Sweeping Changes Could Be in Store for Prepaid Cards, Virtual Currency

Rhett Pardon

TEMPE, A­­­riz. — The Consumer Financial Protection Bureau, established by Congress to protect consumers by carrying out federal consumer financial laws, has issued an 870-page proposal for prepaid debit cards that mandates new disclosures, error resolution procedures, consumer liability limits for unauthorized transactions, fee limits and added requirements for cards with overdraft or credit features.

The mammoth paper outlining its plan on the cards includes 156 pages of actual proposed rules. Comments on the proposal will be due no later than 90 days after its publication in the Federal Register.

The CFPB said its proposal goes beyond physical prepaid cards; it also could affect virtual financial tools that are usable online or through a mobile device, such as "digital wallets" or "mobile wallets."

“The bureau ... recognizes that the proposed rule may have potential application to virtual currency and related products and services," the CFPB said. "As a general matter, however, the Bureau’s analysis of mobile financial products and services, as well as and virtual currencies and related products and services, including the applicability of existing regulations and this proposed regulation to such products and services, is ongoing. The proposed rule does not specifically resolve these issues.”

If the proposal goes forward, users of prepaid cards would be able to enjoy similar benefits that checking account and credit card holders are entitled to. The plan would amend two federal statutes — Regulation E, which implements the Electronic Fund Transfer Act and Regulation Z, which  implements the Truth in Lending Act.

CFPB's proposed rules are largely designed to beef up prepaid cards with  “overdraft” protection, in which card issuers essentially loan cardholders  if they spend more than the card’s balance. Those cards would now have to offer consumers the same protections as credit cards and checking accounts under truth-in-lending laws.

Under the new rules, prepaid account issuers also would be required to investigate and resolve errors within a short period of time, and users would face a $50 liability limit on fraud claims.

Further, the regulations would also require prepaid card issuers to either issue regular account statements to customers or make account information easily accessible online for free.

The proposal was outlined in a speech by CFPB Director Richard Cordray on Thursday.

CCBill spokesman Gary Jackson told XBIZ on Friday that  because of the restrictions many prepaid cards have on them, the processor has not historically seen a huge amount of transactions coming through its system.

"However, if the measures outlined with in this new proposal go into effect, there could potentially be an increase in prepaid usage within the adult space," Jackson said. "While some markets are seeing an increase in prepaid options as an alternative payment method, many merchants seem to have some challenges with weighing the short-term revenue gain a prepaid option could provide versus a long-term recurring payment option, and therefore do not actively offer a prepaid option.

"However, some processors, including CCBill, provide a self-service option that lets the merchant choose to offer the cards or not, enabling them to test the throughput of prepaid before committing long term. It will be interesting to see what impacts this new proposal will have on the market if it passes."

View the Consumer Financial Protection Bureau's proposal