Author: Michelle Jun

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CFPB GPR NPRM

plastic cardsIf you are involved or follow the world of prepaid cards, you already know that the CFPB had issued proposed rules late last year, and that the comment period ended late March.

The California Bar Business Law Section holds a lunchtime lecture series which features the latest of relevant and interesting topics.

March’s presentation was “Prepaid Cards and the New Rules of the Road.”  Here is the summary, along with links to presentations below:

Over five percent of retail sales in the U.S. (representing $200 billion) were made with prepaid cards last year.  From gift cards to general purpose reloadable cards to virtual cards embedded in smartphones, prepaid cards are everywhere…. And so are 800+ pages of newly proposed prepaid card rules and guidance.

  • Judie Rinearson , Bryan Cave Partner and regulatory counsel to the prepaid industry association, will explain the contours of the new proposed rules and their interplay with existing electronic funds transfer and credit regulations.
  • Emily Goodman Binick, American Express Senior Counsel will help us understand the challenges and opportunities involved in implementing both existing prepaid card laws and the new proposed rules.
  • Michelle Jun, Payments Law Group Principal and former Consumers Union attorney, will share insights into market dynamics and consumer protection issues that still need to be resolved.
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Recent Developments

bankSome of the more interesting recent developments in the world of money and finance:

  • Online lender Prosper goes offline, and teams up with “more than 160 independent and community banks in 13 states in the U.S”
  • California introduces bill (AB 1326) on bitcoin licensing.
  • Google is getting into the business of providing insurance quotes.
  • FinCEN issues $10mil fine on Trump’s Taj Mahal Atlantic City casino for AML compliance failures. (Significantly less than the $110 mil fine on Wachovia a few years ago, but notably the highest fine on a casino).
  • Interagency Guidance on Youth Savings Accounts (perhaps not mind blowing, but it is true that many youth do not/cannot open up a youth savings account easily). This particular effort seems to signal the need to enable youth to become more financially ready.

The FDIC recently published Interagency Guidance (including Board of Governors of the Federal Reserve System,
Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, National Credit Union Administration
and Office of the Comptroller of the Currency) on Youth Savings Accounts.

“The purpose of the guidance is to encourage financial institutions to develop and implement programs to expand the financial capability of youth and build opportunities for financial inclusion for more families. The guidance also addresses frequently asked questions that may arise as financial institutions collaborate with schools, local and state governments, non-profits, or corporate entities to facilitate youth savings and financial education programs.”

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CFPB’s Proposed Prepaid Rules & Reactions

plastic cardsAfter many years in the making, the CFPB announced its proposed rules on prepaid on November 13th.  The changes proposed would extend and make changes to provisions within Reg E and Reg Z, which the CFPB has jurisdiction.

The Proposed Rules do NOT:

Make FDIC insurance (individual or pass through) for prepaid compulsory (which arguably the CFPB cannot do).

Create fee caps or other fee changes (which Congress may only do).

The Proposed Rules would:

Require “Know Before You Owe” disclosures

Expand the definition of “prepaid” to include many forms of pre-funded electronic payments methods (not just plastic prepaid cards) but does not include health savings cards and transit cards.

Extend Reg E protections on error resolution and liability limits

Extend Reg Z protections on overdraft and linked credit products

Reactions to the effects of the Proposed Prepaid Rules:

Financial services rating company-Fitch Ratings: Fitch Ratings projects that the proposed regulations “may spur a consolidation of small, high-fee prepaid issuers who may be less transparent or uncompetitive, while boosting low-cost, more transparent providers…We believe the new consumer-friendly rules should further bolster growth in prepaid card usage…We do not believe the new rules pose a serious threat to major card issuing banks.”

Prepaid Card Industry Association-NBPCA: “While the NBPCA and its member companies need time to fully digest all of the components in the CFPB’s 870 page proposed rule, we welcome formalizing many standards that the industry has already embraced…NBPCA and its members stand ready to engage the Bureau in a collaborative process to enhance consumer protections without reducing convenient consumer access to prepaid cards.”

One major prepaid card issuer-Green Dot: “Green Dot believes that its business will not be materially impacted by the CFPB’s newly proposed rules. Furthermore, Green Dot fully supports the proposed rules that mandate “Regulation E” consumer protections for lost or stolen funds and disputed transactions, including the providing of provisional credits to consumers, and the CFPB’s proposed rulemaking dealing with the new framework for overdraft programs attached to prepaid cards.”

Christopher Brown, former general counsel of NetSpend, CFPB’s Prepaid Rules Put a Freeze on the Future-“the core definitions encompass any account loaded with consumer funds on a prepaid basis that can be accessed for payments, ATM withdrawals or peer-to-peer transactions. This definition, as the CFPB acknowledges, will apply to many mobile wallets and virtual currency products.”

Comments:

There will be a 90-day comment period from the time the proposed rules appear in the Federal Register.

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MTA Cleanup

contract-iconCalifornia’s Money Transmission Act (Cal Fin Code Section 2000 et seq.) underwent another facelift this year.  AB 2209‘s changes were signed by Governor Brown last month, and will go into effect January 1, 2015.

Some key changes & clarifications:

1.  A Big One: Exemption for an “Agent of Payee”

“Section 2010 (l) A transaction in which the recipient of the money or other monetary value is an agent of the payee pursuant to a preexisting written contract and delivery of the money or other monetary value to the agent satisfies the payor’s obligation to the payee.”

2.  Reports required if money transmission was made by mobile device or other electronic application

Licensees must also report whether money transmission activity was made via mobile or other electronic application in addition to other reporting requirements, such as transaction volume, etc.

3.  Changes to various disclosure, notice and receipt requirements for transactions made via the web or on mobile devices.