By Stephanie Chandler
On May 24, 2012, the Consumer Financial Protection Bureau (CFPB) announced that it intends to extend Regulation E, which governs certain electronic fund transfers, to encompass general purpose reloadable prepaid cards. The CFPB has formally requested public comments, data, and information concerning the proposed regulatory expansion covering general purpose reloadable prepaid cards.
In recent years, the number of laws and regulations governing payment instruments has proliferated as the type and value of payment instruments have increased. Prepaid cards, which include both closed loop cards (usable at only one merchant or a group of merchants) and open loop cards (typically usable at any merchant that accepts the card type), have been one of the fastest growing payment instruments in the United States. General purpose, reloadable prepaid cards in particular have grown from about $12 billion loaded on cards in 2007 to an estimated $167 billion loaded in 2014.
Many states already regulate general purpose reloadable prepaid cards, but the federal government has not specifically regulated those cards to date. Because of the continuing expansion in the amount of money stored in the cards, however, the CFPB now seeks to expand and modify Regulation E to include general purpose reloadable cards.
The advanced notice of proposed rulemaking by the CFPB identifies 10 areas of general purpose reloadable cards for which the bureau seeks comment:
- Definition of general purpose reloadable prepaid cards
- What parts of Regulation E should apply
- Fee disclosure requirements
- Facilitating comparison by consumers
- Disclosure of FDIC insurance (when applicable)
- Overdraft protection and other features
- Savings accounts or other savings features
- Credit reporting features
- Contract terms and changes in contract terms
- Any other relevant information
Comments must be received by July 23, 2012.
The possibility of uniform federal regulation of general purpose reloadable cards, as opposed to the current patchwork state regulation, may offer less expensive regulatory compliance for industry participants. At the same time, any federal regulatory scheme will certainly impose more stringent requirements, at least in those states with minimal existing regulations. The stated goals of the regulatory expansion are “to ensure that consistent minimum standards apply across similar consumer financial products, to allow consumers to easily compare financial products by ensuring transparent fee disclosure, and to allocate the risks of fraud or loss appropriately.” Yet the CFPB has also stated that, in pursuing these goals, it will “be mindful of avoiding any unnecessary burden on industry.” Industry participants who wish to have a say in the rulemaking process should consider submitting comments, either now or after a notice of proposed rulemaking (which would publish draft rules) in the future.
If you offer or are considering instituting a gift card program and would like assistance in complying with current requirements or planning for future requirements, Jackson Walker’s Privacy and Data Security Team is ready to assist. Additionally, we are also equipped to assist you in preparing a response to the federal government’s request for comments.
If you have any questions regarding this e-Alert or the submission of comments to the CFPB, please contact Stephanie Chandler.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.