Paybefore Analysis: CFPB Issues New Prepaid Card Rules, Alienating Industry Execs

NEW YORK, Oct. 05, 2016 -- The U.S. Consumer Financial Protection Bureau (CFPB) on October 5 released its final rule on prepaid accounts, a move that sharply expands the definition of prepaid—to the distinct displeasure of prepaid industry officials, according to an analysis published Wednesday by Paybefore.com. 

The CFPB, in a news release, says prepaid accounts are among the fastest growing consumer financial products in the United States, usually purchased at retail outlets or online, with the market expected to almost double to $121 billion by 2018.  Americans generally use the cards to make payments, store funds, withdraw cash at ATMs, receive direct deposits, or send money to others. 

The new rules, which take effect October 1, 2017, are quite similar to what CFPB had initially proposed, with provisions tweaked in the final rule, rather than major additions or deletions, Paybefore.com reported.

"The changes will have little serious effect on what retailers and consumers have to/can do with prepaid cards, but it is changing quite a few of the behind-the-scenes requirements," said Paybefore.com Acting Editor-in-Chief Evan Schuman.

Some of the biggest changes involve liability changes for consumers and, critically, a sharp expansion of the definition of what constitutes prepaid cards at all. That is prompting fears in the industry that some may avoid offering some kinds of prepaid cards entirely, robbing consumers of a much-valued payment method.  Among the new rules:

• Card issuers will not be able to charge more than 25 percent of a card’s value in fees.  For instance, a consumer with a $100 prepaid card would be charged no more than $25 by the issuer.
• Consumers must now be given at least 21 days to repay a debt before they are charged a late fee, which the CFPB says must be “reasonable and proportional.”
• Prepaid companies will have to provide consumers with regular statements, like those that credit card consumers receive. The statements will detail fees, the interest rate, the amount borrowed and owed, and other key information.             

The Paybefore analysis quotes one skeptical industry official as calling the CFPB’s new rules “bureaucracy run amuck,” saying the regulation will only deliver “higher prices and fewer choices as suppliers with low volumes and profits become unsustainable under the weight of this regulation and pull out of the market.”

Paybefore’s complete analysis is available at http://paybefore.com/pay-gov/cfpb-issues-final-prepaid-rules-and-the-industry-is-underwhelmed/.

About Paybefore

Paybefore, The Voice of Payments + Commerce, is the leading media brand for the payments and retail industries. With in-depth news and analysis, Paybefore offers an industry-insider perspective into the world of prepaid, payments technology, commerce and loyalty.  More information is available at www.paybefore.com.

For more information:

Evan Schuman
[email protected]
973.993.8098