On April 19, the CFPB issued a final preemption determination regarding whether the Electronic Fund Transfer Act (EFTA) and Regulation E preempt certain unclaimed gift card laws in Maine and Tennessee. The EFTA, as implemented by Regulation E, generally prohibits any person from issuing a gift certificate, store gift card, or general-use prepaid card with an expiration date, though under certain conditions, the card may have an expiration date so long as it is at least five years after the date of issuance (or five years after the date that funds were last loaded). The CFPB determined that the Maine law does not interfere with a consumer’s ability to use a gift cards at point-of-sale for at least as long as guaranteed by the EFTA and Regulation E because it requires the issuer to honor the gift card on presentation indefinitely even if the unused value has been transferred to the state. For Tennessee, the CFPB reached the opposite conclusion because the Tennessee provision permits issuers to decline to honor gift cards as soon as two years after issuance. According to the CFPB, the Tennessee law is inconsistent with federal law because, in effect, the provision allows funds to expire sooner than is permitted under EFTA and Regulation E.
On May 31, the FDIC announced enforcement actions against a California bank and an affiliated service provider for alleged unfair and deceptive practices in the marketing and servicing of a prepaid reloadable MasterCard. According to the FDIC, the service provider’s website contained a number of misrepresentations while omitting other information. Specifically, the FDIC claimed that the firm deceptively advertised free online bill pay, promoted features that were not available to cardholders, and charged fees that were not clearly disclosed. Additionally, the service provider’s ACH error resolution procedures imposed additional, undisclosed requirements on card holders. Neither the bank nor the service provider admitted the allegations, but they agreed to establish a restitution fund of approximately $1.1 million for over 64,000 card holders, and pay civil money penalties of $600,000 and $110,000, respectively. The consent orders (i) direct both entities not to engage in further violations of law, (ii) establish specific corrective actions, and (iii) require enhanced compliance management systems and periodic reporting to the FDIC. The bank is further required to strengthen its oversight of third parties.
On May 15, the CFPB published a notice and request for comment regarding its collection of information concerning the costs expected to be incurred by institutions required to comply with CFPB rules. The notice identifies specifically the need to collect information about costs to mortgage and remittance industry participants in connection with upcoming CFPB rules. The notice further states that the CFPB seeks to understand the effect of compliance costs on financial service providers and consumers, but that it is particularly interested in the impact of regulations on the unit costs of delivering specific consumer products and services. The CFPB plans to use structured interviews, focus groups, written questionnaires, and other methods to collect the needed information, and will attempt to collect a representative sample of providers from affected markets. The public is invited to comment on the notice through June 19, 2012.
On May 17, the CFPB announced that it will hold a public hearing to discuss issues in the prepaid cards market. The hearing is scheduled to take place on May 23, 2012 inDurham,NC, and will include remarks from Director Cordray.
On January 31, the Consumer Financial Protection Bureau (CFPB) released its first semi-annual report to Congress and CFPB Director Richard Cordray appeared before the Senate Banking Committee. The report reviews the CFPB’s structure and purpose, and provides a general overview of the CFPB’s activities to date. The report also identifies consumer “shopping challenges” by product category (i.e., challenges that consumers face when shopping for mortgages, credit cards, and student loans), and identifies the CFPB’s planned activities for the next six months.
Issues raised during the Senate hearing included: (i) prepaid card regulation, (ii) the definition of “abusive” as it is used in the Dodd-Frank Act, (iii) the “ability to pay” rule required by Dodd-Frank, and (iv) treatment of privileged information during the examination process. First, the Director acknowledged the importance of innovation in the card market, but also noted that regulation of credit and debit cards likely have pushed the market towards prepaid cards. He noted legislation sponsored by Senator Menendez to regulate the prepaid card market, and said the Bureau would welcome legislation addressing prepaid card issues. Second, consistent with his statements to the House Financial Services Committee, the Director reported that a rulemaking to further define the term “abusive” is not currently on the CFPB’s agenda. Third, Director Cordray did not provide insight into the CFPB’s view of the “ability to repay” rule, noting that at this time the Bureau has not prepared a draft rule. Finally, Director Cordray indicated support for a legislative fix to protect legal privileges applicable to documents and information that could be requested by the CFPB during the course of its examinations.