Error Resolution and Unauthorized
Transactions on Prepaid
The Prepaid Rule makes clear that all prepaid accounts are covered by the error
resolution and unauthorized transaction protections, including the
obligation to provide provisional
credit. However, the Rule notes
that Regulation E’s provisional
crediting requirements for extended error resolution investigations need not be provided
to unverified cards that are not
payroll accounts or government
benefits accounts. In those cases, the
bank may take up to 45 days to investigate
a notice of error without providing provisional credit
as long as a notice is provided to the cardholder disclosing the risks of not
registering the card. 7
Prepaid account holders must receive annual notices regarding their error
resolution rights. As an alternative to this annual notice, issuers may print
the abbreviated error resolution notice8 on all electronic and written histories
which are provided in lieu of periodic statements.
Other Notable Requirements:
Internet Posting and Submission of Prepaid Account
The Prepaid Rule requires that consumers be provided their account agreement either on a website or upon request. For prepaid programs offered to
the general public, banks must post cardholder agreements on a publicly
available website. 9 Starting on October 1, 2018, all prepaid card agreements
must be submitted to the Bureau, subject to exemptions for prepaid programs
with less than 3,000 accounts.
Overdraft Credit Features
The Prepaid Rule generally prohibits “negative balance” overdraft protection
programs (See Regulation Z ( 12 C.F.R. Section 1026.61(a)( 4) (as added by
the Prepaid Rule)). Offering overdraft protection on prepaid accounts will
result in the creation of what the Rule calls a “hybrid prepaid-credit account” and will be subject to new rules under Regulation Z. In short, these
accounts are only permitted as a separately approved line of credit opened
in accordance with Regulation Z standards of disclosure and ability-to-pay
analysis. These accounts cannot be offered to consumers until 30 days following card registration and, as noted earlier, the availability of the overdraft
line of credit feature must be disclosed in numerous ways.
The Prepaid Rule brings a new level of law and order to the “wild west” world
of prepaid account products. As we noted, the Rule sets new boundaries and
clearer standards for how Banks may offer and operate prepaid accounts.
Overall, issuers of prepaid accounts will be corralled by a lengthy set of new
disclosures and operational requirements aimed at protecting consumers
from potential harm. Banks that offer prepaid accounts should start now to
evaluate their compliance management systems and get ready for the rodeo
that begins on October 1, 2017. ■
ABOUT THE AUTHORS
BRIAN AXELL, J.D., is Vice President,
Payments Counsel for The Bancorp
Bank, a leading issuer of prepaid cards
in the United States. Brian provides primary
legal support to The Bancorp Bank’s consumer
payment solution products. Prior to joining the
Bancorp Bank, Brian spent more than ten years at Target
Corporation, where he supported Target’s prepaid card product
suite, REDcard loyalty programs and consumer debt collection. He holds
a Juris Doctorate from the Mitchell Hamline School of Law and a B.A. in
International Affairs from the George Washington University. Reach him at
email@example.com or (612) 852-8002.
THOMAS G. PAREIGAT, J.D., is Executive Vice President and General Counsel
of The Bancorp, Inc., headquartered in Wilmington, Delaware. He has been
practicing law since 1984 and has over 25 years of consumer protection and
regulatory compliance experience. Tom is a frequent speaker on emerging
risk issues within the financial services industry. He serves on the ABA Bank
Compliance Editorial Advisory Board. Reach him at firstname.lastname@example.org
or (612) 852-8005.
THE CONSUMER FINANCIAL PROTECTION BUREAU’S PREPAID ACCOUNT RULE
The Rule was initially set to be
generally effective on October 1,
2017. The Bureau has more
recently proposed to delay
for an additional
1 Technically, the Rule itself is 264 pages long, followed by 1,425 pages of supplementary
2 The Compliance Guide provides clarifying definitions of various prepaid accounts,
expands on exclusions in the Final Rule, and adds additional explanation to required
disclosures, change-in-terms notices, periodic statements and alternatives, error
resolution, limitations on liability, receipts at electronic terminals, access devices,
compulsory use, account agreements, overdraft credit features, remittances and record
retention and more.
3 The Prepaid Rule does not define these specific terms, however an official interpretation
does reference other federal laws which specifically define these types of accounts.
4 The Prepaid Rule does not define the term “qualified disaster relief payments” but an
official interpretation states that it means funds made available through a qualified
disaster relief program as defined in 26 U.S.C. § 139(b).
5 This disclosure must be made using a clause that is substantially similar to the following:
“Find details and conditions for all fees and services inside the package, or call [telephone
number] or visit [website URL].” The URL may not exceed 22 characters and must be
“meaningfully named.” The bank may also provide an SMS code to access the long form
disclosure, provided that the SMS code can be accommodated on the same line of text as
the required statement.
6 See endnote 4 for more discussion on “Reg E Lite” (see 12 C.F.R. Section 1005.18) Note
that Reg E Lite will be replaced with the Prepaid Rule on October 1, 2017.
7 Appendix A- 7 (paragraph (c)) (as added by the Prepaid Rule) of Regulation E sets forth a
model notice that may be used to disclose the risks of not registering the prepaid card.
8 Appendix A- 3 (paragraph (b)) of Regulation E sets forth an abbreviated model error
resolution notice for use with periodic statements, and can be modified as necessary to
reflect the Prepaid Rule’s error resolution procedures.
9 Note that prepaid programs offered to consumers as a result of their relationship with a
third party (such as payroll or government benefit cards) are not considered offered to
the “general public.”