Written by Stephanie Lyon, Regulatory Compliance Counsel
The CFPB’s final rule on prepaid accounts, which is the Bureau's version of all you can eat regulation, was issued near the end of 2016. We have previously blogged on the general application of the rule as well as the definition of a prepaid account. Today’s blog focuses on what's missing from the buffet.
Issuers of Prepaid Access
Smaller credit unions have recently asked if the prepaid rule carved out an exception for smaller financial institutions. Unfortunately, the rule does not have an asset size threshold requirement for compliance with the prepaid rule. Hence all credit unions that are issuers of prepaid access will have to comply with the final rule. This requires providing the credit union’s prepaid account agreements to the Bureau for posting on the CFPB’s website on a rolling basis (not quarterly). See, 81 Fed. Reg. 84129.
There is an exception, however, that will not require credit unions with less than 3,000 “open” prepaid accounts to provide their agreements to the Bureau. See, 81 Fed. Reg. 84140. So what exactly does “open” mean? The rule defines a prepaid account as open if either:
- There is an outstanding balance in the account;
- the member can load funds to the account even if the account does not currently hold a balance; or
- the member can access credit (i.e. overdraft line of credit) from a covered separate credit feature offered in connection with a prepaid account.
See, 81. Fed. Reg. 84133. Nonetheless, credit unions will still be required to post the prepaid account agreements to their own website and to have the agreement readily available upon request. See, final 12 C.F.R. § 1005.19(c).
This is a great time to communicate with vendor providers of prepaid cards and outside packaging to establish who will lead the compliance efforts for the product so that the credit union can continue to issue prepaid cards to its members without fear of the approaching compliance deadline. After all, compliance cannot be outsourced, but credit unions may contractually require vendors to adhere to regulatory requirements to ease its compliance effort.
Sellers of Prepaid Access
According to the most current 5300 call report on the NCUA’s webpage, only about 16% of credit unions issue prepaid cards. Other smaller credit unions however, choose to sell prepaid cards issued by a different financial institution or third-party service provider. Luckily for these credit unions, the CFPB drew a distinction between issuers of prepaid access and other institutions that merely sell prepaid cards.
In order for a credit union to be within the scope of Regulation E, which will implement part of the prepaid rule, it has to either:
- Directly or indirectly hold prepaid accounts, or
- issue prepaid accounts and agree to provide electronic funds transfer services.
See, 12 C.F.R. § 1005.2(i). Credit unions that merely sell prepaid cards but do not hold the accounts or agree to provide electronic funds transfers for these prepaid accounts would not meet the definition of a financial institution that issues prepaid accounts or access. Specifically, the prepaid rule states, “… the burden of and liability for complying with this final rule would generally fall on the financial institution that issues the prepaid accounts, not on the banks or credit unions selling those products.” 81 Fed. Reg. 83964.
If your credit union is only selling prepaid access, you may still want to review and familiarize yourself with the lengthy requirements of the rule. While the issuer of the card will be primarily liable for prepaid access compliance, the credit union may take an active approach to compliance and create a checklist of the disclosures and information that should be on and off the prepaid card and package to ensure members receive great service.