1. ACI’s 17th National Forum on Prepaid Card Compliance
January 30-31, 2017
CFPB Final Rule on Prepaid Accounts: What is the Impact on Compliance, Required Disclosures, and What to Expect Going Forward in the Market
Kris Andreassen
Senior Counsel
Consumer Financial Protection Bureau
Emily H. Goodman Binick
VP & Senior Counsel
American Express Company
Duncan B. Douglass
Partner
Alston & Bird LLP
Brad Fauss
President & CEO
NBPCA
James Kim
Of Counsel
Ballard Spahr LLP
Obrea O. Poindexter
Partner
Morrison & Foerster LLP
Tweeting about this conference?

2. The views of the presenter(s) should not be attributed to their respective firm or organization. The content of this presentation is designed to provide practical information concerning the subject matter covered and is provided with the understanding that none of the presenter(s) are rendering legal advice or other professional services. This presentation is for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable law in your jurisdiction and consult experienced counsel for legal advice.

3. Definition of Prepaid Account

4. Definition of Prepaid Account – cont’d
“Prepaid Account” means:
Payroll Card Account
Government Benefit Account
Marketing Test: Account that is marketed and labeled as “prepaid” and redeemable at multiple unaffiliated merchants for goods or services or useable at ATMs
Primary Function Test: An account that is:
Issued on a prepaid basis in a specified amount or capable of being loaded after issuance
Primary function to conduct open loop, ATM, or P2P transactions
Not a checking account, share draft account or NOW account

5. Included Products General Purpose Reloadable cards Payroll Cards
Govt. Benefit Cards (non-needs tested)
Non-reloadable prepaid cards
Mobile wallets (open loop) which store funds
ATM-only cards
Bill payment accounts
P-2-P and P-2-B remittance accounts

6. Excluded Products Brokerage and savings accounts
Checking accounts, share draft accounts, negotiable order of withdrawal accounts
HSA, FSA, health reimbursement arrangement, medical savings account, dependent care assistance program, transit / parking reimbursement
Reload packs
Checkless checking accounts (based primarily on informal statements from the Bureau)

7. Excluded Products – cont’d
Qualified disaster relief cards
Gift certificate, store gift card, LAP card, general-use prepaid card marketed and labeled as a gift card
Needs tested benefits administered by state or local agency
P-2-P functionality of accounts established by U.S. Gov’t whose primary function is to conduct closed loop transactions on U.S. military vessels / installations or similar government facilities (Eagle Cash / Navy Cash/ Marine Cash cards)

8. Short Form and Long Form Disclosures

9. Disclosures Both short form and long form required
Several slight modifications to short form
“Incidence-based fees” concept replaced with “additional fee types”
Clarifications to retail location exception for long form disclosure

10. Short Form Disclosure

11. Short Form Disclosure – Static Fees
Top Line
• Periodic Fee
• Per Purchase Fee
• ATM Fee
• Cash Reload Fee
Bottom Line
• ATM Balance Inquiry Fee
• Customer Service Fee
• Inactivity Fee
• Static fees are the same under the Final Rule as under the Proposed Rule
• Even if a fee is not charged or a feature not present on a particular prepaid account, the fee must still be disclosed as either $0 or N/A

12. Proposed Rule – Incidence-Based Fees
• Under the Proposed Rule, a financial institution was required to list up to 3 of the most frequently charged fees
• Known as incidence-based fees
• The Proposed Rule required an assessment of these fees every 12 months
• Assessment conducted separately for each product
• Prepaid accounts sold in retail stores would be revised when the financial institution printed new packaging materials

13. Final Rule – Disclosure of Additional Fee Types
• The Final Rule requires financial institutions to include a statement as to how many additional fee types exist for the prepaid account
• The statement is followed by up to 2 fee types that generate the highest revenue from consumers for the prepaid account program
• If no fee types satisfy the criteria, a financial institution may but is not required to disclose 1 or 2 fees of its choice
• Assessment period is now 24 months, can use data across programs that share the same fee schedule
•De minimis exception of 5%
•Fee types have been categorized by the CFPB (pages )

14. Additional Information Fee Types – Assessments
If a program is in effect prior to Oct. 1, 2017, use a consecutive 24 month period (between Oct. 1, 2014 and Oct. 1, 2017)
If a program is in effect prior to Oct. 1, 2017 but does not have enough data, include fee types it reasonably anticipates generating
If a program is not in effect until after Oct. 1, 2017, include fee types it reasonably anticipates generating

15. Additional Information Fee Types – Assessments
The Proposed Rule would have required that all disclosures of prepaid accounts sold in retail locations comply with the pre- acquisition disclosure requirements within 12 months of the rule’s effective date. If a financial institution had not sold all of its prepaid account products in packaging printed prior to the end of the 12-month period, the Proposed Rule may have resulted in financial institutions destroying and replacing such stock.
Under the Final Rule, financial institutions do not have to remove stock that was prepared in the “ordinary course of business” prior to October 1, Newly printed packaging must be accurate if printed on or after October 1, 2017.
© 2015 Baird Holm LLP

16. Final Rule – Highest Fee Types
• The Final Rule generally requires the disclosure of the highest fee when the price of a service or feature may vary
• Permits the use of a symbol, such as an asterisk, to indicate those fees may vary
• The statement linked to the symbol must appear below the fee disclosures
•The statement must be substantially similar to:
“This fee can be lower depending on how and where the card is used.”
• The same symbol must be used for all fees that could vary

17. Final Rule – Variable Fee Types
• The Final Rule generally requires the disclosure of the highest periodic fee
• Permits the use of a symbol , such as a dagger, to indicate the fee may vary (must be different from the highest fee symbol)
• The statement linked to the symbol must appear below the fee disclosures and above the highest fee statement
•The statement may take up no more than one line

18. Final Rule – FDIC/NCUA Insurance
• The Final Rule requires a statement disclosing when a prepaid account program is eligible for FDIC or NCUA coverage and when it is not
• The insurance disclosure statement is now combined with the registration statement, directing the consumer to register the account for insurance and other account protections
• 5 insurance disclosure scenarios are outlined in the Final Rule (pages )

19. Final Rule – Third-Party Fees
• While the Final Rule generally prohibits disclosure of third-party fees, the Final Rule does require that the cash reload fee disclosed in the top line include third-party fees
• The Final Rule requires disclosure of the cash reload fee as the total of all charges from the financial institution and any third parties for a cash reload
• Allowed to use term “cash deposit” instead of “cash reload” for financial institutions that do not allow cash reloads via a third-party reload network but permit cash deposits in a bank branch

20. Final Rule – Credit/Overdraft
If no credit feature will be offered at any point, a statement substantially similar to the following must disclosed:
"No overdraft/credit feature."
If an overdraft credit feature may be offered in connection with the prepaid account, a statement substantially similar to the following must be disclosed:
"You may be offered overdraft/credit after [x] days. Fees would apply."

21. Short Form Disclosures – Additional Information
New alternative compulsory use statements for payroll and government benefit cards
May use compulsory use statement for student cards, if desired (pages )
Segregation requirement modified
Final Rule confirms no additional information may be added to the short form, but can be included on the same page
Rule of thumb -- near, not on
Shortened URL requirement
Adopted proposed requirement that URL directing consumers to the long form be no more than 22 characters and be meaningfully named
ATM fees
In-network and out-of-network fees still part of the static fee portion of the short form, but additional information related to third-party ATM fees and ATM network info is not required under the Final Rule

22. Long Form Disclosure

23. Long Form Disclosure – cont’d
In light of the variation in long form disclosures that may occur when financial institutions have different fee structures and conditions, the CFPB revised the text of the Final Rule from the proposed version to remove language that would have required the long form to be in “substantially similar format” to the sample form.
Sample Form A-10(f) is provided as an example that financial institutions may, but are not required to, incorporate or emulate in their own long form disclosures.

24. Long Form Retail Exception – Store vs. Location
Retail Store vs. Retail Location
Allows for post-acquisition disclosure if the following conditions are met:
Prepaid account device is contained inside packaging material
Short form disclosure provided on packaging material
Short form disclosures contain info related to access to the long form disclosure via telephone and website
Long form disclosure provided after account is acquired

25. Long Form Telephone Exception
Allows for post-acquisition disclosure if the following are met:
The financial institution communicates to the consumer, orally, before acquisition that the long form is available phone and web
The financial institution makes the long form available via telephone and website
Long form disclosure is provided after account is acquired

26. Limitation oF Liability / Error Resolution

27. Limitation of Liability/ Error Resolution
No material changes from the Proposed Rule:
Liability limited to $50 (if consumer notifies bank within 2 business days) or capped at $500
60 day period for reporting unauthorized transaction commences when:
Consumer electronically accesses account
Bank sends written history upon request
Safe Harbor: 120 days after EFT occurs

28. Unverified Accounts
Limited liability and error resolution requirements extend to all prepaid accounts.
No provisional crediting required for unverified accounts (other than Payroll and Government Benefit). Examples of unverified accounts include:
Bank has not completed its registration process (with required registration disclosure)
Bank has completed registration process but can’t verify consumer (with required registration disclosure)
Bank has no registration process (no registration disclosure is required as it is inapplicable in this scenario)

29. TRANSACTION HISTORY REQUIREMENTS

30. Periodic Statement Alternative
Do not have to provide periodic statement if:
Account balance information is available through telephone number
12 months of electronic transaction history is available
24 months of written transaction history is available upon request (oral or written)
Cannot charge a fee
Can provide less than 24 months of history at consumer’s request

31. Disclosure of Aggregate Fees to Consumer
Transaction histories (along with periodic statements) must include:
Amount of any fees assessed
A summary total of fees assessed for the prior calendar month and for the calendar year to date
Other information required by (b)
Summary totals of all deposits to and debits from an account are not required

32. Manner of Providing Required Notices
While the Final Rule permits banks to provide certain disclosures without E-Sign consent, generally, banks must comply with the E-Sign Act when electronically providing other written disclosures (including pre-acquisition disclosures if the prepaid account is not acquired online or via a mobile device).

33. SUBMISSION AND Posting of AGREEMENTS

34. Submission of Agreements to the CFPB
Issuers are required to submit new and amended prepaid account agreements (or notification of withdrawn agreements) on a rolling basis no later than 30 days after the issuer offers, amends, or ceases to offer the agreement (this is a change from Proposed Rule, which required quarterly submissions of new and amended agreements)
De Minimis exception: Fewer than 3,000 open prepaid accounts
Product testing exception:
offered as part of a product test to a limited group of consumers for a limited period of time
Is used for fewer than 3,000 open prepaid accounts
Is not offered other than in connection with such a product test

35. Form and Content of Agreements
Provisions of agreement and current fee information
No personally identifiable information
No ancillary disclosures, marketing materials, periodic statements, or other documents that may be sent along with the account agreement
Agreements must be presented in clear/ legible font

36. Posting of Agreements
Must post and maintain agreements on publicly available website if offered to the general public
Payroll and Government Benefit agreements are not offered to the general public
Must be in prominent location, readily accessible to the public without submission of personally identifiable information

37. Posting of Agreements – cont’d
Availability of individual’s own agreement
Must post and maintain on website in prominent location, which is readily accessible to the individual (can include PII if steps taken to make agreement only accessible to consumer or authorized persons)
Or, provided promptly upon the individual’s request
Individual must have ability to request agreement via telephone
Issuer must send agreement no later than 5 business days’ after receiving request

38. Payroll Cards

39. Payroll Cards - Acquisition
A consumer acquires a prepaid account by purchasing, opening or choosing to be paid via a prepaid account
Example: A consumer learns that she can receive wages via a payroll card account, at which time the consumer is provided with a payroll card and the required disclosures. The consumer then chooses to receive wages via a payroll card account.
Contrast with consumer receiving disclosures at the end of the first pay period, after she receives payment on the payroll card.
CFPB notes that this clarification is intended to “take more careful account of current industry practices”

40. Non-Wage Payments Non-wage Payments
Does not include an account used solely to disburse incentive-based payments (other than commissions)
Does not include an account that is used in isolated instances to which an employer typically does not make recurring wage payments

41. State Law Disclosures
Banks can include an optional line on short form to direct consumers to State-required information and fee discounts/waivers
The Final Rule’s segregation requirements do not prohibit other disclosures near, but outside, of the short form

42. Government Benefit Cards

43. Government Benefit Cards - Acquisition
Same as Payroll Cards
Example: Government agency informs a consumer that she can receive benefits via a government benefit card. She receives the prepaid card and the disclosures to review at the time she receives benefits eligibility information from the agency. After receiving the disclosures, she chooses to receive benefits via the government benefit card.
CFPB notes that this clarification is intended to “take more careful account of current industry practices”

44. Balance information at terminal still required
Balance Information at Terminal/ Error Resolution Notice for Dormant Accounts
Balance information at terminal still required
Reasoning: Recipients of government benefits may have come to rely on the ATM as a source of account information
Error resolution notice for dormant accounts not required

45. Credit and Overdraft

46. Force Pay and Similar Transactions
The Final Rule creates three exemptions from the definition of “hybrid prepaid-credit card” as long a the prepaid card cannot access credit from a covered separate credit feature:
Issuer has policy and practice of declining to authorize transactions where consumer has insufficient funds and does not charge credit related fees; or
Issuer has practice of declining to authorize transactions where consumer has insufficient funds except when the transaction will not overdraft the account by more than $10 (a “purchase cushion”) and does not charge credit related fees; or
Issuer has practice of declining to authorize transactions where consumer has insufficient funds except where incoming deposits to the account are pending and does not charge credit related fees

47. Intentional Overdraft
Final Rule amends Regulation E and Regulation Z to regulate overdraft credit features offered in connection with prepaid accounts, treating such features as open-end (not home secured) credit.
Adds a new definition under Regulation Z for a “hybrid prepaid- credit card”
Defined as a “single device” that can be used to access a separate credit feature and:
Can be used to access the separate credit feature in the course of authorizing, settling, or otherwise completing transactions conducted with the card to obtain goods or services, to obtain cash, or to conduct P2P transfers
The separate credit feature is offered by the issuer, its affiliate, or its business partner

48. Intentional Overdraft – Not Offered by Issuer
Not a “hybrid-prepaid credit card” if:
The credit feature is offered by an unrelated third party that is not the issuer, its affiliate or its business partner
The credit feature is offered by the issuer, its affiliate, or its business partner, but cannot be accessed within the course of authorizing, settling, or otherwise completing transactions to obtain goods or services, obtain cash, or conduct person- to-person transfers.

49. Intentional Overdraft – Structure
Final Rule requires credit features to be structured as separate sub-accounts or purses, distinct from the prepaid asset account, to facilitate transparency and compliance with various Regulation Z requirements.
Therefore, a "hybrid prepaid-credit card" should not be structured as a negative balance to a prepaid account.
The two sub-accounts or purses are described under the Final Rule as the “covered separate credit feature” and the “asset feature”

50. Intentional Overdraft – Requirements
Some requirements include:
Account opening disclosures, change in terms notices, other provisions of Regulation Z that currently apply to credit cards
30 day waiting period after the prepaid account is registered before soliciting a consumer to link a covered separate credit feature
Ability to repay analysis
Consumer consent required
Can move funds automatically from the asset account or other deposit account held by the issuer to offset some or all of the credit card debt no more frequently than 1 time per month (pursuant to the consumer’s signed, written agreement that the issuer may do so)
Must allow 21 days to repay
Must provide periodic statements at least 21 days before the payment due date

51. Intentional Overdraft – 30-Day Waiting Period
Issuers must not do any of the following for the first 30 days after prepaid account has been registered:
Open a covered separate credit feature that could be accessible by the hybrid prepaid-credit card
Make a solicitation or provide an application to open a covered separate credit feature that could be accessible by the hybrid prepaid-credit card
Allow an existing credit feature that was opened prior to the consumer obtaining the prepaid account to become a covered separate credit feature accessible by the hybrid prepaid-credit card

52. Intentional Overdraft – Pre-Authorized Transfers
The Final Rule also amends the compulsory use provision under Regulation E so that prepaid account issuers are prohibited from requiring consumers to set up preauthorized electronic fund transfers to repay credit extended through a covered separate credit features

53. Intentional Overdraft – Fee Limitations
Issuers cannot impose fees in excess of 25% of the credit limit during the first year following the opening of a credit card account under an open-end (not home-secured) consumer credit plan
Penalty fees are limited, and over-the-limit fees prohibited unless the consumer consents by opting- in to such fees
Issuers cannot charge a lower fee on the asset feature of a prepaid account with a covered separate credit feature accessible by the card relative to the amount of a comparable fees it charges on prepaid accounts in the same program without a credit feature

54. Intentional Overdraft – Error Resolution
For transactions that exclusively draw on a covered separate credit feature, Regulation Z’s limitation of liability and error resolution procedures apply
For transactions that solely debit a prepaid card’s asset feature and do not draw on a covered separate credit feature, Regulation E’s liability limitations and error resolution procedures apply
For transactions that both debit a prepaid card’s asset feature and draw on a covered separate credit feature, Regulation E’s limitation of liability and error resolution procedures generally apply, with the exception of the error resolution procedures of § (d) and (g) of Regulation Z, which apply to the credit portion of the transaction

55. Effective date

56. Effective Date October 1, 2017 (less than 12 months)
Delayed effective date of October 1, 2018 for submitting cardholder agreements to the Bureau
Pursuant to Section 105(d) of TILA, any changes to certain Regulation Z disclosures can only become effective on Oct. 1st
Financial institutions not required to “pull and replace” account packaging materials if initial disclosures are provided to consumers within 30 days of obtaining a consumer’s contact information
If, on October 1, 2017, the financial institution does not have readily accessible data necessary to calculate the summary totals of the amount of all fees assessed by the financial institution on the consumer’s prepaid account for the prior calendar month and for the calendar year to date, the financial institution may display the summary totals using the data it has until the financial institution has accumulated the data necessary to display the required summary totals.

57. QUESTIONS??

58. Consumer Financial Protection Bureau Morrison & Foerster LLP
Emily H. Goodman Binick American Express Company (347)
Kris Andreassen
Consumer Financial Protection Bureau
Brad Fauss NBPCA
(202)
Duncan B. Douglass
Alston & Bird LLP
(404)
James Kim
Ballard Spahr LLP
(646)
Obrea O. Poindexter
Morrison & Foerster LLP
(202)