Basic Account Protections Extended To Prepaid Cards

October 5, 2016 at 8:13 am Leave a comment

The Bureau that never sleeps is at it again.

Yesterday it  released final regulations extending basic account protections and to prepaid cards.  The regulations take effect next October. The rule generally applies to general use reloadable prepaid cards.  It is intended to provide  card users with  protections against  loss and unauthorized use similar to those provided to credit card users.

Conceptually, Director Cordray has a point on this one. For an increasing number of Americans prepaid cards are their bank accounts. Right now these are the most unregulated consumer financial product in the country. It makes sense to ensure that they have the some of the basic rights and protections afforded to traditional account holders. As always. however, we wont know the regulation’s full impact until stakeholders have time to go over the 1,600 pages accompanying the final rule.

Incidentally in crafting the rule the CFPB spent a lot of time analyzing and discussing overdraft protections.  For those of us who are convinced that it is only a matter of time before the Bureau enacts generally applicable regulations in this area you may want to look at an interesting discussion of overdrafts that begins on page 59 of the link I gave you.  The Bureau points out that   “Although Congress did not exempt overdraft services or similar programs offered in connection with deposit accounts when it enacted TILA, the Board in issuing Regulation Z in 1969 carved financial institutions’ overdraft programs (also then commonly known as “bounce protection programs”) out of the new regulation.” In other words the Bureau is well within its rights to impose further overdraft restrictions simply by amending Regulation Z.

Whether it should do this is of course another issue.

NCUA Issues Letter Detailing MLA Examinations

The NCUA released a letter to credit unions informing them that examiners will be expecting credit unions to  make “reasonable and good faith efforts” to comply with the Military Lending Act now that the regulations have taken effect.  This is the regulatory equivalent of giving an “A for effort “so long as a credit union is familiar with the regulation, is making an effort to implement it and has appropriate policies and procedures in place.

Remember your gumption might get you off the hook with NCUA but it doesn’t relieve you of your ongoing obligations to military personnel and their dependents.

Entry filed under: Compliance, Regulatory. Tags: , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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