Yesterday (September 5, 2016), the U.S. Consumer Finance Protection Bureau (CFPB) put into motion the process of issuing final rules and regulations related to pre-paid credit cards and new forms of digital payments, including transactional apps like Paypal’s Venmo and Google Wallet. The new rules will generally apply to prepaid accounts starting Oct. 1, 2017, though the requirement for submitting agreements to the (CFPB) takes effect in October 2018.


The use of prepaid cards has exploded over the last decade
Amount consumers put on pre-paid money cards annually

$1 billion | 2003
$65 billion | 2012
$121 billion | 2018 (projection)

In the U.S., the cards and their smartphone app equivalents are facilitating the long-envisioned cashless society. Pre-paid cards are used today for:

  • Person-to-person payment platforms (i.e., Venmo)
  • Payroll cards
  • Student financial aid disbursement cards
  • Tax refund cards
  • Government benefit cards (i.e., unemployment insurance and child support)

Because the role of prepaid credit cards and transaction smartphone apps is rapidly becoming as ubiquitous as other forms of money cards (credit, debit, etc.), the CFPB’s new rules stem from the Electronic Fund Transfer Act. “Our new rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone. And it backs up those protections with important new disclosures to let consumers know before they owe.” CFPB director Richard Cordray said.

Industry support

According to Pymnts.com, most of the industry players in pre-paid card products are  supportive of clear rules as a legitimizing force in their industry. According to the CFPB’s report, these protections are derived from Truth in Lending Act and the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) and will in some sense treat prepaid cards much like credit cards.

Industry opposition

Also according to Pymnts.com, the new rules — despite both Google and PayPal’s objections — cover “digital wallets capable of person-to-person transfers and storing funds.” Analysts also suspect that Square Inc.’s Square Cash and Dwolla’s payment tool will also fall under the new rules. (Wallets like Apple Pay — which simply store payment credentials issued by banks — will not fall under the new rule.)

What the new regulations cover

The new rule gives prepaid account consumers  protections under the Electronic Fund Transfer Act, which are similar to those for checking account consumers. They include:

  • Free and easy access to account information: 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.
  • Error resolution rights: Financial institutions must cooperate with consumers who find unauthorized or fraudulent charges, or other errors, on their accounts to investigate and resolve these incidents in a timely way, and where appropriate, restore missing funds. If the financial institution cannot do so within a certain period of time, it will generally be required to provisionally credit the disputed amount to the consumer while it finishes its investigation.
  • Protections for lost cards and unauthorized transactions: The new rule protects consumers against withdrawals, purchases, or other unauthorized transactions if their prepaid cards are lost or stolen. The rule limits consumers’ liability for unauthorized charges and creates a timely way for them to get their money back. As long as the consumer promptly notifies their financial institution, the consumer’s responsibility for unauthorized charges will be limited to $50.

VIA | Pymnts.com | ConsumerFinance.gov (Final Rule PDF)

 

Related Articles

6
Charge! Square Releases its Chip Card, Wireless Payment Reader

Square announced its chip card was being used in 15 states on the day of the first distribution to 100 merchants, restaurants.

7
The Fastest Growing Markets for Small Business Ecommerce Aren’t the Ones You Are Guessing | 2015

Ecommerce, while still used by only a fraction of small businesses, could be seeing its biggest growth in markets outside the coastal early-adopting meccas.

8
PayPal Will Soon Allow its Popular Venmo App to Be Accepted by Merchants | 2015

PayPal will soon allow merchants who accept Paypal to also accept Venmo payments.

9
How the New Square Reader is More Than Just a Way to Accept Apple Pay

The new Square reader provides a wireless, portable point of sale device that enables Apple Pay and other NFC transactions, as well as “chip embedded” and traditional magstripe cards.

10
Square is Rounding Out its Small Business Services Strategy With Square Engagement

Square has launched a suite of online marketing tools called Square Engagement that includes an email marketing service called Square Marketing,

11
U.S. Government Now Accepts Online Payments via PayPal, Dwolla

Pay.gov, the U.S. government’s web based collection portal for payments to federal agencies, will now accept both PayPal and Dwolla as payment options.