Prepaid Cards

• Author: Daniel A Edelman
• Profession: Lawyer
• Pages: 35-37

35

Prepaid Cards

CHAPTER

9

Until 2016, general-purpose prepaid cards were largely unregulated. In October 2016, the Consumer

Financial Protection Bureau (CFPB) issued rules for prepaid cards, subjecting them to provisions simi-

lar to those for credit cards, imposing disclosure requirements, and protecting people from hidden fees,

expensive credit features, and other hazards. The regulations are found in amendments to 12 C.F.R. Part

1005 (Regulation E, under Electronic Fund Transfer Act, which now covers prepaid cards as well as elec-

tronic fund transfers to and from asset accounts) and Part 1026 (Regulation Z under Truth in Lending,

which now regulates credit features of prepaid cards).

The CFPB rule requires financial institutions to limit consumers’ losses when funds are stolen or

cards are lost, investigate and resolve errors, and give consumers free and easy access to account infor-

mation, similar to provisions under the Truth in Lending Act (TILA) for credit cards and the Electronic

Fund Transfer Act (EFTA) for debit cards. The CFPB also requires disclosure of fees and other key details.

Finally, prepaid companies must now generally offer protections similar to those for credit cards if con-

sumers are allowed to use credit on their accounts to pay for transactions that they lack the money to

cover.

The CFPB rule covers traditional prepaid cards, including general-purpose reloadable cards. It also

applies to mobile wallets, person-to-person payment products, and other electronic prepaid accounts that

can store funds. Other prepaid accounts covered by the new rule include payroll cards; student financial

aid disbursement cards; tax refund cards; and certain federal, state, and local government benefit cards,

such as those used to distribute unemployment insurance and child support. Gift cards were already cov-

ered by the EFTA.

The rule provides that financial institutions must make certain account information available for

free by telephone, online, and in writing upon request unless they provide periodic statements. Unlike

checking account customers, prepaid consumers typically do not receive periodic statements by mail. The

rule ensures that consumers have access to their account balances, their transaction history, and the fees

they’ve been charged.

The rule also provides for error-resolution rights. Financial institutions must investigate claims of

unauthorized or fraudulent charges or other errors on their accounts, resolve these incidents in a timely

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