The Consumer Financial Protection Bureau is considering an extension of the effective date for new consumer protection rules covering prepaid debit card accounts. The controversial rules – which some in Congress have threatened to roll back legislatively – are set to take effect Oct. 1, 2017. But in a request for comment issued on March 9, the CFPB offered to extend the deadline for compliance to April 1, 2018.
The CFPB said in a statement the proposed deadline extension was prompted by pleas from prepaid card companies that were having problems making necessary changes to systems, processes and forms in time for the new rules. In a blog post on the CFPB's latest action, the law firm Ballard Spahr LLP noted that several prepaid companies were especially challenged by requirements that they "pull and replace" noncompliant card packaging from retail locations by October 1.
"We believe that delaying the effective date by six months will be sufficient for industry participants to ensure they can comply with the rule," the bureau said in a statement.
Not everyone agrees. "Although the proposal to delay the prepaid accounts rule is a move in the right direction, NAFCU has stressed to the CFPB on several occasions that they should have adopted an extended implementation timeline from the outset," Carrie Hunt, Executive Vice President of Government Affairs and General Counsel at the National Association of Federally-Insured Credit Unions, wrote in response to the proposed extension.
The pending CFPB prepaid rule creates new consumer protections under federal Regulations E (EFT) and Z (truth-in-lending) for an array of prepaid debit accounts – from reloadable cards that are sold through retailers and financial institutions to mobile wallets. They have been panned by many affected parties and lawmakers.
However, at least one leading prepaid company, Green Dot Corp., has gone on record in support of the rule. Steve Streit, Green Dot's founder and Chief Executive Officer, noted in a 2016 statement that the rule mirrors closely existing Green Dot practices related to prepaid accounts. "It's gratifying to know that prepaid can now move to a level playing field that can better serve consumers while allowing the entire industry to move past the period of regulatory uncertainty," he said.
The Electronic Transactions Association described the CFPB's prepaid account rule as "regulatory overreach." It stated the rule will most negatively impact the financially underserved (unbanked and underbanked Americans who rely on prepaid accounts). "Innovation in prepaid products and services address the financial needs of our nation's most vulnerable, and the CFPB's rule will limit consumer access to such tools," said Scott Talbott, the ETA's Senior Vice President for Government Affairs.
Lawmakers on both sides of the political aisle have introduced congressional resolutions that would deep-six the pending rule. The action results from a 1980s-era law that allows Congress to override federal agency rulemaking with majority votes in the House and Senate, along with presidential approval.
In its March 9 statement, the CFPB said it has no plans to change the controversial prepaid account rule. In an apparent nod to its detractors, however, the consumer watchdog agency did request comments on "any implementation challenges" posed by the new rules. "If we determine that any substantive changes to the prepaid accounts rule are necessary and appropriate, we will issue a separate proposal and provide the public an opportunity to comment on those changes before finalizing," the bureau stated.
Alan Kaplinsky, Partner at Ballard Spahr and leader of the firm's consumer financial services group, suggested changes could be in the offing if prepaid companies can make a case for them. At a January 2017 American Bar Association meeting to discuss consumer financial services, CFPB officials left open the door to future changes in response to problems or issues that arise as a result of its implementation, Kaplinsky noted in a recent blog post.
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