CFPB Finalizes Changes to Prepaid Accounts Rule and Extends Effective Date to April 2019

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The CFPB recently finalized changes to the Rules Concerning Prepaid Accounts (“Prepaid Accounts Rule”) under the Electronic Fund Transfer Act, implemented by Regulation E, and the Truth in Lending Act, implemented by Regulation Z.  The new changes adjust requirements for resolving errors on unregistered accounts, modify the application of the Rule’s credit-related provisions to digital wallets, and extend the effective date of the Rule by one year to April 1, 2019.

First, the revisions of the Rule in Regulation E provide that the error resolution and liability limitation protections apply prospectively, after a consumer’s identity has been verified.  Financial institutions are not required to resolve errors or limit consumers’ liability on unverified prepaid accounts.  For accounts where the consumer’s identity is later verified, financial institutions are not required to limit liability and resolve errors with regard to disputed transactions that occurred prior to verification.  This will help encourage prompt registration and streamline compliance for financial institutions.

The Rule also creates a limited exception to the credit-related provisions of the Rule in Regulation Z for certain business arrangements between prepaid account issuers and credit card issuers that offer traditional credit card products.  The exception is designed to ensure that consumers continue to receive federal credit card protections on their traditional credit card accounts and to reduce potentially unnecessary complications and expense to consumers who link credit cards to digital wallets.  In addition, the Rule expands the situations in which prepaid account issuers are permitted to run negative balances on prepaid accounts, provided certain conditions are met.

Lastly, the CFPB finalized other clarifications, minor adjustments, and technical corrections to aspects of the Rule.

The CFPB Press Release for the Prepaid Accounts Rule is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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