Tag Archives: GPR

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.

Payroll Cards vs. GPRs

plastic cardsPayroll cards received a lot of press over the summer with the lawsuit filed against a McDonald’s franchisee for giving its employees their pay on this type of plastic payment card.  The focus has been on the fees, in which case a recent blog by Jennifer Rusie of Ogletree Deakins, lays out what employers need to consider when thinking about or using payroll cards to pay their employees.

Apart from the various state labor laws which dictate whether or not an employer can provide pay using payroll cards and thereby warning employers not to violate these laws by pushing payroll cards, there is another view on payroll cards that bears discussion and may put even more control back in the hands of the employees.  GPRs, or general purpose reloadable prepaid cards, are currently under review by the CFPB and will likely extend those same Reg E payroll requirements to GPRs soon–which means in the eyes of Reg E, payroll and GPRs will look the same.

But, will this be the case for the user, in this case the employee?  What will be the ripple effect to the payroll card industry?  It seems that GPRs are far more adaptable and usable for consumers , whether unbanked, underbanked, fully banked, than payroll cards today.  A GPR holder is able to arrange to have not only their paycheck, but also other monies, including government issued benefits (if federal, provided the card meets DOT requirements) into the account.  These cards also allow other checks to be deposited, in some cases, offer remote deposit capture.  Basically, GPR card accounts offer the same functions as a checking account, and many are going beyond this with the adoption of convenient technologies.  Payroll cards, at least from my most recent informal survey, do not offer the same ability to deposit monies from sources apart from the employer, and may be limited to use only with an existing employer.

With these considerations, it seems as though the CFPB’s recent bulletin warning against the exclusive use of payroll cards may be rendered moot, or at least less significant, as more consumers (when Reg E is extended to GPRs) will see the value in choosing their own prepaid card to obtain their pay.