The nearly 1700 pages of the final prepaid rule are taking the industry some time to digest, but as the executives and lawyers read through them, they are starting to identify concerns that could affect prepaid cards of all kinds. The National Law Review has identified some of the initial concerns.
Industry groups have expressed concern over the burdensome compliance measures that lie ahead, particularly in light of the increase in demand for prepaid account products in recent years. The amount of funds put on prepaid cards is projected to exceed $117 billion by 2019. Much of the customer base for prepaid account products is comprised of unbanked consumers, giving rise to concern that, by burdening the offering of prepaid accounts, the CFPB will significantly impede the product offerings available to unbanked consumers by insured depository institutions.
One of the major concerns has been around overdrafts and issuing credit.
Particularly challenging are the New Regulation’s provisions requiring issuers offering overdraft services on prepaid accounts to conduct an ability-to-repay analysis (along with the observance of a 30-day waiting period) before activating the credit feature of new prepaid accounts. Essentially, issuers must assess consumers’ creditworthiness as if they were issuing credit cards, and because of this treatment, they must comply with Regulation Z disclosure requirements applicable to credit card issuers.
Many prepaid card providers have avoided overdrafts and credit all together. Though some companies have considered trying to add credit features as a way to help build credit, these new rules may put a damper on that.
While compliance with the new rules will require some work, the industry will be able manage the compliance burden.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
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