On June 15 2017 the Consumer Financial Protection Bureau (CFPB) issued proposed amendments to its final rule to expand existing consumer protections for electronic fund transfers to pre-paid accounts, which was published in the Federal Register on November 22 2016 and amended on April 25 2017.(1) The proposal would modify the final rule to exempt pre-paid account issuers from the error resolution and limitation of liability provisions with respect to unregistered cardholders. The proposal would also provide more flexibility to issuers of digital wallet accounts that are covered by the final rule with respect to consumers linking credit card accounts to digital wallet accounts. The proposal would make other amendments to the final rule, as set out below.
Comments to the proposal are due by August 14 2017. The CFPB has specifically requested comments on whether a further delay in the final rule's effective date would be appropriate in light of the proposed amendments.
Error resolution and limitation of liability
The final rule extends the error resolution and limitation of liability provisions that apply under existing Regulation E to all pre-paid accounts, including unregistered accounts. As part of the error resolution procedure, pre-paid account issuers will be required to give pre-paid account holders a provisional credit if an investigation cannot be completed in 10 business days. However, the final rule contains a carve-out to the provisional credit requirement if an issuer has not completed its customer identification and verification process of a pre-paid account holder (other than with respect to payroll and government benefits accounts). Pre-paid account issuers said that the provisional credit exception was not enough of a protection and that it would be too difficult to investigate errors that occur before the issuers know the identity of the pre-paid account holders. In the absence of a change, pre-paid account issuers have been considering limits on the functionality of pre-paid accounts before they are registered.
Under the proposal, an issuer would not be required to comply with the error resolution or limitation of liability requirements of Regulation E for any pre-paid account for which it has not successfully completed its customer identification and verification process. The cases in which an issuer has not completed its customer identification and verification process in the proposal are the same in all material respects as in the final rule.(2) For pre-paid account programmes for which an issuer does not have a customer identification and verification process, in lieu of an error resolution notice in its initial disclosures, the issuer would need to indicate affirmatively that there are no error resolution or limitation on liability protections.
Linkage of certain credit card accounts to digital wallets
The final rule provides that pre-paid accounts with linked credit features offered by the pre-paid account issuer, its affiliate or business partner are subject to Regulation Z, including the requirement that an issuer wait 30 days after a pre-paid account has been registered before soliciting cardholders for, or opening, a new credit feature or linking an existing credit feature to the pre-paid account. The final rule defines 'business partner' broadly such that it covers credit card issuers with which a digital wallet provider has a cross-marketing agreement. A digital wallet provider expressed concern that the 30-day waiting period would delay a consumer's ability to link credit card accounts offered by the digital wallet provider's business partners to the digital wallet account but not credit card accounts offered by other credit card issuers, which would cause consumer confusion and unreasonably harm its business prospects.
Under the proposal, the definition of 'business partner' would include an exception to address this concern.(3) A person would not be considered a business partner, and thus a pre-paid account issuer would not be subject to the 30-day waiting period or other requirements of Regulation Z with respect to a credit card account offered by such person, if the following five conditions are met:
- The credit card account itself is fully subject to Regulation Z and is not linked to another pre-paid account (ie, is not otherwise a hybrid pre-paid credit card).
- The pre-paid account issuer and the credit card account issuer would be prohibited from allowing any transfers of credit except where either the pre-paid account issuer or the credit card account issuer has received from the consumer a written request to authorise such transactions.
- The pre-paid account issuer and the credit card account issuer must not condition the acquisition or retention of the pre-paid account or the credit card account on whether a consumer authorises the pre-paid card to access the credit card account.
- The pre-paid account issuer must apply both of the following:
- the same terms, conditions or features to the pre-paid account when a consumer authorises linking it to the credit card account as when the consumer does not authorise the linkage; and
- the same fees to load funds from a credit card account linked to the pre-paid account as it charges for a comparable load on the consumer's pre-paid account to access a credit feature offered by a person that is not the pre-paid account issuer, its affiliate or a person with which the pre-paid account issuer has a business partner relationship if not for this exception.
- The credit card issuer must apply both of the following:
- the same specified terms and conditions to the credit card account when a consumer authorises linking the pre-paid account to the credit card account as it applies to the consumer's credit card account when the consumer does not authorise a linkage; and
- the same specified terms and conditions to extensions of credit from the credit card account made with the pre-paid account as with the traditional credit card account.
The proposal contains narrowly drawn amendments to the final rule on other topics. These amendments include:
- a clarification regarding the exclusion of loyalty, award or promotional gift cards from coverage of the final rule;
- exceptions for delivery of pre-acquisition disclosures when funds are made available exclusively via a pre-paid account and when pre-paid accounts are acquired in a retail location;
- disclosures of an additional fee in the short-form disclosure if an issuer has three or more fee variations for such additional fee, other than in the case of multiple service plans;
- exceptions to the electronic and oral disclosure requirements when an issuer provides the disclosures in written form before acquisition of the pre-paid account;
- relief regarding the timing of submission of amended agreements to the CFPB; and
- the manner of providing unsolicited access devices in limited circumstances when funds are made available exclusively via a pre-paid account.
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For further information on this topic please contact James A Huizinga, Joel D Feinberg, David E Teitelbaum or Stanley J Boris at Sidley Austin LLP by telephone (+1 202 736 8000) or email ([email protected], [email protected], [email protected] or [email protected]). The Sidley Austin website can be accessed at www.sidley.com.
Endnotes
(1) The proposal is available at https://www.gpo.gov/fdsys/pkg/FR-2017-06-29/pdf/2017-12845.pdf.
(2) An issuer has not completed its identification and verification process if the issuer:
- has not concluded this process, provided that the issuer has disclosed to the consumer the risks of not registering the account;
- has concluded this process but could not verify the identity of the consumer, provided that the issuer has disclosed to the consumer the risks of not registering the account; or
- does not have a consumer identification and verification process by which the consumer can register the pre-paid account.
(3) Other than the exception, the meaning of business partner would be substantially the same as in the final rule, taking into account some technical changes by the CFPB that would move text from the official commentary into the text of the regulation.
