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Consumer Banking and Payments Law: 7.2.2 Parties Involved in a Prepaid Card

Prepaid cards are often very complex products with a number of different parties involved behind the scenes. Understanding the different players can be important in determining who is responsible to the consumer, what laws apply, and who regulates the party.13

Several distinct functions are often performed by different parties:14

Consumer Banking and Payments Law: 7.2.3.1.1 Overview; fee limits

The Consumer Financial Protection Bureau (CFPB) has issued a final rule, the prepaid accounts rule (hereafter “the prepaid rule”), effective April 1, 2019.20 The prepaid rule amends Regulations E and Z to provide consumer protections for prepaid cards and other prepaid accounts.21 This section examines Rule provisions amending Regulation E.

Consumer Banking and Payments Law: 7.2.3.1.2 Effective date of Prepaid Rule

The prepaid rule’s general effective date is April 1, 2019.43 However, some provisions have different effective dates. When the general effective date was to be April 1, 2018, the CFPB published a fact sheet on the rule’s different effective dates.44 Although the dates have been pushed back, this may prove helpful in determining which provisions go into effect on April 1, 2019, and which go into effect on a later date.

Consumer Banking and Payments Law: 7.2.3.2.1 Financial institutions covered and overview of prepaid accounts covered

The prepaid rule applies to financial institutions, as defined in Regulation E.57 That definition includes not only depository financial institutions, like banks and credit unions, but also “any other person that directly or indirectly holds an account belonging to a consumer, or that issues an access device and agrees with a consumer to provide electronic fund transfer services,” with certain exclusions.”58 Thus, Regulation E’s definition of “account” effectively expands the definition of “financia

Consumer Banking and Payments Law: 7.2.3.2.2 Payroll card accounts

The prepaid rule applies to payroll card accounts, defined as an account that is established directly or indirectly through an employer,68 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.69 This is the same definition of payroll card accounts under the payroll card rule.70 Employer disbursements to the account includ

Consumer Banking and Payments Law: 7.2.3.2.6 Exclusions

Several exclusions to coverage apply only to the third and fourth definitions of a prepaid account—marketed or labeled as “prepaid”101 and issued or loaded with the proper primary function.102 The exclusions do not apply to the first and second definitions concerning payroll and government benefit accounts.103 An account that would otherwise satisfy the third or fourth definition is not a covered prepaid account if it is any of th

Consumer Banking and Payments Law: 7.2.3.2.7 Relation to state law

Regulation E and the Electronic Fund Transfer Act preempt state law covering prepaid products only to the extent they are inconsistent with state law, and only to the extent of the inconsistency.114 State law is not inconsistent if it provides consumers greater protection than they have under federal law.115 Thus, state laws that provide greater protection for prepaid, payroll, or government benefits accounts are not preempted by Regulation E, though they may be preempted by federal banking regu

Consumer Banking and Payments Law: 7.2.3.3 Prepaid Account Agreements

The prepaid rule imposes three requirements upon issuers117 to provide access to their prepaid account agreements.118 The issuer must provide consumers with access to their prepaid account agreements, submit to the CFPB all its prepaid account agreements, and post its agreements on a publicly available website.

Consumer Banking and Payments Law: 7.2.3.4.1 Overview

The prepaid rule outlines a detailed scheme for prepaid account pre-acquisition disclosures,132 which must be provided to consumers before the consumer acquires the prepaid account.133 A disclosure has not been provided before the consumer acquires the prepaid account if the consumer cannot see or access the disclosure before acquiring the prepaid account.134 These disclosures are distinguished from Regulation E’s required initial disclosures,

Consumer Banking and Payments Law: 7.2.3.4.2 Electronic and oral disclosures

As a general rule, Regulation E requires a financial institution to provide disclosures in writing. The financial institution alternatively may make the disclosure electronically subject to compliance with the consumer notice consent and other provisions of the Electronic Signatures in Global and National Commerce (E-Sign) Act.140

Consumer Banking and Payments Law: 7.2.3.4.5 Disclosures required near short form disclosures

Outside but in close proximity to the short form disclosure, a financial institution must disclose its name, the name of the prepaid account program, any purchase price for the prepaid account, and any fee for activating the prepaid account.170 For government benefit accounts, the name of the financial institution that directly holds the account or issues the account’s access device must be disclosed.171

Consumer Banking and Payments Law: 7.2.3.4.7 Disclosures on the prepaid card or other access device

The prepaid rule requires a financial institution to provide two disclosures on the prepaid card or other access device for a prepaid account:185 the financial institution’s name186 and a telephone number and a website URL that the consumer can use to contact the financial institution about the prepaid account.187 If no physical access device is provided, the disclosures must appear on the website, mobile application, or other entry point that a co

Consumer Banking and Payments Law: 7.2.3.5 Initial Disclosures

The prepaid rule extends Regulation E’s initial disclosure requirements189 to prepaid accounts with some differences.190 The financial institution must include all fee information required in the prepaid account long form pre-acquisition disclosures.191 Because a prepaid account consumer’s provisional credit rights are limited if an account is not registered,192 the initial disclosure also must warn c

Consumer Banking and Payments Law: 7.2.3.7 Periodic Statements and the Periodic Statement Alternative

The prepaid rule requires for prepaid accounts that financial institutions follow the standard requirement in Regulation E that periodic statements be sent to the account holder.202 The prepaid rule, however, offers the institution something called the “periodic statement alternative,” which is an alternative to providing periodic statements. The standard provisions in Regulation E for periodic statements require:

Consumer Banking and Payments Law: 7.2.3.8 Error Resolution Procedures

The prepaid rule extends to all prepaid accounts Regulation E’s standard error resolution protections, with some modifications.218 In the rule that was originally issued in 2016, these protections applied even if the financial institution did not require the consumer to register the account or when the institution had not completed its consumer identification and verification proc

Consumer Banking and Payments Law: 7.2.3.9 Limitations on Liability for Unauthorized Charges

Generally, for covered prepaid accounts, financial institutions must comply with Regulation E’s standard provisions that limit the consumer’s liability for unauthorized transfers.229 The final rule as amended in 2018 exempts from the limitation on liability provisions any prepaid account (other than payroll card or government benefit accounts) when the financial institution has not successfully completed its consumer identification and verification process.230

Collection Actions: 3.7.3.1.1 Overview

Surprisingly, the law selected in a credit contract may have a shorter limitations period than that of the forum state. For example, Chase, Bank of America, Discover, and Barclays agreements specify Delaware law, which has a three-year limitations period even for written contracts—a period significantly shorter than many other states. (On the other hand, Citi and Wells Fargo use South Dakota law, which has a six-year limitations period even for non-written contracts.)