What Is The 'Prepaid Card Rule,' And Why Is Congress Likely To Disapprove It?

In another move toward deregulation, Congress is on the verge of passing a bill intended to disallow the Prepaid Card Rule submitted by the Consumer Financial Protection Bureau, or CFPB.

Rule Likely To Be Repealed

Height Securities said in a note on Monday the Senate resolution proposed last week to disapprove the rule would come up for full Senate consideration. The resolution said, "Congress disapproves the rule submitted by the Bureau of Consumer Financial Protection relating to prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act 15 U.S.C. 1601 et seq.) (81 Fed. Reg. 83934 (November 22, 2016)), and such rule shall have no force or effect."

The firm expects the Senate to pass the bill and send it to the House. Additionally, the firm sees a 90 percent chance of Congress disapproving it. Subsequently, the firm expects President Donald Trump to uphold the legislation, signing it into law.

What Is The Prepaid Card Rule?

The rule was formulated by the CFPB in October 2016 with the intention of protecting prepaid account users. Some of the features of the rule include:

• Providing consumers with free and easy access to account information.
• Cooperating with consumers for error resolution. In the eventuality of the error being unresolved within a certain time period, the financial institution should provisionally credit the disputed amount to the consumer.
• Protections for lost cards and unauthorized transactions.

The bureau also finalized "Know Before You Owe" disclosures to give upfront information on fees and other key details. Additionally, the rule also required prepaid companies be offered protection on overdrafts just like credit card companies.

Specifically, the rule seeks to limit consumers' liability for unauthorized charges to $50 and create a timely way for customers to get their money back. The companies are to allow at least 21 days for debt repayment before charging a late fee.

It is perceived the rule is entirely too broad and would cripple the electronic payment marketplace, a Law 360 report said, quoting Republican Sen. David Perdue, one of the sponsors of the Senate's version of the bill.

The opposition to the resolution is premised on low-income customers getting hit. People belonging to this income group normally lack banking relations and load their pay on the cards, which is being used for day-to-day expenditure.

Rule Has Its Fair Share Of Fans

Those arguing for the rule say it would help consumers to make comparisons across credit cards to zero in on an option that is affordable and safe for them.

CFBP To Delay The Rollout

Meanwhile, CFPB on its part said it is delaying the implementation of the new rule until 2018, accommodating the requests of prepaid card issuers, who could not comply with the standards by the October 2017 deadline.

Companies Affected If Rule Was Quashed

Total System Services, Inc. TSS's NetSpend unit was among those vehemently opposed the bill. NetSpend was recently in the news after it announced a settlement agreement with the FTC, which settles allegations that the company deceived users about access to funds deposited on NetSpend debit cards. Thus, a repeal could be positive for NetSpend.

The company had quantified the hit it would take if the rule is not repealed as $80 million to $85 million, annually, in overdraft fee revenues. NetSpend is the only major prepaid card company which allows overdraft facility.

Meanwhile, Green Dot Corporation GDOT had said in a statement in October 2016 that the rule would level the playing field and block deceptive practices by competitors.

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