On October 25, the CFPB released its latest monthly report of consumer complaint trends. This month’s report highlights prepaid complaints, noting that since July 21, 2011, the CFPB has received approximately 6,000 prepaid complaints. According to the report, the “most common issues identified by consumers are problems with managing, opening or closing an account (32 percent) and unauthorized transactions or other transaction issues (30 percent).” Additional prepaid complaints highlighted in the report include: (i) consumers experiencing delays in receiving a replacement card after having notified a company of fraudulent or unauthorized charges to their prepaid cards; (ii) difficulty using a prepaid card after having purchased one; (iii) assessing dormancy fees that depleted the card’s balance; and (iv) balance discrepancies. Consistent with past reports, this month’s issue lists the top ten most-complained-about companies across all financial products, as well as the top seven most-complained about companies for prepaid-related issues. Finally, the report identifies North Carolina as its geographical spotlight, observing that, as of October 1, 2016, the CFPB has received about 27,600 complaints from North Carolina consumers.
CFPB Fines Prepaid Debit Card Company and Payment Processor $13 Million for Preventable Service Breakdown, Claims Consumers Denied Access to Their Own Money
On February 1, the CFPB announced that it had entered a consent order against two companies—a prepaid card company and its payment processor—for failing to conduct adequate testing and preparation before and during a switch to a new payment processing platform in 2015. In addition, the Bureau cited both companies for improper administration of accounts after the switch. The allegations arise out of an approximate three week breakdown in services in October 2015 which, among other things, denied cardholders access to their accounts, delayed the processing of deposits and payments, and also, in some instances, erroneously double posted deposits which falsely inflated account holders’ balances. The consent order also notes that the prepaid card company failed to provide adequate customer service to consumers impacted by the breakdown. The CFPB stated that it received roughly 830 consumer complaints in the weeks following the switch. Based on these and other allegations, the Bureau ordered the two companies to prepare a plan to prevent future service disruptions and pay an estimated $10 million in restitution to harmed consumers as well as a $3 million civil penalty.
I. Overview of the CFPB’s Final Prepaid Rule
On October 5, 2016, the Consumer Financial Protection Bureau (Bureau) issued a final rule (Prepaid Rule) amending Regulations E and Z to extend consumer protections to prepaid card accounts. The new protections include pre-acquisition disclosures, error resolution rights, and periodic statements. In addition, prepaid card accounts that include a separate credit feature are subject to some of Regulation Z’s credit card provisions, including an ability-to-repay requirement. Prepaid card issuers are also required to submit to the Bureau and to post to their websites any new and revised prepaid card account agreements. In this alert we summarize key provisions of the Prepaid Rule except those provisions that apply only to payroll and government benefits prepaid cards, which will be covered in a separate alert.
II. Effective Date
The Prepaid Rule’s effective date is October 1, 2017, however, the effective date for posting prepaid card account agreements is October 1, 2018. Heeding concerns about burden, the Bureau stated that the Prepaid Rule does not require financial institutions to pull and replace prepaid account access devices or packaging materials that were manufactured, printed, or otherwise produced in the normal course of business prior to October 1, 2017. Instead, financial institutions must provide consumers with notice of certain changes in terms and updated initial disclosures, in certain circumstances.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
On October 20, the FDIC released a report on the use of the traditional banking system in the United States. According to the FDIC’s executive summary of the report, the percentage of U.S. households in which no one had a checking or savings account (the “unbanked”) dropped to 7.0 in 2015. This is the lowest unbanked percentage since 2009, the year the FDIC began conducting an annual survey of unbanked and underbanked households. The FDIC cited several reasons why some households remain unbanked, the most common of which was the cost of maintaining an account, with an estimated 57.4% of respondents citing it as a factor in their decision not to maintain an account, and 37.8% of respondents citing it as the main reason underlying their decision not to maintain an account. Consistent with past survey results, the report notes that unbanked and underbanked rates are higher among lower-income households, less-educated households, younger households, minority households, and working-age disabled households. Additional findings highlighted in the report include: (i) a 1.9% increase from 2013-2015 in the use of prepaid cards; (ii) rapid growth (31.9% of users in 2015 compared to 23.2% in 2013) in the use of mobile and online banking, reflecting “promising opportunities to use the mobile platform to increase economic inclusion”; and (iii) an opportunity for banks to meet the credit needs of some households with an “unmet demand” for credit by “promoting the importance of building credit history, incorporating nontraditional data into underwriting, and increasing households’ awareness of personal credit products.”
CFPB Releases Final Rule on Prepaid Financial Products; Chamber of Digital Commerce Comments on Scope of the Rule
On October 5, the CFPB released its final rule on prepaid financial products, including traditional prepaid cards, mobile wallets, person-to-person payment products, and other electronic accounts with the ability to store funds. The rule is intended to provide consumers with additional federal protections under the Electronic Fund Transfer Act analogous to the protections checking account consumers receive. The following federal protections are included in the new rule: (i) financial institutions will be required to provide certain account information for free via telephone, online, and in writing upon request, unless periodic statements are provided; (ii) financial institutions must work with consumers who find errors on their accounts, including unauthorized or fraudulent charges, timely investigate and resolve these incidents, and restore missing funds when appropriate; and (iii) consumers will be protected against unauthorized transactions, such as withdrawals or purchases, if their prepaid cards are lost or stolen. Read more…