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July 21 2017
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.
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.
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 proposal contains narrowly drawn amendments to the final rule on other topics. These amendments include:
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 (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Sidley Austin website can be accessed at www.sidley.com.
(1) The proposal is available at https://www.gpo.gov/fdsys/pkg/FR-2017-06-29/pdf/2017-12845.pdf.
(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.
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