On May 23, 2012, the CFPB published an advanced notice of proposed rulemaking (ANPR) that proposes to extend Regulation E protections to GPR cards. The CFPB’s release of this ANPR coincided with the CFPB’s scheduled hearing in Durham, North Carolina on the same subject. We previously issued an e-alert summarizing the ANPR and wanted to provide some further thoughts and commentary on the ANPR.
At least one difficulty posed by the ANPR that immediately comes to mind is that the CFPB seeks to establish generally applicable rules with respect to all GPR cards. This will be a challenge because the various market participants in this industry are so different (i.e., issuers, distributors, program managers, marketers, and/or wallet providers). While the regulatory burden will likely fall heavily on issuers, even within the issuer subset banks are regulated differently. For example, some banks design their GPR cards to be Durbin-exempt because the Durbin Rule is applicable to banks with $10 billion or more in assets. However, other banks that issue prepaid cards do not have to take Durbin into account if they do not have assets above that threshold.
Further, a prior blog post dated December 6, 2011 questioned a variety of proposed prepaid card reforms called for by various consumer groups due to the concern that some of those proposals were likely to increase costs and, in turn, decrease the supply of reloadable cards available to consumers. Our position was, and continues to be, that consumers want, and in fact, need these products, a point at least implicitly recognized by the CFPB when it acknowledged that there has been a significant amount of growth in GPR cards in recent years in the ANPR. In considering and drafting any of the various regulations contemplated by the ANPR, we hope that the CFPB will remain cognizant of not only the needs of the industry to continue to offer profitable products, but also the clear desire of consumers to continue to have access to affordable GPR products as alternatives to traditional checking accounts and debit cards which these consumers have sometimes found are not the best fit for their financial needs.
Prepaid market participants should also note that the ANPR seeks broad information about the prepaid industry generally. While it certainly makes good sense to continue to educate the CFPB about the prepaid industry and work together to achieve an appropriate balance of the interests at issue, such information is all but certain to inform any subsequent decision by the CFPB about whether to include prepaid card market participants within the definition of “larger participants” and subject those companies to direct CFPB supervision.