On January 25, 2018, the Consumer Financial Protection Bureau (CFPB) issued a final rule related to Regulation E and Regulation Z. The final rule amends and clarifies the rules governing prepaid accounts under the two regulatory statutes. The 2018 Prepaid Amendments extend the effective date of the 2016 Prepaid Rule and all other provisions to April 1, 2019.
The 2018 Prepaid Amendments eliminate Regulation E’s error resolution and limited liability requirements for unverified prepaid accounts (other than payroll card accounts or government benefit accounts). The exception applies to prepaid accounts meeting the following criteria:
- the financial institution has not concluded the consumer identification and verification process,
- the consumer identification and verification process has concluded but for which the consumer’s identity could not be verified,
- programs for which there is no consumer identification and verification process, provided that the financial institution has made the alternative disclosure described in 12 CFR 1005.18(d)(1)(ii) and discussed below.
For financial institutions operating a prepaid account program that has a customer identification and verification process, the exception only applies to the extent a prepaid account remains unverified. A financial institution must limit liability and resolve errors that occur after a consumer’s identity is verified, in accordance with the Prepaid Rule and Regulation E. However, the financial institution is not required to limit liability and resolve errors with regard to disputed transactions that occurred prior to successful completion of the consumer identification and verification process.
The 2018 Prepaid Amendments also revised the model notice in Appendix A-7(c) to address unverified prepaid accounts. For prepaid accounts that are part of a program that does not have an identification and verification process, the amendment requires financial institutions to disseminate the revised notice. The revised notice must inform consumers of the error resolution process (if any) and the limitations on a consumer’s liability for unauthorized transfers (if any) that apply to the prepaid account. In addition, if the financial institution does not offer limited liability or error resolution protections on prepaid accounts, the initial disclosures must state that there are no such protections.
The amendment also makes minor provisions when consumers acquire prepaid cards electronically or by telephone and for hybrid prepaid-credit cards that can access overdraft credit features offered by a prepaid account issuer.
To review the entire 2018 Prepaid Amendments please visit, https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/prepaid-rule/