The Consumer Financial Protection Bureau says it “intends to issue a proposal” that would expand Regulation E to include general-purpose reloadable, or prepaid, payment cards.
Per an explanation at the FDIC’s website, Regulation E “carries out the purposes of the Electronic Fund Transfer Act, which establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer services and of financial institutions that offer these services.”
“The people who use prepaid cards are, in many instances, the most vulnerable among us,” said CFPB Director Richard Cordray in an official statement announcing the move. “Right now prepaid cards have far fewer regulatory protections than bank accounts or debit or credit cards. That’s why we are launching a rulemaking to promote safety and transparency in this emerging market.”
Prior to the CFPB’s founding, the Board of Governors of the Federal Reserve System oversaw the administration of the Electronic Fund Transfer Act, of which Regulation E is a part. In 2006, the Board decided that “[c]onsumers would derive little benefit from receiving full Regulation E protections for [prepaid] cards… , while the issuer’s costs of compliance with Regulation E might be significant.”
But consumers are changing the way they use prepaid. To demonstrate this, the CFPB cites NetSpend Holdings’ most recent 10-K, which shows that 42 percent of its prepaid cardholders are using direct deposit, up significantly from 14 percent at the end of 2007. The number of cards in use, in addition to the total dollar amount being loaded onto those cards, has grown dramatically as well.
“Many big banks can no longer afford to provide low-balance customers with a traditional checking or savings account,” argues Rob Rosenblatt, CEO of UniRush LLC, which markets the Rush Card. “Prepaid cards are a safe, convenient way for the 60-70 million un- and underbanked Americans to participate in the American dream.”
Rosenblatt attended this week’s CFPB hearing, and says it’s “much too early to anticipate the CFPB’s ultimate role” in regulating prepaid. But the Bureau’s most recent actions “have given us some indication of the areas of interest,” he says.
The CFPB is seeking public comment on its decision to expand the purview of Regulation E, and will receive those comments over the next 60 days.
The CFPB’s official announcement is available here.
Its Advance Notice of Proposed Rulemaking, which spells out its proposal for Regulation E, is available online as well.
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