Kelly Cochran, CFPB Assistant Director for Regulations, addressed the CFPB’s prepaid card rulemaking in a January 12 presentation to the American Bar Association Consumer Financial Services Committee in New Orleans. She acknowledged the complexity of the CFPB’s proposal and difficult choices facing the CFPB and encouraged the submission of comments on the proposal.

We are largely supportive of the proposal. However, the Q&A following the presentation gave us the opportunity to informally comment on two of our concerns:

• Language and Terminology: The language of the proposed rule and commentary is opaque. Thus, for example, there are repeated references to “credit cards under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor” (with minor variations). Why not simply use a shorthand reference to “account number credit cards” or like language?  Such a change would dramatically improve readability.
• Treatment of Linked Credit Plans: Short of prohibiting entirely all extensions of credit in connection with prepaid cards, the CFPB’s proposal would seem to have done all it could to erect as many obstacles as possible to such credit extensions. These restrictions threaten to deny consumers access to credit programs with manifest consumer benefits, such as a “hybrid” prepaid-credit card that would allow access, at a consumer’s request, to a low-rate overdraft credit line that might be far cheaper than other credit alternatives.

The CFPB’s rationale that most consumers have said that they want prepaid cards without credit features is unpersuasive. The needs of these consumers are fully addressed by the CFPB’s proposed requirement that consumers must affirmatively opt-in if they want credit features in conjunction with prepaid cards. Even if they are in the minority, the substantial numbers of consumers who want credit with prepaid cards should not be denied the opportunity.

Obviously, the CFPB and the consumer advocates who have so much influence over the CFPB are concerned about high-cost, short-term credit. That concern should be addressed directly in the upcoming payday lending rulemaking and not through unnecessary and counter-productive restrictions in the prepaid card rule.

There is much of value in the proposed prepaid card rule. Hopefully, the comment process will result in an even better final rule.