credit account opening on March 1 of year one, the credit limit
for the account is $500. Section 1026.52(a)(1) permits the card
issuer to charge to the account the $120 in fees for the issuance or
availability of credit at account opening. On April 1 of year one,
the consumer uses the account for a $100 cash advance. Section
1026.52(a)(1) permits the card issuer to charge a $5 cash advance
fee to the account. On April 26 of year one, the card issuer has not
received the consumer's required minimum periodic payment. Section
1026.52(a)(2) permits the card issuer to charge a $15 late payment
fee to the account. On July 15 of year one, the consumer uses the
account for a $50 cash advance. Section 1026.52(a)(1) does not
permit the card issuer to charge a $2.50 cash advance fee to the
account, because the total amount of non-exempt fees reached the 25
percent limit with the $5 cash advance fee on April 1 (the $15 late
fee on April 26 is exempt pursuant to Sec. 1026.52(a)(2)(i)).
Furthermore, Sec. 1026.52(a)(1) prohibits the card issuer from
[[Page 84380]]
collecting the $2.50 cash advance fee from the consumer by other
means.
* * * * *
52(a)(2) Fees Not Subject to Limitations
1. Covered fees. Except as provided in Sec. 1026.52(a)(2) and
except as provided in comments 52(a)(2)-2 and-3, Sec. 1026.52(a)
applies to any fees or other charges that a card issuer will or may
require the consumer to pay with respect to a credit card account
during the first year after account opening, other than charges
attributable to periodic interest rates. For example, Sec.
1026.52(a) applies to:
* * * * *
2. Fees in connection with a covered separate credit feature and
an asset feature of the prepaid account that are both accessible by
a hybrid prepaid-credit card. With regard to a covered separate
credit feature and an asset feature on a prepaid account that are
both accessible by a hybrid prepaid-credit card as defined in Sec.
1026.61 where the credit feature is a credit card account under an
open-end (not home-secured) consumer credit plan, Sec. 1026.52(a)
applies to the following fees:
i. Except as provided in Sec. 1026.52(a)(2), any fee or charge
imposed on the covered separate credit feature, other than a charge
attributable to a periodic interest rate, during the first year
after account opening that the card issuer will or may require the
consumer to pay in connection with the credit feature, and
ii. Except as provided in Sec. 1026.52(a)(2), any fee or charge
imposed on the asset feature of the prepaid account, other than a
charge attributable to a periodic interest rate, during the first
year after account opening that the card issuer will or may require
the consumer to pay where that fee or charge is a charge imposed as
part of the plan under Sec. 1026.6(b)(3).
3. Fees imposed on the asset feature of a prepaid account that
are not charges imposed as part of the plan. Section 1026.52(a) does
not apply to any fee or charge imposed on the asset feature of the
prepaid account that is not a charge imposed as part of the plan
under Sec. 1026.6(b)(3). See Sec. 1026.6(b)(3)(iii)(D) and (E) and
related commentary regarding fees imposed on the asset feature of
the prepaid account that are not charges imposed as part of the plan
under Sec. 1026.6(b)(3) with respect to covered separate credit
features accessible by hybrid prepaid-credit cards and non-covered
separate credit features as those terms are defined in Sec.
1026.61.
* * * * *
52(b) Limitations on Penalty Fees
* * * * *
3. Fees in connection with covered separate credit features
accessible by hybrid prepaid-credit cards. With regard to a covered
separate credit feature and an asset feature on a prepaid account
that are both accessible by a hybrid prepaid-credit card as defined
in Sec. 1026.61 where the credit feature is a credit card account
under an open-end (not home-secured) consumer credit plan, Sec.
1026.52(b) applies to any fee for violating the terms or other
requirements of the credit feature, regardless of whether those fees
are imposed on the credit feature or on the asset feature of the
prepaid account. For example, assume that a late fee will be imposed
by the card issuer if the covered separate credit feature becomes
delinquent or if a payment is not received by a particular date.
This fee is subject to Sec. 1026.52(b) regardless of whether the
fee is imposed on the asset feature of the prepaid account or on the
separate credit feature.
4. Fees imposed on the asset feature of a prepaid account that
are not charges imposed as part of the plan. Section 1026.52(b) does
not apply to any fee or charge imposed on the asset feature of the
prepaid account that is not a charge imposed as part of the plan
under Sec. 1026.6(b)(3). See Sec. 1026.6(b)(3)(iii)(D) and (E) and
related commentary regarding fees imposed on the asset feature
prepaid account that are not charges imposed as part of the plan
under Sec. 1026.6(b)(3) with respect to covered separate credit
features accessible by hybrid prepaid-credit cards and non-covered
separate credit features as those terms are defined in Sec.
1026.61.
* * * * *
52(b)(2) Prohibited Fees
* * * * *
52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation
* * * * *
7. Declined transaction fees. Section 1026.52(b)(2)(i)(B)(1)
states that card issuers must not impose a fee when there is no
dollar amount associated with the violation, such as for
transactions that the card issuer declines to authorize. With regard
to a covered separate credit feature and an asset feature on a
prepaid account that are both accessible by a hybrid prepaid-credit
card as defined in Sec. 1026.61 where the credit feature is a
credit card account under an open-end (not home-secured) consumer
credit plan, Sec. 1026.52(b)(2)(i)(B)(1) prohibits a card issuer
from imposing declined transaction fees in connection with the
credit feature, regardless of whether the declined transaction fee
is imposed on the credit feature or on the asset feature of the
prepaid account. For example, if the prepaid card attempts to access
credit from the covered separate credit feature accessible by the
hybrid prepaid-credit card and the transaction is declined, Sec.
1026.52(a)(2)(i)(B)(1) prohibits the card issuer from imposing a
declined transaction fee, regardless of whether the fee is imposed
on the credit feature or on the asset feature of the prepaid
account. Fees imposed for declining a transaction that would have
only accessed the asset feature of the prepaid account and would not
have accessed the covered separate credit feature accessible by the
hybrid prepaid-credit are not covered by Sec.
1026.52(b)(2)(i)(B)(1).
* * * * *
Section 1026.55--Limitations on Increasing Annual Percentage Rates,
Fees, and Charges
55(a) General Rule
* * * * *
3. Fees in connection with covered separate credit features
accessible by hybrid prepaid-credit cards. With regard to a covered
separate credit feature and an asset feature on a prepaid account
that are both accessible by a hybrid prepaid-credit card as defined
in Sec. 1026.61 where the credit feature is a credit card account
under an open-end (not home-secured) consumer credit plan, Sec.
1026.55(a) prohibits card issuers from increasing an annual
percentage rate or any fee or charge required to be disclosed under
Sec. 1026.6(b)(2)(ii), (iii), or (xii) on a credit card account
unless specifically permitted by one of the exceptions in Sec.
1026.55(b). This is true regardless of whether these fees or annual
percentage rates are imposed on the asset feature of the prepaid
account or on the credit feature.
4. Fees imposed on the asset feature of a prepaid account that
are not charges imposed as part of the plan. Section 1026.55(a) does
not apply to any fee or charge imposed on the asset feature of the
prepaid account that is not a charge imposed as part of the plan
under Sec. 1026.6(b)(3). See Sec. 1026.6(b)(3)(iii)(D) and (E) and
related commentary regarding fees imposed on the asset feature of
the prepaid account that are not charges imposed as part of the plan
under Sec. 1026.6(b)(3) with respect to covered separate credit
features accessible by hybrid prepaid-credit cards and non-covered
separate credit features as those terms are defined in Sec.
1026.61.
* * * * *
Section 1026.57--Reporting and Marketing Rules for College Student
Open-End Credit
57(a) Definitions
57(a)(1) College Student Credit Card
1. Definition. The definition of college student credit card
excludes home-equity lines of credit accessed by credit cards and
overdraft lines of credit accessed by debit cards. A college student
credit card includes a college affinity card within the meaning of
TILA section 127(r)(1)(A). In addition, a card may fall within the
scope of the definition regardless of the fact that it is not
intentionally targeted at or marketed to college students. For
example, an agreement between a college and a card issuer may
provide for marketing of credit cards to alumni, faculty, staff, and
other non-student consumers who have a relationship with the
college, but also contain provisions that contemplate the issuance
of cards to students. A credit card issued to a student at the
college in connection with such an agreement qualifies as a college
student credit card. The definition of college student credit card
includes a hybrid prepaid-credit card as defined by Sec. 1026.61
that is issued to any college student where the card can access a
covered separate credit feature that is a credit card account under
an open-end (not home-secured) consumer credit plan. The definition
of college student credit card also includes a prepaid account as
defined in Sec. 1026.61 that is issued to any college student where
a covered separate credit feature that is a credit card account
under an open-end (not home-secured) consumer credit plan accessible
by a hybrid prepaid-credit card as defined by Sec. 1026.61 may be
added in the future to the prepaid account.
[[Page 84381]]
57(a)(5) College Credit Card Agreement
1. Definition. Section 1026.57(a)(5) defines ``college credit
card agreement'' to include any business, marketing or promotional
agreement between a card issuer and a college or university (or an
affiliated organization, such as an alumni club or a foundation) if
the agreement provides for the issuance of credit cards to full-time
or part-time students. Business, marketing or promotional agreements
may include a broad range of arrangements between a card issuer and
an institution of higher education or affiliated organization,
including arrangements that do not meet the criteria to be
considered college affinity card agreements as discussed in TILA
section 127(r)(1)(A). For example, TILA section 127(r)(1)(A)
specifies that under a college affinity card agreement, the card
issuer has agreed to make a donation to the institution or
affiliated organization, the card issuer has agreed to offer
discounted terms to the consumer, or the credit card will display
pictures, symbols, or words identified with the institution or
affiliated organization; even if these conditions are not met, an
agreement may qualify as a college credit card agreement, if the
agreement is a business, marketing or promotional agreement that
contemplates the issuance of college student credit cards to college
students currently enrolled (either full-time or part-time) at the
institution. An agreement may qualify as a college credit card
agreement even if marketing of cards under the agreement is targeted
at alumni, faculty, staff, and other non-student consumers, as long
as cards may also be issued to students in connection with the
agreement. This definition also includes a business, marketing, or
promotional agreement between a card issuer and a college or
university (or an affiliated organization, such as an alumni club or
a foundation) if the agreement provides for the addition of a
covered separate credit feature that is a credit card account under
an open-end (not home-secured) consumer credit plan accessible by a
hybrid prepaid-credit card as defined by Sec. 1026.61 to prepaid
accounts previously issued to full-time or part-time students. This
definition also includes a business, marketing, or promotional
agreement between a card issuer and a college or university (or an
affiliated organization, such as an alumni club or a foundation) if
(1) the agreement provides for the issuance of prepaid accounts as
defined in Sec. 1026.61 to full-time or part-time students; and (2)
a covered separate credit feature that is a credit card account
under an open-end (not home-secured) consumer credit plan accessible
by a hybrid prepaid-credit card as defined by Sec. 1026.61 may be
added in the future to the prepaid account.
57(b) Public Disclosure of Agreements
* * * * *
3. Credit card accounts in connection with prepaid accounts.
Section 1026.57(b) applies to any contract or other agreement that
an institution of higher education makes with a card issuer or
creditor for the purpose of marketing either (1) the addition of a
covered separate credit feature that is a credit card account under
an open-end (not home-secured) consumer credit plan accessible by a
hybrid prepaid-credit card as defined in Sec. 1026.61 to prepaid
accounts previously issued to full-time or part-time students; or
(2) new prepaid accounts as defined in Sec. 1026.61 where a covered
separate credit feature that is a credit card account under an open-
end (not home-secured) consumer credit plan accessible by a hybrid
prepaid-credit card as defined in Sec. 1026.61 may be added in the
future to the prepaid account. Thus, under Sec. 1026.57(b), an
institution of higher education must publicly disclose such
agreements.
57(c) Prohibited Inducements
* * * * *
7. Credit card accounts in connection with prepaid accounts.
Section 1026.57(c) applies to (1) the application for or opening of
a covered separate credit feature that is a credit card account
under an open-end (not home-secured) consumer credit plan accessible
by a hybrid prepaid-credit card as defined in Sec. 1026.61 that is
being added to a prepaid account previously issued to a full-time or
part-time student as well as (2) the application for or opening of a
prepaid account as defined in Sec. 1026.61 where a covered separate
credit feature that is a credit card account under an open-end (not
home-secured) consumer credit plan accessible by a hybrid prepaid-
credit card as defined in Sec. 1026.61 may be added in the future
to the prepaid account.
* * * * *
Section 1026.60 Credit and Charge Card Applications and Solicitations
1. General. Section 1026.60 generally requires that credit
disclosures be contained in application forms and solicitations
initiated by a card issuer to open a credit or charge card account.
(See Sec. 1026.60(a)(5) and (e)(2) for exceptions; see Sec.
1026.60(a)(1) and accompanying commentary for the definition of
solicitation; see also Sec. 1026.2(a)(15) and accompanying
commentary for the definition of charge card and Sec. 1026.61(c)
for restrictions on when credit or charge card accounts can be added
to previously issued prepaid accounts.)
* * * * *
60(b) Required Disclosures
* * * * *
3. Fees imposed on the asset feature of a prepaid account in
connection with a covered separate credit feature accessible by a
hybrid prepaid-credit card. With regard to a covered separate credit
feature and an asset feature on a prepaid account that are both
accessible by a hybrid prepaid-credit card as defined in Sec.
1026.61, a card issuer is required to disclose under Sec.
1026.60(b) any fees or charges imposed on the asset feature of the
prepaid account that are charges imposed as part of the plan under
Sec. 1026.6(b)(3) to the extent those fees or charges fall within
the categories of fees or charges required to be disclosed under
Sec. 1026.60(b). For example, assume that a card issuer imposes a
$1.25 per transaction fee on the asset feature of a prepaid account
for purchases when a hybrid prepaid-credit card accesses a covered
separate credit feature in the course of authorizing, settling, or
otherwise completing purchase transactions conducted with the card,
and the card issuer charges $0.50 per transaction for purchases that
access funds in the asset feature of the prepaid account in the same
program without such a credit feature. In this case, the $0.75
excess is a charge imposed as part of the plan under Sec.
1026.6(b)(3) and must be disclosed under Sec. 1026.60(b)(4).
4. Fees imposed on the asset feature of a prepaid account that
are not charges imposed as part of the plan. A card issuer is not
required under Sec. 1026.60(b) to disclose any fee or charge
imposed on the asset feature of the prepaid account that is not a
charge imposed as part of the plan under Sec. 1026.6(b)(3). See
Sec. 1026.6(b)(3)(iii)(D) and (E) and related commentary regarding
fees imposed on the asset feature of the prepaid account that are
not charges imposed as part of the plan under Sec. 1026.6(b)(3)
with respect to covered separate credit features accessible by
hybrid prepaid-credit cards and non-covered separate credit features
as those terms are defined in Sec. 1026.61.
* * * * *
60(b)(4) Transaction Charges
* * * * *
3. Prepaid cards. i. With respect to a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined by
Sec. 1026.61, if a card issuer assesses a fee (other than a
periodic rate that may be used to compute the finance charge on an
outstanding balance) to make a purchase where this fee is imposed as
part of the plan as described in Sec. 1026.6(b)(3), that fee is a
transaction charge described in Sec. 1026.60(b)(4). See comments
60(b)-3 and -4. This is so whether the fee is a per transaction fee
to make a purchase, or a flat fee for each day (or other period) the
consumer has an outstanding balance of purchase transactions.
ii. A fee for a transaction will be treated as a fee to make a
purchase under Sec. 1026.60(b)(4) in cases where a consumer uses a
hybrid prepaid-credit card as defined in Sec. 1026.61 to make a
purchase to obtain goods or services from a merchant and credit is
drawn directly from a covered separate credit feature accessed by
the hybrid prepaid-credit card without transferring funds into the
asset feature of the prepaid account to cover the amount of the
purchase. For example, assume that the consumer has $10 of funds in
the asset feature of the prepaid account and initiates a transaction
with a merchant to obtain goods or services with the hybrid prepaid-
credit card for $25. In this case, $10 is debited from the asset
feature and $15 of credit is drawn directly from the covered
separate credit feature accessed by the hybrid prepaid-credit card
without any transfer of funds into the asset feature of the prepaid
account to cover the amount of the purchase. A per transaction fee
imposed for the $15 credit transaction must be disclosed under Sec.
1026.60(b)(4).
iii. On the other hand, a fee for a transaction will be treated
as a cash advance fee under Sec. 1026.60(b)(8) in cases where a
consumer uses a hybrid prepaid-credit card as defined in Sec.
1026.61 to make a purchase to obtain goods or services from a
merchant
[[Page 84382]]
and credit is transferred from a covered separate credit feature
accessed by the hybrid prepaid-credit card into the asset feature of
the prepaid account to cover the amount of the purchase. For
example, assume the same facts as above, except that the $15 will be
transferred from the covered separate credit feature to the asset
feature, and a transaction of $25 is debited from the asset feature
of the prepaid account. In this case, a per transaction fee for the
$15 credit transaction must be disclosed under Sec. 1026.60(b)(8).
* * * * *
60(b)(8) Cash Advance Fee
* * * * *
4. Prepaid cards. i. With respect to a covered separate credit
feature accessible by a hybrid prepaid-credit card as defined by
Sec. 1026.61, if a card issuer assesses a fee (other than a
periodic rate that may be used to compute the finance charge on an
outstanding balance) for a cash advance, such as a cash withdrawal
at an ATM, where the fee is imposed as part of the plan as described
in Sec. 1026.6(b)(3), that fee is a cash advance fee. See comments
60(b)-3 and -4. In addition, a fee for a transaction will be treated
as a cash advance fee under Sec. 1026.60(b)(8) in cases where a
consumer uses a hybrid prepaid-credit card as defined in Sec.
1026.61 to make a purchase to obtain goods or services from a
merchant and credit is transferred from a covered separate credit
feature accessed by the hybrid prepaid-credit card into the asset
feature of the prepaid account to cover the amount of the purchase.
See comment 60(b)(4)-3.iii.
ii. If the cash advance fee is the same dollar amount as the
transaction charge for purchases described in Sec. 1026.60(b)(4),
the card issuer may disclose the fee amount under a heading that
indicates the fee applies to both purchase transactions and cash
advances. Examples of how fees for purchase transactions described
in Sec. 1026.60(b)(4) and fees for cash advances described in Sec.
1026.60(b)(8) must be disclosed are as follows. Assume that all the
fees in the examples below are charged on the covered separate
credit feature.
A. A card issuer assesses a $15 fee for credit drawn from a
covered separate credit feature using a hybrid prepaid-credit card
to purchase goods or services at the point of sale when the consumer
has insufficient or unavailable funds in the prepaid account as
described in comment 60(b)(4)-3.ii. The card issuer assesses a $25
fee for credit drawn from a covered separate credit feature using a
hybrid prepaid-credit card for a cash advance at an ATM when the
consumer has insufficient or unavailable funds in the prepaid
account. In this instance, the card issuer must disclose separately
a purchase transaction charge of $15 and a cash advance fee of $25.
B. A card issuer assesses a $15 fee for credit drawn from a
covered separate credit feature using a hybrid prepaid-credit card
to purchase goods or services at the point of sale when the consumer
has insufficient or unavailable funds in the prepaid account as
discussed in comment 60(b)(4)-3.ii. The card issuer assesses a $15
fee for credit drawn from a covered separate credit feature using a
hybrid prepaid-credit card for providing cash at an ATM when the
consumer has insufficient or unavailable funds in the prepaid
account. In this instance, the card issuer may disclose the $15 fee
under a heading that indicates the fee applies to both purchase
transactions and ATM cash advances. Alternatively, the card issuer
may disclose the $15 fee on two separate rows, one row indicating
that a $15 fee applies to purchase transactions, and a second row
indicating that a $15 fee applies to ATM cash advances.
C. A card issuer assesses a $15 fee for credit drawn from a
covered separate credit feature using a hybrid prepaid-credit card
for providing cash at an ATM when the consumer has insufficient or
unavailable funds in the prepaid account. The card issuer also
assesses a fee of $1.50 for out-of-network ATM cash withdrawals and
$1.00 for in-network ATM cash withdrawals. The card issuer must
disclose the cash advance fee as $16.50 for out-of-network ATM cash
withdrawals, indicating that $1.50 is for the out-of-network ATM
withdrawal fee, such as ``$16.50 (including a $1.50 out-of-network
ATM withdrawal fee).'' The card issuer also must disclose the cash
advance fee as $16.00 for in-network ATM cash withdrawals,
indicating that $1.00 is for the in-network ATM withdrawal fee, such
as ``$16 (including a $1.00 in-network ATM cash withdrawal fee).''
* * * * *
Section 1026.61 Hybrid Prepaid-Credit Cards
61(a) Hybrid Prepaid-Credit Card
1. Scope of Sec. 1026.61. Section 1026.61 sets forth the
definition of hybrid prepaid-credit card, and several requirements
that only apply to covered separate credit features accessible by
hybrid prepaid-credit cards as defined in Sec. 1026.61(a)(2)(i).
Hybrid prepaid-credit cards and covered separate credit features
accessible by hybrid prepaid-credit cards are also subject to other
rules in this regulation, and some of those rules and related
commentary contain specific guidance related to hybrid prepaid-
credit cards and covered separate credit features accessible by
hybrid prepaid-credit cards. For example, as discussed in Sec. Sec.
1026.2(a)(15)(i) and 1026.61(a), a hybrid prepaid-credit card is a
credit card for purposes of this regulation with respect to a
covered separate credit feature. A covered separate credit feature
accessible by a hybrid prepaid-credit card also will be a credit
card account under an open-end (not home-secured) consumer credit
plan as defined in Sec. 1026.2(a)(15)(ii) if the covered separate
credit feature is an open-end credit plan. Thus, the provisions in
this regulation that apply to credit cards and credit card accounts
under an open-end (not home-secured) consumer credit plan generally
will apply to hybrid prepaid-credit cards and covered separate
credit features accessible by hybrid prepaid-credit cards as
applicable (see generally subparts B and G). Some of those rules and
related commentary contain specific guidance with respect to hybrid
prepaid-credit cards and covered separate credit features accessible
by hybrid prepaid-credit cards. See, e.g., Sec. Sec.
1026.2(a)(15)(i) and (ii), 1026.4(b)(11), (c)(3) and (4),
1026.6(b)(3)(iii)(D) and (E), 1026.7(b)(11)(ii)(A),
1026.12(d)(3)(ii), 1026.13(i)(2), 1026.60(a)(5)(iv) and (b), and
related commentary to these and other rules in the regulation.
61(a)(1) In General
1. Credit. Under Sec. 1026.61(a)(1), except as provided in
Sec. 1026.61(a)(4), a prepaid card is a hybrid prepaid-credit card
if the prepaid card can access credit from a covered separate credit
feature as described in Sec. 1026.61(a)(2)(i) or if it can access
credit extended through a negative balance on the asset feature of
the prepaid account as described in Sec. 1026.61(a)(3). When Sec.
1026.61 references credit that can be accessed from a separate
credit feature or credit that can be extended through a negative
balance on the asset feature, it means credit that can be accessed
or can be extended even if, for example:
i. The person that can extend the credit does not agree in
writing to extend the credit;
ii. The person retains discretion not to extend the credit, or
iii. The person does not extend the credit once the consumer has
exceeded a certain amount of credit.
2. Prepaid card that is solely an account number. A prepaid card
that is solely an account number is a hybrid prepaid-credit card if
it meets the conditions set forth in Sec. 1026.61(a).
3. Usable from time to time. In order for a prepaid card to be a
hybrid prepaid-credit card under Sec. 1026.61(a), the prepaid card
must be capable of being used from time to time to access credit as
described in Sec. 1026.61(a). 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 hybrid prepaid-credit cards. With respect to a preauthorized
check that is issued on a prepaid account for which credit is
extended through a negative balance on the asset feature of the
prepaid account, or credit is drawn, transferred or authorized to be
drawn or transferred from a separate credit feature, the credit is
obtained using the prepaid account number and not the check at the
time of preauthorization using the prepaid account number. The
prepaid account number is a hybrid prepaid-credit card if the
account number meets the conditions set forth in Sec. 1026.61(a).
See comment 61(a)(1)-2.
4. Prepaid account that is a digital wallet. i. A digital wallet
that is capable of being loaded with funds is a prepaid account
under Regulation E, 12 CFR 1005.2(b)(3). See Regulation E, 12 CFR
1005.2(b)(3) and comment 2(b)(3)(i)-6. A prepaid account number that
can access such a digital wallet would be a hybrid prepaid-credit
card if it meets the conditions set forth in Sec. 1026.61(a). To
illustrate:
A. A prepaid account number that can access such a digital
wallet is a hybrid prepaid-credit card where it can be used from
time to time to access a covered separate credit feature offered by
the prepaid account issuer, its affiliate, or its business partner
in the course of authorizing, settling, or otherwise completing a
transaction
[[Page 84383]]
conducted with the prepaid account number to obtain goods or
services, obtain cash, or conduct person-to-person transfers as
described in Sec. 1026.61(a)(2)(i).
B. A prepaid account number that can access such a digital
wallet also is a hybrid prepaid-credit card where it can be used
from time to time to access the stored credentials for a covered
separate credit feature offered by the prepaid account issuer, its
affiliate, or its business partner in the course of authorizing,
settling, or otherwise completing a transaction conducted with the
prepaid account number to obtain goods or services, obtain cash, or
conduct person-to-person transfers as described in Sec.
1026.61(a)(2)(i).
C. A prepaid account number that can access such a digital
wallet is not a hybrid prepaid-credit card with respect to
credentials stored in the prepaid account that can access a non-
covered separate credit feature as described in Sec.
1026.61(a)(2)(ii) that is not offered by the prepaid account issuer,
its affiliate, or its business partner, even if the prepaid account
number can access those credentials in the course of authorizing,
settling, or otherwise completing a transaction conducted with the
prepaid account number to obtain goods or services, obtain cash, or
conduct person-to-person transfers.
D. A prepaid account number that can access such a digital
wallet is not a hybrid prepaid-credit card with respect to
credentials stored in the prepaid account that can access a non-
covered separate credit feature as described in Sec.
1026.61(a)(2)(ii) where the prepaid account number cannot access
those credentials in the course of authorizing, settling, or
otherwise completing a transaction conducted with the prepaid
account number to obtain goods or services, obtain cash, or conduct
person-to-person transfers, even if such credit feature is offered
by the prepaid account issuer, its affiliate, or its business
partner.
ii. A digital wallet is not a prepaid account under Regulation
E, 12 CFR 1005.2(b)(3), if the digital wallet can never be loaded
with funds, such as a digital wallet that only stores payment
credentials for other accounts. See Regulation E, 12 CFR
1005.2(b)(3) and comment 2(b)(3)(i)-6. An account number that can
access such a digital wallet would not be a hybrid prepaid-credit
card under Sec. 1026.61(a), even if it stores a credential for a
separate credit feature that is offered by the digital wallet
provider, its affiliate, or its business partner and can be used in
the course of a transaction involving the digital wallet.
5. Prepaid account that can be used for bill payment services.
Where a prepaid account can be used for online bill payment services
offered by the prepaid account issuer, the prepaid card (including a
prepaid account number) that can access that prepaid account is a
hybrid prepaid-credit card if it meets the requirements set forth in
Sec. 1026.61(a). For example, if a prepaid account number can be
used from time to time to initiate a transaction using the online
bill payment service offered by the prepaid account issuer to pay a
bill, and credit can be drawn, transferred, or authorized to be
drawn or transferred, to the prepaid account from a covered separate
credit feature offered by the prepaid account issuer, its affiliate,
or its business partner in the course of authorizing, settling, or
otherwise completing that transaction as described in Sec.
1026.61(a)(2)(i), the prepaid account number would be a hybrid
prepaid-credit card under Sec. 1026.61(a). In this case, the
prepaid account number can be used to draw or transfer credit, or
authorize the draw or transfer of credit, from a covered separate
credit feature offered by the prepaid account issuer, its affiliate,
or its business partner in the course of completing a transaction to
pay for goods or services through the online bill payment service.
61(a)(2) Prepaid Card Can Access Credit From a Covered Separate Credit
Feature
1. Draws or transfers of credit. i. For a prepaid card to be a
hybrid prepaid-credit card under Sec. 1026.61(a)(2)(i) with respect
to a separate credit feature, the prepaid account must be structured
such that the draw or transfer of credit, or authorizations of
either, from a separate credit feature offered by the prepaid
account issuer, its affiliate, or its business partner is capable of
occurring in the course of authorizing, settling, or otherwise
completing transactions conducted with the prepaid card to obtain
goods or services, obtain cash, or conduct person-to-person
transfers. See comment 61(a)(2)-2 for guidance on when draws or
transfers of credit can occur in the course of authorizing,
settling, or otherwise completing a transaction described in Sec.
1026.61(a)(2)(i). In this case, the separate credit feature is a
covered separate credit feature accessible by a hybrid prepaid-
credit card under Sec. 1026.61(a)(2)(i).
ii. A prepaid card is a hybrid prepaid-credit card with respect
to a covered separate credit feature regardless of whether:
A. The credit is pushed from the covered separate credit feature
to the asset feature of the prepaid account in the course of
authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct person-to-person transfers; or
B. The credit is pulled from the covered separate credit feature
to the asset feature of the prepaid account in the course of
authorizing, settling, or otherwise completing transactions
conducted with the card to obtain goods or services, obtain cash, or
conduct person-to-person transfers.
iii. A prepaid card is a hybrid prepaid-credit card with respect
to a covered separate credit feature regardless of whether the
covered separate credit feature can only be used as an overdraft
credit feature, solely accessible by the hybrid prepaid-credit card,
or whether it is a general line of credit that can be accessed in
other ways.
2. Credit that can be accessed from a separate credit feature in
the course of authorizing, settling, or otherwise completing a
transaction. i. Under Sec. 1026.61(a)(2)(i), a prepaid card is a
hybrid prepaid-credit card when the card can be used from time to
time to access a separate credit feature that is offered by the
prepaid account issuer, its affiliate, or its business partner and
can be used to access credit in the course of authorizing, settling,
or otherwise completing transactions conducted with the card to
obtain goods or services, obtain cash, or conduct person-to-person
transfers. A draw, transfer, or authorization of a draw or transfer
from a separate credit feature is deemed to be in the ``course of
authorizing, settling, or otherwise completing'' a transaction if it
occurs during the authorization phase of the transaction as
discussed in comment 61(a)(2)-2.ii or in later periods up to the
settlement of the transaction, as discussed in comment 61(a)(2)-
2.iii.
ii. The following examples illustrate transactions where credit
can be drawn, transferred, or authorized to be drawn or transferred
from a separate credit feature in the course of authorizing a
transaction.
A. A transaction initiated using a prepaid card when there are
insufficient or unavailable funds in the asset feature of the
prepaid account at the time the transaction is initiated and credit
is transferred from the credit feature to the asset feature at the
time the transaction is authorized to complete the transaction.
B. A transaction initiated using a prepaid card when there are
insufficient or unavailable funds in the asset feature of the
prepaid account at the time the transaction is initiated and credit
is directly drawn from the credit feature to complete the
transaction, without transferring funds into the prepaid account.
iii. The following examples illustrate transactions where credit
can be drawn, transferred, or authorized to be drawn or transferred,
in the course of settling a transaction.
A. A transaction initiated using a prepaid card when there are
sufficient or available funds in the asset feature of the prepaid
account at the time of authorization to cover the amount of the
transaction but where the consumer does not have sufficient or
available funds in the asset feature to cover the transaction at the
time of settlement. Credit automatically is drawn, transferred, or
authorized to be drawn or transferred from the credit feature at
settlement to pay the transaction.
B. A transaction that was not authorized in advance where the
consumer does not have sufficient or available funds in the asset
feature to cover the transaction at the time of settlement. Credit
automatically is drawn, transferred, or authorized to be drawn or
transferred from the credit feature at settlement to pay the
transaction.
3. Accessing credit when the asset feature has sufficient funds.
Section 1026.61(a)(2)(i) applies where the prepaid card can be used
from time to time to draw funds from a covered separate credit
feature that is offered by a prepaid account issuer, its affiliate,
or its business partner in the course of authorizing, settling, or
otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct person-to-person
transfers, even if there are sufficient or available funds in the
asset feature of the prepaid account to complete the transaction.
For example, the following separate credit feature would meet the
conditions of Sec. 1026.61(a)(2)(i).
i. The prepaid card can be used from time to time both to access
the asset feature of a
[[Page 84384]]
prepaid account and to draw on the covered separate credit feature
in the course of a transaction independent of whether there are
sufficient or available funds in the asset feature to complete the
transaction. For example, assume that a consumer has $50 available
funds in her prepaid account. The consumer initiates a $25
transaction with the card to purchase goods and services. If the
consumer chooses at the time the transaction is initiated to use the
card to access the prepaid account, the card will draw on the funds
in the asset feature of the prepaid account to complete the
transaction. If the consumer chooses at the time the transaction is
initiated to use the card to access the credit feature, the card
will draw on credit from the credit feature to complete the
transaction, regardless of the fact that there were sufficient or
available funds the prepaid account to complete the transaction.
4. Covered separate credit features. i. Under Sec.
1026.61(a)(2)(i), a separate credit feature that meets the
conditions of Sec. 1026.61(a)(2)(i) is defined as a covered
separate credit feature. In this case, the hybrid prepaid-credit
card can access both the covered separate credit feature and the
asset feature of the prepaid account. Section 1026.61 and other
provisions in the regulation and commentary related to hybrid
prepaid-credit cards refer to this credit feature either as a
covered separate credit feature or a covered separate credit feature
accessible by a hybrid prepaid-credit card. See, e.g., Sec. Sec.
1026.4(c)(4), 1026.7(b)(11)(ii)(A), 1026.12(d)(3)(ii), and
1026.60(a)(5)(iv) and (b). In addition, several provisions in the
regulation and commentary also describe this arrangement as one
where a covered separate credit feature and an asset feature on a
prepaid account are both accessible by a hybrid prepaid-credit card
as defined in Sec. 1026.61. See, e.g., Sec. Sec. 1026.4(b)(11),
1026.6(b)(3)(iii)(D), and 1026.13(i)(2).
ii. If a prepaid card is capable of drawing or transferring
credit, or authorizing either, from a separate credit feature
offered by the prepaid account issuer, its affiliate, or its
business partner in the course of authorizing, settling, or
otherwise completing transactions conducted with the prepaid card to
obtain goods or services, obtain cash, or conduct a person-to-person
transfer, the credit feature is a covered separate credit feature
accessible by a hybrid prepaid-credit card, even with respect to
credit that is drawn or transferred, or authorized to be drawn or
transferred, from the credit feature outside the course of a
transaction conducted with the card to obtain goods or services,
obtain cash, or conduct person-to-person transfers. For example,
with respect to a covered separate credit feature, a consumer may
use the prepaid card at the prepaid account issuer's Web site to
load funds from the covered separate credit feature outside the
course of a transaction conducted with the card to obtain goods or
services, obtain cash, or conduct person-to-person transfers. This
credit transaction is considered a credit transaction on a covered
separate credit feature accessible by a hybrid prepaid-credit card,
even though the load or transfer of funds occurred outside the
course of a transaction conducted with the card to obtain goods or
services, obtain cash, or conduct person-to-person transfers.
5. Non-covered separate credit features. A separate credit
feature that does not meet the conditions set forth in Sec.
1026.61(a)(2)(i) is defined as a non-covered separate credit feature
as described in Sec. 1026.61(a)(2)(ii). A prepaid card is not a
hybrid prepaid-credit card with respect to a non-covered separate
credit feature. To illustrate:
i. A prepaid card is not a hybrid prepaid-credit card under
Sec. 1026.61(a)(2)(i) with respect to a separate credit feature if
the credit feature is not offered by the prepaid account issuer, its
affiliate, or its business partner. This is true even if the draw or
transfer of credit, or authorization of either, occurs during the
course of authorizing, settling, or otherwise completing
transactions to obtain goods or services, obtain cash, or conduct
person-to-person transfers. For example, assume a consumer links her
prepaid account to a credit card issued by a card issuer that is not
the prepaid account issuer, its affiliate, or its business partner
so that credit is drawn automatically into the asset feature of the
prepaid account in the course of authorizing, settling, or otherwise
completing transactions conducted with the prepaid card for which
there are insufficient funds in the asset feature. In this case, the
separate credit feature is a non-covered separate credit feature
under Sec. 1026.61(a)(2)(ii). In this situation, the prepaid card
is not a hybrid prepaid-credit card with respect to the separate
credit feature offered by the unrelated third-party card issuer.
ii. Even if a separate credit feature is offered by the prepaid
account issuer, its affiliate, or its business partner, a prepaid
card is not a hybrid prepaid-credit card under Sec.
1026.61(a)(2)(i) with respect to that separate credit feature if the
separate credit feature cannot be accessed within the course of
authorizing, settling, or otherwise completing transactions to
obtain goods or services, obtain cash, or conduct person-to-person
transfers. For example, assume that a consumer can only conduct a
draw or transfer of credit, or authorization of either, from a
separate credit feature to a prepaid account at the prepaid account
issuer's Web site, and these draws, transfers, or authorizations of
either, cannot occur in the course of authorizing, settling, or
otherwise completing transactions at the Web site to obtain goods or
services, obtain cash, or conduct person-to-person transfers. In
this case, the separate credit feature is a non-covered separate
credit feature under Sec. 1026.61(a)(2)(ii). In this situation, the
prepaid card is not a hybrid prepaid-credit card with respect to
this non-covered separate credit feature.
iii. The person offering the non-covered separate credit feature
does not become a card issuer under Sec. 1026.2(a)(7) and thus does
not become a creditor under Sec. 1026.2(a)(17)(iii) or (iv) because
the prepaid card can be used to access credit from the non-covered
separate credit feature. The person offering the non-covered
separate credit feature, however, may already have obligations under
this regulation with respect to that separate credit feature. For
example, if the non-covered separate credit feature is an open-end
credit card account offered by an unrelated third-party creditor
that is not an affiliate or business partner of the prepaid account
issuer, the person already will be a card issuer under Sec.
1026.2(a)(7) and a creditor under Sec. 1026.2(a)(17)(iii).
Nonetheless, in that case, the person does not need to comply with
the provisions in the regulation applicable to hybrid prepaid-credit
cards even though the prepaid card can access credit from the non-
covered separate credit feature. The obligations under this
regulation that apply to a non-covered separate credit feature are
not affected by the fact that the prepaid card can access credit
from the non-covered separate credit feature. See Sec.
1026.6(b)(3)(iii)(E) and comments 4(b)(11)-1.ii, 6(b)(2)-2,
6(b)(3)(iii)(E)-1, 12(d)(3)-2.iii, 52(a)(2)-3, 52(b)-4, 55(a)-4, and
60(b)-4.
6. Prepaid card that can access multiple separate credit
features. i. Even if a prepaid card is a hybrid prepaid-credit card
with respect to a covered separate credit feature, it is not a
hybrid prepaid-credit card with respect to any non-covered separate
credit features.
ii. For example, assume that a prepaid card can access
``Separate Credit Feature A'' where the card can be used from time
to time to access credit from a separate credit feature that is
offered by the prepaid account issuer, its affiliate, or its
business partner in the course of authorizing, settling, or
otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct person-to-person
transfers. In addition, assume that the prepaid card can also access
``Separate Credit Feature B'' but that credit feature is being
offered by an unrelated third-party creditor that is not the prepaid
account issuer, its affiliate, or its business partner. The prepaid
card is a hybrid prepaid-credit card with respect to Separate Credit
Feature A because it is a covered separate credit feature. The
prepaid card, however, is not a hybrid prepaid-credit card with
respect to Separate Credit Feature B because it is a non-covered
separate credit feature.
61(a)(3) Prepaid Card Can Access Credit Extended Through a Negative
Balance on the Asset Feature
61(a)(3)(i) In General
1. Credit accessed on an asset feature of a prepaid account. i.
See comment 2(a)(14)-3 for examples of when transactions authorized
or paid on the asset feature of a prepaid account meet the
definition of credit under Sec. 1026.2(a)(14).
ii. Except as provided in Sec. 1026.61(a)(4), a prepaid card
would trigger coverage as a hybrid prepaid-credit card if it is a
single device that can be used from time to time to access credit
that can be extended through a negative balance on the asset feature
of the prepaid account. (However, unless the only credit offered
meets the requirements of Sec. 1026.61(a)(4), such a product
structure would violate the rules under Sec. 1026.61(b).) A credit
extension through a negative balance on the asset feature of a
prepaid account can occur during the authorization phase of the
transaction as discussed in comment
[[Page 84385]]
61(a)(3)(i)-1.iii or in later periods up to the settlement of the
transaction, as discussed in comment 61(a)(2)(i)-1.iv.
iii. The following example illustrates transactions where a
credit extension occurs during the course of authorizing a
transaction.
A. A transaction initiated using a prepaid card when there are
insufficient or unavailable funds in the asset feature of the
prepaid account at the time the transaction is initiated and credit
is extended through a negative balance on the asset feature of the
prepaid account when the transaction is authorized.
iv. The following examples illustrate transactions where a
credit extension occurs at settlement.
A. Transactions that occur when there are sufficient or
available funds in the asset feature of the prepaid account at the
time of authorization to cover the amount of the transaction but
where the consumer does not have sufficient or available funds in
the asset feature to cover the transaction at the time of
settlement. Credit is extended through a negative balance on the
asset feature at settlement to pay those transactions.
B. Transactions that settle even though they were not authorized
in advance where credit is extended through a negative balance on
the asset feature at settlement to pay those transactions.
61(a)(3)(ii) Negative Asset Balances
1. Credit extended on the asset feature of the prepaid account.
Section 1026.61(a)(3)(i) determines whether a prepaid card triggers
coverage as a hybrid prepaid-credit card under Sec. 1026.61(a), and
thus, whether a prepaid account issuer is a card issuer under Sec.
1026.2(a)(7) subject to this regulation, including Sec. 1026.61(b).
However, Sec. 1026.61(b) requires that any credit feature
accessible by a hybrid prepaid-credit card must be structured as a
separate credit feature using either a credit subaccount of the
prepaid account or a separate credit account. In that case, a card
issuer would violate Sec. 1026.61(b) if it structures the credit
feature as a negative balance on the asset feature of the prepaid
account, unless the only credit offered in connection with the
prepaid account satisfies Sec. 1026.61(a)(4). A prepaid account
issuer can use a negative asset balance structure to extend credit
on a prepaid account if the prepaid card is not a hybrid prepaid-
credit card as described in Sec. 1026.61(a)(4).
61(a)(4) Exception
1. Prepaid card that is not a hybrid prepaid-credit card. i. A
prepaid card that is not a hybrid prepaid-credit card as described
in Sec. 1026.61(a) is not a credit card under this regulation. A
prepaid card is not a hybrid prepaid-credit card if:
A. The card cannot access credit from a covered separate credit
feature under Sec. 1026.61(a)(2)(i), though it is permissible for
it to access credit from a non-covered separate credit feature as
described under Sec. 1026.61(a)(2)(ii); and
B. The card can only access credit extended through a negative
balance on the asset feature of the prepaid account in accordance
with both the conditions set forth in Sec. 1026.61(a)(4)(ii)(A) and
(B).
ii. Below is an example of when a prepaid card is not a hybrid
prepaid-credit card because the conditions set forth in Sec.
1026.61(a)(4) have been met.
A. The prepaid card can only access credit extended through a
negative balance on the asset feature of the prepaid account in
accordance with both the conditions set forth in Sec.
1026.61(a)(4)(ii)(A) and (B). The card can access credit from a non-
covered separate credit feature as defined in Sec.
1026.61(a)(2)(ii), but cannot access credit for a covered separate
credit feature as defined in Sec. 1026.61(a)(2)(i).
iii. Below is an example of when a prepaid card is a hybrid
prepaid-credit card because the conditions set forth in Sec.
1026.61(a)(4) have not been met.
A. When there is insufficient or unavailable funds in the asset
feature of the prepaid account at the time a transaction is
initiated, the card can be used to draw, transfer, or authorize the
draw or transfer of credit from a covered separate credit feature
offered by the prepaid account issuer, its affiliate, or its
business partner during the authorization phase to complete the
transaction so that credit is not extended on the asset feature of
the prepaid account. The card is a hybrid prepaid-credit card
because it can be used to draw, transfer, or authorize the draw or
transfer of credit from a separate credit feature in the
circumstances set forth in Sec. 1026.61(a)(2)(i).
iv. In the case where a prepaid card is not a hybrid prepaid-
credit card because the only credit it can access meets the
conditions set forth in Sec. 1026.61(a)(4):
A. The prepaid account issuer is not a card issuer under Sec.
1026.2(a)(7) with respect to the prepaid card. The prepaid account
issuer also is not a creditor under Sec. 1026.2(a)(17)(iii) or (iv)
because it is not a card issuer under Sec. 1026.2(a)(7) with
respect to the prepaid card. The prepaid account issuer also is not
a creditor under Sec. 1026.2(a)(17)(i) as a result of imposing fees
on the prepaid account because those fees are not finance charges.
See comment 4(b)(11)-1.iii.
Paragraph 61(a)(4)(ii)(A)
1. Authorization not required for every transaction. The prepaid
account issuer is not required to receive an authorization request
for each transaction to comply with Sec. 1026.61(a)(4)(ii)(A).
Nonetheless, the prepaid account issuer generally must establish an
authorization policy as described in Sec. 1026.61(a)(4)(ii)(A) and
have reasonable practices in place to comply with its established
policy with respect to the authorization requests it receives. In
that case, a prepaid account issuer is deemed to satisfy Sec.
1026.61(a)(4)(ii)(A) even if a negative balance results on the
prepaid account when a transaction is settled.
2. Provisional credit. A prepaid account issuer may still
satisfy the requirements set forth in Sec. 1026.61(a)(4)(ii)(A)
even if a negative balance results on the asset feature of the
prepaid account because the prepaid account issuer debits the amount
of any provisional credit that was previously granted on the prepaid
account as specified in Regulation E, 12 CFR 1005.11, so long as the
prepaid account issuer otherwise complies with the conditions set
forth in Sec. 1026.61(a)(4). For example, under Sec.
1026.61(a)(4), a prepaid account issuer may not impose a fee or
charge enumerated under Sec. 1026.61(a)(4)(ii)(B) with respect to
this negative balance.
3. Delayed load cushion. i. Incoming fund transfers. For
purposes of Sec. 1026.61(a)(4)(ii)(A)(2), cases where the prepaid
account issuer has received an instruction or confirmation for an
incoming electronic fund transfer originated from a separate asset
account to load funds to the prepaid account include a direct
deposit of salary from an employer and a direct deposit of
government benefits.
ii. Consumer requests. For purposes of Sec.
1026.61(a)(4)(ii)(A)(2), cases where the prepaid account issuer has
received a request from the consumer to load funds to the prepaid
account from a separate asset account include where the consumer, in
the course of a transaction, requests a load from a deposit account
or uses a debit card to cover the amount of the transaction if there
are insufficient funds in the asset feature of the prepaid account
to pay for the transaction.
4. Permitted authorization circumstances are not mutually
exclusive. The two circumstances set forth in Sec.
1026.61(a)(4)(ii)(A)(1) and (2) are not mutually exclusive. For
example, assume a prepaid account issuer has adopted the $10 cushion
described in Sec. 1026.61(a)(4)(ii)(A)(1), and the delayed load
cushion described in Sec. 1026.61(a)(4)(ii)(A)(2). Also, assume the
prepaid account issuer has received an instruction or confirmation
for an incoming electronic fund transfer originated from a separate
asset account to load funds to the prepaid account but the prepaid
account issuer has not received the funds from the separate asset
account. In this case, a prepaid account issuer satisfies Sec.
1026.61(a)(4)(iii)(A) if the amount of a transaction at
authorization will not cause the prepaid account balance to become
negative at the time of the authorization by more than the requested
load amount plus the $10 cushion.
Paragraph 61(a)(4)(ii)(B)
1. Different terms on different prepaid account programs.
Section 1026.61(a)(4)(ii)(B) does not prohibit a prepaid account
issuer from charging different terms on different prepaid account
programs. For example, the terms may differ between a prepaid
account program where a covered separate credit feature accessible
by a hybrid prepaid-credit card is not offered in connection with
any prepaid accounts within the prepaid account program, and a
prepaid account program where a covered separate credit feature
accessible by a hybrid prepaid-credit card may be offered to some
consumers in connection with their prepaid accounts.
Paragraph 61(a)(4)(ii)(B)(1)
1. Fees or charges covered by Sec. 1026.61(a)(4)(ii)(B)(1). To
qualify for the exception in Sec. 1026.61(a)(4)(ii)(B), the prepaid
account issuer may not impose any fees or charges for opening,
issuing, or holding a negative balance on the asset feature, or for
the availability of credit, whether imposed on a one-time or
periodic
[[Page 84386]]
basis. Section 1026.61(a)(4)(ii)(B)(1) does not include fees or
charges to open, issue, or hold the prepaid account where the amount
of the fee or charge imposed on the asset feature is not higher
based on whether credit might be offered or has been accepted,
whether or how much credit the consumer has accessed, or the amount
of credit available.
i. The types of fees or charges prohibited by Sec.
1026.61(a)(4)(ii)(B)(1) include:
A. A daily, weekly, monthly, or other periodic fee assessed each
period a prepaid account has a negative balance or is in
``overdraft'' status; and
B. A daily, weekly, monthly or other periodic fee to hold the
prepaid account where the amount of the fee that applies each period
is higher if the consumer is enrolled in a purchase cushion as
described in Sec. 1026.61(a)(4)(ii)(A)(1) or a delayed load cushion
as described in Sec. 1026.61(a)(4)(A)(ii)(2) during that period.
For example, assume that a consumer will pay a fee to hold the
prepaid account of $10 if the consumer is not enrolled in a purchase
cushion as described in Sec. 1026.61(a)(4)(ii)(A)(1) or a delayed
load cushion as described in Sec. 1026.61(a)(4)(A)(ii)(2) during
that month, and will pay a fee to hold the prepaid account of $15 if
the consumer is enrolled in a purchase cushion or delayed load
cushion that period. The $15 charge is a charge described in Sec.
1026.61(a)(4)(ii)(B)(1) because the amount of the fee to hold the
prepaid account is higher based on whether the consumer is
participating in the payment cushion or delayed load cushion during
that period.
ii. Fees or charges described in Sec. 1026.61(a)(4)(ii)(B) do
not include:
A. A daily, weekly, monthly, or other periodic fee to hold the
prepaid account where the amount of the fee is not higher based on
whether the consumer is enrolled in a purchase cushion as described
in Sec. 1026.61(a)(4)(ii)(A)(1) or a delayed load cushion as
described in Sec. 1026.61(a)(4)(A)(ii)(2) during that period,
whether or how much credit has been extended during that period, or
the amount of credit that is available during that period.
Paragraph 61(a)(4)(ii)(B)(2)
1. Fees or charges covered by Sec. 1026.61(a)(4)(ii)(B)(2). To
qualify for the exception in Sec. 1026.61(a)(4)(ii)(B), the prepaid
account issuer may not impose any fees or charges on the asset
feature of the prepaid account that will be imposed only when credit
is extended on the asset feature or when there is a negative balance
on the asset feature.
i. These types of fees or charges include:
A. A fee imposed because the balance on the prepaid account
becomes negative;
B. Interest charges attributable to a periodic rate that applies
to the negative balance;
C. Any fees for delinquency, default, or a similar occurrences
that result from the prepaid account having a negative balance or
being in ``overdraft'' status, except that the actual costs to
collect the credit may be imposed if otherwise permitted by law; and
D. Late payment fees.
ii. Fees or charges described in Sec. 1026.61(a)(4)(ii)(B) do
not include:
A. Fees for actual collection costs, including attorney's fees,
to collect any credit extended on the prepaid account if otherwise
permitted by law. Late payment fees are not considered fees imposed
for actual collection costs. See comment 61(a)(4)(ii)(B)(2)-1.i.D.
Paragraph 61(a)(4)(ii)(B)(3)
1. Fees or charges covered by Sec. 1026.61(a)(4)(ii)(B)(3). i.
To qualify for the exception in Sec. 1026.61(a)(4)(ii)(B), the
prepaid account issuer may not impose any fees or charges on the
asset feature of the prepaid account that are higher when credit is
extended on the asset feature or when there is a negative balance on
the asset feature. These types of fees or charges include:
A. Transaction fees where the amount of the fee is higher based
on whether the transaction accesses only asset funds in the asset
feature or accesses credit. For example, a $15 transaction charge is
imposed on the asset feature each time a transaction is authorized
or paid when there are insufficient or unavailable funds in the
asset feature at the time of the authorization or settlement. A
$1.50 fee is imposed each time a transaction only accesses funds in
the asset feature. The $15 charge is a charge described in Sec.
1026.61(a)(4)(ii)(B)(3) because the amount of the transaction fee is
higher when the transaction accesses credit than the amount of the
fee that applies when the transaction accesses only asset funds in
the asset feature; and
B. A fee for a service on the prepaid account where the amount
of the fee is higher based on whether the service is requested when
the asset feature has a negative balance. For example, if a prepaid
account issuer charges a higher fee for an ATM balance inquiry
requested on the prepaid account if the balance inquiry is requested
when there is a negative balance on the asset feature than the
amount of fee imposed when there is a positive balance on the asset
feature, the balance inquiry fee is a fee described in Sec.
1026.61(a)(4)(ii)(B)(3) because the amount of the fee is higher
based on whether it is imposed when there is a negative balance on
the asset feature.
ii. Fees or charges described in Sec. 1026.61(a)(4)(ii)(B) do
not include:
A. Transaction fees on the prepaid account where the amount of
the fee imposed when the transaction accesses credit does not exceed
the amount of the fee imposed when the transaction only accesses
asset funds in the prepaid account. For example, assume a $1.50
transaction charge is imposed on the prepaid account for each paid
transaction that is made with the prepaid card, including
transactions that only access asset funds, transactions that take
the account balance negative, and transactions that occur when the
account balance is already negative. The $1.50 transaction charge
imposed on the prepaid account is not a fee described in Sec.
1026.61(a)(4)(ii)(B); and
B. A fee for a service on the prepaid account where the amount
of the fee is not higher based on whether the service is requested
when the asset feature has a negative balance. For example, if a
prepaid account issuer charges the same amount of fee for an ATM
balance inquiry regardless of whether there is a positive or
negative balance on the asset feature, the balance inquiry fee is
not a fee described in Sec. 1026.61(a)(4)(ii)(B).
Paragraph 61(a)(4)(ii)(C)
1. Fees or charges not covered by Sec. 1026.61(a)(4)(ii)(B).
Under Sec. 1026.61(a)(4)(ii)(C), a prepaid account issuer may still
satisfy the exception in Sec. 1026.61(a)(4) even if it debits fees
or charges from the prepaid account when there are insufficient or
unavailable funds in the asset feature of the prepaid account to
cover those fees or charges at the time they are imposed, so long as
those fees or charges are not the type of fees or charges enumerated
in Sec. 1026.61(a)(4)(ii)(B). A fee or charge not otherwise covered
by Sec. 1026.61(a)(4)(ii)(B) does not become covered by that
provision simply because there are insufficient or unavailable funds
in the asset feature of the prepaid account to pay the fee when it
is imposed. For example, assume that a prepaid account issuer
imposes a fee for an ATM balance inquiry and the amount of the fee
is not higher based on whether credit is extended or whether there
is a negative balance on the prepaid account. Also assume that when
the fee is imposed, there are insufficient or unavailable funds in
the asset feature of the prepaid account to pay the fee. The ATM
balance inquiry fee does not become a fee covered by Sec.
1026.61(a)(4)(ii)(B) because the fee is debited from the prepaid
account balance when there are insufficient or unavailable funds in
the asset feature of the prepaid account to cover the fee at the
time it is imposed.
61(a)(5) Definitions
Paragraph 61(a)(5)(iii)
1. Arrangement. A person (other than the prepaid account issuer
or its affiliates) that can extend credit through a separate credit
feature is a business partner of a prepaid account issuer where the
person that can extend credit or its affiliate has an arrangement
with a prepaid account issuer or its affiliate. A person (other than
the prepaid account issuer or its affiliates) that can extend credit
through a separate credit feature or the person's affiliate has an
arrangement with a prepaid account issuer or its affiliate for
purposes of Sec. 1026.61(a)(5)(iii) if the circumstances in either
paragraph i or ii are met:
i. A person that can extend credit or its affiliate has an
arrangement with a prepaid account issuer or its affiliate if the
prepaid account issuer or its affiliate has an agreement with the
person that can extend credit or its affiliate that allows a prepaid
card from time to time to draw, transfer, or authorize a draw or
transfer of credit from a credit feature offered by the person that
can extend credit in the course of authorizing, settling, or
otherwise completing transactions conducted with the card to obtain
goods or services, obtain cash, or conduct person-to-person
transfers. However, the parties are not considered to have such an
agreement merely because the parties participate in a card network
or payment network.
ii. A person that can extend credit or its affiliate has an
arrangement with a prepaid
[[Page 84387]]
account issuer or its affiliate if the prepaid account issuer or its
affiliate:
A. Has a business, marketing, or promotional agreement or other
arrangement with the person that can extend credit or its affiliate
where the agreement or arrangement provides that:
1. Prepaid accounts offered by the prepaid account issuer will
be marketed to the customers of the person that can extend credit;
or
2. The credit feature will be marketed to the holders of prepaid
accounts offered by the prepaid account issuer (including any
marketing to customers to link the separate credit feature to the
prepaid account to be used as an overdraft credit feature); and
B. At the time of the marketing agreement or arrangement
described in comment 61(a)(5)(iii)-1.ii.A, or at any time
afterwards, the prepaid card from time to time can draw, transfer,
or authorize the draw or transfer of credit from the credit feature
in the course of transactions conducted with the card to obtain
goods or services, obtain cash, or conduct person-to-person
transfers. This requirement is satisfied even if there is no
specific agreement, as described in comment 61(a)(5)(iii)-1.i,
between the parties that the card can access the credit feature. For
example, this requirement is satisfied even if the draw, transfer,
or authorization of the draw or transfer from the credit feature is
effectuated through a card network or payment network.
2. Relationship to prepaid account issuer. A person (other than
a prepaid account issuer or its affiliates) that can extend credit
through a separate credit feature will be deemed to have an
arrangement with the prepaid account issuer if the person that can
extend credit, its service provider, or the person's affiliate has
an arrangement with the prepaid account issuer, its service provider
such as a program manager, or the issuer's affiliate. In that case,
the person that can extend credit will be a business partner of the
prepaid account issuer. For example, if the affiliate of the person
that can extend credit has an arrangement with the prepaid account
issuer's affiliate, the person that can extend credit will be the
business partner of the prepaid account issuer.
Paragraph 61(a)(5)(iv)
1. Applicability of credit feature definition. The definition of
credit feature set forth in Sec. 1026.61(a)(5)(iv) only defines
that term for purposes of this regulation in relation to credit in
connection with a prepaid account or prepaid card. This definition
does not impact when an account, subaccount or negative balance is a
credit feature under the regulation with respect to credit in
relation to a checking account or other transaction account that is
not a prepaid account, or a debit card. See, e.g., comments
2(a)(15)-2.ii.A and 4(b)(2)-1 for where the term credit feature is
used in relation to a debit card or asset account other than a
prepaid account.
2. Asset account other than a prepaid account. A credit feature
for purposes of Sec. 1026.61(a)(5)(iv) does not include an asset
account other than a prepaid account that has an attached overdraft
feature. For example, assume that funds are loaded or transferred to
a prepaid account from an asset account (other than a prepaid
account) on which an overdraft feature is attached. The asset
account is not a credit feature under Sec. 1026.61(a)(5)(iv) even
if the load or transfer of funds to the prepaid account triggers the
overdraft feature that is attached to the asset account.
Paragraph 61(a)(5)(vii)
1. Definition of prepaid card. The term ``prepaid card'' in
Sec. 1026.61(a)(5)(vii) includes any card, code, or other device
that can be used to access a prepaid account, including a prepaid
account number or other code.
61(b) Structure of Credit Features Accessible by Hybrid Prepaid-Credit
Cards
1. Credit subaccount on a prepaid account. If a credit feature
that is accessible by a hybrid prepaid-credit card is structured as
a subaccount of the prepaid account, the credit feature must be set
up as a separate balance on the prepaid account such that there are
at least two balances on the prepaid account--the asset account
balance and the credit account balance.
2. Credit extended on a credit subaccount or a separate credit
account. Under Sec. 1026.61(b), with respect to a credit feature
that is assessed by a hybrid prepaid-credit card, a card issuer at
its option may structure the credit feature as a separate credit
feature, either as a subaccount on the prepaid account that is
separate from the asset feature or as a separate credit account. The
separate credit feature would be a covered separate credit feature
accessible by a hybrid prepaid-credit card under Sec.
1026.61(a)(2)(i). Regardless of whether the card issuer is
structuring its covered separate credit feature as a subaccount of
the prepaid account or as a separate credit account:
i. If at the time a prepaid card transaction is initiated there
are insufficient or unavailable funds in the asset feature of the
prepaid account to complete the transaction, credit must be drawn,
transferred or authorized to be drawn or transferred, from the
covered separate credit feature at the time the transaction is
authorized. The card issuer may not allow the asset feature on the
prepaid account to become negative and draw or transfer the credit
from the covered separate credit feature at a later time, such as at
the end of the day. The card issuer must comply with the applicable
provisions of this regulation with respect to the credit extension
from the time the prepaid card transaction is authorized.
ii. For transactions where there are insufficient or unavailable
funds in the asset feature of the prepaid account to cover that
transaction at the time it settles and the prepaid transaction
either was not authorized in advance or the transaction was
authorized and there were sufficient or available funds in the
prepaid account at the time of authorization to cover the
transaction, credit must be drawn from the covered separate credit
feature to settle these transactions. The card issuer may not allow
the asset feature on the prepaid account to become negative. The
card issuer must comply with the applicable provisions of this
regulation from the time the transaction is settled.
iii. If a negative balance would result on the asset feature in
circumstances other than those described in comment 61(b)-2.i and
ii, credit must be drawn from the covered separate credit feature to
avoid the negative balance. The card issuer may not allow the asset
feature on the prepaid account to become negative. The card issuer
must comply with the applicable provisions in this regulation from
the time credit is drawn from the covered separate credit feature.
For example, assume that a fee for an ATM balance inquiry is imposed
on the prepaid account when there are insufficient or unavailable
funds to cover the amount of the fee when it is imposed. Credit must
be drawn from the covered separate credit feature to avoid a
negative balance.
61(c) Timing Requirement for Solicitation or Application With Respect
to Hybrid Prepaid-Credit Cards
1. Meaning of registration of a prepaid card or prepaid account.
A prepaid card or prepaid account is registered, such that the 30-
day timing requirement required by Sec. 1026.61(c) begins, when the
prepaid account issuer successfully completes its collection of
consumer identifying information and identity verification in
accordance with the requirements of applicable Federal and state
law. The beginning of the required 30-day timing requirement is
triggered by successful completion of collection of consumer
identifying information and identity verification, not by the
consumer's mere purchase or obtaining of the card. With respect to a
prepaid account for which customer identification and verification
are completed before the account is opened, the 30-day timing
requirement begins on the day the prepaid account is opened.
2. Unsolicited issuance of credit cards and disclosures related
to applications or solicitations for credit or charge card accounts.
See Sec. 1026.12(a)(1) and comment 12(a)(1)-7.ii for additional
rules that apply to the addition of a credit card or charge card
account to a previously-issued prepaid account. See also Sec.
1026.60 and related commentary for disclosures that generally must
be provided on or with applications or solicitations to open a
credit or charge card account.
3. Replacement or substitute cards. A card issuer is not
required to comply with Sec. 1026.61(c) when a hybrid prepaid-
credit card is permitted to be replaced, or substituted, for another
hybrid prepaid-credit card without a request or application under
Sec. 1026.12(a)(2) and related commentary. For example, Sec.
1026.61(c) does not apply to situations where a prepaid account or
credit feature that is accessible by a hybrid prepaid-credit card is
replaced because of security concerns and a new hybrid prepaid-
credit card is issued to access the new prepaid account or covered
separate credit feature without a request or application under Sec.
1026.12(a)(2).
* * * * *
Dated: October 3, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-24503 Filed 11-21-16; 8:45 am]
BILLING CODE 4810-AM-P