Congressman blasts CFPB's prepaid card plan

Lawmakers are turning up the heat on Consumer Financial Protection Bureau efforts to regulate prepaid debit card programs. Speaking at the Power of Prepaid conference that took place June 11 to 12, 2015, U.S. Congressman Sanford D. Bishop Jr., D-Ga., said he and other lawmakers are concerned a set of proposals being readied by the federal consumer watchdog agency amount to regulatory over-reach.

“I believe the proposed rule is harmful to a large body of consumers,” Bishop told the gathering, an annual event presented in Washington, D.C., by the Network Branded Prepaid Card Association. “It’s clear that the CFPB did not work with the market to come up with an effective rule.”

This is not the first time Bishop has spoken out about the proposal. He grilled Treasury Secretary Jacob Lew about the cost of complying with the CFPB’s proposed prepaid rules during a House Appropriations Committee hearing in March 2015. The committee subsequently addressed Bishop’s concerns in a legislative report on financial regulatory appropriations. “The CFPB’s proposed rule has the potential to adversely affect the access of millions of consumers to a basic financial protection service,” the report stated.

The CFPB’s prepaid card proposal, which takes nearly 900 pages to explain, would apply a pared down version of Regulation E to various types of prepaid card accounts. This would include limitations on cardholder liabilities and error resolution procedures (like provisional re-crediting disputed payments).

The regulatory plan (which address both general purpose reloadable and non-reloadable prepaid cards) also incorporates a detailed, uniform disclosure regime for prepaid cards and procedures for CFPB approval of service providers’ customer agreements. Plus, it applies Regulation Z-style consumer credit restrictions on prepaid cards with overdraft and other credit features.

Regulatory overkill

The CFPB’s plan for regulating prepaid cards has attracted hundreds of comment letters, both supporting and objecting to all or parts of the plan. Not surprisingly, it was the most talked about issue at the Power of Prepaid conference. “In a vacuum, each of these proposals might be OK; we might be able to work with them, but not combined,” said Brad Fauss, NBPCA Executive Director.

These are key issues with the proposal that were raised by Fauss and others at the conference:

• The proposal is overly broad, making no distinctions between reloadable and single use prepaid debit cards.

• The CFPB is proposing that payroll and government benefit card recipients be given the option to get paid by alternative methods. However, the federal government and several state treasuries operate under mandates that don’t allow for check payments.

• Applying Reg Z credit rules to prepaid overdraft features is impractical, especially disclosure provisions.

• The proposed effective date of nine months following adoption doesn’t offer providers sufficient time to change back-end programs and procedures.

“I think we’re going to see fraud losses go through the roof,” Fauss said. “And I think, potentially, we’re going to see entire product lines eliminated from the market.”

Unaccountable watchdog?

Biship accused the CFPB of “aggressive overreach” especially as the proposed regulations relate to prepaid card overdrafts. “Your industry is inexplicably under scrutiny,” he said. Bishop whose district includes Columbus, Ga/, which is the world headquarters of Total System Services Inc., which owns the prepaid card company NetSpend Corp., said the proposed rules will have a direct impact on his constituency. “Georgia is home to more than 40,000 workers in the financial technology industry,” he said.

Bishop's concerns about the CFPB run deeper, however, and he has added his name to the growing list of lawmakers troubled by what they see as a lack of oversight of the agency. Unlike many federal agencies, the CFPB receives no direct funding from Congress. It receives funding from the Federal Reserve, but organizationally, it is considered part of the U.S. Treasury Department, akin to the Office of the Comptroller of the Currency, which regulates banks. Bishop referenced this “gap in accountability” in his speech at the NBPCA conference.

“We must always be wary of any agency that has limited accountability to Congress and to the public,” Bishop said. He concluded by telling the group “I will work toward getting this regulatory burden off your backs.”

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