Bradley Arant Boult Cummings LLP

The Consumer Financial Protection Bureau’s (CFPB) new Prepaid Rule went into effect on April 1, 2019. At a high level, the Prepaid Rule amends portions of the Truth in Lending Act and the Electronic Funds Transfer Act by extending a number of credit card-like protections to “prepaid accounts”: pre-acquisition and initial disclosures, change in terms notices, periodic statements, error resolution procedures, and regulating overdraft credit features. While each of these areas warrant close scrutiny to ensure compliance with these new restrictions, a couple items bear particular mention.

First, the Prepaid Rule is broader than prepaid credit cards. The new rule adds the term “prepaid account” to the definition of “account” in Regulation E. 12 CFR 1005.2(b)(3). The rule goes on to define “prepaid account” to include items that have traditionally been thought of in the industry as prepaid accounts: (1) a payroll card account, (2) a government benefit account, or (3) an account that is marketed or labeled as “prepaid” and is redeemable upon presentation at multiple, unaffiliated merchants. The new rule goes one step further, however, and includes the following in its definition of “prepaid account”: an account that is (1) issued on a prepaid basis in a specific amount or capable of being loaded with funds after issuance; (2) has a primary function of conducting transactions with multiple, unaffiliated merchants, conducting transactions at ATMs, or conducting person-to-person (P2P) transfers; and (3) is not a checking account, share draft account, or negotiable order of withdrawal (NOW) account. This final provision greatly expanded the universe of accounts subject to the Prepaid Rule, as it includes products such as person-to-person transfer accounts that have not traditionally been considered prepaid accounts.

The second item that bears particular mention is the upcoming account agreement submission deadline. Under the Prepaid Rule, issuers of prepaid accounts are generally required to submit prepaid account agreements that the issuer offers within 30 days of a triggering event: (1) when an issuer offers a new prepaid account agreement; (2) amends a prepaid account agreement; or (3) ceases to offer a prepaid account agreement (12 CFR 1005.19). According to the text of the rule, the first submission deadline for prepaid account agreements offered as of April 1, 2019, is May 1, 2019. As a result, industry participants should be preparing for their first submission in the next couple of weeks. Note, however, that entities with less than 3,000 open prepaid accounts are not required to make submissions to the CFPB under the de minimis exception.