The Federal Reserve Board or the planned Consumer Financial Protection Bureau likely will have considerable input into any future regulation regarding network-branded reloadable prepaid debit cards, two industry observers suggest.
A recent Consumers Union report supports either the Federal Reserve Board or Congress expanding Regulation E of the Electronic Funds Transfer Act to include all reloadable prepaid debit and gift cards whose accounts hold at least $250. Lawmakers established Reg E in 1978 to give consumers and financial institutions guidelines and protections in the event of unauthorized transactions with debit cards that access bank demand deposit and savings accounts.
“We did get some assurance from the Fed before Wall Street reform occurred that they were going to take a look at the issue by the end of the year,” Michelle Jun, Consumers Union staff attorney, tells PaymentsSource. Consumers Union, publisher of Consumer Reports, is a Yonkers, N.Y.-based independent, nonprofit testing and information organization serving consumers nationwide.
The card brands and prepaid card providers voluntarily offer unauthorized-use protections similar to those mandated under Reg E, but the companies reserve the right to change the terms at any time for any reason, the report says.
The Center for Financial Services Innovation, a Chicago-based nonprofit organization that promotes services, including prepaid cards, for unbanked and underbanked consumers, agrees Reg E should be extended to reloadable products.
“We’re past the point of good intentions being good enough,” Jennifer Tescher, the center’s director, says about the networks’ voluntary protections. Regulators need “to put prepaid on even footing with checking accounts and other types of payment products,” she adds.
Who ultimately decides those regulations remains to be seen.
The Consumer Financial Protection Bureau will have the authority to regulate a wide variety of consumer financial products, and that may include reloadable prepaid cards.
Tescher, however, suggests the Fed should take the lead on any future prepaid regulation. “If the Fed lets the consumer bureau take control of this, the Fed is going to be behind the curve on reloadable prepaid instead ahead of it,” she contends.
The Fed should conduct studies on reloadable prepaid cards to determine how best to extend Reg E protections, Tescher believes.
The regulatory agency has, in fact, dabbled in the prepaid market recently. In August, the Fed finalized rules regulating fees and expiration dates for all gift cards. Under the rules, issuers may not charge an inactivity fee until the card has not been used for 12 months, and they may assess no more than one fee of any type to the cardholder in a single month. Gift cards also cannot expire for at least five years.
Under the Restoring American Financial Stability Act, the Fed also is set to determine debit card interchange rates, though reloadable prepaid cards that adhere to certain criteria, such as not imposing overdraft fees, are exempt.
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